Indemnity: Subrogation and Contribution

Indemnity

• Is the compensation paid to the insured after they have suffered a loss.
• It restores the insured to his/her previous financial position before he/she incurred the loss.
• The insurer will pay only the amount of loss suffered by the insured.
• The indemnity principle does not apply to life insurance (indemnity in this instance would have required the insurance company to raise the dead person!)
• The principle does not allow the insured to make a profit.

Contribution

• It includes contribution where a risk is insured with two or more companies i.e. if the insured takes out policies with two different companies over the same risk, when the risk occurs both companies contribute (using a ratio based on premiums paid by the insured) towards the settlement of that loss.

Subrogation

• The indemnity clause also includes subrogation:
• this gives all the rights over the damaged goods/property to the company settling the claim.
• The damaged property belongs to the insurer.
• This principle prevents the insured from making a profit out of their loss.
• The insurance compensates the insured and takes possession of the scrap.

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