CONTRIBUTION
A insures his house against fire for Rs. 10,000 with insurer X and for
Rs. 20,000 with insurer Y. A loss of Rs. 12,000 occurs.
Contribution= Sum insured with an individual insurer( X/Y) X Loss
Total Sum insured
i.e loss occurring on the asset – insured with several insurers has to be
proportionately shared according to the rateable proportion of the
loss
• The liability of X – Rs. 10000 X 12000 = Rs.4000
30000
• The liability of Y – Rs. 20000 X 12000 = Rs.8000
30000
“The right of contribution is based not in contract but in what has been
said to be the plainest equity that burdens should be shared equally. It
would be inequitable for any of the insurers to receive the benefit of
the premium without being liable for their share of the loss”
( Legal & General Ins. Society v. Drake Insurance Co., ( 1992) QB 887)
Contribution
• Principle of Contribution has application where there is a person insuring
the same interest with more than one insurers.
• The principle of contribution applies as between different insurers.
• The common law of contribution, in case of loss, any one insurer may pay
to the assured the full amount of the loss.
• Having paid this amount, he is entitled to contribution from his
co-insurers in proportion to their liability ( rateable proportion of loss)
Suppose Mr. X has insured his house with three insurers in the
following manner-
Sum insured with Insurer 1- Rs.50,000
Sum insured with Insurer 2- Rs. 1,00,000
Sum insured with Insurer 3- Rs. 1,50,000
Total………………………………….Rs. 3,00,000
Say, the loss due to fire is estimated Rs.60,000
All the insurer contribute towards losses in proportions to their share
50,000 X 60000 100,000 X 60000 1,50,000 X 60000
3,00000 3,00,000 3,00,000
Insurer 1- 10,000 Insurer 2- 20,000 Insurer 3- 30,000
In order to give a right of contribution, following conditions must be
satisfied-
1. All the insurance must relate to the same subject matter
2. The policies concerned must cover same peril which caused the loss
3. All the policies must be effected by/on behalf of the same assured
4. The policies must be in force
The common law right of contribution- modified by practice- express
term in the policy- Rateable proportion clause/ Contribution clause
“If at the time of any other subsisting insurance or insurances effected
by the assured or by any other person /persons on his behalf covering
such property, either alone or together with any other property, this
company shall not be liable to pay/contribute more than its rateable
proportion of such loss or damage”
• If there no rateable proportion clause in the policy
- the insured can choose the insurer ( say insurer A) from whom to recover
indemnity
- Insurer gets a right in equity to claim contribution from others- cannot
enforce his equity until he has indemnified the insured
- The right not lost when the insured commits a breach of any condition with
respect to policy issued by other insurers
• If there is rateable proportion clause in the policy
- Insurer will pay no more than his rateable share
- The insurer pays more than his rateable share, such insurer can’t claim
contribution from other insurers- excess paid
- Cannot claim contribution for voluntary payments
In case of mortgagors and mortgagees, bailor and bailee or landlord
and tenant, there may be independent interest insured in respect of
the same subject matter & the principle of contribution may not apply
Read General Assurance Society v. Sri Sitaram Rice Mill (1970) 2 MLJ
483
Double Insurance
• When the insured insures the same risk with more
than one insurer
• If the sum insured exceeds the value of the subject
matter, the insured is said to be over insured by
double insurance.
Rules
[Link] of actual loss
2. Excess amount recovered to be held in trust
3. Liability of insurers- Contribution