What is the principle called when a second insurer pays part of a claim covered by two insurers?

What is the principle called when a second insurer pays part of a claim covered by two insurers?

• A. Subrogation
• B. Contribution
• C. Insurable interest
• D. Proximate cause

Answer: (B)

The principle in which a second insurer pays part of a claim covered by two insurers is known as contribution. This principle applies when two or more insurance policies cover the same risk or loss. In such cases, if a claim arises, each insurer contributes to the settlement amount in proportion to the amount of coverage they provide. The rationale behind this is to prevent the insured from profiting from the loss, ensuring that they only receive compensation that reflects their actual loss, rather than exceeding it. This principle promotes fairness among insurers, ensuring that the financial burden of claims is shared rather than placed entirely on one insurer, which can occur if there is no mechanism for contribution.

The principle in which a second insurer pays part of a claim covered by two insurers is known as contribution. This principle applies when two or more insurance policies cover the same risk or loss. In such cases, if a claim arises, each insurer contributes to the settlement amount in proportion to the amount of coverage they provide.

The rationale behind this is to prevent the insured from profiting from the loss, ensuring that they only receive compensation that reflects their actual loss, rather than exceeding it. This principle promotes fairness among insurers, ensuring that the financial burden of claims is shared rather than placed entirely on one insurer, which can occur if there is no mechanism for contribution.