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Chapter 8 Contribution and subrogation 8/11

Question answers

8.1 David can only claim a maximum amount of US$1,000 under either policy as he cannot recover more than his
loss. If cover for each policy was the same he would be able to claim US$500 from each policy as this
represents the proportion each would contribute. However, if an average condition was included in the policy
then this would reduce the amount payable (see chapter 7 on indemnity).

8.2 Policy A sum insured US$20,000; policy B sum insured US$30,000.
Loss US$15,000.
Policy A’s contribution:
US$20,000 × US$15,000
US$20,000 +US$30,000 1
US$20,000 ×US$15,000 US$6,000
=
US$50,000

Policy B’s contribution:
US$30,000 × US$15,000
US$20,000 +US$30,000 1
US$30,000 ×US$15,000 US$9,000
=
US$50,000

8.3 No, you would clearly make a profit from this situation if you kept both payments, which is in breach of the
principle of indemnity. Therefore, the settlement from the third party insurers should by right of subrogation,
go to your motor insurer to help compensate its loss. However, you are only obliged to reimburse your own
insurer the amount that they had actually paid. You can keep the balance which may include an excess or
other uninsured losses.
8.4 As an insurer must sue in a policyholder’s name, the policyholder can include in the legal action a claim for Reference copy for CII Face to Face Training
the additional loss suffered through the hire of another car. In practice, the insurers would recover the full
amount and would pass on the amount of the uninsured loss to the insured customer.

Sample examination question answers
1. The correct answer is A.
sum insured under first policy × loss
total sum insured (all policies)
100,000 ×120,000 US$40,000
=
300,000
2. The correct answer is C. Chapter
In this case the insurer has chosen to settle the claim by a cash payment of US$20,000 and allowed the 8
policyholder to keep the salvage valued at US$2,000. The insurer can only subrogate for its loss, which will be
US$20,000 as US$2,000 of the claim is paid by the salvage value.