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Difficulty: EasyInsurance: Principles and Types

Mr. Ade insured his commercial warehouse against fire. When a fire outbreak destroyed part of the building, the insurance company compensated him to restore his exact financial position immediately prior to the loss, ensuring he made no profit from the claim. Which principle of insurance was applied by the insurance company in this situation?

  1. IndemnityAnswer
  2. B
    Uberrimae Fidei
  3. C
    Subrogation
  4. D
    Contribution

Answer

Indemnity
The correct answer is indemnity because this principle requires an insurance policy to restore the policyholder financially to the position held right before the loss, ensuring the claimant cannot profit from the disaster.

Step-by-Step Solution

1
Identify the financial outcome described in the scenario.
The insurer restored the policyholder to his exact pre-loss position without permitting profit.
Insurance is meant for protection against loss rather than commercial gain.
2
Match the identified financial outcome to its foundational insurance principle.
The principle of indemnity governs exact financial restitution following covered damages.
Indemnity specifically limits claim payment to the actual loss sustained.

Key Concept

Principle of Indemnity
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Topics

Insurance: Principles and Types

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