Double Insurance and Contribution

Nisha Mohamed

• Publisher: Informa Law from Routledge
• Year: 2018
• ISBN:
  9781317370956
• Edition: 1
• Topic: Law
• Subtopic: Financial Law
• Index: Law

Double insurance is an issue which frequently arises in practice. Dr Nisha Mohamed delves into the problems which arise in double insurance and the attempts to provide a solution to the uncertainty of the law in this area.

The book begins with a fascinating look at the history and development of the law of double insurance, outlining how it has developed, and the factors the court may take into account when deciding cases involving double insurance.

Attempting to provide a common law solution where no legislation has been enacted, the book covers contemporary instances of double insurance by focusing on:

• the relevant clauses (rateable proportion, excess, escape and other insurance)
• the difficulty of the courts in providing clear principles in cases of double insurance
• attempts to limit or exclude liability by the insurer
• how the clauses work in practice
• court decisions in various jurisdictions
• the Australian position under section 45 of the Insurance Contracts Act 1984
• whether the Australian position can be adopted in the United Kingdom

This text combines practical experience with academic rigour and will be of significant interest to lawyers, academics and insurance industry professionals alike.

Part B

Chapter 5

The meaning of contribution

5.1 History of contribution?

5.1.1 Common law contribution

Contribution at common law¹ claims date as far back as 1380.² In the early case of Gebhardt v Saunders³ the plaintiff, who was the occupier of the house, sought to recover from the defendants, who were the landlord and owners, for costs and expenses incurred for abating the nuisance which was caused by the structural defect in the drains. The plaintiff had to pay a penalty if there was a default in compliance with the requisitions in the notice issued under s4(1) Public Health (London) Act 1891. Charles J⁴ stated:

In my opinion the ordinary principle of law is applicable to this case apart from the statute, the principle applicable to cases where one man has been legally compelled to expend money on what another man ought to have done, and, without having recourse to s. 11, the plaintiff is entitled to recover from the defendants as having been legally compelled to incur expense in abating a nuisance which the defendants themselves ought to have abated.

There can be relationships where co-ordinate liabilities exist, such as sureties, co-insurers, co-contractors, liabilities under bill of exchange, partners, joint tenants and tenants in common.⁵ The basic principles of contribution and reimbursement were summarised in The Law of Contribution and Reimbursement as follows:⁶

1.01 Two parties, who will be described here as the plaintiff and the defendant, are both legally liable to a third party. The law forbids the third party to recover in full from both the plaintiff and the defendant: he may not accumulate recoveries by enforcing his rights against both of them. As between the plaintiff and the defendant, the law also holds that some or all of the burden of paying the third party should be borne by the defendant. Notwithstanding this, however, the law also holds that the third party can choose which of them to sue, and can recover from the plaintiff in full, even though it simultaneously holds that as between the plaintiff and the defendant, the defendant ought to shoulder some or all of the burden of paying him. When the plaintiff pays the third party the effect of his payment is to discharge the defendant’s liability to the third party as well as his own liability.

1.03 … Claims for reimbursement lie when the liabilities owned by the plaintiff and the defendant to the third party are such that the plaintiff is entitled to shift the whole burden of paying the third party onto the defendant. Claims for contribution lie where the plaintiff and the defendant must share the burden of paying the third party, with the result that the plaintiff can shift only part of this burden onto the defendant. However, there is substantially no difference in principle between contribution claims and reimbursement claims, as the basic components of each type of claim are the same, and it is only the quantum of the plaintiff’s entitlement which distinguishes them.

The common law principles regarding sureties originated from Scots law⁷ and in equity, since cases such as Fleetwood v Charnock.⁸ A surety can seek contribution from a co-surety or sureties where they are bound jointly, joint and severally,⁹ or just severally,¹⁰ regardless of whether the other sureties are aware of the existence of other sureties.¹¹ This applies whether a surety is compelled to contribute to the debt of another under the same¹² or distinct instrument.¹³ For example, in Offley and Johnson’s case,¹⁴ the court decided that an action could not be brought to seek contribution between sureties.¹⁵

