LLOYD'S LAW REPORTS Editor: Miss M. M. D'SOUZA, LL.B,, Barrister Consulting Editor: G. M, HALL, Barrister (1977) Vou. 1) ‘Commercial Union v. Hayden Pane | COURT OF APPEAL July 26, 27 and 28, 1976 COMMERCIAL UNION ASSURANCE, ‘CO. LID. v. HAYDEN Before Lord Justice Calnns, Lord Justice STEPHENSON and Lord Justice Lawron surance (Pablic Lshliy) — Double insurance —Contribution — Public liability _ policies ce etc rey a Ro"pre at average consibyion = Sex tment by insane company of aur’ ella iter foley = Ca fer consiboton from Tioga termites” sade by” Inmranee Cerpiny What, “maxim, abity > Sppbudl or “Independent Uabiity” approach sppncble C. effected a public liability poliey with the plainti’ insurance ‘company with a limit Of 100,000 in respect ‘of any one accident K policy. which ‘contained ‘a public lability Section was also issued by the defendant, @ Representative Lloyd's underwriter, the sum insured being, £100. Each policy contained felause stating. that if at the time of any laim arising. from it there. should. be any fther insurance covering the same risk, the Insurers would not be Table for more’than a rateable. proportion of it Neither policy ontained 2 pro. Tata average condition. BP. suifered an injury on C.'s premises. His claim of 2442545 was setled by the plaintiffs ‘who ‘claimed, a contribution from the defen dant on the “independent lability * approach felon the basis that the contribution should be calealated in accordance with what would have. been the respective Habilits of the Insurers towards C. if each had been the sole insurer, ‘They contended that since the claim ‘would have been met by either insurer ja full, they. were eotited. to a contribution ot fone half) of Crs “claim he. £2212.72. The defendant, however, | maintaines that the maximum lability" "approae Should” be adopted" ic. the” contribution Should be calculated in’ proportion to. the limits of the respective poles te. the pro- portion of 10\to 1. On this bass he was Hable only for 1/ 11th of C's claim he. £40231 Held, by QB. (Donatnson, J.) that the “maximum” sability” “approach, should be adopted Judgment for the plaints, On appeat by the plains: <— Held, by CA, (Cann, Srerensc and Lasrton, Lily, that ‘() there mas. ne Authority binding on the Court and there were to deciSedcastswhich indicated. a clear preference for one basis over the other (see Prldy cob 1s p14, ool 2 2) the issue was one swat equally capable of beating either sugested Meaning Gee p. 12, col, Ty, but the more Iikely meaning’ to be intended by reasonable business men’ was’ the independent habiliy basi which. waa more realise in its rel Gee p12, coh 2; pe, coll p15, col), 2) the obvious purpose of having a limit ‘of liability was to" proteet the insurers from the fect of ‘exceptionally large siaima. and sappeated athe oe te ite der luis which were within the init of elhet policy Gee pid cok. Ds (4) where there were two insurers with Aifering upper limits for claims the inference pasar hey were both accepting the sume level of risk up to the lower of the limits and “rateable satisfaction” would be an equal division. of liability up to the lower limits (Gee'p. 16, eal. 2). Appeal allowed. Leave 10 appeal 10 House of Lords granted, ‘construction and ‘The following cases were referred to in the judgments: American Surety Co. of New York v. ‘Wrightson, (1910) 16 Com. Cas. 37;2 LLOYD'S LAW REPORTS Ica. 11977] Vou. 1) ‘Commercial Union v. Hayden Citizens Mutual Automobile Insurance Co. '¥. Firemen's Fund Insurance Co., (1964) 234 Fed. Supp. 931; Dering v. Winchelsea, (1787) 1 Cox Eq. Cas. 318; Ellesmere Brewery Co. v. Cooper, {1896} 1 QB. 75; Godin v. The London Assurance Corpora- ‘ion, (1758) 1 Wm. Bl, 103; (1758) 1 Burr. 489; Home Insurance Co. v. Baltimore Ware- Thouse Co., (1896) 93 U.S. 527; Industrial Indemnity Co. v. Continental ‘Casualty Co,, (1967) 375 Fed. Rep. Qnd) 183; Newby v. Reed, (1763) 1 Wm. Bl. 417; ‘North British and Mercantile Insurance Co. v. London, Liverpool and Globe Insur- ance Co., (1877) 5 Ch. D. 56: Oregon Automobile Insurance Co. v. United ‘States Fidelity and Guarantee Co. (1952) 195 Fed. Rep. (2nd) 958; Pendlebury v. Walker, (1841) 4¥ & C. Ex. 4245 Scottish Heritable Securities Association v. ‘Northern Insurance Co., (1883) 11 Sess. Cas. R. 287; Sickness and_Accident Insurance Associa ‘tion ¥, General Accident Assurance Corp, (1892) Sess. Cas. R. 977. This was an appeal by the plaintifis, Commercial Union Assurance Co. Ltd, from the decision of Mr. Justice Donaldson given in favour of the defendant, Mr. Nicholas Charles Hayden, a representative Lloyd's ‘underwriter and’ holding in effect that the maximum liability. basis applied to the ‘question of how liability between the plain ‘ffs and defendant should be apportioned ‘where both of them had insured against the same risk and there was a clause in each policy providing that in such circumstances the insurer shall not be liable for more than its rateable proportion of any claim. Mr, Justice DONALDSON delivered the following reserved judgment on July 28, 1975: On May 26, 1971, Mr, Frederick Parsons sustained an injury on the premises of Messrs. George Cartwright. ‘He put forward a. claim for damages which was settled for £4425.45p. including costs. Messrs. Cartwright had prudently taken the precaution of insuring against such a liabi- lity. Indeed, whether by accident or by design, they’ had two insurance policies which applied. The first was with Lloyd's and was in ‘their common form public liability policy with a limit of £10,000 any fone accident. ‘The second was with the Commercial Union. This took the form of their “Compact” policy which really con- sists of a selection of standard policies made up to suit the needs of the assured. Cart wrights chose the fire, money and public liability ‘sections. Tam only concerned with the latter, which was limited to £100,000, Each policy contained a rateable propor- tion clause and it is the meaning of those clauses and the rights of the insurers inter Se which have given rise to this action. "As, on any view, Cartwrights could recover the whole of their loss from the two insurers {aken together, Loyd’s and the Commercial Union, acting ‘in accordance. with the best traditions of the London Market, have made Sure that Cartwrights are not troubled with this matter. By agreement, the Commercial Union met the claim in ful, without preju- dice to theit right to claim contribution from Lloyd's. ‘Lloyd's say that that contri- bution should be calculated in proportion to the limits of the respective policies, Le, Tosi. Accordingly they admit liability for, and” have paid. the Commercial Union, With of Cartwrights’ claim ot £40231: ‘This T will call the “maximum lability, approach, The ‘Commercial "Union, for their part say that the contribution should be caleulated ‘in accordance with what ‘would have been the respective Tabilities fof the Insurers to Cartwrights if each had been the sole insurer on the risk. As the Claim would, on that hypothesis, have been met by either insurer in full, the Commer- Gal Union claim an additional contribution of £1810.41, bringing thels recoveries from Lioya’s up to one half of Cartwrights" claim, ‘This T will call the "independent liability * approach. ‘The sum in dispute is of no great conse- quence to either party, but the principles involved have only once been considered by an English Court. ‘The rateable proportion clauses are in the following terms:— Commercial Union. If at the time of any claim arising under this Section there shall be any other insurance covering the same riskcA] LLOYD'S LAW REPORTS 3 ‘Commercial Union v. Hayden or any part thereof the Company shall not be liable for more than its ratable proportion thereof. Lloyd's. If any claim covered by this Policy is also covered in whole or in part by any other insurance, the liability of the Underwriters shall be limited to their rateable proportion of such claim. wording and the ancient and modem versions of spelling are not material and the clauses can be treated as identical, Such clauses undoubtedly have the effect of restricting the right of the assured to look to one insurer only should a claim arise, but the average assured would certainly’ be sur- prised to be told It has been said that the object of this clause is to compel contribution between insurers (see Bunyon—Law of Fire Insur- ance, p. 294) and clearly itis right that each should bear thelr share of the loss, irrespec- tive of whether the assured looks to one or the other or to both for indemnity. But surely in modern times a rateable propor- tion clause is unnecessary to achieve this result, for there is an equitable right of contribution in all circumstances in which the clause would apply and little difficulty in finding” or obtaining payment from co-insurers. This right, incidentally, is different from a subrogation right which does not exist as between insurers in a case of double insurance: see Austin v. Zurich General Accident and Liability Insurance Co, Ltd, (1945) 78 LiL-Rep. 185; [1945] 1 KB. 250; but it appears that, in circum- stances different from the present, the clause has another effect, namely, that if the assured has cover with’ insurer’ “A” and subsequently, from an abundance of caution or forgetfulness, effects the like cover wit insurer ““B”, insurer “A's” liability is reduced even if the assured can recover nothing from insurer ““B” because of a breach of condition or because insurer “B” ig insolvent. Bearing in mind