The contribution principle of insurance states that if a risk is insured by multiple carriers, and one carrier has paid out a claim, that carrier is entitled to collect proportionate coverage from other carriers.
If you had taken out $1 million in fire insurance on a building from two different carriers for $1 million each, and a fire destroyed the building, and you filed a claim with only one carrier, the carrier would pay the claim. But it would be entitled to go to the other carrier and collect $500,000, the other carrier's proportionate share of the claim.
The total amount insured should not exceed the amount of damage or loss incurred. This is because of the insurance principle of indemnity: No one should profit from an insurance claim after damages are taken into account.
The doctrine applies primarily to property and casualty insurance claims, such as fire and marine claims. It does not ordinarily apply to life insurance: When more than one company covers a life, they underwrite that risk independently. However, the applicant must typically disclose how much other coverage is in force or applied for.
- Irish Brokers Association: Principles of Insurance
- Nonprofits Insurance Alliance. "Nonprofit Insurance Explained: The Difference Between an Insurance Carrier and an Insurance Broker." Accessed July 1, 2020.
- Insurance Information Institute. "How to Assess the Financial Strength of an Insurance Company." Accessed July 1, 2020.
Jason Van Steenwyk has been writing professionally since 1998. A former staff reporter for "Mutual Funds Magazine," he has been published in "Wealth and Retirement Planner," "Annuity Selling Guide," "Registered Rep." "Bankrate.com" and "Senior Market Advisor." He holds a Bachelor of Arts in humanities from the University of Southern California.