Insurance

Factors Influence The Application Of Principle Of Contribution In Insurance Claims

It has to be remembered that as Principle Of Contribution has had its birth from the principle of indemnity and will maintain its continued existence to preserve the principle of indemnity, therefore, it applies only to those insurance contracts which are contracts of indemnity.It is virtually in the perspective of claims settlement that- this doctrine is of vital importance. In this regard the following considerations must be noted carefully by the students or readers:

When Contribution Operates? Before the Principle Of Contribution can operate the following conditions must be fulfilled :

i) There must be more than one policy involved and all the policies covering the loss must be in force. This is well understood. If there is only one policy involved there is nothing which can contribute and similarly if at the time of loss it is found that a particular policy in the lot is not in force because of some reason then that policy cannot be called upon to contribute.

(ii) All the policies must cover the same subject-matter. If all the policies cover the same insured but different subject-matters altogether then the question of contribution would not arise.

(iii) All the policies must cover the same peril causing the loss. If the policies cover different perils, some common and some uncommon, and if the loss is not caused by a common peril, the question of contribution would not arise.

 (iv) All the policies must cover the same interest of the same insured. An example will make the proposition clear. Let us assume that ‘X’ is the owner of a car and has obtained a loan from ‘Y’ on the security of the car. Here both X and Y have got insurable interest and can, therefore, effect policies individually. In case of damage to car both X and Y will get claims independently and no contribution will apply in between the policies. The reason is that the interests are different and also the insured (s).

It should be remembered that if any of the above four factors is not fulfilled, principle of contribution will not apply.

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