What does the principle of contribution state about multiple insurers?

The principle of contribution in insurance refers to a situation where multiple insurance policies cover the same risk or loss. It ensures that when a claim arises, the insured will not receive more than the actual loss sustained. Therefore, this principle dictates that the insured can only claim compensation corresponding to the extent of their actual loss.

Under this principle, if a loss occurs and multiple insurers are involved, each insurer will pay a proportionate share of the loss based on the coverage provided in each respective policy. This prevents the insured from profiting from an insurance claim by receiving more compensation than the actual damage suffered.

For instance, if an insured party suffers a loss valued at $100,000 and has two policies totaling $150,000 in coverage, the insured cannot claim the full $150,000 from one insurer simply because the combined coverage exceeds the actual loss. Instead, they can only claim exactly what they lost, which is $100,000.

This principle is crucial for maintaining fairness in the insurance marketplace and ensures that the indemnity principle is upheld, meaning that the insured should be restored to their financial position prior to the loss, without any windfall.