The principle of contribution is known as a corollary of indemnity, as it also operates to prevent an insured gaining from suffering a loss.
Think about going on holiday.
You will probably take out travel insurance which covers you for items lost or stolen. If you have a household policy, you probably have a limited amount of cover in that policy for items temporarily removed from the house.
If you lose an item, say a piece of jewellery while you are away, it is probably covered on both policies. To make things even more complicated, if it is a relatively recent purchase, and you paid by credit card, you will probably have insurance provided on this as well!
Obviously, if you claimed on each policy, you would be more than indemnified and would definitely undermine the principle of indemnity that says you should not gain. This is where contribution applies.
When you fill in your claim form you will nearly always be asked the question "are there any other insurances in force which may cover this loss?"
Some companies, on their travel claim form, simply ask for the name of your household insurer.
If more than one insurer has a legal duty to pay a claim, because their policies provide a duplication of cover, it is recognised that it would be unfair for one to pay the entire claim figure.
Most policies will therefore include a condition in their policy wording stating that if other insurances are in force, they will each bear a rateable proportion of the loss. Basically, they will each pay a proportion of the claim figure based on their liability in relation to the particular item. The contribution from each insurer does not therefore have to be equal.
Quite commonly, policies may include a "more specifically insured clause". This means that if your jewellery was specifically listed and insured on your household policy the travel insurer would probably not contribute as the household insurer had insured specific items and probably charged a specific premium for doing so. In that case they have a more obvious duty to pay the claim.
Contribution
Contribution arises if:
- There are at least two similar policies in force
- The policies both cover the peril that caused the loss and the subject matter of the claim
- Each policy must be liable for loss under policy wording
In the event of a claim, typically one insurer would pay the claim to the insured and would negotiate with the other insurer(s) to agree their share of the loss and recover part of their outlay from them. The contribution amount is often calculated using an Independent Liability calculation.
The most important issue goes back to indemnity. The insured should not profit by having cover on three separate policies and claiming from each.
Insurers are very dependent on the insured being honest when completing a claim form or notifying a claim regarding the existence of other policies. |
