Storage bailee and the double indemnity
SwiftMove Removals Ltd stores customers' household goods while they move house. Its commercial policy includes 'goods held in trust or on commission' up to £250,000, subject to a 90% average clause. A fire destroys goods belonging to 12 customers. The total value of the destroyed goods is £310,000; SwiftMove's policy declares a storage value of £250,000, and the loss attributable to the destroyed goods is £200,000. The insurer applies average and pays £179,211. One customer, Mrs Patel, had her own home contents policy, which covers goods in storage up to £50,000. Her insurer pays £40,000 for her loss. SwiftMove's insurer then discovers this and says it should pay nothing more because Mrs Patel has been indemnified; Mrs Patel has also signed a subrogation receipt. SwiftMove faces claims from customers for the shortfall and asks whether its policy responds and who can recover what.
1. Explain SwiftMove's insurable interest in the customers' goods and whether the policy can respond to the loss.
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Insurable interest. SwiftMove is a bailee. A bailee has an insurable interest in goods in its custody to the extent of its liability at law or under the storage contract. It does not need to own the goods. The interest may be limited: if the contract excludes liability for fire, the insurable interest could be reduced or absent. On the facts, SwiftMove holds the goods for reward and faces claims from customers, so it has a real interest. The policy expressly covers 'goods held in trust or on commission', which confirms the parties intended to insure that interest.
Scope of cover. The policy limit is £250,000. The 90% average clause means SwiftMove is expected to insure at least 90% of the full value at risk: 90% × £310,000 = £279,000. It insured only £250,000, so it is underinsured. The claim is reduced by the ratio of the sum insured to the required 90% value: £200,000 × (250,000 ÷ 279,000) = £179,211, subject to any excess. The insurer's payment is therefore correct in principle. The shortfall of about £20,789 is SwiftMove's own underinsurance and cannot be recovered from the policy.
Customer claims. SwiftMove remains liable to its customers for the shortfall, subject to the storage contract and any limitation clause. The policy does not respond to that uninsured portion.
2. How does Mrs Patel's own insurance affect SwiftMove's claim, and what are the subrogation and double insurance consequences?
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Indemnity and subrogation. Mrs Patel's insurer has indemnified her for £40,000. To that extent she has been compensated, and her insurer is subrogated to her rights against any party responsible for the loss. SwiftMove's insurer is also liable to SwiftMove for the bailee's interest. The two insurers are not both paying the same loss twice: they insure different interests. Mrs Patel's insurer covers her ownership interest; SwiftMove's insurer covers SwiftMove's liability interest as bailee.
Double insurance. If both policies cover the same interest and the same loss, contribution applies. Here the interests overlap only to the extent of SwiftMove's liability to Mrs Patel. If SwiftMove's insurer pays SwiftMove for Mrs Patel's goods, and Mrs Patel's insurer has already paid her, the customer cannot recover twice. SwiftMove's liability to Mrs Patel may be reduced by the £40,000 she has received. The subrogation receipt does not automatically transfer Mrs Patel's entire claim to SwiftMove's insurer; it preserves her insurer's rights.
Practical outcome. SwiftMove's insurer should pay its proportion of the bailee's liability, taking credit for sums Mrs Patel has already recovered. Mrs Patel's insurer may pursue SwiftMove if the loss was caused by SwiftMove's negligence. Any recovery must respect the principle that the insured is indemnified, not enriched.
3. If the fire was caused by SwiftMove's negligence, how would the insurers' rights change?
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If SwiftMove negligently caused the fire, Mrs Patel's insurer, having paid her £40,000, would be subrogated to her claim in negligence against SwiftMove. SwiftMove's own liability insurer would be responding to that claim, subject to the policy terms. This creates a circularity: SwiftMove's insurer may be liable to Mrs Patel's insurer for the very loss it is also covering for SwiftMove. The policy may contain a waiver of subrogation or a 'bailee' clause, but none is stated. Without such a clause, the insurer can pay the customer's insurer and then seek to allocate the loss under the policy.
SwiftMove's underinsurance still limits the amount available. The 90% average clause applies to the total loss, and the insurer will not pay more than the adjusted sum. The insurer should also check whether the storage contract limits SwiftMove's liability to customers; if it does, the insurable interest and the customer's subrogated claim are reduced accordingly. Any payment to Mrs Patel's insurer should be treated as part of the same loss and not duplicated. The insurer should reserve its rights and obtain a full statement of the storage terms before finalising the contribution.