Principle of Contribution:

1. The principle is a corollary of the principal of indemnity.
2. It is applicable to all contracts of indemnity.
3. Under this principle the insured can claim the compensation only to the extent of actual loss.

If the insured has taken out more than one policy on the same subject matter (according to this principle) then the insured can only claim the compensation to the extent of the actual loss either from all insurers or from any one insurer. If one insurer pays full compensation, then that insurer can claim proportionate claim from the other insurers.

For example: Mr. X insures his property worth R 100,000 with two insurers “ABC Ltd” for R 90,000 and “DEF Ltd” R 60,000. Mr X’s actual property damage is R 50,000, then Mr.X can claim the full loss of R 50,000 from either ABC Ltd or DEF Ltd or he can claim R 30,000 from ABC Ltd, and R 20,000 from DEF Ltd.

So, if the insured claims full amount of compensation from one insurer then he cannot claim the same compensation from other insurer and make a profit. Secondly, if one insurance company pays the full compensation then it can recover the proportionate contribution from the other insurance company.