Composite Insurance (pii) versus Joint Insurance

The legal distinction between joint and composite insurance, forms an important reference point that helps define current pii polices on the UK insurance markets today.

Distinguishing between ‘Composite’ and ‘Joint’ policies is largely derived by the ruling of Sir Wilfrid Greene MR in 1940. This was the General Accident Fire and Life Assurance Co Ltd v Midland Bank Ltd case, which remains a landmark decision.

Following a fire, insurers settled a claim but later sought to reclaim their payment on the basis of fraud, that the damage had been exaggerated. Their policy has included the standard clause:

If the claim be in any respect fraudulent or if any fraudulent means or devices be used by the insured or anyone acting on his behalf to obtain any benefit under this policy or if any destruction or damage be occasioned by the wilful act or with the connivance of the insured all benefit under this policy shall be forfeited.

In the event, the Midlands Bank (HSBC) had a business interest in the property, as did a guarantor for the business. However, the ruling given was that the only insured person who had suffered as a result of the fire damage was the man who owned the business so only he could claim under the insurance. As it was only the businessman who had been permitted to receive payment from the insurers, it was only the businessman who was indebted to repay it, not the bank, nor the guarantor.

 ‘That there can be a joint insurance by persons having a joint interest is, of course, manifest. If A and B are joint owners of property using that phrase in the strict sense an undertaking to indemnify them jointly is a true contract of indemnity in respect of a joint loss… there can be no objection to combining in one insurance, a number of persons having different interests in the subject matter of the insurance, but I (Wilfrid Greene MR) find myself unable to see how an insurance of that character can be called a joint insurance….. ‘ see more at UK Law made Useable

He goes on to speak about ‘The amount of his loss, if the subject matter of the insurance is destroyed or damaged, depends on the nature of his interest, and the covenant of indemnity which the policy gives must…  operate as a covenant to indemnify in respect of each individual different loss, that the various persons named may suffer. In such a case there is no joint element at all.’

The case was taken to the Court of Appeal who upheld this view. 

As a consequence of this legal ruling, the phrase 'for their respective rights and interests' (in respect of insurance cover) is now included as a standard in underwriting insurance policies, and makes such insurance ‘Composite’ rather than joint or shared.

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