Legal and General Assurance Society Ltd v Drake Insurance Company Ltd

JurisdictionEngland & Wales
Judgment Date20 December 1991
Judgment citation (vLex)[1990] EWCA Civ J1220-3
Docket Number90/1067
CourtCourt of Appeal (Civil Division)
Date20 December 1991

[1990] EWCA Civ J1220-3






Royal Courts of Justice


Lord Justice Lloyd

Lord Justice Nourse

Lord Justice Ralph Gibson


Legal and General Assurance Society Limited
The Drake Insurance Company Limited (trading as Drake Motor Policies at Lloyd's)

MR JONATHAN WOODS, instructed by Messrs Stevensons, appeared for the Appellants (Defendants).

MR J.R. PLAYFORD Q.C. and MR T. LEON VILJOEN, instructed by Messrs Lawrence Graham, appeared for the Respondents (Plaintiffs).


In this case we are concerned with the right of contribution between co-insurers. The principles on which one insurer is entitled to recover from another in a case of double insurance have been settled since Lord Mansfield's day. Yet the particular problem which has arisen in the present case seems never to have been considered save for a decision in the Mayor's and City of London Court: see Monksfield v. Vehicle and General Insurance Co. Ltd [1971] 1 Ll.R. 139. The question is whether that case was correctly decided.


The problem can be stated very simply on assumed facts. Suppose there are two insurances in the same interest on the same subject matter, each policy covering the same risks, so that each would be liable to the assured for the whole of the loss which has occurred. The conditions giving rise to a claim for contribution are thus satisfied. If the assured recovers 100% from insurer A, insurer A can recover 50% from insurer B. Why? Not, clearly, because there is any contract between them, whether express or implied. There is no such contract. The insurers may be complete strangers. Each may have entered into the insurance in ignorance of the other. No: the right of contribution is based not in contract, but on what has been said to be the plainest equity, that burdens should be shared equally. Qui commodum sentit sentire debet et onus. For well over two centuries the right of contribution has been enforced, and the same principles applied, not only between co-insurers, but also between co-obligors in various other brances of the law, notably in the case of co-sureties: see Chief Baron Eyre's judgment in Dering v. Earl of Winchelsea (1787) 1 Cox Eq. 318.


Now suppose that each of the policies contains a provision that claims must be notified within 14 days. Since the assured is entitled to go against A for the whole of his loss, he gives notice of claim to A within 14 days, and in due course recovers. No commercial purpose is served by the assured giving notice to B, since he does not intend to claim against B. Does the failure of the assured to give notice to B within 14 days deprive A of his right of contribution?


My answer to that question is no. Since the assured could have gone against B, had he chosen to do so, in which case B would have been liable for the whole of the loss, the burden as between A and B should be shared equally. It would be inequitable for either of the insurers to receive the benefit of the premium without being liable for their share of the loss.


Mr Wood, for the defendants, argues that A's right to claim contribution does not arise until he has paid more than his share. Since, by that date, 14 days would almost certainly have elapsed, B would no longer be liable to the assured, and would not therefore be obliged to contribute. I do not accept this argument. Obviously, A cannot enforce his equity until he has paid more than his share. But this does not mean that the conditions for the existence of the equity are determined at the same date. Since the existence of the equity depends on the ability of the assured to claim against either A or B at his choice, the obvious date at which to determine whether the conditions are satisfied is the date when the assured is assumed to exercise his choice, namely, the date of the loss. Thus if A were to settle the claim in full on the day after the loss, he would clearly have an immediate right of contribution against B. I do not see how he could lose that right, because of the failure of the assured to give notice to B within 14 days, when ex hypothesi the assured could have no reason for giving such notice. Nor could A be obliged to give notice within 14 days himself in order to preserve his eguity, since he might well be ignorant of the existence of the other insurance, let alone its terms.


