Insurance companies have been in the spotlight over the last two years, with incidents emanating from the Covid-19 pandemic relating to business interruption as well as claims following the July 2021 looting and the 2022 KwaZulu-Natal floods affecting the insurance industry and putting a spotlight on insurance practices.
As a result of this it has come to light that many individuals and businesses in South Africa have taken out double insurance. Double insurance occurs when an insured (an individual or business) insures the same interest and/or property with more than one insurance company against the same risk. This means that double insurance is established by the following: two insurance policies must exist which insure the insured for the same incident, both policies must insure the same property and/or interest and both policies must be active when the insurable event arises.
But is double insurance allowed?
In the case of Samancor Limited v Mutual & Federal Insurance Company Limited and Others the Supreme Court of Appeal held that although an insured can take out double insurance the insured is not entitled to double compensation as an insured is only entitled to actual damages suffered. The insured thus has the option of electing which insurer to claim from. An insured can therefore opt to claim the entire loss from the one insurer or the insured can claim from each of the insurers a pro-rata share but jointly only to the value of the actual total damage suffered. Interestingly, where there is double insurance and one insurer has settled a claim in full such insurer may have recourse against the second insurer for their pro-rata share of the damage according to the principle of contribution.
In cases of contribution, the requirements for contribution are that the insurer who claims for contribution must have settled an insured’s claim in full, the insurer must have paid more than their pro-rata share, the settlement should have related to an insured interest and/or property that was subject to double insurance and the double insurance must be more than the amount of the insured loss.
Insurance policies often contain clauses that make provision for double insurance and contribution. In the Samancor case, the Court found that the principle of contribution is an equitable remedy and not derived from any contractual relationship between co-insurers.
So yes, double insurance is allowed, enabling the insured to claim all of the damages or in part from the different insurers, and the insurers can claim for contribution between each other. What is not allowed, is for the insurer to claim for double his damage because he has double the insurance. Our law of insurance is that insurance is there to make you whole should you suffer damage, but not to provide you with a windfall where you get more back than what you lost. It is also for this reason that the fact of double insurance must be disclosed to your insurers and would most insurance contracts require such disclosure of you when placing the policy.
Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).