High Court Considers Legal Principles Relating to Triple Insurance

The Commercial Court has recently considered a scenario where three insurance policies, all containing “other insurance” clauses, provided cover in respect of the same loss.¹ The Court’s judgment provides a helpful explanation as to the principles that apply in cases of double (or in this case, triple) insurance.

Background

On 23 March 2020, the Claimant suffered a data breach, resulting in the inadvertent disclosure of personal data relating to 3,544 of the Claimant’s tenants and employees. The Claimant subsequently received over 1,100 complaints relating to the data breach, the majority of which the Claimant considered amounted to valid claims that it had settled or was attempting to settle.

The Claimant was insured under three insurance policies, each providing cover in respect of losses arising out of such a data breach occurring within the period 1 April 2019 to 31 March 2020:

• A “Cyber Policy” which provided cover subject to an aggregate limit of £1 million (inclusive of defence costs).

• A “Combined Policy” which provided cover subject to an aggregate sub-limit of £5 million (inclusive of defence costs).

• A “PI Policy” which provided cover subject to a limit of £5 million any one claim (but with defence costs being in addition to that limit).

Cover in respect of the data breach was accepted under the Cyber Policy and the Combined Policy. Cover would also have been available under the PI Policy, however the insurer of that policy declined cover due to late notification. 

Consequently, the total indemnity available to the Claimant in respect of its liability and defence costs caused by the data breach was £6 million (£1 million under the Cyber Policy and £5 million under the Combined Policy). However, the Claimant anticipated that its costs and liability in respect of both existing and potential future claims would ultimately exceed the £6 million of available cover. 

The issue

Each of the three policies contained an “other insurance” clause – that is, a clause designed to deal with a situation of double insurance, which arises where the same party is insured with two or more insurers in respect of the same interest on the same subject matter against the same risks. While each clause was worded slightly differently, all three of the clauses provided that the subject policy would operate as an excess policy in the event of double insurance. None of the policies contained a rateable proportion clause (a clause limiting the insurer’s liability to the insured on a proportional basis in cases of double (or multiple) insurance). 

The Court was asked to consider the effect of the three clauses, and the extent of cover that would have been available to the Claimant across all three policies, but for the late notification under the PI Policy.

The arguments

According to the Defendant, if all insurers had been properly notified but had stood by their strict rights pursuant to the other insurance clauses, the Claimant would only have been entitled to £5 million of cover under all three policies. 

The Defendant accepted that a literal reading of the three clauses would lead to an absurd or commercially repugnant result – namely, that each contract of insurance would become an excess policy, and the Claimant would have no primary cover. The Defendant argued that the clauses should therefore be construed as if they cancelled each other out, leaving the Claimant with triple insurance providing a horizontal layer of primary cover for £1 million, £5 million and £5 million respectively. 

The second limb of the Defendant’s argument was that, in a case of double (or triple) insurance, a principle of rateable contribution limits the liability of the insurers to the insured. In a slight alteration to its approach, the Defendant later submitted that, as a matter of contractual interpretation (rather than legal principle), the effect of the other insurance clauses was that where an insured had double insurance in the form of a horizontal layer of two or more primary liability policies, the maximum total indemnity recoverable by the insured could not exceed the highest limit of the horizontal layer. 

The Defendant argued therefore that (whether as a matter of general principle or construction) all three insurers were liable for one third of the first £1 million of loss, and then the two insurers that wrote policies with limits of £5 million were liable in equal shares above £1 million and up to £5 million. As a result, the maximum indemnity to which the Claimant would have been entitled under all three policies was limited to £5 million in total (i.e. £333,333.33 under the Cyber Policy and £2,333,333.33 under each of the PI and Combined Policies).

The Claimant contended that it would have been entitled to a full indemnity for its losses up to £11 million.² The Claimant accepted that, on their true construction, the other insurance clauses in the Combined and Cyber Policies cancelled each other out. However, the Claimant argued that the wording of the other insurance clause in the PI Policy was effective, as it was materially different – it stated that cover would only be provided in excess of amounts payable under any other insurance “had [the PI Policy] not been effected”. On that basis, the Claimant argued that the PI Policy provided a vertical layer of excess cover for £5 million plus defence costs, sitting above a horizontal layer of primary cover for £1 million (under the Cyber Policy) and £5 million (under the Combined Policy).