that insurer “A” necessarily knows nothing of, the cover to be granted later by insurer “B” and that the premium charged by insurer "A" takes no account of the later insur- ance, I find this suggested result surprising. ‘Suffice it to say that insofar as this propos Sion rests upon the authority of Weddell Road Transport, 1931) 41 LLL-Rep. 69: 11932] 2 K.B. 563; the facts there were very in that the assured had, by his own inaction after the loss, defeated the right of 11977} Vou. 1 insurer “A” to claim contribution from the insurer “B However, 8 I have said, on the facts of the present case, if Cartwrights had sued bot the. fasurers, they would have recovered £4425.43 in all and’ the propor: onate liability of the parties would have Teflected their eqtitable tight of contribu: ton inter se. In other words, the phrase "fateable proportion "in the Clause means that proportion which would be borne by Sny one insurerer if the assured had been entitled to look, and had looked, to. him Slone and. that insurer ‘had exercised his Fight (0 claim equitable contribution from any other insurers. Tn American Surety Co. of New York v. Wrightson, (1910) 16 Com, Cas. 37, Lord Sumner (then Me, Justice Hamiiton) after Feviewing and dismissing the authorities to ‘which he" bad been referred, said that Insurers’ rights to contribution depended “upon natural justice and upon principles of equity”, Since neither can operate ina vacuum, i propose fo. summarize. the Inateriais which “have been placed before The text books, 1 have been referred to Bunyon's Law of Fire insurance. (913), Baker Welford Law Relating to. Accident Insurance (2nd edy 1932), Weliord: and Otter Barry—-Law Relating to Fire Insur- ance (ith” ed," 1948), MacGillivey on Insurance. Law’ (Sth. ed, 1961), Twamy=— General Principles of Insurance’ Law (Gnd ed, 1970), Colinvaux—The Law of Insut- nce Grd ed. (1970)) and Minion. From these works, I gather the following information: (@) Double insurance with a_ consequent to contribution, or. the need. t0 apply a rateable contribution clause, can 22h fn"tany erent acumen . classes of case appear 10 be the following: vee (@ Concurrent policies insuring pro- erty. “Two or more policies apply fo the same property or groups of property, each group being insured Separately. but not necessarily for the same amounts. (i) Non-concurrent potiies insuring Ieper woo ore ae cove the property flected” by a per insured against but also individvally cover property which is not insured by both or all of the policies. The Sais insured “under” the polices inay be lump sums covering all the4 LLOYD'S LAW REPORTS Ic. 11977} Vou. 1] ‘Commercial Union v. Hayden (b) The use of the wor ) property or may be allocated over Specific items, In either case, the sums may differ. () Concurrent and _non-concurrent policies insuring liabilities. iv) Policies containing “ pro rata aver- age" conditions. ‘These provide that if the subject matter is worth more than the sum insured, i.e., there is under-insurance,’ the liability of the insurer shall be reduced in proportion to the under insurance. " Policies containing these clauses may be either con- current of non-concurrent. “rateable” in the standard contribution clauses me serves to give apparent clarity to a situa tion which is obscure in the extreme. For very many years, the problems have been recognised and differing views expressed as to the correct solution, but meanwhile the British market " has resolved the matter domestically by agreement between insurers. So far as property insurance is concerned, the basis has been that: (@ Unless the assured has been guilty of some fault (as in the Austin case) and, subject always to the application of any pro rata average conditions, the assured is entitled to be fully indemnified up to the limits of the policies. Accordingly, if.a particular method of calculatin contribution would give the assure Jess than a full indemnity, it is modified, the insurers bearing the loss which would otherwise fail on the assured in the like proportion as they bear the remainder of the loss. Where concurrent policies on pro- perty without pro rata average conditions are. involved, the practice is to apportion contribu- tion using the maximum liability approach, i.e to treat each insurer a§ having underwritten that proportion of the loss which the sum insured by his policy bears to the aggregate of the sums insured by all the policies. it) Non-concurrent policies on _pro- perty without pro rata average Conditions seem to be treated in the same way as concurrent pol cies, but there is a complication where the peril affects more than subject matter and the double a insurance may not be identical for ale where there isa tors of property. "X'" and. propery "'¥" nd "X" hag been insured. by 2nd Ay aha bere Jase, by and “‘C™, Here the practice seems {be to start with the largest loss 0 "and, having worked out the contribution as if ¢ was the only Joss, to-do the same calevlation in respect of "'¥" using. the sums insured less the contribution due in respect of “X". The same caleu lation is then done taking “Y" firs. Thereafter, a. mean of the results js used for the purpose of Calculating actual conteution, pro wided that this gives the assured his fullest entitlement. (iv) Other, methods of apportionment have been been Suggested and are iscussed in MacGillivray at pars. 1866 and 1867. ee (©) Im the case of domestic property, ‘where insurances commonly. covet fiferent. interests (eg, that of mortgagor and of mortgagee) ine Surers witha cheerful dstgard for the decision in North British and Mercantile Insurance "Co," London, “Liverpool and Globe Insurance Co., (1877) 5 ChD. 369 treat all the incurances as covering the same interests Where policies contain a pro rata average clause, contribution is based upon the independent liability approach. (a) There appears to be no settled basis for contribution under liability, as con- trasted with property, insurances. The North American Cases. I have been referred to two Canadian cases: MeCaus- land v. Quebec Fire Insurance Co., (1894) 25" OntLR. 330, and Eacrett_¥. Gore District Mutual Fire Insurance Co., (1903) 60 Ont-LR. 592, and to four United States cases: Home Insurance Co. v. Baltimore Warehouse Co. (1876) 93 USR. S.C. 527, Oregon Auto’ Insurance Co. v. United States Fidelity and Guarantee Co. (1952) 195 Fed. Rep. (2nd) 958, Citizens’ Mutual Automobile Insurance Company v. Fire ‘men’s Fund Insurance Co., (1964) 234 Fed, Supp. 931, and Industrial Indemnity Co. v. “ontinental Casualty Co., (1967) 375 Fed. Rep. (2nd) 183. “From these ‘cases it appears that the maximum liability approach is adopted universally in North co)cal LLOYD'S LAW REPORTS 5 ‘Commercial Union v. Hayden 11977) Vou. 1 ‘Ametica irrespective of whether the insur- ance covers property oF Tiability. The Scottish Cases. In Scottish Amicable Heritable Securities Northern Insurance Co. (1883) 11 Sess. Cas. Rr 287, a property insurance case, the insurers agreed" to contribute on the maxi mum liability basis. In Sickness and Acci- dent Insurance Association Lid. 0. General ‘Accident “Assurance. Corporation Ltd, (1882) ‘Sess! Cas. R, 977, a Hablity insur: ance case, both policies insured. the. same Sum and ‘accordingly the rateable propor tion was one half whichever approach Was adopted. ‘The case is however of interest for a dictum of the Lord Ordinary at p. 980: split Masine lsuranee a rule which has jong been recognised is that when the insured has recovered 0 the full extent of his loss under one policy, the insurer tinder that polley can recover from the nderwriters who have insured the same interest against the same risks a ratable sum by way of contribution. The foun- dation for the rule is that a contract of Marine ‘Insurance Is) one. of indemnity and that the insured, whatever the Amount of his insurance or the number Of the underwriters with whom he has Contracted, can never recover more than is required to indemnity him. The dif- ferent policies being all with the same person, and against the same risk, are herefore regarded as truly one insurance and if one of the underwriters is com: pelled to meet. the whole claim, he is entitled to contribution from the other Underwriters, Just as a surety or eautfoner ‘who pays. the whole debt is entitled to Claim ratable relief against his co-sureties of co-cautioners. There is no reason ia ptiteipie, Ia my opinion, why the same Tule should ‘not be applied to” other Glasses of insurance which are also con tracts of indemnity, and this has been recognised by high authority in cases of fire insurance (see North British and Mercantile Insurance" Company “'o. London, Liverpoo! and. Globe Insurance Company, 3 Chub, p. 565). Contribution between sureties. ‘The basis of contribution between sureties 1s eq Gble and not contractual: see” Dering. 0. Earl of Winchelsea, (1787) 1 Cox Eq, Cas. 316; and the basis of contribution between sureties is the maximum liability approsch: see. Ellesmere. Brewery "Co. v.. Cooper, {1896) 1 OB: 75. Furthermore, in Newby . Reed, (1763) 1 Wm. Bl. 417, Lord Mans- Association Ltd. 0: field said that the right of contribution between double insurers + is like the case of two securities: where, if all the money be recovered against one of them, he may recover a proportion from the other. North British and Mercantile Insurance Co. 0. London, Liverpool and Globe Tnsur= ance Co, (1876) 5 Ch.D. 569. This case fs futhority for the proposition that there ‘no double insurance where the two insu dances are in Tespect of diferent interest It does not, however, appear to be any authority 8'to the basis for contribution Since it appears from p. 572 of the report that the independent ability principle” was adopted by agreement Between the Insurers. ‘American Surety Co. of New York v. Wrightcon, (1910). 