In many legal systems, Motor Third Party Liability Insurance (“MTPL”) is not an optional choice, but, on the contrary obligatory, and its main purpose is to ensure that innocent third parties involved in car accidents have access to adequate compensation. This article aims to examine a separate issue, which is however closely related to MTPL, and it concerns the case of double insurance.
Double insurance can arise when the same damage or liability is, either intentionally or by mistake, insured under two separate policies. In the area of MTPL it is usual for a motor policy to provide coverage not only when the insured vehicle is driven by the policy holder, but also when driven by another person. It is also quite common for a motor policy to cover the policy holder driving other vehicles. If a person, under an extension clause in his motor policy is covered to drive any vehicle other than the one stated on his policy and that particular person is involved in an accident while driving a vehicle for which the insurer of the owner of the vehicle provides coverage in case the vehicle is driven by another driver, then two insurers have undertaken to cover the same liability and double insurance arises.
The crucial question in such cases, is which of the two insurance companies has to cover the loss.
In Cyprus the answer seems quite simple, as according to article 14 of the Law on Motor Vehicles (Third Party Liability Insurance) Law of 2000, Law 96(I)/2000 (the “Third-Party Motor Insurance Law”) the insurer which provides third party liability coverage for a vehicle that it has chosen to insure, has the obligation to satisfy any judgment issued against the driver of that vehicle. However, the question that inevitably arises is whether the insurer who satisfied the judgement, due to its obligation under article 14, can claim contribution from the other insurer who also covered the driver’s liability with a relevant extension which provided cover when its insured drives any other vehicle not belonging to him.
The answer to this question varies depending on the terms that the two motor policies may include.
Most insurance policies include terms which define what happens in case of double insurance. An example of a clause which can be found in several policies, is the one which provides that when another insurer covers the same liability the motor insurer who issued the policy will be exempted from its obligation to provide cover. This clause has been described as the “escape clause”. In Bankers & Traders Insurance Co Ltd v National Insurance co Ltd [1985] 2 Lloyd’s Rep.195 [1] , the insurer of the owner of a vehicle involved in a car accident (BT), provided coverage if the vehicle was driven by another driver, but only in case the involved driver did not have a separate policy which covered his own liability. The fact that the driver’s insurer (NI) that caused the accident provided coverage for driving any vehicle, but without mentioning what happens in case of double insurance, led the Court to rule that the insurer that had to cover the driver’s liability was NI, as the clause in BT’s policy made it clear that the extension clause in its own policy which provided coverage in case the vehicle was driven by another driver would not apply if the liability of that driver was covered by another insurer.
A different kind of a clause that can be found in a motor policy is the one known as the «rateable proportion clause». This kind of clause states that in case of double insurance the insurer which issue the policy will provide coverage to its policyholder, on an equal proportion depending on the total the number of insurance policies in force covering the same damage or liability. In other words, in a case where two insurers cover the same liability each will cover 50% of the loss.
The major problem lies in cases where all involved insurers contain in their policies the so-called escape clauses. This issue arose in the case of Gale v Motor Union Insurance Co [1928] 1 K.B. 359, where the Court held that, when two of these clauses are co-existing then the one cancels the other and ruled that the two insurers should provide coverage on a 50:50 basis.
It is worth noting that although in Gale the contribution between the two insurers was based on rateable proportion clauses which co- existed in the involved motor policies along with the escape clauses (which were deemed to be void), later English case law shows that the principle established in Gale regarding the apportionment of liability between the involved insurers seems to be broader and independent of the existence of rateable proportion clauses in the policies. However, the abovementioned principle cannot be deemed as conclusive and new issues of apportionment of liability may arise in the future in the event of double insurance, depending on the nature of any conflicting terms that may be contained in the motor policies in question.
If a person who is entitled to be covered by two insurers decides to claim only from one of them, then that insurer has a right in equity to claim contribution from the other. The right of contribution is based upon the discharge of a common debt.
However, this right is not absolute. According to the "volunteer principle", when an insurer pays the total amount of compensation requested, while it has an escape clause or a rateable proportion clause in its policy and there is a second policy which covers the same damage, then the payment should be considered as “ex gratia” and not due to any legal obligation. In this case there is no right for a contribution claim because the first insurer is considered a volunteer.
However, this principle does not seem to apply when the insurer has to proceed with payment of the claim due to statutory provisions. In the recent case of Drake Insurance v Provident Insurance [2004] Lloyd’s Rep. I.R. 277, one of the two insurance companies fully satisfied the decision issued against the insured driver, according to article 151 of Road Traffic Act, an article which contain similar provisions to article 14 of the Cypriot Third-Party Motor Insurance Law. Later, the said insurer claimed a contribution from the co-existing insurer whish issued a policy covering the same liability. The Court of Appeal did not accept any claim related to the principle of the volunteer, because the first insurer had to satisfy the judgment under English law and if it did not do so it would have serious consequences.
In conclusion, it seems that when the Courts are called to decide on issues of double insurance and contribution, they seem unwilling to led insurers escape from their obligations and strive for a fair and equal, in terms of apportionment, outcome. However, it is also true that the terms contained in the insurance policies and the relevant legislation of MTPL may play a significant role in determining the rights and obligations of the insurers involved.
[1] This decision was issued by the Privy Council on appeal from Malaysia in which there was no provision, as in Cyprus, that the insurer of the vehicle must compensate a third person regardless of which driver the insured vehicle is driven by.
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