The second condition of average is not strictly a condition of average at all, because it is essentially a contribution clause which apportions the loss in a particular manner. The key to its application lies in the determination by insurers of which policy is more specific. Clearly, if both policies are identical, then neither is more specific than the other, and the second condition cannot apply. It will similarly not apply if the two policies cannot be compared because each policy covers a variety of items not covered by the other, in addition to those items common to both, because in this case neither is more specific than the other.
If the two policies are capable of being compared and all items covered by one fall within the scope of the other (which also covers other items), then the second policy is wider and the second condition operates.
The second condition effectively applies to convert the wider policy into an insurance of the excess of value beyond the amount insured by the more specific policy. It excludes items common to both policies from the operation of the wider policy if the loss is covered by the specific “narrower” policy. The two conditions usually read as follows:
“Whenever a sum insured is declared to be subject to the Two Conditions of Average if such sum shall at the commencement of any damage be less than the value of the property covered within such sum insured, the amount payable by the Insurer in respect of such damage shall be proportionately reduced, but if any of the property covered within such sum insured shall at the commencement of any damage be also covered by any more specific insurance, then this policy shall only insure the same for any value in excess of the amount of such more specific insurance (s) which excess value shall be deemed to be the value of the property covered hereby and subject to 1 above.
For the purpose of 2 only a more specific insurance is one which at the time of damage applies only
to property as described herein, and at any but not all of the locations to which this insurance applies.”
Obviously, where the first condition of average is applicable, then allowance must be made for the proportion of the loss which the insured must bear himself, prior to determining the liability of the insurers under each policy, i.e:
Sum Insured
——————————– x Loss
Total true value of subject
matter of policies, less value of narrower policy
Where there is a third policy, it will not contribute until the second policy is exhausted, and so on.
