Other Insurance / Contribution Clause
The other insurance / contribution clause governs how several policies covering the same risk relate to one another in the event of a claim, in particular whether and in what proportion the insurers involved share the indemnity.
- Clause type
- Condition
- Origin/Market
- International programme
- Favours
- Insurer
- Negotiability
- Market standard
Purpose
Where more than one insurance contract exists for the same insured interest and risk – for example because a group maintains both a local policy and a global master programme – it is necessary to determine how the insurers involved relate to one another in the event of a claim. The other insurance / contribution clause prevents the policyholder from recovering more than its actual loss across multiple policies, while also setting out the method by which the insurers share the indemnity.
Effect and limits
Common allocation methods include pro rata sharing by limits, sharing based on independent liability, or a subordination arrangement under which one policy is treated as “primary” and the other as “excess” or “subsidiary”. In international programmes with local fronting policies and a global master programme (difference in conditions / difference in limits, DIC/DIL), the clause also provides that the master programme responds only to gaps in cover or amounts exceeding the local policy, to avoid duplicate payment.
Negotiation and practice
In DIC/DIL programmes, precise alignment of the other insurance clauses between the local and global policies is essential, since unclear or conflicting wording can otherwise create a “circular priority” problem, where each policy purports to be subordinate to the other. Policyholders taking out several policies for the same risk should therefore always check that the respective other insurance clauses work together consistently.