Chapter 8: Contribution and Subrogation Flashcards
What is the principle of contribution in insurance?
The principle of contribution allows insurers to share the burden of a loss fairly among themselves when an insured has multiple policies covering the same risk.
It ensures that the insured does not profit from the loss and only recovers the amount of the loss sustained.
What leads to the principle of subrogation?
The principle of subrogation arises when an insured’s right of recovery is passed on to the insurer after the insurer indemnifies the insured for a loss.
This allows the insurer to pursue recovery from third parties responsible for the loss.
What is indemnity in the context of insurance?
Indemnity refers to the exact financial compensation for a loss, ensuring that the insured is restored to their financial position before the loss occurred.
Fill in the blank: Insured can take out as many insurance policies as they wish as long as there is no _______.
fraudulent intent.
What happens when an insured makes a claim on one policy?
If the insured makes a claim on one policy and receives indemnity, the other insurer avoids its financial responsibility for the loss.
Define dual insurance.
Dual insurance occurs when two types of insurance provide coverage for the same risk in the event of a loss.
What is a contribution condition?
A contribution condition exists to support the principle of indemnity and restricts an insurer’s liability to its rateable proportion of a loss.
List the requirements for contribution to arise under common law.
- Two or more policies of indemnity
- Policies must cover an insurable interest
- Policies must cover a common peril
- Policies must cover a common subject matter
- Each policy must be liable for the loss
- No non-contribution clause in any policy.
What is the rateable proportion formula?
The formula is: policy sum insured / total sum insured (all policies) x loss.
What is a non-contribution clause?
A non-contribution clause states that the policy shall not apply in respect of any claim where the insured is entitled to indemnity under any other insurance.
True or False: Insurers are allowed to recover more than they paid out under the principle of subrogation.
False.
What are the three ways subrogation rights can arise?
- Tort
- Contract
- Statute.
What does the Riot Compensation Act 2016 (RCA) stipulate for insurers?
Insurers have rights of recovery against local policing bodies for riot damage but must notify within 42 days and provide all details within 90 days.
What is the salvage value in insurance?
The salvage value is the residual value of property after a total loss settlement, which the insurer is entitled to benefit from if the insured meets the loss in full.
What does the ABI Memorandum of Understanding cover?
It sets out principles for subrogated motor claims based on honesty and transparency, aiming to streamline the process and reduce administrative costs.
What is a ‘hold harmless’ clause?
A ‘hold harmless’ clause prevents the insured from pursuing recovery rights against negligent third parties, which in turn limits the insurer’s subrogation rights.
What are benefit policies in insurance?
Benefit policies, such as personal accident policies, provide specific coverage and may have limitations on subrogation rights.
