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Question
"Principle of contribution is a corollary to the principle of indemnity." Comment.
Solution
- The principle of contribution is a corollary of the principle of indemnity. This applies to all indemnification arrangements where the insured has multiple policies covering the same subject matter. This principle states that an insured can only seek compensation for their actual loss from any or all insurers. If one insurer pays full compensation, they might seek proportionate payments from other insurers.
- For example, Mr. John insures his property worth Rs. 100,000 with two insurers, "AIG Ltd." for Rs. 90,000 and "MetLife Ltd." for Rs. 60,000. If John's destroyed property is worth Rs. 60,000, then Mr. John can seek full compensation for his loss of Rs. 60,000 from AIG Ltd. or MetLife Ltd., or he can claim Rs. 36,000 from AIG Ltd. and Rs. 24,000 from MetLife Ltd.
- If an insured receives full compensation from one insurer, they cannot profitably seek the same amount from another. If one insurance company pays the full compensation, they can reclaim the proportionate payment from the other insurance company.
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