The principle of contribution applies when an insured party has multiple insurance policies covering the same risk. It dictates that the insured can only claim for the actual value of their loss and cannot profit by receiving full payment from each insurer. The insurers will share the cost of the claim, usually in proportion to the sum insured under each policy. This upholds the fundamental principle of indemnity, which is to restore the insured to the financial position they were in immediately before the loss, not to provide a windfall.

A. Utmost good faith: This principle requires the insured and insurer to disclose all material facts honestly when entering the contract, not how claims are settled.

B. Insurable interest: This principle requires the policyholder to have a financial stake in the insured item, making the policy valid, but doesn't govern claim payouts.

D. Subrogation: This principle allows an insurer, after paying a claim, to pursue the third party who caused the loss to recover the payment.

1. CIPS L5M2 Managing Contractual Risk

Official CIPS Course Book (2019). Chapter 5: ‘Legal Issues’

Section on ‘Principles of Insurance’

pp. 115-117. The text defines contribution as the sharing of a loss between insurers when more than one policy covers the same risk

preventing the insured from recovering more than their total loss.

2. Clarke

M. A. (2017). The Law of Insurance Contracts (8th ed.). Informa Law from Routledge. Chapter 28

‘Contribution’

Section 28-1A

clearly states

"Contribution is the right of an insurer who has paid a loss under a policy to recover a proportionate amount from other insurers who are liable in respect of the same loss."

3. Lowry

J.

& Rawlings

P. (2014). Insurance Law: Doctrines and Principles (3rd ed.). Hart Publishing. Chapter 11

‘Contribution and Subrogation’

pp. 289-292. This chapter explains that contribution is an equitable doctrine that prevents multiple recovery by the insured and distributes the burden of indemnity among the relevant insurers. DOI: https://doi.org/10.5040/9781472561009.ch-011