5.1.2 Equitable contribution

The cases demonstrate that the principles of contribution are not founded on contract but on equity. In Deering v Earl of Winchelsea¹⁶ the court considered the issue of contribution amongst sureties. In Deering v Earl of Winchelsea, Thomas Deering had to collect duties on behalf of the customs, and had to enter into bonds with three securities to perform his office. Three sureties, Sir Edward Deering, the Earl of Winchelsea and Sir John Rous, executed bonds on a joint and several basis to the Crown. The three sureties entered into securities as follows: (1) Thomas Deering and Sir Edward Deerling, (2) Thomas Deering and Earl of Winchelsea, (3) Thomas Deering and Sir John Rous, each group of surety for £4,000 as penalty, with same conditions for the performance of Thomas Deering’s duty as a collector of duties belonging to the customs. The Crown obtained judgment against Mr Deering for amounts which were in arrears. One of the sureties claimed contribution from the others for sums which were recovered against him. Lord Chief Baron stated:¹⁷

The real point is whether a contribution can be demanded between the obligors of distinct and separate obligations under the circumstances of this case. It is admitted that if there had been only one bond in which the three sureties had joined for £12,000, there must have been a contribution amongst them to the extent of any loss sustained; but it is said, that that case proceeds on the contract and privity subsisting amongst the sureties, which this case excludes; that this case admits of the supposition that the three sureties are perfect strangers to each other, and each of them might be ignorant of the other sureties, and that it would be strange to imply any contract as amongst the sureties in this situation; that these are perfectly distinct undertakings without connection with each other, and it is added, that the contribution can never be eodem modo, as in the three joining in one bond for £12,000, for there, if one of them become insolvent, the two others would be liable to contribute in moieties to the amount of £6000 each, whereas here it is impossible to make them contribute beyond the penalty of the bond.

He went on to state:¹⁸

If we take a view of the cases both in law and equity, we shall find that contribution is bottomed and fixed on general principles of justice, and does not spring from contract; though contract may qualify it, as in Swain v Wall, 1 Cha. Rep. 149.

Eyre CJ,¹⁹ who delivered the judgment of the court, commented:

In the particular case of sureties, it is admitted that one surety may compel another to contribute to the debt for which they are jointly bound. On what principle? Can it be because they are jointly bound? What if they are jointly and severally bound? What if severally bound by the same or different instruments? In every one of those cases, sureties have a common interest and a common burthen. They are bound as effectually quoad contribution as if bound in one instrument, with this difference only, that the sums in each instrument ascertain the proportions, whereas, if they were all joined in the same engagement, they must all contribute equally.

5.1.2.1 Co-sureties

The doctrine of contribution is not founded on contract but on the principles of equality of “burthen and benefit”,²⁰ when dealing with a surety situation. The learned authors of The Law of Restitution, Goff and Jones,²¹ stated that the basis of contribution found in equity was one of unjust enrichment, and not one of contract. It was stated:

In these circumstances, section 5 [of the Limitation Act 1980] would appear to be inapplicable, unless it could be said that, as soon as the claim lies, a debt arises between the parties. However, it may be more persuasive to hold that the equitable doctrine of laches should apply. It is an open question whether equity will then follow the analogy of section 5 of the Limitation Act 1980, when the limitation period is six years, or section 10.

In Ward v National Bank of New Zealand Ltd,²² Sir Robert Collier reaffirmed the principle in Deering v Lord Winchelsea:

It is true that he is entitled to contribution against other several sureties to the same extent as if they had been joint, but the right of contribution among such sureties depends not upon contract but on principles established by Courts of Equity.

This right of contribution was established in the case of Deering v Lord Winchelsea (1), affirmed by Lord Eldon in Craythorne v Swinburne (2), and is thus explained by Lord Redesdale in Stirling v Forrester (3): The principle established in the case of Dering v Lord Winchelsea (1) is universal, that the right and duty of contribution is founded on doctrines of equity, it does not depend upon contract. If several persons are indebted, and one makes the payment, the creditor is bound in conscience, if not by contract, to give the party paying the debt all his remedies against the other debtors… . It would be against equity for the creditor to exact or receive payment from one, and to permit, or by his conduct to cause, the other debtors to be exempt from payment… .

In pursuance of this doctrine it has been held that a surety is entitled to the benefit of all securities in the hands of the creditor whether, when he became a surety, he knew of them or not. Thus, in Pearl v Deacon (4), where the plaintiff was surety in a promissory note for a sum lent by the defendants to their tenant, and a mortgage was subsequent...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Detailed Contents
• Acknowledgments
• Foreword
• Preface
• Table of Cases
• Table of Legislation
• Part A
• Part B
• Index