High Court confirms an insured's entitlement to recovery when there is double insurance

The decision in Watford Community Housing Trust v Arthur J. Gallagher Insurance Brokers Limited [2025] EWHC 743 (Comm) considers the law on double insurance. This was a preliminary issues hearing concerning multiple insurance policies taken out by the insured which might respond to cyber security risk.

The key points coming out of the judgment are:

• In the case of double or multiple insurance, an insured is at liberty to claim against its insurers in whichever order it wishes, and the balance can be recovered from the other insurers if it is not recovered from just one.
• 'Other insurance clauses' – which provide that the insurance provided under a policy applies in excess of any other valid and collectible insurance available to the insured – should be construed so as to exclude from their scope any other policy that contains a similar provision, i.e. the clauses cancel each other out.

BACKGROUND

The Watford Community Housing Trust (Claimant) suffered a data breach which gave rise to over 1,000 claims against it. At the date of the data breach, the Claimant was insured under three policies arranged by the Defendant broker which provided cover for the losses suffered by the Claimant:

• A cyber policy which provided £1 million of cover (inclusive of defence costs) with an excess of £5,000 each and every claim (Cyber Policy);
• A combined policy which provided £5 million of cover (inclusive of defence costs) with an excess of £500 any one occurrence (Combined Policy); and
• A professional indemnity policy which provided £5 million of cover for any one claim (with defence costs in addition) with an excess of £5,000 each claim or loss (PI Policy),

together, the "Insurance Policies".

The Defendant advised the Claimant to notify the data breach to the insurers of the Cyber Policy but failed to advise notification to the insurers of the Combined or PI Policies.

The insurer of the Combined Policy originally declined cover but subsequently agreed to indemnify the Claimant up to the limit of the Combined Policy (£5 million).  The insurer of the PI policy also declined cover and it was common ground between the parties that it was entitled to do so.

This resulted in there being a total indemnity of £6 million available to the Claimant in respect of its liability and defence costs caused by the data breach (£1 million under Cyber Policy and £5 million under the Combined Policy). The Claimant anticipated that it would suffer further costs and liability, going beyond the £6 million of cover available and brought a claim against the Defendant.

All three policies contained a form of 'other insurance clause'. The preliminary issue the Court had to consider was whether the 'other insurance clauses' meant that the Claimant had suffered no loss as a result of the Defendant’s negligence because it had already received a greater indemnity than it would have done if all insurers had been properly notified but had stood on their strict rights pursuant to the 'other insurance clauses'.  The Defendant argued that this latter sum was £5 million calculated as follows:

• All three insurers would have been liable to the Claimant for one third of the first £1 million of the loss.
• The insurers of the Combined and PI policies (who both underwrote policies with a limit of £5 million) would have been jointly liable in equal shares for the loss above £1 million but up to a maximum between them of £5 million.

DECISION

The Court addressed two key points:

• The construction of 'other insurance clauses', and
• The effect of double (or in this case, triple) insurance on the indemnity recoverable by the insured.

Construction of 'other insurance clauses'

Double insurance occurs when 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. Double insurance is legal but can be mis-used as an instrument of fraud.  In response to this moral hazard, the insurance industry developed 'other insurance clauses' as a standard clause in policies.

In this case, each of the Insurance Policies contained an 'other insurance clause'. While the clause in the PI policy was worded differently from those in the Cyber and Combined Policies, the Court found that all the clauses operated in practice as an "excess provision", meaning that the policy would only respond if and when the insured loss surpassed the amount of cover that had been recovered or was recoverable under the other policy. If the 'other insurance clauses' were given their literal meaning, then no policy would respond as its activation would depend on another policy preceding it.   

The Court re-confirmed the position stated by Rowlatt J in Weddell v Road Transport and General Insurance Co. [1932] concerning this construction question. To avoid the literal interpretation which would result in an unjust outcome contrary to the commercial purpose of the Policies, the 'other insurance clauses' should be interpreted so as to exclude from their scope any other policy which contained a provision that sought to exclude liability by reason of the existence of other insurance.

Therefore, on the facts, the 'other insurance clauses' in the Insurance Policies were to be treated as cancelling each other out and entitled the Claimant to a horizontal layer of primary cover: £1 million under the Cyber Policy, £5 million under the Combined Policy and a further £5 million of cover (plus defence costs) under the PI Policy.  

Double insurance and recovery

The next issue for the Court to consider was the effect of double (or triple) insurance on the Claimant's entitlement to an indemnity from each of its insurers. Could the Claimant exhaust its primary policies in whichever order it chose up to a maximum combined indemnity of £11 million (as contended by the Claimant) or was the Claimant's entitlement limited to a maximum total indemnity of £5 million (as contended by the Defendant)?

The Court summarised the common law position and answered the question in favour of the Claimant. The common law position is that in the case of double insurance, an insured is at liberty to claim against its insurers in whichever order it wishes and if it fails to recover the whole loss from one insurer, it can recover the balance from one or more of the others. The Court relied on dicta from more modern case law to support this general principle (Sobrany v UAB Transtira [2016] Lloyd's Rep. I.R. 266).  Absent a specific rateable proportion provision in the policies, there is no general principle of rateable proportion which serves to limit each insurer's liability to a share of its limit.

The Court found that the Claimant had paid for a total of £11 million of coverage and was entitled to that maximum indemnity.

The Court did note that complex issues may arise in cases where an insured has both a horizontal layer of two or more primary policies (as in this case) combined with a vertical tower of one or more excess polices (such as whether the whole of the primary layer must be exhausted before the excess policies attach) but as such issues did not arise in the case the Court did not consider them.

Timing of the decision

The Court also briefly considered a further point raised by the Defendant which was that as the Claimant's claim was for the loss of a chance of recovering under the PI policy, it would still be necessary to have a further trial to assess the likelihood that the insurers would have honoured their legal obligations to the Claimant.  The preliminary issue could not be answered one way or the other at this stage without further evidence.

The Court thought it unnecessary to consider this issue because but for the Defendant's negligence, the insurers were legally obliged to indemnify the Claimant for its losses up to a combined total of £11 million.

COMMENT

The case provides a useful summary of the law regarding double insurance and the operation of 'other insurance clauses' when a policyholder has similar clauses in more than one policy covering the same risk. 

It is also helpful for policyholders to be reminded that generally where they have double (or multiple) responsive insurance policies, they can claim against whichever insurer they choose and if they fail to recover the whole loss from one insurer, they can recover the balance from another.