The Principle of Contribution

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The Principle of Contribution Two or more insurers each liable for a covered loss should participate in the payment of the loss. Through a payment by each party interested (insurer)of his share in any common liability. Having paid its share of a loss, an insurer may be entitled to equitable contributiona legal right to recover part of the payment from another insurer whose policy was also applicable. Many insurance policies stipulate the formula under which contribution among multiple insurers will take place. Two standard methods are Contribution by limits and Contribution by equal shares. For example a property worth 5000 is insured with Company A for 3000 and with company B for 1000. The owner in case of damage to the property for 3000 can claim the full amount from Company A but then he cannot claim any amount from Company B. Now, Company A can claim the proportional amount reimbursed value from Company B. Before contribution can operate the following conditions must be fulfilled; -There must be more than one policy involved and all the policies covering the loss must be in force. -All the policies must cover the same subject-matter. -All the policies must cover the same peril causing the loss. -All the policies must cover the same interest of the same insured. There is nothing in law to prevent a person from effecting two or more insurance in respect of the same subject matter, but the principal of indemnity will come into operation to prevent his recovering more than the actual loss even if total amount of insurance far exceeds the loss. The principal of contribution is resorted to for the purpose of apportioning the amount recoverable, amongst the different sets of insurers in order to prevent the loss being borne in an undue proportion by any one of them. #benewinsurance #insurtech #inclusiveinsurance #insurance #reinsurance #takaful

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