A more difficult question arises, at any rate in theory, when the giving of notice is a condition precedent to liability. In such a case B is not liable to indemnify the assured until after he has been given notice. So it could be argued that A cannot claim contribution, since B has never been liable to the assured.


The answer to this difficulty lies in a correct appreciation of the conditions which have to be satisfied for a claim in contribution. It is said that B must be "liable" to the assured. Obviously this cannot mean held liable. Nor does it mean presently liable. It is enough that B is potentially liable. In other words it is enough if the assured could have made B liable, instead of A, by giving notice in time, and taking whatever other steps might be required to enforce his claim.


But when I say potentially liable, there is a sharp distinction between steps required to enforce a valid claim under a policy in force at the time of the loss, and a claim which never was valid, and never could be enforced. Thus if B has a good defence to the assured's claim on the basis of misrepresentation or non-disclosure, there is no double insurance. Since the effect of the defence is that the contract is avoided ab initio, it is as if B had never been on risk at all. So also where the assured is in breach of condition, or has repudiated the contract, prior to the loss, even if (though this is not so clear) the repudiation is only accepted thereafter. It may be said that the distinction between breach of condition prior to the loss and breach of condition subsequent to the loss is a narrow one. So it may be. But the difference is crucial. For it is at the date of the loss that the co-insurer's right to contribution, if any, crystallises.


It is often said that, though the right to contribution is founded in equity, yet it may be varied or excluded by contract. As long ago as 1641, in Swain v. Wall 1 Rep. Ch. 149 it was held that the right of contribution could be modified by contract between the co-obligors. But it can also be modified or excluded by contract between the assured and the insurer, in this sense, that the policy may limit the amount of the insurers' liability, or may provide, typically, that the insurer should not be liable beyond his rateable proportion of the loss. But a provision requiring the assured to give notice of claim does not, in my opinion, modify or exclude the equitable right to contribution in the same sense.


Finally Mr Wood argued that it is unfair that B, who has stipulated for liability on certain terms, should find himself deprived, as it were, of his accrued defence, by being made liable, maybe years after the event, to a co-insurer of whom he has never heard. I see the force of that argument. I can see too that the defendant insurers will lose the opportunity of investigating the claim themselves, and of discovering, perhaps, an unforeseen defence. But these unfairnesses to B must be balanced against the unfairness in making A liable for the whole loss, when the assured might as easily have claimed, and recovered, against B instead. To my mind the balance of equity comes down clearly in favour of enforcing the right to contribution. On the facts assumed, I would hold that A can recover 50% contribution from B, even though the failure of the assured to give notice to B is characterised by the policy as a breach of condition precedent.


I now turn to the authorities. I start with Weddell v. Road Transport and General Insurance Co. Ltd [1932] 2 K.B. 563. The claimant was driving his brother's car when he was involved in an accident. The injured third party brought proceedings against him. The claimant failed to report the accident to his own insurers, the Cornhill Insurance Co. Ltd, within three days as required. So the Cornhill repudiated liability. But the claimant then sought to recover under his brother's policy, issued by the respondents the Road Transport and General Insurance Co. Ltd. The respondents' policy contained a rateable proportion clause as follows:

"If at any time any claim arises under this policy there is any other existing insurance covering the same loss, damage or liability the company shall not be liable…to pay or contribute more than its rateable proportion of any loss, damage, compensation, costs or expense."


The respondents repudiated liability. The dispute went to arbitration. The arbitrator held that the claimant could recover. But his recovery was limited to 50% of his loss by reason of the rateable proportion clause. There was "another existing insurance" covering the same loss. The claimant appealed. One of the arguments advanced on his behalf was that the Cornhill policy was not an "existing insurance" within the meaning of the rateable proportion clause, since the claimant could no longer succeed against the Cornhill. He had failed to give notice of the accident in time. The argument was rejected as being, in the words of Rowlatt J., "too obviously unsound to require further notice. The position is to be regarded as at before the time for giving the notice expired."


In Weddell's case the decision turned on the language of the rateable proportion clause. But what is...

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