What is the contribution principle for insurance?

Written by jason van steenwyk
  • Share
  • Tweet
  • Share
  • Email

The contribution principle of insurance states that if a risk is insured by multiple carriers, and one carrier has paid out a claim, that carrier is entitled to collect proportionate coverage from other carriers.

Other People Are Reading

Example

If you had taken out £0.6 million in fire insurance on a building from two different carriers for £0.6 million each, and a fire destroyed the building, and you filed a claim with only one carrier, the carrier would pay the claim. But it would be entitled to go to the other carrier and collect £325,000, the other carrier's proportionate share of the claim.

Restrictions

The total amount insured should not exceed the amount of damage or loss incurred. This is because of the insurance principle of indemnity: No one should profit from an insurance claim after damages are taken into account.

Applicability

The doctrine applies primarily to property and casualty insurance claims, such as fire and marine claims. It does not ordinarily apply to life insurance: When more than one company covers a life, they underwrite that risk independently. However, the applicant must typically disclose how much other coverage is in force or applied for.

Don't Miss

Filter:
  • All types
  • Articles
  • Slideshows
  • Videos
Sort:
  • Most relevant
  • Most popular
  • Most recent

No articles available

No slideshows available

No videos available

By using the eHow.co.uk site, you consent to the use of cookies. For more information, please see our Cookie policy.