The effect of ‘other insurance’ clauses

Insurers frequently seek to exclude or restrict their liability where there is other insurance in place. Three devices may be used to achieve this: (1) a clause which removes all liability in the event that some other insurance exists; (2) a clause which relegates the policy to an excess cover only in the event that some other policy exists; and (3) a rateable proportion clause, under which the insurer is liable only for its own share if some other insurance exists. Difficulties arise where each of the policies involved contains one or more of these clauses: which of the clauses is to be given primacy? In National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd [2010] EWHC 773 (Comm) Gavin Kealey QC, sitting as a Deputy High Court Judge, was faced with a novel situation as far as the English courts are concerned: a conflict between an excess clause in one policy and a rateable proportion clause in the other.

NFU: the facts

On 10 October 2007 the sellers exchanged written contracts with the buyers for the sale of The Old Hall, in Rutland, at a price of £1.81m. Completion was scheduled for 7 November 2007. Under the sale contract, the risk of damage to or destruction of The Old Hall passed to the buyers upon exchange. On 27 October 2007 a serious fire broke out and the property was damaged. The buyers initially refused to complete, but did so on 21 March 2008 when the full purchase price was paid.