Escape Clauses

What is an Escape Clause? An escape clause is a condition which effectively forbids the insured from taking out another policy without the consent of the insurer. It does this by providing that the insurance will be avoided if The insured takes out any further insurance on the same risk. The original purpose of these clauses was to prevent the insured from secretly arranging double or multiple insurances and so guard against possible fraud. The clause may also state that the insurance will be invalid if the insured already has cover on the same risk with another insurer.

What happens if a person takes out two policies and both prohibit other insurance?

This was the situation in a Canadian case, “Home Insurance Company of New York v Gavel (1928)”. Gavel wanted to insure his home for $12,000 but could obtain cover for only $8,000 from Home Insurance. He later took out a further policy for $4,000 with the Northern Assurance Company but both policies exclude liability where the insured had an existing policy on the same risk or bought further insurance afterwards. The Supreme Court of Canada held that the second policy (with Northern Assurance Company) never operated because of the existing policy with Home Insurance. This meant that Home Insurance were liable for the loss because no insurance other than their own had ever come into effect. The decision was approved by the Privy Council.

Copied from “Legal Aspect of Insurance” the CII – Study Course P03

Home Insurance Company of New York v Gavel (1928)

Insurance Co of North America v Continental Casualty Company

Century Surety Co. v. United Pacific Insurance Co

Multiple Insurer Disputes: Prorata, Excess and Escape Clause

some insurers modify the Other Insurance Clauses to give better clarity, an example of one drafted by QBE

Other Insurance – if any Claim or circumstance notified under this Policy is insured under another insurance policy, then this Policy will only pay after the indemnity provided by that other insurance has been exhausted or after the Deductible has been fully paid, whichever is the greater, unless such other policy is written to be specifically in excess of the cover provided by this Policy. Further You will notify Us of the existence of such other insurance policy or source of indemnity, together with the full details and such further information that We may reasonably require.

Copied by Imam MUSJAB