The concept of insurance depends on the participation of a group of persons, whether physical or corporate (the insured), that distribute the risks that may result from specific events. The insureds pay pre-determined contributions to the insurance company (the insurer), which undertakes, accordingly to the policies agreed, the responsibility to pay the insurance amount for the occurred risk.
The legal definition of insurance:
Insurance is a contract by virtue of which the insured and the insurer cooperate to face insured risks or accidents, and under which the insured shall pay to the insurer a specified amount of money or regular premiums. In case the risk or the event mentioned in the contract shall happen, the insurer shall pay to the insured or the beneficiary, for whose interest the insurance has been provided, a sum of money, organized income, or any other financial right.
What is meant by “multiple insurance policies”?
With “multiple insurance policies”, we intend the case in which the insured concludes several insurance contracts with different insurance companies at the same time in order to insure him on a specific thing (car, vessel, plane, plant, home, professional negligence, goods, etc.) from a specific risk, and the amount of insurance may differ from one contract to another.
In the light of the above concept, the multiplicity of insurance contracts requires specific conditions, which are as follows:
- Insurance contracts must be concluded with different insurance companies.
- The purpose of all contracts is to insure one thing.
Example: if he insured insures his life, and in another contract insures the interruption of his business, then the insurance contracts are not multiplied. Rather they are two separate insurance contracts.
- The insurances must be for one interest.
Example: If the insured insures his house from fire, and at the same time, the tenant also insures his liability if the house is caught with fire. This case is not counted as a multiplicity of insurance contracts since each contract relates to interest independent of the interest to which the other contract relates.
- The insurances must concern specific risks.
Example: if the insured insures his company from professional negligence as well as insures it from theft. There will be no multiplicity in insurance contracts since both contracts cover a different risk.
- The insurances must be at the same time.
Example: if the insured insures his goods during a trip from damage, and there was a previous contract with the same content for a previous trip, then there is no multiplicity of insurance contracts, as the second contract does not coincide with the first contract.
- The insurances must be at the same level.
Therefore, when the above conditions are met, the instance of multiple insurance policies will exist.
Why do some persons insure the risk of their things under multiple insurance policies with more than one insurer?
Some insureds seek to insure the risks of their things under multiple insurance policies with more than one insurer to expand the insurance coverage of the thing by increasing the number of insurers without exceeding the total value of the insured thing. To ensure obtaining required indemnity upon the occurrence of the insured risk from any of the insurers if the other insurer failed to do so.
On the other hand, some other insureds seek to insure the risks of their things under multiple insurance policies with more than one insurer to increase the value of the compensation, in amounts exceeding, in their total, the value of the insured thing, which is generally illegal and considered fraud and attempt to illegal enrich; formally defined as “illicit enrichment” in the event that the insured obtains such amount.
How is the process of settling the insured amount between the insurers when the insured risk occurred?
There will be two aspects:
The first aspect: If the thing has been insured with more than one insured, in amounts not exceeding the value of the insured thing. In this case, each insurer shall be obligated to pay the specified amount to the insured in accordance with the insurance policy concluded between them.
The second aspect: If the thing has been insured with more than one insurer, in amounts exceeding, in their total, the value of the insured thing, each insurer shall be liable to pay a part thereof, equivalent to the proportion between the insured amount, and the value of the insurance policies collectively, without exceeding the totality of what has been paid to the insured, for the value of what has been damaged.
Eventually, before concluding the second insurance policy, the insured shall make sure of the following:
– Most Insurance Policies include a clause clarifying how the insurer respond if the insured fails to declare that the same risk is insured by another insurer. In the event the insured does not comply with such a condition, the response of the second insurer upon the occurrence of the risk may even exclude the coverage.
– If the insured has concealed, in bad faith, a certain matter, or has submitted an incorrect statement, in such a way as to minimize the importance of the risk insured against, or leading to a change in its subject, or if he, by deceit, has breached the fulfilment of his pledge, the insurer may claim for the rescission of the contract.
– In all events, when the insured risk occurred, the insured shall not receive from insurance companies amounts exceeding, in their total, the value of the insured thing.
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