16 Com. Cas, 37. In this case, the facts and the contentions of the parties are important. ‘The plains, ‘Ametican Surety, had. insured "a bank ‘against the risk of Toss by the dishonesty, but not by. the negligence, of named employee and ha ited thie abi i fespect of each employee. The. limit in respect of one Kohler was'$2500, ‘The aggregate of the limits for all employees was $599,000, ‘The “defendant. and. his fellow Lioyd’s underwriters had insured the bank against risk of loss by robbery, theft, fre embersement, bursary or sbiaction ‘any person whatsoever and by negligence of fraud of the bank's. servants: The Lloyd's policy had'an overall limit of £40,000, but, a a result of a reinstatement provision, this limit realy only applied to ny one loss and. there was no imit for iiabilty in respect of a series of ‘uncon= nected tosses, provided only that the earlier Tosses. were discovered "before the later Tosses took place. Mr. Kohler_misappro- priated $2680, ‘The bank claimed and was paid $2500 by the American insurers and S10 by Lloyd's. ‘The American insres vena claimed contribution on a maximum liability ba fen they contended that the loss of $2680 should be divided between them and Lloyd's in the proportions of $2500" to £40,000, However, at the beginning of the hearing, they abandoned this basis and instead forward. 2 ratio of $2500 t0 £40,000 $199,820. “(I may say that there evidence in the case that in those days the rate of exchange was $5 to the £) On the. figures, the difference was ‘small but. as Mr Justice Hamilton pointed out at pp. 56-37 of the report, the amendment6 LLOYD'S LAW REPORTS (ca. 197) Vou. 1) ‘Commercial Union v. Hayden involved abandonment of the maximum bility principle and the adoption of figures which rested upon no principle at all. However, it is clear that the learned Judge would equally. have rejected an apportionment based upon £40,000.” This was not because he did. not ‘accept the maximum ability approach, at least as a general rule, but because £40,000 was. not the appropriate figure to apply. ‘Indeed, but for the agreement of the parties. that there was a right to contribution on some basis, he might well have held that, on the very special fact, there was no such right. This is clear from che following passage foom the judgment, beginning at pe $5: If it is once assumed that merely because the underwriters might have been liable for £40,000 in respect of Kohler, therefore that sum isto be deemed to be the amount of their insur- ance upon Kohler, irrespective of the other features in the policy, it may be that it follows that the proportions in which the plaintiffs and the underwriters Ought to bear the loss are as £500 [—i.., $2500 at the then current rate—} is to £40,000. But it appears to me that these two factors are not really commen- surate and that they are not, having regard to the intention of the transaction, the two factors which ought to be com: pared. I am convinced that this view is the proper view by reason of the self- reneWing clause inthe Lia's policy, the object of which is to re-adjust the insur- ance not only from time to time by annual periods but at irregular intervals, according as losses occur, so that, there may always be a total liability of £40,000 fon the underwriters and a total insurance applicable, as occasion may arise, of £40,000 in favour of the assured. Tt appeats to me that the problem of dis- covering some terms which can be rate- ably compared with one another between ‘two policies so widely different as these is one that differentiates it so much from the simple rule of double insurance —namely, same interest, same assured, same adventure, same risk and different amounts—as to make any consideration drawn from these hardly applicable at all, and makes it desirable to leave open the question whether anything that can be called contribution in the nature of double insurance arises in such a case as Lloyd's, for their part, put forward three aifferent bases for conirbuti (a) A 50:50 division of the loss of $2680, (b) The independent liability basis— 250:2680. (© A division of $2680 in the propor- tions of 1250:1430. ‘The 50:50 division was based upon the proposition that “equality is equity’, but was rejected by Me, Justice Hamilton at . 58 of the report because the American insurers, unlike Lloyd's, had specifically limited their lability in respect of the mis~ deeds of Kohler, He might have added that, a principle “ equality is equity” is something of a last resort and only app cable if all other things are. equal. He might also have added that itis a principle which is. never adopted. in insurance “as Such. Equality of contribution results from the maximum Hability or the independent liability or both happening to be equal. ‘The division of $2680 in the proportions gf 1250:1430 is merely a variation of the “equality is equity” theme. Lloyd's wai splitting the liability up ‘to $2500 in equal parts and then taking the extra $180 for {heir own account. This again rests on no Known’ principle and. treats. the Lloyd's policy, contrary to the fact, as being two policies, one for $2500 and the other for the excess over $2500. ‘That left only the independent lability basis, which Mr. Justice Hamilton accepted, say This conclusion, which bases the ratio upon actual liability and not upon contin gent obligations, seems to me to be more in accordance ‘with the nature of the transaction, because it is clear that, were the principle as contended for by the plaintiffs, there would be an end, as a matter of business, of insurance in the form which the defendants have sub- scribed, because on such a policy as theirs it would be impracticable to proceed by ‘the method of a schedule of employees with a limit opposite each name and they would be obliged to refuse any ‘omnibus insurance such as they have granted and be compelled to do the fidelity part of the risk in the form in which the American company does it so that they might be protected against the happening of the event which the plaintifis ‘say determines the liability, hamely the whole £40,000 being treated as comparable with the smaller sum of $2,500. T think the £40,000 is compar-cad LLOYD'S LAW REPORTS 7 ‘Commercial Union v. Hayden (1977) Vou. 1 able with the sum_of $595,000, the Segregat of the ims taken each one ‘the employees mentioned in. the Schedule, and in that form the business ean proceed as it has been done in the present case, no doubt with great con- venience to the parties. Some of the text books have treated the decision ‘as a complete vindication of the independent liability principle and, have Suggested that, if other cases came before the Courts, it would soon be established as being. of “universal application, but. this conclusion seems to me tO ignore the passage from the judgment. to” which ‘T Feterred eatin in which the learned Judge Appears to have accepted that in the case of oneurrent policies, contribution is based ‘upon maximum liabilities. ‘As I read the American Surety Co. case, it was a decision upon unique facts in which G@) ‘the ‘learned. Judge doubted whether there was any right to contribution at all; (@) the maximum liability’ approach, whether” based on $2500 and £40,000 of ‘upon $595,000 and £40,000 (see p. 58) was never before Bim, and (©) he was driven adopt the independent liability approse in the absence ofa tenable alternative, Differences between property and tia bility policies. In the American Surety case, Mr. Justice Hamilton did not distinguish between property and liability insurance, but, in case it should be thought relevant in the’ present case, the parties agreed that () Premiums on property insurance are calculated on a percentage of the sum or value insured. i) Liability insurance premiums are not calculated on this basis and do not increase pro, rata asthe limit increases. "The insurer who increases his limit does not receive a premium greater by an amount proportionate to the increased limit. (ii) Ditterent insurers may charge i ferent" percentages in property Insurance rates in lability insurance according to. their” general. poli and view of the tsk or other part cular factors. (iv) The bulk of claims in liability insur- ance fall within. a low limit and Glaims over £10,000" are relatively I would only add that, for reasons which were not vouchsafed,” the Commercial Union charged a premium of £6 and Lloyd's ‘one of £5 for their respective covers. Inthe present case, the Commercial Union’s claim to an equality of contribution rests upon the alleged principle of equity or upon regarding the Lloyd's policy as being in two parts; namely, (a) losses not exceed- ing £10,000 and (b) the excess over that sum. The latter argument attracted me at first, but T have rejected it because this is not ‘the nature of the Lloyd’s policy. If it were, the assured could never recover more than’ £100,000, whereas I should have thought that it was clear that they can recover £110,000 on the two policies if they suffer so large a loss. I also reject this approach because it would be equally appli- cable to concurrent policies» insurin property, where it has never been accepted, and there does not appear to me to be any relevant distinction between property and liability insurance. “All else apart, the equality argument seems to me to be inapplicable where, as here, the policies are clearly unequal. Jn my judgment, the maximum Kabilty approach is essentially correct in relation to contribution between insurers as in rela- tion to contribution between sureties, ‘Where, as here, the policies are concurrent, without a pro rata average condition, the ‘maximum liability approach can be applied directly using the sums insured. Where there is a pro rata average condition, it is necessary first to apply that condition to the policy concerned in order to obtain a revised sum insured; ie, the true maximum liability. Where none of the policies has a specified sum insured because they provide unlimited cover, there will be equality of Sontsibution, the ‘maximum liability and, incidentally, ‘the independent liability being the same.’ Where some of the policies cover unlimited liability but others have specified limits, it will be necessary” to assess what in reality is the maximum cover which will ever be likely to be provided by the unlimited policy and to compare this figure with the sum specified in the other policies. This could occur in the case of employers’ liability cover where insurers ‘may give unlimited cover or may insure for up to £2,000,000. Where policies are non-concurrent, it is necessary to try to assess notional’ sums insured for the subject matter of the double insurance. In my judgment, it is only where this proves impossible, as Mr. Justice Hamilton found it to be in the American Surety Co. case, that resort must/be had to: LiOYD'S LAW REPORTS Ica. 97] Vou. 1 ‘Commercial Union v. Hayden [Camns, LJ. dependent liabilities. I realize that this view might, in theory, cause insurers to specify low’ limits of liability in order to Snprove their contribution position. This would be regrettable, but I think it an ‘likely result. An alternative would be for the market to agree upon a basis for ‘ontribution and to express it in all poli- cies. The assured would then know exactly vihere he stood. For the reasons which T ave given, the plaintiffs’ claim fails. Mr. Raymond Kidwell, Q.C,, and Mr. William Crowther (nstructed ‘by Messrs. Herbert Smith & Co.) for the plaintiff appellants; Mr. Conrad Dehn, Q.C., and ‘he Hon. Christopher Bathurst (instructed by Messts. Reynolds Porter Chamberlain & .) for the defendant respondent. The further facts are, stated adsment of Lord Justice Cairns. judgment was reserved. in the Friday, Oct. 22, 1976 JUDGMENT Lord Justice CAIRNS: This is am appeal -om_a judgment of Mr. Justice Donaldson ‘the Commercial Court in a ease between 9 dnougers raising the question of how rability between them should be appor- ned” when both of them have’ ingured sgainst the same risk and there is a clause Teach poliey providing that in such cir vamistances the insurer shall not be liable ‘ar more than its rateable proportion of any ‘The plaintiffs, the Commercial Union ‘Assurante Co, Ltd, insured Messrs. G. T. & D. Cartwright under a policy covering inter alia public liability with a limit of £100,000 in respect of any one occurrence. Lloyd's anderwriters (including Mr. N.C, Hayden, who represents them in this case), insured Messrs. Cartwright under a public liability policy with a limit of £10,000 in respect of any one accident or series of accidents arising out of one event. Each policy contained a “rateable proportion ” clause. ‘One Parsons made a claim for damages or personal injuries against Messrs. Cart- Wright and, with the agreement of both insurers, his claim was settled for £4425.45, By further agreement between the insurers, dhe Commercial Union met the total of Messrs. Cartwright’s insurance claims in ‘all, ie, paid the £4425.45. But that was without prejudice to the issue of apportion- marten a erecta, tition shea Boh ease tans Dols Gael ite ection hae ae east See ae naa ee ere ea Sip nee nee at Beene ‘The wording of the rateable proportion clause was substantially the same in the two policies and it is sufficient to quote the ‘one in the Commercial Union policy, which read as follows: If at the time of any claim arising under this section there shall be an} other insurance covering the same Tis or any part thereof the Company. shall not be liable for more than its ratable proportion thereof. poozite, contention, which suceeded efore the Judge, was that the apportion- mene should be Gn what has beet called & “maximum liability" basis. Since the gasimum Tablliy of the Commercial Union was £100,000 and that of Lloyd's ‘was £10,000, that basis would result in the Commercial 'Union paying ten-elevenths of every claim, whatever its amount. The Commercial Union's contention was that a basis described as an “independent liability ” basis should be adopted, i.e. that it should first be ascertained what would have been the liability of each insurer if it had been the only insurer and the total liability to the assured should be divided in Proportion to those independent liabilities, so that on these two Soe any claim up to £10,000 would be borne equally, but on a claim for, say, £40,000 the Commercial Union’s independent £40,000 and " Lloyd's limited to £10,000, so that the apportion- ment would be in the ratio of £32,000 to be paid by the Commercial Union and £8000 by Lloyd's. Various other possible divisions were adumbrated and were to some extent pur- sued in the Court below, but on appeal there was no other candidate than the two [have mentioned. ‘The problem is primarily one of construc- tion of the clauses in the policies, because it is common ground that the fraction of his total claim that the assured could recover from each insurer is the fractioncal LLOYD'S LAW REPORTS 9 Carns, LT] ‘Commercial Union v. Hayden (1977) Vor. 1 which that insurer must bear as between itself and the other insurer. It cannot be said that as a matter of language either construction is, preferable to the other. There is no English authority which is directly in point and such deci- sions on apportionment between insurers as have been cited—two in England, two in Scotland, two in Canada and four in the United States—shed only an uncertain light fon the problem. On behalf of the Commercial Union it was submitted that passages in standard text-books showed that in practice the independent liability basis was the one usually adopted and was the basis regarded by the authors of those books as the fairer. ‘The use of that material was objected to on behalf of Lloyd’s on the grounds that practice was not pleaded, that if it were it would be necessary to show by first-hand evidence that the practice was. certain, notorious and reasonable, and that the writers’ opinions as to what was fair could not govern a question of construction. We were informed that the Judge had ‘ruled against the Commercial Union on this matter. He did however use the text- books to make an interesting review of the ‘way in which the problem of apportionment thas been dealt with in various contexts. At the end of that review he sai . . - There appears to be no settled basis for’ contribution under liability, as con- trasted with property, insurance. Without giving any ruling on th admissibility, we looked, de bene esse, at passages in two text-books to which Mr. Kidwell referred us~MacGillivay & Par ington on Insurance Law (6th ed., pars. 1998 and 2000) and Ivamy. on General Principles of Insurance Law (rd ed, at pp. 406, 469-472, 477 and 479). All that can be extracted’ from these passages of any possible relevance to the present appeal is that in. property insurance the usual basis of contribution is the ‘maximum liability basis except where the policies contain pro rata average clauses (which are now almost tniversal except in domestic policies) when the independent liability basis is. used. Ivamy considers the independent liability basis to be fairer and more logical. In my opinion, Mr, Dehn's objection to the use of this material was valid—but I-add that T cannot see that it is of any substantial help to the Commercial Union's case: certainly if does not. support 2 suggestion of MF. Kidwell that if, Mr. Justice Donaldson's decision is upheld, it will upset the whole insurance market. In the Court below two Canadian cases and four United States were cited, and Mr. Justice Donaldson summed up their effect by saying: From these cases it appears that the ‘maximum liability approach is adopted universally in North America. irrespec- tive of whether the insurance covers Property or liability. We were not asked to look at the Canadian cases. Of the United States cases, one is a Supreme Court decision on property insur- ance and the other three are decisions of other Federal Courts on liability insurance. In Home Insurance Company v. Balti- more Warehouse Company, (1896) 93 US. 527, goods were insured under one policy {for 's20,000 ‘and under another policy for $10,000. It does not appear that either policy contained a rateable proportion clause. The action was brought by the assured against the $20,000 insurer and the Supreme Court held that the plaintiffs were entitled to recover from that insurer two- thirds of their total loss. No other fraction was suggested. In Oregon Automobile Insurance Co. v. United States Fidelity Co., (1952) 195 Fed, Rep. (2nd) 958, the United States Court of Appeals, 9th Circuit, considered a dispute between two insurance companies under automobile