Cargo Double Insurance, Subrogation and a Carrier Release
A UK exporter ships machine parts worth $500,000 to a buyer in Singapore. The exporter insures the cargo with Insurer A for $500,000. The buyer, unaware of that cover, separately insures the same cargo with Insurer B for $500,000. Both policies are unvalued and cover the same perils on the same terms. During loading, the carrier's stevedores negligently drop a crate; the cargo suffers a total loss of $200,000. Insurer A pays the exporter $200,000 in full. The bill of lading limits the carrier's liability to $2 per kilogram, and the shipment weighs 20,000 kg. Before the claim is settled, the exporter signs a full release of the carrier in exchange for a $10,000 goodwill payment. Insurer A then discovers Insurer B's policy. The insured has not claimed under B's policy. Neither cargo policy contains a subrogation waiver or a double-insurance clause beyond the standard contribution provision.
1. Explain the rights of contribution between Insurer A and Insurer B and calculate the position before any recovery from the carrier.
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Both policies cover the same insured, the same subject matter, and the same peril, and both are in force. That is double insurance. At common law, the insured can claim from either insurer, but cannot recover more than the loss. The insurers are entitled to contribution so that each bears its rateable share. On independent liability, each policy would pay $200,000, so the shares are 50/50: Insurer A $100,000 and Insurer B $100,000. Insurer A has paid $200,000, so it can recover $100,000 from B. If B pays the insured directly, the insured holds that money for A's benefit to the extent of A's overpayment. A rateable contribution clause would produce the same result on these facts. The insured cannot use the existence of two policies to make a profit, because indemnity is the governing principle. The $10,000 carrier payment must also be brought into account so that the insured does not recover more than the $200,000 loss.
2. What subrogation recovery is available against the carrier, and how should it be shared between the insurers and the insured?
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Insurer A is subrogated to the exporter's rights against the carrier to the extent of A's payment. The carrier's liability is limited by the bill of lading to $2/kg x 20,000 kg = $40,000. The contractual limitation binds the insurer because subrogation puts the insurer in the insured's shoes, subject to the same defences. The $40,000 recovery must be brought into account. After contribution, each insurer should bear $100,000 of the $200,000 loss. The third-party recovery reduces the net loss to $160,000, so each insurer should bear $80,000. If A recovers the full $40,000, it must account to B for $20,000, leaving A with $80,000 net and B with $80,000 net. The insured has already been fully indemnified by A and must not retain the carrier recovery as well. If the insured had unreasonably released the carrier, A could reduce the claim by the prejudice caused.
3. What effect does the exporter's full release of the carrier for $10,000 have on Insurer A's position? How should the loss be adjusted?
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A release given to the carrier after the loss can destroy the insurer's subrogation rights. If the exporter gave a full release for a $10,000 goodwill payment, the insurer may be prejudiced to the extent of the claim it could have pursued, up to the $40,000 limitation. The insurer can deduct that prejudice from the claim, or in a serious case decline cover for breach of the subrogation condition. The insured cannot both keep the $10,000 and require the insurer to ignore the lost right. The insurer should assess whether the release was given with the insurer's consent, whether it was a full release or only a receipt, and whether the $10,000 was already credited. The net recovery must still respect the indemnity principle. If the release was signed before A paid, A may be entitled to reduce the $200,000 claim by the value of the lost subrogation right, but only to the extent of actual prejudice. Credit the $10,000 the insured already received, so the maximum prejudice is $30,000 if the lost claim was $40,000.