Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

Notably, however, this case pre-dated the ICA. As noted in the Watkins Syndicate decision above, section 54 of the ICA could probably have been invoked by the insurer seeking contribution in this instance. Often each policy’s memoranda will provide for different limits and sub-limits. This can be an issue where indemnity payments made under the first policy are greater than the limit/sublimit of the policy from which contribution is sought. When defending a claim for contribution it is therefore worth seeking details of how all indemnity payments were allocated within the memoranda in the relevant policy.

Calculating contribution

Remember that in dual-insurance situations, contribution will only be available for amounts that are covered under both policies. Any amounts not covered under the policy from which contribution is sought must be deducted from the total indemnity payment before contribution can be calculated.

Those amounts for which contribution is not available may include:

amounts excluded under the second policy indemnity payments to non-insured parties

ƒ ƒ ƒ

ex gratia payments

ƒ costs incurred in dealing with indemnity/underwriting issues under the first policy.

Once those deductions have been made, the amount of contribution can be calculated. There are two recognised methods for calculating contribution: the maximum potential liability method and the independent actual liability method.

The following example demonstrates how each method operates in practice.

The following example demonstrates how each method operates in practice.

Policy A limit: $1,000,000 Policy B limit: $200,000 Loss: $300,000

Maximum potential liability method

$1,000,000 $1,200,000 $200,000 $1,200,000

Policy A pays:

× $300,000 = $250,000

Policy B pays:

× $300,000 = $50,000

Independent actual liability method

$300,000 $500,000 $200,000 $500,000

Policy A pays:

× $300,000 = $180,000

Policy B pays:

× $300,000 = $120,000

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