liability policies, Each policy Contained a clause which, if applied liter- ally, would mean that the assured could recover nothing. “It was conceded that such a result was not intended and the contest ‘as as to which was the “ primary” policy. The Court held that neither was to be garded as secondary to the other and accordingly that there should be a pro rata division of liability. Tt was conceded that in that case the division should be accord- ig to the proportion of the amounts of In Citizens Mutual Automobile Insurance Go. v. Firemen’s Fund Insurance Co., (1964) 234 Fed. Sup, 931, Judge Fox, District Judge, United States’ District Court, Michi- gan, in a similar case to the Oregon case Feached a similar result, no alternative basis of apportionment being put forward, In Industrial Indemnity Co. v. Continen- tal Casualty Co., (1967) 375 Fed, Rep. (2nd) 183, the United States Court of Appeals, 10th Circuit, held that a similar basis of apportionment was applicable, although one10 LLOYD'S LAW REPORTS Ica. 11977) Vor. 1) ‘Commercial Union v. Hayden [Caimns, LJ. policy was a specific automobile policy and fhe other was a comprehensive policy. There are two Scottish decisions, one dealing with’ property” insurance” and one. with liability” insurance. Scottish Hlertable Securities Association v. Northern Insurance Co. (1883) 11 Sess. Cas. R. 287, was concerned with property insurance and, Zs the insurers agreed to contribute on ‘the ‘maximum’ liability” basis, the Case ‘is of no asistance ‘asa decision Of the Court, “Sickness and” Accident Tnsurance “Aszociation Ltd. ". General ‘Accident Assurance "Corporation, 0892) Sees. Cas R. 977, was about’ Hability insurance, but, as both policies insured for the same sum, either basis of apportionment would. produce. equality. Mr. Justice Bonaldson however are attention fo 3 Grcinary at p. 980 in the course of which the contribution between the insurers. was likened to that between co-sureties. Thi was an aspect of the matter much relied on by Mr. Dehn in this appeal. 1 shall deat swith He later So far, no case has been mentioned in whieh the Independent liability basis was plied, or even discussed, Now Tcome t0 wo English cases where it was adopted. The first is North British and. Mercantile Insurance Co. 0. London, Liverpool and Globe Insurance Co., (1877) 5 ChD. 569, ‘which came before Sir George Tessel, MIR, and the Court of Appeal (Lords Justices James, ‘Mellish and Baggallay), Tt was a fire insurance ‘case. Once again the basis ‘of apportionment was agreed upon by the parties (see at p. 572) and the most that Ein be said is that the eminent Judges who decided the ‘ase saw nothing. strange an fis, It may be observed that Lord Justice ‘Melish said. at p. 583 that there was no reason why the contribution should not be ‘on the same basis asin marine insurance. The Marine Insurance Act, 1906, 8. 80(), which codified the common law snd can be {aken to be to the seme elfect as the law in force in 1876, provides: When the assured is over-insured 3 double insurance, each insurer is bound, 4s between himeclf and the other insurer, to contribute rateably to the toss in pro: portion to the amount for which he is Fable under the contract. {As is pointed out by Tvamy at p. 468, foot- rote 7 this provision is ambiguous-~" the amount for which he is Hable™ may mean either the amount of the insurance or the sctual liability in the particular case” See also Arnould on Marine Insurance, British Shipping Laws, vol. 9 (1961), par. 409. T come now to the decision of Mr. Justice Hamilton in American Surety Com- pany of New York ». Wrightson, (1910) 16 Com. Cas. 37. This case is nearer to the heart of our problem than any of the others, because it was a case of liability insurance and there was a contest between the maxi ‘mum liability basis (or a modification of it) and the independent liability basis. The decision was in favour of the latter." There were, however, considerable compiications in the case because of differences in the scope and terms of the two policies. Mr. Justice Hamilton said at. 59 that but for « it may be that it follows that the proportions in which the plaintifis and the underwriters ought to bear the loss are as £500 to £40,000 [—that being the maximum liability ‘ratio—]. In the result, all that one can say is that Mr. Justice Hamilton had been dealing with the’ present case he might have held the ‘maximum liability basis to be applicable, but on the other hand if the independent liability basis was a correct basis of appor- tionment in the American Surety ease, it is difficult to see why it should be a wrong basis in the present case. At p. 55, Mr, Justice Hamilton likened the case of co-insurers to that of co-sureties. As I indicated earlier, Mr. Dehn places much reliance on the analogy between co-insurers and co-sureties. In Newby v. Reed, (1763) 1 Wm. Bl. 417, Lord Mansfield, C., held that on a double insurance the’ assured could recover the whole from one insurer and leave him to recover a “rateable proportion” from the other. (Obviously the policy then sued on did not contain a rateable proportion clause.) In the second edition of the volume there is appended to the report a note, presumably by the editor, Mr. Elsley, in which Lord Mansfield is’ quoted as saying in another case, with regard to the contribution between insurers: It is like the case of two securities; where, if all the money be recovered against one of them, he may recover a proportion from the other. Now, in Dering v. Winchelsea, (1787) 1 Cox Eq. Cas. 318, an Exchequer Court (Chief Baron Eyre and Baron Botham) held that contribution between sureties was founded on equity and not on contract and that if two sureties were bound for thecad LLOYD'S LAW REPORTS u Cairns, LID ‘Commercial Union v. Hayden 11977) Vor. 1 same principal the burden was to be borr equally. At pp. 322-3 “ average of cargo was treated as comparable. In Pendlebury v. Walker, (1841) 4 Y. & C. 424, Baron Alderson applied the prin- ciple of Dering v. Winchelsea and added, biter +. « the law superadds that they should ali contribute equally if each is surety to ‘an equal amount; and if not equally then Proportionately to the amount for which each is surety. In Ellesmere Brewery Co. v. Coope [1896] 1 QB. 75, a Queen’s Bench Divi sional Court (Lord Russell of Killowen, CJ, and Mr. Justice Cave) held that where there were four sureties, two for £50 each ‘and two for £25 each, and the loss was £4 “the burthen is a common burthen of all but unequally distributed” and the liability would be £16 for each of the first two sureties and £8 for each of the other pair. If the independent liability basis had been considered appropriate then, as the inde- pendent liability for each of the first two would have been £48 and that for each of the second two £25, the proportion would hhave been 48:25, ie. £31.11.3 and £16.89. Tt was, however, unnecessary to the decision to determine” whether the maximum liability basis or the independent liability basis was the right one. What had hap- pened was that one of the sureties who hhad agreed to sign for £50 had signed only for £25, and this was held to relieve the other sureties. The contention which was rejected was that each surety was liable for ‘only £12 and that the failure of one surety fo San for his full amount was therefore immaterial. Tam not persuaded that the same basis should apply to liability insurance as to property insurance, nor that the analogy with co-sureties is a reliable guide. In property insurance the insurer insures the property for a stated sum, which is normally supposed to represent’ the value of the property. It is true that there may bbe under-insurance or over-insurance. If there is under-insurance, the assured can never recover more than the sum for which the property is insured, while if there is ‘oversinsurance he cannot recover more than the actual value. In liability | insurance there is no corresponding “ value” to which the limit (if any) of the insurer's liability is related. Premiums for the two types of insurance are quite differently assessed. For the purposes of the present case, the parties agreed to the following proposi- tions: (i) Premiums on property insurance are calculated on a percentage of the sum or value insured. (i) Liability insurance premiums are not calculated on this basis and do not increase pro rata as the limit increases. The Insurer who increases. his limit does not Feceive a premium greater by an amount proportionate to the increased limit. roll) Different insurers may, charge i ferent percentages in property insurance and rates in liability insurance according to their general policy and view of the risk or other particular factors. (iv) The bulk of claims in liability insur- ance fall within a low limit and claims over £10,000 are relatively rare. While in the present case it would be wrong to place too much weight on the fact that the Commercial Union's premium was £6 with a limit of £100,000 and the Lloyd's premium was only £5 for a limit of £10,000 (Gee point (ili) above), it is obvious from the comparatively small amount of each premium that it is fixed on the assumption that the risk of a claim anywhere near the ‘maximum is extremely small. Somewhat similar considerations apply to suretyship. Its unlikely that a surety or a group of sureties would engage to be liable for a maximum far exceeding the indcbted- ness which has been incurred or is likely to beincurred by the principal debtor. Tam