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Question

Difficulty: MediumBasic Principles of Insurance

Match each basic principle of insurance listed on the left with its corresponding legal application or description on the right.

  • Utmost Good Faith (Uberrimae Fidei)Requires the applicant to disclose all material facts affecting the risk to the insurer.
  • IndemnityEnsures the insured is restored to their exact pre-loss financial position without making a profit.
  • SubrogationTransfers the legal rights of the insured to the insurer to claim damages from a responsible third party after settlement.
  • ContributionAllows an insurer to call upon other insurers sharing the same risk to pay their proportionate share of a loss.

Answer

Utmost Good Faith matches with disclosing all material facts; Indemnity matches with restoring the pre-loss financial position; Subrogation matches with transferring legal recovery rights against a third party; Contribution matches with sharing loss proportionally among co-insurers.
Each principle correctly maps to its legal obligation under insurance law: Utmost Good Faith mandates complete disclosure of material facts; Indemnity limits compensation to exact pre-loss financial reinstatement; Subrogation substitutes the insurer for the insured against third-party tortfeasors; and Contribution shares loss liability among multiple insurers of the same property risk.

Step-by-Step Solution

1
Identify the fundamental definition of Utmost Good Faith.
Disclosing all material facts regarding the risk.
Uberrimae Fidei requires total honesty and disclosure from the proposer.
2
Identify the core purpose of Indemnity.
Restoring the insured to the exact financial position before the loss.
Indemnity prevents the insured from profiting from an insurance claim.
3
Identify the function of Subrogation.
Transferring legal rights to step into the insured's place to sue third parties.
Subrogation ensures the negligent party pays and the insured does not recover twice for the same loss.
4
Identify the application of Contribution.
Dividing the loss proportionally among multiple insurers covering the same risk.
Contribution prevents over-recovery when double insurance exists.

Key Concept

Basic Principles of Commercial Insurance
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Topics

Basic Principles of Insurance

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