While the problem of conflicting “other insurance” clauses is not new, the Commercial Court has confirmed in a recent ruling that when each policy attempts to act only in excess of the others (thereby depriving the insured of any primary cover), those clauses will effectively cancel one another out. The case offers valuable clarification on how courts approach overlapping insurance policies and “other insurance” clauses that attempt to convert primary policies into excess cover where other insurance exists.
In this article, Arjun Dhar reviews the Commercial Court’s policyholder-friendly decision in Watford Community Housing Trust v Arthur J Gallagher Insurance Brokers Ltd [2025] EWHC 743 (Comm). The ruling also confirms that an insured is generally free to choose which policy to claim on unless a rateable contribution clause alters that position.
Double insurance and “other insurance” clauses
Double insurance arises when two or more policies respond to the same loss. While once treated with suspicion due to concerns about double recovery, the law recognises that it is proper and can be a commercially prudent guard against insurer insolvency. In practice, overlap can also arise inadvertently, especially where the insured has policies with different insurers.
In addition, many policies now include an “other insurance” clause designed to avoid or reduce the indemnity payable if liability is triggered under a separate policy. A common variant is a type of clause that seeks to make the policy respond only in excess of other available cover. As the judge noted, citing the judgment of Gavin Kealey KC, sitting as a Deputy High Court Judge in The National Farmers Union Mutual Insurance Society Limited v HSBC Insurance (UK) Limited [2011] Lloyd’s Rep. 86, at [27], “other insurance” clauses generally fall into three main classes:
- “escape” clauses, which exclude liability altogether if other insurance is available,
- “rateable proportion” clauses, which limit liability to a share of the loss; and
- “excess” clauses, which make the policy respond only after other cover is exhausted.
Facts of the case
Watford Community Housing Trust suffered a data breach and held three insurance policies that could respond:
- a cyber policy underwritten by various Lloyd’s syndicates, with a limit of £1m,
- a combined policy underwritten by QBE, with a limit of £5m, and
- a professional indemnity (PI) policy underwritten by Hiscox, also with a limit of £5m.
Notification was made under the cyber policy, but the defendant broker failed to notify the insurers of the combined and PI policies, who, consequently, refused to indemnify the insured. QBE subsequently agreed to accept coverage under the combined policy, meaning that a total of £6m in indemnity was available to the insured. However, Hiscox maintained its declinature based on late notification, meaning the insured was not covered for its losses over £6m.
The insured brought a negligence claim against the broker concerning its failure to notify under the Hiscox policy. In response, the broker argued that due to the interaction of the “other insurance” clauses, the maximum total indemnity to which the claimant would have been entitled under all three policies was £5m. According to the broker, the insured had, therefore, suffered no net loss.
Key issues
- “Other insurance” clauses: did the provisions in each policy successfully convert them into excess layer policies, or did they cancel each other out?
- Rateable contribution: if all three policies formed a horizontal primary layer, was the insured limited to recovering on a proportionate basis from each insurer?
Summary of the decision
Deputy High Court Judge David Bailey KC held that the “other insurance” clauses in each policy effectively neutralised one another. Applying Weddell v Road Transport & General Insurance Co Ltd [1932] 2 KB 563, he affirmed that in a double insurance situation, where the “other insurance” clauses would deprive the insured of any primary cover on account of their coexistence, those clauses are to be treated as cancelling each other out. Adopting the now well-established interpretive viewpoint of the reasonable policyholder rather than a pedantic lawyer, each policy was therefore to be treated as a primary policy providing cover to the insured.
In this case, that meant the insured had the benefit of triple insurance against its losses from the data breach under a horizontal layer of primary insurance providing £1m of cover under the cyber policy, £5m of cover under the combined policy and a further £5m of cover under the PI policy.
The court went on to confirm the orthodox common law position. In the absence of an express rateable contribution clause, the insured is entitled to claim for its loss up against whichever insurer it chooses up to the limit provided by that insurer, subject to not being entitled to recover in excess of the actual loss suffered. There is no obligation to claim proportionately or sequentially. The paying insurer is free to seek contributions from others but not to require the insured to claim only against it in proportion to the cover it offered.
Unresolved questions
The court expressly left unresolved a complex question: where an insured has multiple primary policies forming a horizontal layer followed by an excess policy above, must the entire horizontal layer be exhausted before the excess policy responds?
Deputy High Court Judge David Bailey KC said on this issue: “I appreciate that consequential issues of some complexity may arise from this approach in cases where an insured has both a horizontal layer of two or more primary policies combined with a vertical tower of one or more excess policies (such as whether the whole of the primary layer must be exhausted before the excess policies attach) which have vexed and divided the American courts, but since no such issues arise in this case I need not attempt to resolve them here. They are better addressed if and when they arise.”
This uncertainty may continue to trouble insureds and brokers who structure their cover in layers.
Practical guidance for policyholders and brokers
- Do not rely on the boilerplate: not all “other insurance” clauses will achieve what they claim. Where several policies defer to each other, they may all be liable.
- Freedom of choice: in the absence of a rateable contribution clause, the insured is entitled to choose whom to claim against and in what amount.
- Notifications matter: a policy that could respond in law may not do so in fact if notification conditions are not met.
- Reassess layering strategies: where policies are intended to sit in tiers (eg primary and excess), review whether the wording delivers this structure.
- Broker advice: brokers should take care when advising on policy interaction, especially where “other insurance” clauses are present. Failure to anticipate mutual cancellation may expose them to negligence claims.
Conclusion
The decision in Watford reaffirms the core principles of double insurance. It offers clarity around conflicting “other insurance” clauses but stops short of resolving the challenges that arise when horizontal and vertical coverages interact.
Given the acknowledgement that this question has arisen in other jurisdictions, it will likely return before the English courts. Until then, parties should review their policies closely. In a market where every clause competes for primacy, Watford reminds us that escape routes can lead nowhere.
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