pre- pared to assume that as between co-sureties the basis of apportionment fs the maximum liability basis'(though there is no decision to that effect binding on this Court), but 1 do not consider that there i any authority for the proposition that the proportion must be fixed in the same way between co-insurers as between co-sureties. The most that can be derived from the note to Newby v. Reed and from a passing reference in Dering v- ‘Winchelsea is that both situations are situa- sions where apportionment is. appropriate. It'does not follow that the basis of appor- tionment must be the same for insurers as, for sureties, nor that the basis must be the same for lisblity as for property insurance. In the American Surety! case at p. 35 Mr. Justice ‘Hamilton, having dealt with the analogy of sureties, said: - It does not throw any light upon the question as to the ratio in which contri- Butions in this case ought to take place.2 (1977) Vou. 1) LLOYD'S LAW REPORTS ‘Commercial Union v. Hayden Ica. ISTEPHENSON, LJ. ‘The American cases do tend to support the maximum liability basis as the appro- priate basis for liability insurance, but in hone of the cases cited does it appear that the basis of apportionment was discussed. I therefore approach the problem as one which is mot governed by any authority binding on this Court and on which there is, not, in cases decided in England or so far as I know in any other jurisdiction, any ‘lear preference for one of the two possible bases over the other. The issue being one of construction and the language being, as it seems to me, equally capable of either suggested mean- ing, Task. myself which meaning is that more likely to be intended by reasonable business men. The documents to be con. strued are policies, the parties to each of which are an assured and an insurer. It is not to be supposed that when either policy Issued the Insurer knows that there is, or is going to be, another policy covering t same risk. Each limit of liability and each premium may be taken to be fixed Knowledge of the limit under any other policy that may have been, or may be going fo be, issued. It is difficult to suppose that when’ a limit of £10,000 was fixed by Lloyd's it could be intended that if there happened to be another policy with a limit of £100,000, Lloyd's underwriters should be liable for only one-eleventh of any claim, however small. The independent liability basis is much more realistic in its results. In the case of these two policies, any loss up to £10,000 would be shared equally, and it is only. with larger losses that the’ pro- portion of the Commercial Union’s share to Lioya's share steadily increases until with a loss of £110,000 or more, ten-elevenths fof the liability falls on the Commercial Union, ‘The obvious purpose of having a Jimit of liability under an insurance policy ig to protect the insurer from the effect of exceptionally large claims: it seems to me artificial to Use the limits under two policies to adjust liability in respect of claims which are within the limits of either policy. In the particular circumstances. of the ‘American Surety case, Mr. Justice Hamilton found that the maximum liability principle was unworkable. There might be many cases in which the types of cover provided and the terms of the policies would differ So much as to have a similar effect. One type of difference which was particularly considered below and on appeal was where fone policy has a limit of liability and the other has not. Mr. Justice Donaldson ‘suggested that it would then be necessary to assess what in reality was the maximum cover ever likely to be provided by the unlimited policy and to compare this with the sum specified in the other policy. This, with respect to Mr, Justice Donaldson, seems to me to be a distortion of the maxi- ‘mum liability principle and it would create great difficulties in making the assessment. MG, however, it were to be held, as it well ‘might be, that in such a case the maximum liability basis breaks down and the indepen- dent liability basis has to be applied instead, fone would have the absurd position that ‘when one policy had a high limit and one a low limit and a loss was within the lower limit, it would have to be shared in propor- tion to the limits, however great the differ- ence between them, whereas if one policy hhad no limit, the liability would be sl equally. Mr. Dehn suggested that it was extremely unlikely that in any particular type of insurance one policy would be unlimited and the other would not, but it is easy to envisage cases where it might happen; for example, an English and an American motor vehicle third party insu ‘ance, the English policy being necessarily unlimited because of the statutory require- ment and the American policy having a limit. “Another type of case where it would be difficult to apply the maximum liability basis would be if one policy had a limit for “any one accident" and the other for “any one accident of series of accidents arising ‘out of any one event ": (See South Stafford- shire Tramway Co. v. Accident Assurance ‘Association, [1891] 1 Q.B. 402.) For these reasons, I am of opinion that the construction, to be preferred is that which would apply the independent liability Principle, and I would allow the appeal accordingly. Lord Justice STEPHENSON: In this case both insurers have, by an express condition of their policies insuring an assured against public liability, limited their indemnities Against public liability to a rateable prop tion of the assured’s claim. Both. con: tions, conveniently described as contribu- tion clauses, are in substantially the same form of words. The Commercial Union Assurance Co. ‘policy. prefers Sir William Blackstone's own spelling of “ ratable, the Lloyd's policy, underwritten by Mr. Hayden the alteration of his spelling to the modern usage by his editor, Mr, Elsley: contrast the eports in the first and second editions of Sir William Blackstone's Reports, vol. 1, P- 416, of Newby v. Reed, whereCAI StEPHENSON, LI] «it was ruled (in 1763) by Lord Mans- field, C.J. and agreed, to be the Course of Practice, That upon a double Insur- lance, though the Insured is not entitled to two Satisfactions; yet, upon the frst Action he may recover the Whole Sum insured, and may leave the defendant therein to recover a ratable Satisfaction from the other Insurers. But there is more than a difference in spelling between the two insurers. ‘The difference between them is the difference in interpreting what 2 rateable proportion ff the assured’s claim means, Lloyd's con- tending that it means the proportion which the limits of potential liability provided by the two policies bear to cach other (the ‘maximum liability” interpretation), the ‘Commercial Union that it means the pro- portion which their actual liabilities if each yere sole insurers bear to each other (the independent liability" interpretation). ‘The Judge was asked to decide between these two interpretations. He decided that the former was the true interpretation and that Lloyd’s were right in contributing one- eleventh of the assured’s claim, not one-half as the Commercial Union contended. We are asked to say whether the Judge was right or wrong. ‘The problem is one of construction: what do. the words used in these. contribution clauses mean? T-confess that at the end of the interesting arguments addressed to us T oubted whether any certain meaning could be given’ fo ‘them, or whether it were possible or desirable” to" give. them “any Certain meaning applicable to. them in all tases where they may be used. Tt_seemed to me that if the learned Judge's construc- tion were right, it might be right only ‘where, as “here, both. policies. limited insurers" liabilities by ‘maximum amounts and could not be applicable where one icy gave unlimited cover. If'we are to Secide “between the two candidates. put forward by the parties and give the clause & construction which will apply to all cases, ‘where itis used, Lam driven by the difficulty ‘of calculating @ notional maximum when none is expressed t0 favour the independent liability basis. As both my brethren think that we can and should in effect treat this, a5 a ‘test case and give an authoritative interpretation of the clause ia one or other of the only two senses we are asked to give it in lability poticies, T agree with them that Wwe should’ reject. the maximum lability basis and allow the appeal on the indepen- dent liability basis. LLOYD'S LAW REPORTS B ‘Commercial Union v. Hayden 1977) Vou. 1 ‘The language of the contribution clause goes back to what Lord Mansfield, C.J., is Feported to have sald over 200 years ago, and it has been repeated without regard to the development of insurance which has made what was plain and certain obscure and ambiguous. ‘When Mr. James Alian Park (afterwards Mr. Justice Park) ‘wrote his book on "A System of the Law of Marine Insurances with Three “Chapters on’ Bottomry; on Insurances on and oa Insurances against Fire he included a chapter (No. 15) on ““Re-assurance, and of Double Insurance ”; and at p. 281 of the 4th ed.