Average, contribution and a tenant's waiver

Policy A has an 80% average condition. The required sum insured is 80% of £800,000 = £640,000. A's sum insured is £600,000, so A is underinsured. A's independent liability for the £500,000 loss is £500,000 × (600,000/640,000) = £468,750. Policy B has no average condition and a £400,000 limit, so B's independent liability is £400,000. The loss is £500,000 and the total independent liabilities are £868,750. Using the independent liability method, A pays £500,000 × (468,750/868,750) = £269,784; B pays £500,000 × (400,000/868,750) = £230,216. The insured recovers £500,000 in total, not £900,000. A simple 60:40 split by sums insured would be wrong because it would ignore A's average condition and B's limit. The independent liability method is the fairer approach where the policies have different terms.

Subrogation is not a free-standing right; the insurer steps into the insured's shoes and takes the rights the insured had, subject to the defences that existed at the time. The lease contained a mutual waiver of subrogation before the policies were placed. That waiver is a defence the tenant can raise against the landlord, and therefore against Insurer A. A cannot subrogate against the tenant if the insured had already released the tenant. A's policy condition required notice of any waiver; the landlord did not disclose the lease. That may give A a remedy against the landlord for breach of the policy condition, but it does not create a right against the tenant. Whether A can reduce or recover the claim depends on whether the condition was a condition precedent to liability, a warranty, or an ordinary condition, and on the Insurance Act 2015 remedies. Insurer B knew of the waiver and did not object, so B cannot rely on the non-disclosure and cannot subrogate. The tenant is protected by the waiver.