Throughout my career I have frequently encountered some misconceptions among common people regarding insurance claims, who think that having insurance against loss or theft or any other insured peril or risk is the only criterion for being fully paid for the financial losses , which they suffer towards their houses, cars or properties.
You probably have these misconceptions. Let me illustrate this with a few examples. Let’s say you recently bought some personal insurance policies and as an enthusiast, one of your close friends also bought some homeowners insurance policies to get double the benefits. Suppose you broke your leg in a car accident and of course you claimed both insurers and paid in full.
And coincidentally, your friend’s house burned down and he’s supposed to file a separate claim with his two insurers. What do you think? Is it paid in full by both insurers? Unfortunately not. And obviously both insurers would refuse to pay more than one claim.
But why is it like that? Because property insurance (including health and home insurance) is subject to the principle of compensation (compensation) and contribution. Whereas personal insurance and life insurance are not normally governed by indemnity contracts and therefore no inter-insurer premiums are incurred.
Just as the principle of indemnification prevents an insured person from recovering money from both insurers, it also prevents full recovery of claims from more than one insurer with equal risk of sharing the claims proportionately.
What, then, are the principle of compensation and contribution and their precise role in the reasonable determination of a claim? As you know, all insurance policies except life insurance and personal insurance are indemnity contracts. The main objective of these reserves is to return the insured or policyholder to nearly the same financial position (as before the accident). ) after a loss. Otherwise, it would be contrary to public policy to allow an insured to benefit from a claim. And there would be a tendency towards over-insurance.
Similarly, contribution is defined as the insurer’s right to require the other insurers concerned to contribute equally or proportionately for the same loss, and the doctrine of contribution supports the principle of indemnity or the common law principle of equity. While there is no contribution (according to the contract) for accident and life insurance.