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Difficulty: MediumBasic Principles of Insurance

Under the principle of contribution, a property owner who holds separate indemnity fire insurance policies with two different insurance companies for the same commercial warehouse is entitled to collect the full value of compensation from both insurers in the event of a total loss.

Answer: Answer

Answer

The statement is false. Under the principle of contribution, multiple insurers sharing the same risk pay rateable proportions of the loss, ensuring the insured does not recover more than the actual financial loss.
The statement is false because the principle of contribution ensures that when an asset is insured with more than one insurer against the same risk, the insurers share the claim payment proportionately. The insured cannot collect full indemnity from each company to profit from a loss.

Step-by-Step Solution

1
Identify the relevant legal insurance principle.
The scenario concerns multiple insurance policies taken out on the same subject matter against the same risk, which is governed by the Principle of Contribution.
Recognizing the applicable principle allows for evaluating how claim payments are distributed among insurers.
2
Evaluate the outcome of claiming from multiple insurers under indemnity rules.
Indemnity restores the insured to their exact pre-loss financial position without allowing profit. Contribution ensures insurers pay rateable shares of the loss.
Double recovery is legally prohibited under indemnity-based policies like fire insurance.

Key Concept

Principle of Contribution
Estimated Time:1m 0s
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Topics

Basic Principles of Insurance

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