IS availing of two or more insurance policies over the same thing or person allowed? Insurance laws in the Philippines do not prohibit per se the so-called “double insurance”; however, it is important to be aware of its salient elements to avoid going beyond what is lawful.
“Double insurance” happens when the same person is insured twice or more by two or more insurers separately. The insurance policies also cover the same subject, involve the same interest, and protect against the same peril.
For instance, there is double insurance when an owner of the house, valued at P1.5 million, insures it with AAA Insurance Company for P1 million and separately with BBB Assurance, Inc. for P500,000. Both policies were purchased to protect the owner in case of fire. However, if the house has been leased to another person, and that lessee also insures it against fire for P1.5 million, there is no double insurance, because the insured person is not the same anymore. There is also no double insurance if the owner of the house insures it against flood, in addition to the insurance against fire, because it pertains to a different type of peril or danger.
Although the law does not forbid double or multiple insurance, the law protects against fraudulent acts that may arise because of it. Going back to the first example earlier, if the second fire insurance obtained by the house owner from BBB amounts to P600,000 instead of P500,000, there is an “over-insurance” resulting from the double insurance. This is because the value of the house is only P1.5 million, but the two insurance policies (from AAA and BBB) now amount to P1.6 million. “Over-insurance” occurs when the insured takes an insurance over the same property in an amount that exceeds the value of his insurable interest.
To avoid these opportunistic and dishonest acts of profiting from a peril such as fire or flood, the law provides that an insurance policy can be canceled when it is discovered that there is another insurance coverage that makes the total insurance in excess of the value of the property insured. In other words, it is legal to insure a property twice or more, as long as the total insurance does not exceed the property’s value.
The law also allows insurance companies to explicitly include an “Other Insurance Clause” in the insurance contract to prohibit taking of another insurance policy. This could be in the form of a condition stating that purchasing of additional insurance without the consent of insurer will void the policy. It could also be a provision that requires the insured to inform the insurer or disclose the existence of any other insurance on the property. Otherwise, the contract may be revoked because of material concealment. Lastly, it could be a warranty that there is no other existing insurance over the same property.
In the first example on double insurance, if in the contract of fire insurance with BBB (worth P500,000) it is explicitly stated that the owner should disclose if there are other existing fire insurance for the house, but the owner of the house did not inform BBB of the fire insurance he obtained from AAA (worth P1 million), then the owner is guilty of misrepresentation or concealment.
Since the disclosure of an existing policy is one of the conditions specified in the fire insurance policy, BBB may cancel the contract at any time, at its option, by giving notice and refunding a ratable portion of the premium. If the fire insurance contract with AAA also has the same provision regarding the disclosure of another insurance, and the owner of the house did not inform AAA of the other fire insurance with BBB, then AAA may also cancel the contract. This denial of claim on the ground of violating the conditions of the policies, that is, the disclosure of other insurance policy, is valid even though the total amount of insurance is less than the value of the house (P1.5 million). There is no over-insurance, but the owner is guilty of concealment.
However, if the insurance policy contract with AAA is annotated with “Co-insurance declared,” the owner of the house may be able to claim, since he disclosed that there are other insurance policies purchased for the same subject. It is up to the insurance companies to inquire about the details of such other insurance if it was really a concern for them.
Now, if there is over-insurance due to double or multiple insurance, and the insurance companies concerned are well-informed and have given their consent, how may the insured recover in case the stipulated peril or danger comes? The insured may claim payment from the insurers, in any order that he may select, and up to the amount contracted separately with the insurance company. The details are provided for under Section 96 of the Insurance Code for cases other than life insurance, when the policy is valued or unvalued.
Lastly, but more importantly, it is worth noting that double or multiple insurance may be availed in case of life insurance but there can never be over-insurance. This is because even if a person has multiple life insurance policies, the total amount to be paid in case of death will still not be enough to bring the dead back nor to compensate for the lost intrinsic value of life.