OVER - INSURANCE

It is well settled principle that as the contract of insurance is a contract of indemnity, the
insured can recover no more than the amount of his insurable interest whether the insurance is
contained in one policy or in several policies.

Over-insurance comes into being when the amount of the insurance is beyond the value of
the insured's insurable interest. There may be only one insurer involved. However, the coverage
corresponding to the amount of premium paid is more than enough to the value of the insureds
insurable interest of the property.

To illustrate,

1. If X's insurable interest in a house is P 5,000,000.00 and he insured it with Y

company for P 10,000,000.00, there is over- insurance.

2. Also, if he insures the same house with Y company for P500,000 and Z company
for P500,000.00, there is double insurance but there is no over-insurance.

There may be an over-insurance by reason of double insurance. When we say double

insurance it happens where the same person is insured by several insurers separately in respect to
the same subject and interest. Consequently, over-insurance will comes in. Double insurance and
over- insurance may exist at the same time or neither may exist at all. Double insurance is the term
used instead of "co-insurance" when the sums insured exceed the insurable interest. In such case,
there is "over-insurance" by "double insurance."

Now then, the law prohibits the recovery more than the value of the insureds insurable
interest of the property. This is to prevent over-insurance and thus avert the perpetration of fraud.
The public, as well as the insurer, is interested in preventing the situation in which a loss would be
profitable to the insured. Thus, the insured only recovers up to the extent of his insurable interest.
This is not a money making venture, which the law strictly prohibits. That being so, the rules
provided in Section 94 enunciate the principle of contribution which requires each insurer to
contribute ratably to the loss or damage considering that the several insurances cover the same
subject matter and interest against the same peril. Where the insured is over-insured by double
insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably
to the loss in proportion to the amount for which he is liable under his contract. This will governs the
liability of the insurers among themselves where the total insurance taken exceeds the loss. If the
loss is greater than the sum total of all the policies issued, each insurer is liable for the amount of
his policy.

In case there is over-insurance because of double or multiple insurance, the insurers are not
required to pay for the whole loss. Their obligation is only pro-rata. The insured, on the other hand,
isn't allowed to recover more than his insurable interest.
 First, the insured, unless the policy otherwise provides, may claim payment from the insurers
in such order as he may select, up to the amount for which the insurers are severally liable under
their respective contracts;

For example:

Eriell owns a house valued at P180,000.00 and he insures the same with three insurance
companies as follows:

X Company ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! P60,000.0

Y Company ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 180,000.00

Z Company ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 240,000.00

If the house is totally burned, A, unless the policies otherwise provide, may claim payment
from each of them in such order as he may select, up to the amount for which each is liable under
its contract. Thus, A may demand indemnity first from X company but the latter is liable only to the
extent of P60,000.00, the amount specified in its policy. But if A elects to claim payment first from
Zcompany, A cannot recover more than P180,000 which is the value of his insurable interest. A,
may collect P60,000.00 from each of the insurers, or P180,000.00 only from Y company and
nothing from X company and Z company.

Second, each insurer is bound, as between himself and the other insurers, to contribute
ratably to the loss in proportion to the amount for which he is liable under his contract. So, if A is
able to receive the amount of P180,000.00 from Y company under paragraph (a) of Section 94, X
company and Z company are liable to reimburse Y company for their respective shares as indicated
above. However, where there is a pro rata clause in the policy, whereby each one of the insurers is
made liable only for his ratable proportion of the loss, A cannot exercise his right under paragraph
(a) for he may claim from each insurer only such amount corresponding to his ratable proportion of
the loss.