Principle of contribution is another outcome of the principle of indemnity. Where there are two or more insurance on one risk, the principle of contribution comes into play. The aim of contribution is to distribute the actual amount of loss among the different insurers who are liable for the same risk under different policies in respect of the same subject matter. Any one insurer may pay to the insured the full amount of the loss covered by the policy and then become entitled to contribution from his co-insurers in proportion to the amount which each has undertaken to pay in case of loss of the same subject-matter. Contribution is the right of the insurer, who has paid under a policy, to call upon other insurers or otherwise liable for the same loss to contribute the payment. The doctrine ensures equitable distribution of losses between different insurers.
In other words, the right of contribution arises when..
- there are different policies which relate to the same subject-matter
- the policies cover the same peril which caused the loss, and
- all the policies are in force at the time of the loss, and
- one of the insurers has paid to the insured more than his share of the loss.