As for the second limb of the Defendant’s argument, the Claimant argued that, even if the other insurance clauses all cancelled each other out (as the Defendant contended) the effect was that the Claimant would have had primary insurance totalling £11 million (i.e. £1 million under the Cyber Policy, £5 million under the Combined Policy and £5 million under the PI Policy). The Claimant further submitted that, insofar as the insurers had rights of contribution amongst themselves, given the absence of a rateable proportion clause in any of the policies, this was irrelevant to the Claimant’s right to be indemnified for its full loss up to the limit of each policy.

Decision

In his judgment, David Bailey KC (sitting as a Deputy High Court Judge) referred to the decision of Rowlatt J in Weddell v Road Transport and General Insurance Co³ as establishing that, as a matter of construction, when there are two policies, each of which excludes liability where there is another policy covering the same loss, the respective clauses in each policy cancel each other out. That case dealt with other insurance clauses which excluded cover altogether in cases of double insurance, but it was common ground between the Claimant and the Defendant that the principle established in Weddell applied where the relevant other insurance clauses provide that the subject policies would act as excess cover in the event of other insurance. 

The Judge concluded that the principle established in Weddell applied in respect of the other insurance clauses in all three policies. They all sought to deprive the Claimant of primary cover on account of their co-existence – it did not matter that one of them invited the reader to assume that the policy did not exist. All three other insurance clauses therefore cancelled one another out, and the Claimant would have had the benefit of triple insurance against its losses under a horizontal layer of primary insurance providing £1 million of cover under the Cyber Policy, £5 million of cover under the Combined Policy and a further £5 million of cover (plus defence costs) under the PI Policy.

David Bailey KC further held that, absent specific provision, there is no principle or rule of law limiting each insurer’s liability by way of rateable proportion. To suggest otherwise incorrectly confused rights of contribution between insurers themselves with the rights of an insured against its insurers. The editors of MacGillvray⁴ and Colinvaux⁵ were correct on this issue: in a case of double or multiple insurance, an insured may claim against its insurers in whichever order and proportions as it wishes, up to the amount of its actual loss. If it fails to recover the whole loss from one insurer, it can recover the balance from one or more of the others. Contribution, if it arises, is a matter between insurers, and this respected the indemnity principle and the commercial purpose of the insurance contracts. 

The Judge noted that there may be some complexity arising from this approach where an insured has both a horizontal layer of two or more primary policies and a vertical tower of one or more excess policies, including the issue of whether all of the primary layer must be exhausted before the excess policies attach. Issues of this kind have been considered in the US courts, but there was no need to decide them here.

Moreover, in the Judge’s view there was nothing in the wording of the other insurance clauses that could properly be said to reduce the combined or total limit of the Claimant’s insurances from £11 million to £5 million. Given the absence of any rateable proportion clauses in any of the policies, each insurer was liable to the Claimant for the whole of its loss up to the limit of their policy. The Claimant had paid premium for a total of £11 million of coverage and, in the Judge’s view, there was no legitimate basis on which its entitlement to an indemnity should or could be reduced to a total of £5 million.

Conclusion

The judgment provides helpful guidance on the principles that will apply in cases of multiple insurance. That being said, the effect of other insurance clauses will always depend upon the specific wording of each clause. For example, the position is potentially more complex where the terms of two or more other insurance clauses are materially different. The judgment also makes clear that it is possible for parties to amend the position by including a rateable proportion clause in their policy (or policies) – any such clauses should be drafted as clearly as possible in order to avoid leaving room for dispute.

Footnote

1. Watford Community Housing Trust [2025] EWHC 743 (Comm).
2. Or, alternatively (depending upon the success of the Defendant’s arguments), £10 million under the three policies.
3. [1932] 2 K.B. 563.
4. MacGillivray on Insurance Law (15^th edn, Sweet & Maxwell 2024).
5. Colinvaux’s Law of Insurance (13^th edn, Sweet & Maxwell 2024).