Contribution - For Revision Purposes Only

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as a part of LAW 478 - Insurance Law & Practice II syllabuses at Faculty of Law, Universiti Teknologi MARA, MALAYSIA

as a part of LAW 478 - Insurance Law & Practice II syllabuses at Faculty of Law, Universiti Teknologi MARA, MALAYSIA

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  • 1. UiTM / FUU / LAW 478 12/18/2013 azrin.hafiz / Dec 2013 1 Outlines 1. 2. 3. 4. 5. Definition How contribution operates? Elements of contribution Determining the ratio of contribution Cases & Reference azrin.hafiz / Dec 2013 azrin.hafiz/ Dec 2013 2 1
  • 2. UiTM / FUU / LAW 478 12/18/2013 1. Definition Overseas Assurance Corp (M) Bhd v MSIG Insurance (M) Bhd • case When the insurers have discharged their liability, they are entitled to call on the other insurer to bear their share of the loss and pay their proportion of the amount already paid under the first policy. • definition azrin.hafiz / Dec 2013 3 2. How Contribution Operates? case • AXA Affin v Mitsui Sumitomo issue • Whether there is double insurance before determining the contribution? held • If there is no double insurance, then the issue of contribution does not arise. azrin.hafiz / Dec 2013 azrin.hafiz/ Dec 2013 4 2
  • 3. UiTM / FUU / LAW 478 12/18/2013 3. Elements of Contribution As stated in the case of Overseas Assurance Corp (M) Bhd v MSIG Insurance (M) Bhd i. Policies must have same subject matter ii. Policies must have same interest iii. Policies must cover against the same risk iv. Policies must be in force at the time of loss v. Policies must be legal contracts of insurance vi. No policy must contain any exclusion clause azrin.hafiz / Dec 2013 5 a) Same subject matter it is sufficient if there is a substantial overlap of the subject matter (= property or liability covered by different policies) Case American Surety Co of NY v Wrightson Policy 1 Covered loss through dishonesty of employee for up to $ 2,500 per employee Policy 2 Covered loss including dishonesty or negligence of employee and fire & theft Loss Employee misappropriated $ 2,680 Judgment Claim paid by 2nd Insurer. Conceded by both insurers that each policy covered the loss and right. Right to contribution arose. azrin.hafiz / Dec 2013 azrin.hafiz/ Dec 2013 6 3
  • 4. UiTM / FUU / LAW 478 12/18/2013 b) Same interest the insured must have same insurable interest over the subject matter (= the person insuring must be the same) In North British and Mercantile Fire Insurance Co v London, Liverpool and Globe Insurance Co aka the King and Queen Grenaries case: “an insurer who had indemnified an insured for a loss… had no right to claim contribution…if the persons insuring against the risk were different” – per James L.J azrin.hafiz / Dec 2013 7 c) Same Risk Peril that caused loss must be the same all the policies Case Australian Agricultural Co v Saunders P1 – Fire Policy To cover goods on transit or in warehouse prior to shipment P2 – Marine Policy To cover the ship during the shipment and loading from London to Sydney Loss The goods (wool) destroyed by fire while in warehouse Issue Plf claimed under fire policy, but df resisted the claim as the loss was also covered by the marine policy Judgment No double insurance as the marine policy did not cover the wool whilst in the warehouse. Claim allowed azrin.hafiz / Dec 2013 azrin.hafiz/ Dec 2013 8 4
  • 5. UiTM / FUU / LAW 478 12/18/2013 4. Determining the ratio of contribution ii. Independent Potential Liability i. Maximum Potential Liability Formula of contribution azrin.hafiz / Dec 2013 9 i. Maximum Potential Liability aka Traditional Approach  This approach divides the loss in the ratio which the maximum cover provided by each policy bears to the total sum insured under both policies. Insurance A Insurance B Maximum Coverage RM 50 000 RM 100 000 Portion of Contribution ⅓ ⅔ Formula : Maximum coverage of the policy Total sum insured under both policies azrin.hafiz / Dec 2013 azrin.hafiz/ Dec 2013 10 5
  • 6. UiTM / FUU / LAW 478 12/18/2013 ii. Independent Potential Liability < the amount covered by smaller policy, the loss is shared = between the insurers.  When the amount of loss is the  If the loss is in excess of the maximum coverage provided by the smaller policy than the loss is shared between them in the ratio which one insurer’s maximum liability if he had been the only insurer, bears to the other insurer’s maximum liability. Insurance X Maximum Coverage Insurance Y RM 30 000 RM 90 000 azrin.hafiz / Dec 2013 11 Examples:  If the loss is RM 15 000 → X + Y X:Y 1:1 RM 7 500 : RM 7 500  If the loss is RM 120 000 → X + Y X:Y 1: 3 RM 30 000 : RM 90 000 azrin.hafiz / Dec 2013 azrin.hafiz/ Dec 2013 12 6
  • 7. UiTM / FUU / LAW 478 12/18/2013 5. Cases & Reference 1. 2. 3. 4. American Surety Co of NY v Wrightson (1910) 103 LT 66 Australian Agricultural Co v Saunders [1875] LR 10 CP 668 AXA Affin v Mitsui Sumitomo [2011] 2 CLJ 196 North British and Mercantile Fire Insurance Co v London, Liverpool and Globe Insurance Co (1877) 5 Ch D 569; a.k.a. the King and Queen Grenaries case 5. Overseas Assurance Corp (M) Bhd v MSIG Insurance (M) Bhd [2012] 2 MLJ 249 6. Nik Ramlah Mahmood (1992). Insurance Law in Malaysia. MLJ Sdn Bhd, Ampang: Kuala Lumpur. azrin.hafiz / Dec 2013 13 Thank you for your attention prepared by: Azrin Hafiz Bachelor of Legal Studies (Hons) student Faculty of Law Universiti Teknologi MARA MALAYSIA azrin.hafiz / Dec 2013 azrin.hafiz/ Dec 2013 14 7