— 1800, the oldest which T have looked at— he sets out the principles declared to be the law in four cases as follows: , Where a man has made a double insurance, he may recover his loss against which of the underwriters he please, but he can recover for no more than the amount of his loss. . . . It being thus settled, that the insured shall recover but ‘one satisfaction, and that in the case of double insurance, he may fx upon which of the underwriters he will for the pay- ment of his loss, it is a principle of natural justice that the several insurers should all of them contribute in their several proportions, to satisfy that loss against which they have all insured. The four cases from which he extracts these principles are the decisions of Lord Mansfield in Newby v. Reed, already cited, and in three other cases: Rogers v. Davis, Davis v. Gildart and Godin v. The London ‘Assurance Corporation, (1758), which is Feported in 1 Wm. Bl. 103 and’ more fully in 1 Burr. 489, In Rogers v. Davis there was a verdict for Rogers, who had insured on a voyage, sta London underwriter (Davis) for the full demand, with liberty for the defen- dant to bring an action against Liverpool underwriters (Gildart) if he thought fit. In Davis’ action against Gildart, Lord Mans- field is reported by Mr. ‘Justice Park to have stated (as in the note to Newby v. Reed in the 2nd ed. of William Blackstone's Reports) that it is like the case of two securities; where, if all the money be recovered against ‘one of them, he may recover a proportion from the other In Godin v. The London Assurance Cor- poration as reported in 1 Burr., Lord Mans- field laid down the principle of contribution4 LLOYD'S LAW REPORTS ICA. (1977) Vou. 1) ‘Commercial Union v. Hayden [STEPHENSON, L. Mr. Justice Park uses in the passage which T have quoted from p. 281 of his work; but Lord Mansfield is reported by Burr. (at p. 492) to have said that ‘the several insurers shall all of them contribute pro rata”, for which Mr, Justice Park has substituted the words “contribute in their several proportions ". ‘Now Lord Mansfield thought contribution insurers was like contribution co-sureties; and contribution between co-sureties «git bottomed and fed in genera rinciples of justice, and does not spring From ‘contract, ("Dering 0. Earl of Winchelsea, (1787) 1 Cox Eq, Cas. 318, at p. 321, per Chief Baron Eyre, giving ihe’ judgment of the Court of Exchequet in Equity. But that is all the help to be got from the analogy and itis not ‘Deciding how justice of equity requires the contribution br satistaction or proportion to berated between “eo-sureties [sa comparatively Simple matter, as such cases as Pendlebury br Walker, (1841) 1'Y. & C, 424, show. agree with Mz. Justice Hamilton in finding fe help in that quarter towards answering Tne, question as'to the ratio in which the ution in. this ease ought. to. take place": American Surety Company of New York v, Wrightson, (1910) 16 Com. Cas. 37, ap. 95. Lord Mansfield did not elaborats ‘what he meant ‘by contributing. pro. rata: he did not need t0, In his case he was not Considering liability insurance or a contri: ution clause and the assured was not pre- Vented from being paid his loss in full by a Contribution clause; he was merely pre- Seated by natural justice from being paid Inore than his Toss. ‘As between the insurer and insured ‘and upon the foot of commutative ice merely, there is no colour why the ingurers should not pay the insured the whole: for they have received a' premium for the whole risque. [—Godin v. London ‘Assurance Corporation, 1 Burr. at p. 492-1. But the introduction, of a contribution clause into the insurer's policy prevents the assured from recovering. full satisfaction from any one insurer, and if the other insurer repudiates liability or goes bank- rupt or into liquidation, ‘the assured may never recover full satisfaction. So the basis fon which the co-insurers’ contribution is to be rated or calculated, which was impor- tant to them in Lord Mansfield’s day, has become important to the assured. By doubly insuring for whatever reason by means of policies with a contribution clause he has imported into his contract a limita tion on ‘his contractual rights and that limitation is that which is imposed by the words of the contribution clause, con- strued, if ambiguous, against the insurers. It may be that in property insurance there is no ambiguity. Bug if the indepen- dent Hability basis is right for contributions between insurers of property, as agreed in North British and Mercantile Tasurance Co. v. London, Liverpool & Globe Insurance Co, for the reasone given by Lord Justice Gaims 1 doubt its application to lability {nsurance ‘unless, otherwise justified.” The diflering interpretations put upon the clause by the parties in this case, if they do not Suggest that its language is ambigoous, negative any certain, notorious and reason: able practice which could and should have been pleaded” and proved asa. custom binding on the assured, T cannot find any gertainy in authority or in practice forthe sis on which lability 3 a Goned ‘between cowurctiay vor” fuloed between co-insurers of property: uncer- tainty extends even to the basis of appor- tionment in marine insurance, because 2 has "been pointed. out, the’ wording” of £.80(1) of the Marine Tasurance Act, 1906, {s itself ambiguous, and might refer to the Tiabiity for which a. co-insurer is liable either actually or potentially. 1 agree with all that Lord Justice Cairns has said about the authorities cited to us and thelr effect, and do not repeat it. Ifa Court is to give Certainty to. what appears to be uncertain Sand find what the clause means, it can only 0-50 if it can ascertain with a fair show of confidence ‘the ‘meaning more likely to. be intended by reasonable business men than any other, of, on, the assumption that the Other members of the Coure are prepared fo make, the meaning mote likely to be Intended than the only other suggested. It is unlikely that the assured had in fact applied his mind to the clauses, or had ever heard of the independent lability principle. We do not know why he insured twice against the same risk. “His policy with the Commercial Union covered other risks than public liability, including fire; and Section A Of that policy, which covers’ destruction or damage of ‘property by fire, contains a similar contribution clause to Section H, which covers public liability—a matter relied on by Lloyd's, who argue for the same construction of the clause in eachcal LLOYD'S LAW REPORTS 15 Lawron, LJ ‘Commercial Union v. Hayden (1977] Vou. 1 section, Neither insurer will know, when | Lord Justice LAWTON (read_by Lord he insures the assured, whether the assured hhas insured oF will insure twice over against the same risk, let alone on what terms: but the assured must be taken to know the terms of both his policies, and to have tended to be bound by what reasonable insurers intended that their contributions should be, except in s0 far as they failed to express their Intention in their policies. ‘And what they are likely to have intended is presumably ‘what is just and equitable. I should have come to the Judge's conclu- sion if all public liability policies were limited as are these two. Unlimited liability to third parties, except under the Road Trafic Act, 1972, is not favoured by the legislature: see s. 11 of the Insurance Companies Amendment Act, 1973, and $. 27 of the insurance Companies Act, 1974 (aot yet in force) and reg. 3 of the Em- ployers’ Liability (Contributory Insurance) General Regulations, 1971 (SI, 1971 No. 1117). But, many policies of insurance against public liability still need not and, we are told, do not contain any limitation of liability.” That is something which, in my opinion, respectfully differing from’ the Tearned Judge, the Courts cannot do for insurers, When they have done it them- selves, they have presumably done it for good reasons, connected perhaps with Feinsurance among other things, though they do not relate their premiums to the maximum amount of their liability. Is it then just and equitable that when they have done it their contributions should be rated ‘on the maximum liability principle? Would that be what they are most likely to have intended by the language which they have used without clarification or amplification to meet the more complicated circumstances of liability insurance today? I would have, thought that the answer would be “Yes”, were it not for the fact that the language is used in many liability policies where there is no limitation of fiability. “Tempted to refuse to do what I think insurers should themselves have done, namely made clear to all, the assured included, what it is that they mean by rateable proportion, I have nevertheless come to the conclusion that, for the reasons given by Lord Justice Cairns, the meaning ‘more likely to be intended by reasonable business men’ is that submitted by the Commercial Union and the contribution should in this case be equal. I agree, therefore, that the appeal should” be allowed. Justice STEPHENSON): For over 200 years the British insurance market has had to cope with the problem of double insurance. By 1763 insurers had evolved a practice for dealing with it.” In that year, Lord Mans- field in Newby v, Reed, 1 Won. BI. 417, had to rule whether it reflected the rights in law fof the assured and two or more insurers, He decided that it did. The only report of his judgment is a short note made by Sit William Blackstone. It was as follows: It was ruled by Lord Mansfeld, C.J, and agreed to be the course of practice, that upon a double insurance, though the insured is not entitled {0 two satisfac: tions; yet, upon the first action, he may recover the whole sum insured, and may leave the defendant therein to recover a ratable satisfaction fromthe other insurers. On one other occasion