Double Insurance, Over-insurance and Reinsurance

Wednesday, March 6, 2013

in Commercial, Law
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Double Insurance and Over-insurance

Double (or multiple) insurance happens when a single person is insured by 2 or

more insurers separately with regard to the same subject matter and interest.
Over-insurance, on the other hand, happens when the amount of the insurance
is greater than the insured's insurable interest. Both double and over-insurance
may or may not exist together; it depends on the insured himself.

In case there is over-insurance because of double/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.

To illustrate, let's say this guy Bob owns a house worth Php5,000,000.00. He
takes a fire insurance on it for Php5,000,000.00 from Big Auntie Insurance and
paid Php5,000.00 in premiums and another one from Big Uncle Insurance for
Php5,000,000.00 also with Php5,000.00 in premiums The house is then burned
down by by a nut who threw a lighted cigarette into the window and set fire to
the living room. The ratable contributions will be computed like this:

Big Auntie:

5,000,000.00 x 5/10 = 2,500,000.00

Big Uncle:

5,000,000.00 x 5/10 = 2,500,000.00

So both Big Uncle and Big Auntie are liable only for Php2,500,000.00 each.

The premiums to be returned to Bob will be computed this way:

Big Auntie: 5,000 x (5,000,000/10,000,000) = 2,500

Big Uncle: 5,000 x (5,000,000/10,000,000) = 2,500

Therefore both Big Auntie and Big Uncle will return Php2,500.00 each to Bob.

Reinsurance

Contrary to what the name implies, it doesn't mean that the insurance

contract is renewed. Instead, it