A company RST Limited has the following policies of fire from the insurers for its stocks at its manufacturing unit: Standard Policy A = ₹ 50,00,000 Standard Policy B = ₹ 30,00,000 Declaration Policy C = ₹ 1,00,00,000 A

Calculation of claims under the policies: Share of loss = (Insured Value x Loss) / Value of Property Standard Policy A: Share of loss = (₹ 50,00,000 x ₹ 15,00,000) / ₹ 1,50,00,000 = ₹ 5,00,000 Standard Policy B: Share of loss = (₹ 30,00,000 x ₹ 15,00,000) / ₹ 1,50,00,000 = ₹ 3,00,000 Policy C (Declaration Policy): Share of loss = (₹ 1,00,00,000 x ₹ 15,00,000) / ₹ 1,50,00,000 = ₹ 10,00,000 However, the excess of loss remaining is = ₹ 15,00,000 - (₹ 5,00,000 + ₹ 3,00,000) = ₹ 7,00,000. So the claim from policy C = ₹ 7,00,000. The principle of insurance governing the above claim settlement process is the "Principle of Contribution" which is a corollary to the principle of "Indemnity". The principle of Indemnity advocates that the insured must be compensated for actual loss. The insurance policy should make good actual loss as per the principle of indemnity. However, when more than one policy is taken for a risk, all the policies must practically contribute to the loss payments on the basis of the coverage that they have committed on the policy. Therefore, the three companies have paid a loss of ₹15,00,000 in proportion to the sum assured in the policies. This suggests the principle of contribution.