Wednesday, April 19, 2017

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Principle Of Contribution

Principle Of Contribution

Principles Of Insurance

• The principle is corollary of the principle of indemnity.

• It is applicable to all contracts of indemnity.

• Under this principle the insured can claim the compensation only to the extent of actual loss either from any one insurer or all the insurers.

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Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts of indemnity, if the insured has taken out more than one policy on the same subject matter.

According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer. If one insurer pays full compensation then that insurer can claim proportionate claim from the other insurers.

For example: Mr. Arvind insures his property worth Rs. 100,000 with two insurers "AIG Ltd." for `90,000 and "MetLife Ltd." for `60,000. Arvind's actual property destroyed is worth ` 60,000, then Mr. Arvind can claim the full loss of `60,000 either from AIG Ltd. or MetLife Ltd., or he can claim `36,000 from AIG Ltd. and `24,000 from Metlife Ltd.

So, if the insured claims full amount of compensation from one insurer then he cannot claim the same compensation from other insurer and make a profit. Secondly, if one insurance company pays the full compensation then it can recover the proportionate contribution from the other insurance company.

Insurance Law And Practice - ICSI


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