Overlapping Coverage

• Author: Denis Boivin
• Pages: 543-577

543

CHA PTER 12

OV ER L APPING

COV ER AGE

A. INTRODUC TION

Overlapping coverage occurs when two or more insurance policies

cover the same insurable interest, i n the same object, against the same

peril. There is nothing il legal per se about being covered by more than

one policy. Insureds are free to have as much insur ance as they are

willing to pay for, provided the requirements d iscussed in Chapters 4

through 7 are met. In fact, in the twent y-f‌irst century, so-called “double

insurance” is necess ary and inevitable. It is necessary because in sur-

ance providers are not always will ing to shoulder risks alone. Some

risks are too gre at for any single insurer to assume. This is why most

insurers resort to “reinsurance,” a product that shifts a portion of one

insurer’s contractual re sponsibilities to another provider.1 But for the

same reason, insureds must sometimes subscribe to multiple policies

in order to obtain full coverage. Overlapping coverage is inev itable be-

cause the consent of insur ance consumers is not always required. In-

deed, insurance policies often e xtend coverage to “unnamed insureds,”

individuals who have not part icipated in the negotiation process, but

who benef‌it from the undertaking s provided in the insuring agreement.2

1 See Chapter 1, Sect ion C(4).

2 See Chapter 1, Section C(1). For example, a typica l homeowners’ compre-

hensive policy w ill cover the interests of a numb er of individuals who live in

the same household — t he named insured, hi s spouse, the relatives of eithe r,

and any person und er twenty-one years of age in their c are: see Chapter 11,

INSURANCE LAW544

As a result, the same person can be the named insured pursuant to one

policy and an unnamed insured pursuant to another.

Overlapping coverage creates an obvious ri sk of over-indemnif‌ica-

tion. The indemnity principle dictates t hat insureds should not receive

more insurance money than is necessary to cover their actu al losses.3

This princ iple applies when one contract is at issue; it applies even more

so when multiple contracts are i nvolved. An insurance contract is not a

vehicle for turning misadventure into prof‌it. It is a vehicle for compen-

sating insured s for damages caused to their re spective interests. How-

ever, at the same time, an insurer should not be given a free pas s simply

because another insurer has accepted a similar under taking. If both

have accepted premiums, then both should be held accountable — to

the policyholder and to each other — for their promises. The law of

insurance str ikes a balance between these competing interests through

the concepts of “proportional liability” and “complementary liability.”

According to the former concept, each insurer is l iable for a proportion-

al share of the total ri sk. In this case, the insured is indemnif‌ied f ully,

but from two concurrent sources. According to complementary liabil-

ity, one insurer is dubbed the “primar y” or “f‌irst party” insurer. This

insurer pays up to its lim it. The other is dubbed “secondary,” “comple-

mentary,” or “second party,” and this insurer pays the balance, if any.

In this case, the insured is indemni f‌ied fully, but in two steps.

Proportional liabilit y and complementary liabilit y give effect to the

indemnity principle while ensuring accountability on the part of insur-

ers. As we shall see, in order to determ ine which method applies, one

must interpret both insura nce contracts and apply the relevant statu-

tory provisions. Naturally, the principles outlined in this chapter are

relevant only with respect to indem nity contracts. If the overlapping

policies are not governed by the indemnity principle, the risk of over-

indemnif‌ication does not ari se and the insured or benef‌icia ry, as the

case may be, can collect all the benef‌its stipulated in the agreements.

For example, nothing precludes someone from insuring her li fe or

well-being under more than one life ins urance policy. The benef‌iciaries

would then collect pursuant to each contract, as if it wa s the only policy

involved. The only limits on recovery would be the ones imposed by

the contracting parties themselves.

Section D(2)(b)(ii). Likewise, a typic al automobile insurance polic y will cover

the named in sured (that is, the owner of the vehic le) against liabi lity, as well

as anyone who drive s the insured automobile or is an occ upant of this vehicle,

with the cons ent of the named insured: s ee Chapter 8, Section C(3)(b).

3 See Chapter 2, Sect ion B(2).

Overlapping Coverage 545

B. GENER AL PRINCIPLES

Before reviewing how contracts and legislation respond to the phenom-

enon of overlapping coverage, we will outline the main consequence s

of double insurance under common law.

1) Overlapping Policies

First and foremost, one must ensure that both contract s are actually

overlapping with respect to the cl aim under review. Indeed, a person

may fall with in the def‌inition of “Insured” under two policies, without

there being any overlap in the relevant coverage of this person. In this

respect, the ultim ate question is not whether the claimant is a n amed or

unnamed insured under both policies, but whether the contracts cover

the same object, peril, and in surab le interest. In order to ans wer this

question, the principles of interpretat ion discussed in Chapter 8 must

be applied. As noted therein, coverage equals t he insuring agreement

minus the exclusions. To the extent that the two policies do not pro-

vide overlapping coverage, the indemnity principle is not threatened

and none of the principles discussed in this chapter apply. Likewise,

if only one of the potential policies was in force at the time of the loss,

there is no actual overlap.

Consider the following class ic decision, North British and Mercantile

Insurance Co v Liverpool, London, and Globe Insurance Co.4 In this case,

an entity called Ba rnett & Co (Barnett) owned and operated a wharf.

Barnett was the bailee of a cargo of grain belonging to another entit y,

Rodocanachi & Co (Rodocan achi). Both companies had insurance;

both policies covered the grain against the risk of f‌ire while the goods

were in the possession of the bailee; and both contracts stipulated th at

the insurer would “not be liable to pay or contribute more than its r ate-

able proportion” of the loss in the event of overlapping coverage. The

grain was dest royed by f‌ire and Rodocanachi was f ully indemnif‌ied by

its insurer. Subsequently, this insurer requested a contribution directly

from Barnett’s insurer, relying on the overlapping coverage provision

in its insurance policy. The Court of Appeal rejected this cl aim. True,

two policies did cover the same object against the same per il. However,

the policies protected two distinct insura ble interests. The policy issued

by Barnett’s insurer covered the bailee against its civil li ability for dam-

ages caused to the grain; the policy issued by Rodocan achi’s insurer

covered the proprietary interest s of the owner of the grain. In these

4 (1877), 5 Ch D 569 (CA) [North British].