Over-Insurance (Überversicherung)
Over-insurance exists when the agreed sum insured significantly exceeds the actual insured value, meaning the policyholder is not entitled to a benefit exceeding that value in the event of a loss.
Concept
Over-insurance exists when the sum insured agreed in the insurance contract significantly exceeds the actual insured value of the insured property. Unlike underinsurance, over-insurance does not result in a proportionally increased indemnity, since the indemnity principle applicable in property and casualty insurance law ensures that the policyholder may not derive an economic advantage from a loss.
Legal Consequences
Where over-insurance is identified, the insurance benefit in the event of a loss is always limited to the actual insured value, regardless of the higher sum insured agreed; many jurisdictions also provide that both the policyholder and the insurer may subsequently reduce a sum insured that was agreed in good faith but is unreasonably high, down to the actual insured value, with the premium payable reduced accordingly.
Distinction from Fraudulent Over-Insurance
If over-insurance was agreed by one of the contracting parties with the intent of obtaining an unlawful financial advantage from the insured event – for example, as part of a fraudulently planned insured event – the insurance contract is void in many jurisdictions; this fraudulent over-insurance must be strictly distinguished from good-faith over-insurance, which is based merely on an incorrect valuation.