REFORMING INSURANCE LAW: - Law Commission

80% of the market value at the date of the policy then the average clause is ineffective; and if the
sum insured is less than 80% of the market value at the date of the policy then the insurers are
entitled to reduce the amount payable by reference to the ratio which 80% of actual value bears
to the sum insured. The compromise adopted here is an interesting one, although at least in the
domestic and small business markets there is much to be said for the solution rejected by the
ALRC, given that the effects of average would probably not be appreciated even with an
explanation.
Double insurance and contribution
8.37 Section 45 deals with the familiar problem of “double insurance” terms in policies. Such
terms are designed to cast any loss onto other insurers should they exist. Double insurance
clauses may operate absolutely or they may require the policy to be treated as an excess layer
cover only, and they may take a number of different forms, including rendering the policy void,
requiring the assured to warrant that no other insurance exists or will be taken out or simply
transferring liability. The English courts have refused to allow the assured to be prejudiced by
these clauses, and any attempt by two insurers to cast the burden of loss onto each other will be
ineffective. 512 The solution adopted by s 45(1) 513 is to outlaw such clauses, although there is
necessarily a saving for an excess of loss policy specifically drafted as such. 514
8.38 Section 76 of the Insurance Contracts Act 1984, misleadingly headed “Contribution
between insurers” is in essence a restatement of the common law rule that the assured who has
double insurance may recover from the insurers in such order as he thinks fit up to the limit of
indemnity. 515 The section goes on to preserve the insurers’ rights of contribution inter se. 516 The
section does not appear to change the common law in any respect. 517 The ALRC in its 1982
Report had addressed the problem of contribution and, having considered the various forms of
contribution which could be applied, recommended that the law adopt the independent liability
rather than the maximum liability approach. 518 This means that if there are two insurers liable for
the same loss, apportionment is based on their respective liabilities for the actual loss suffered by
the assured rather than on the notional limits of indemnity set out in the policy. The
recommendation did not find its way into the 1984 Act. The position in England is uncertain.
Insurers in practice do apply the independent liability approach, 519 although there do remain
512
Weddell v Road Transport and General Insurance Co Ltd [1932] 2 KB 563.
513
Adopting ALRC 20, Chapter 11; Sutton, chapter 12.
514
S 45(2). See HIH Casualty & General Insurance Ltd v Pluim Constructions Pty Ltd [2000] NSWCA 281.
515
Codified in the Marine Insurance Act 1906, s 32.
516
See Marine Insurance Act 1906, s 80.
517
It may render inapplicable the rule in s 32(2)(b) of the Marine Insurance Act 1906 which applies where the
assured has both a valued and an unvalued policy: if he claims under the unvalued policy first and fails to recover a
full indemnity, any claim that he has against the insurers under the valued policy is reduced by the sum that he has
received. Accordingly, if the valuation is less than the actual loss, the assured will suffer a shortfall. It is unclear
whether this rule applies in non-marine insurance, and it is noteworthy that ALRC 91 recommended no change to
the marine rule. The problem can in practice be sidestepped by claiming against the valued insurers first, so that if
there is a shortfall it can be recovered under the unvalued policy (subject to policy limits).
518
See paras 291 to 298.
519
Commercial Union Assurance v Hayden [1977] QB 804.
98