Legal Definitions - double insurance

Double insurance occurs when the same property, risk, or subject matter is covered by two or more separate insurance policies, taken out by or on behalf of the same insured party, and the total amount of coverage from these policies collectively exceeds the actual value of the potential loss. It is crucial to understand that having multiple insurance policies does not allow an insured individual or entity to recover more than their actual financial loss. Instead, in such situations, the various insurers typically share the responsibility for the loss, often proportionally, based on their respective policy limits or other agreed terms.

Here are a few examples to illustrate this concept:

• Example 1: Homeowner's Insurance

  Sarah purchases a new home and secures a comprehensive homeowner's insurance policy from "SafeGuard Insurance" covering her property against fire, theft, and natural disasters for its full market value of $400,000. A few months later, after refinancing her mortgage, she mistakenly believes her previous policy was canceled and takes out a second, identical homeowner's policy for the same property and risks with "Reliable Coverage Inc." for another $400,000. If a fire then causes $250,000 in damage to her home, Sarah has double insurance. She cannot claim $250,000 from each insurer for a total of $500,000. Instead, SafeGuard Insurance and Reliable Coverage Inc. would typically contribute to cover the actual $250,000 loss, perhaps each paying $125,000, as the total coverage ($800,000) far exceeds the actual loss and the home's value.

• Example 2: Vehicle Insurance

  Mark owns a classic car valued at $75,000. He insures it with "Classic Rides Insurers" for its agreed value, including comprehensive coverage for damage and theft. Later, he decides to add the car to his standard multi-vehicle policy with "Everyday Auto Insurance," forgetting that his Classic Rides policy already provides full coverage for the same risks. If the car is subsequently stolen, Mark has double insurance. He will only be compensated for the actual value of the stolen vehicle, which is $75,000. Both Classic Rides Insurers and Everyday Auto Insurance would then coordinate to pay out the $75,000 loss, rather than Mark receiving $75,000 from each company.