It has been well established through the Principle of indemnity that on the happening of a loss, the insured shall be placed back into the same financial position, as if no loss has taken place. He shall be paid neither more nor less. In order to preserve this principle if, there comes up any possibility which is likely to disturb this principle, that is to say, if somebody is likely to get more than the amount of loss, then, that has to be checked so that the principle remains undisturbed. In other words, if there comes up any possibility whereby the insured, after the happening of a loss, is likely to get more than the amount of the loss then this is certainly wrong and has to be stopped. In fact, there would have been possibilities of getting more than the actual loss had the principle of contribution not been established with legal force.
Just to give a probability, the insured would have received a claim in full, numbers of times, by effecting numbers of policies with different insurers thereby defeating entirely the principle of indemnity. Like principle of subrogation, therefore, has come up the principle of contribution with the sole intent to preserve the principle of indemnity.
Contribution is a right that an insurer has, who has paid under a policy, of calling other interested insurers in the loss to pay or contribute rate-ably to the payment. This means that if at the time of loss it is found that there are more than one policy covering the same loss then all policies should pay the loss proportionately to the extent of their respective liabilities so that the insured does not get more than one whole loss from all these sources.
If a particular insurer pays the full loss then that insurer shall have the right to call all the interested insurers to pay him back to the extent of their individual liabilities, whether equally or otherwise. The insured, under no circumstances, shall be allowed to take the advantage of all the policies individually so as to get the full claim number of times. Even if the insured recovers from all the policies, he shall have to refund all such payments in excess of the actual loss sustained.
As this principle virtually comes to the rescue of the principle of indemnity, therefore, like subrogation, the assertion “it is a corollary to the principle of indemnity–equally holds good with regard to the principle of contribution. It has to be remembered that as this principle 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.
As life and personal accident insurance contracts are not contracts of indemnity, Principle Of Contribution does not apply thereto.