Lord Mansfield seems to have given a ruling to the same sffect. He then likened the contribution to be paid by one insurer to another to that which has_to be paid by one surety to another. The only’ reports of this case, if they can be. called reports at all, are’ in Park's Insurance (1817 ed,), 423, and in a note to the report of Newby v. Reed in the 2nd ed. of Blackstone's ‘Cases, From Lord Mansfeld’s time until the present, Counsel's researches have revealed few cases in British Courts dealing. with contribution between insurers. when there has. beea double insurance and only one, American Surety Company of New York v- Wrightson, which dealt with double ance under indempity lability pol which this appeal is concerned. The facts fof that case and the way it was argued ‘make it a somewhat special one, from which itis difficult to extract principles of general application, Despite the lack of guidance from the Courts in the two ‘centuries since Lord Mansfeld’s time, the insurance market has coped with double insurance problems. According to the text-books ‘on insurance land insuranee law, practices have evolved for the settlement of contributions; but the plaintiffs in this ease did not plead nor call ny-evidence to prove that such practices as there are amount to usages. It follows, in my judgment, that my task is to decide ‘without reference to any existing practices hat consequences follow in law from the fact that the plaintiffs paid out in full the assured. who was. also insured against the Seme risk with Lloyd's underwriters. That16 LLOYD'S LAW REPORTS (1977) Vou. 1) ‘Commercial Union v. Hayden ICA. TLawrox, LJ. some consequences follow is not in dispute. Identifying them when there are so few judicial signposts presents the difficulty I start by asking myself what Lord Mansfield could have meant by the phrase attributed to him by Blackstone, “a ratable Satisfaction from the other insurers”. A claim to contribution could not arise in contract, as there would be no privity between the insurers. In Dering v. Earl of Winchelsea, the Court of Exchequer had t0 consider a problem of contribution between sureties. Lord Chief Baron Eyre reviewed ‘a number of authorities dealing with contri- Dution between various classes of persons having legal ties with one another, for example co-heirs, co-feoffees and tenants, in common. He commented on Sir William Harbert’s case, 3 Co. 11 B, which dealt with many cases of contribution, and went on as follows: and the reason given in the books is, ‘hat equali jure the law requires equality: fone shall not bear the burthen in ease of the rest, and the law is grounded in great equity. ‘After his general survey of the law rela ting to contribution, he examined the part cular case of sureties and the principle tupon which they should make contribution. He referred to various circumstances which could apply, and made this comment at p- 322: In all these cases the sureties have a common interest, and a common burthen; they are joined by the common end and purpose Of their several obligations, as much as if they were joined in ‘one instrument, with this difference only, that the penalties will ascertain the propor- tion in which they are to contribute, whereas if they had joined in one bond, it must have depended on other circum” stances. Mr. Dehn submitted on behalf of the defendant underwriter that what was a good rule for contribution between sureties was ‘also a. good rule to be applied between insurers in cases of double insurance; and since contribution between sureties could be ascertained by reference to the penalties each could incur, so, as between insurers, the proportions could be fixed by reference to the maximum liabilities which each could incur. am not satisfied that comparing contri- bution between sureties and between insurers under indemnity liability policies is helpful. I prefer to look behind the application of principles to sureties to the principles themselves. ‘The underlying principle is, in my judgment, that burthens Should be shared. 1 infer that this is what the phrase “‘ratable satisfaction " in Newby v. Reed means. ‘What is the burthen under an indemnity liability policy? Tt is the claim which is made, not the claim which could be made. This kind of policy may be unlimited as to the amount of the indemnity, as it always is under motor-car policies and often is under ‘employers’ liability policies, or limited as it almost always is under professional negli- gence policies. Even when a policy limits the amount of the indemnity, itis a matter of judicial experience that most claims are ‘well below the limit. To ascertain the pro- portions of contribution by reference to the limits of indemnity would, in my judgment, be an odd way of sharing the burthen in equity between the insurers; and in cases where there was a limit under one policy but none under another, it would be a diff- ccult judicial task, probably an impossible fone, "to assess, as Mr. Dehn suggested should be done’and Mr. Justice Donaldson ‘agreed (I quote from the judgment, see pe7 ante), the maximum cover which will ever be likely to be provided by the unlimited policy and to compare this figure with the sum specified in the other policies. Further, using the limits as the basis for apportionment of contributions would be unfair to the insurer who gave a much higher limit for a small "increase in premium. This case provides an example. ‘The plaintiffs gave the assured a limit of £100,000; the defendant underwriters a Himit, of £10,000. "The “iference in premium was £1. It is a matter of my experience both as a Judge and a practitioner that the assessment of premiums liability policies is based on underwriting experience backed up by statistical information and actuarial projections. The risk underwritten is at its Sreatest with small claims and at its least with large claims. It follows that the upper limits for claims can be increased with only a small increase in premiums. When there are’ two. insurers" with differing upper limits for claims, the inference I would draw is that they were both accepting the same. level of risk up to the Tower of the limits. If this be so, in my judgment, “a ratable satisfaction”, tc use Lord Mansfield’s phrase, would be anQB. (Adm. Ct] LLOYD'S LAW REPORTS v Part 1 equal division of lability up to the lower limit; the burthen of meeting that part of the claim above the lower Innit would fall lupon the insurer who had accepted. the igher limit. Tn coming to this conclusion I have not followed the North American cases dealing with the division of ‘burthen when there fas ‘been double insurance under policies insuring property. My brethren have referred to those cases In their judgment there is mo need or me t0 do 30 ae Inder property policies, the insurer's ta in assessing the premiuin t0 be charged is different from that of assessing premiums tinder liability policies. What may be a ‘Mratable satisfaction” under liability poli- cles may not be 20 under property polices. My judgment is concerned solely with con: tribution under” lability policies. "The Specific clauses providing for contribution in the two policies under consideration in this Appeal i my jdment, dno more han fect the law a to contribution under liability policies. "We were told that now- adays property” insurance. policies ‘usually ‘contain pro rata average clauses which have the effect of applying the same Tules as t0 contribution to. such policies as apply to liability policies. This may be s0; but we were nof required fo construe such clauses, Like my brethren, I would allow the appeal, The “Berwyn” (1977) Vou. 1 QUEEN'S BENCH DIVISION (ADMIRALTY COURT) July 26 and 27, 1976 THE “BERWYN” Before Mr. Justice Branpox Limitation of liability — Wreck removal — Statutory debt — Harbour authority removed sunken ship — Whether entitled to” recover Costs of removal as statutory debt — Whether shipowners’ lability Iimited — Mersey Docks ‘and Harbour Act, 1954, s. 3 (3) — Merchant Shipping Acts, 1894 to 1974, On Feb. 15, 1976, the defendants’ ship Berwyn. struck’ the Queen's ‘North Training Bank near Taylors Spit at the entrance 10 the Crosby Channel, as a esilt of which she sulfered damage. inclading holing, and ater Sank in Liverpoo! Bay. The plana harbour athories cxrcied theirs statutory "powers and. remo Berwyn, sling cerain artes from her for £223 "which they fetained to reimburse them selves in part for the costs of removal The plaititts brought an action agninst the detent te a unser for igence and (i £25263.28 being the balance Sri cout of temoval under 3G) of the Mersey Docks and Harbours Act, 1954, Whi Provided fater al spl the prosents of ale ofthe wreck of Inet. ‘sci the babar x may recover the defeiency traci te. persoh who, was the pero the vel at the time ot the sting Provided that if the owner of the vessel sores Tomoved ss ois not under the Provisions of the Merchant ‘Shipping. Acts iso4to 1974... . entitled to limit. his liability in| ‘of the taid delciency that owner sha pot be lable to pay ‘sum exceeding the amount prescribed fs the limit of the The, amount ‘ot Timited ity under the Merchant Shipping ‘Acts, 194 to 1904 was £19163. Hiei, by QB, (Adm. Ct) (Bnaxoon. 1), that (1) ‘win respect of the said elicency” in Bathe ovo to's. 3.3) of the oe Backs a er ug Act, 1954 refered nl 1 the laity of a shipower in respect of ‘deficiency of | wreck-raising, Sicily expense imposed is te fore of's statutory debt irrespective of fault (see p. 21,