Overlapping Coverage

AuthorDenis Boivin
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,
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
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].

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