Question

A drunk driver ran a red light and smashed into Karin’s car. The cost to repair the car is USD 2000. Karin has motor insurance on her car with USD 500 of deductible. The drunk driver also has a motor insurance in place. If Karin makes a claim against her own motor insurance:

1. Explain the relevance of the principle of insurable interest in this case.

2. Explain the relevance of the principle of subrogation in this case.

3. Explain the relevance of the principle of indemnity in this case.

4. Explain the relevance of the principle of contribution in this case.

Answer 1

1. Insurable interest means that the subject of the insurance contract must provide for some financial gains for the insured and will result in a loss if destroyed, damaged etc. The insured must have an insurable interest in the subject. As per the question, Karin is making a claim against her own motor insurance, here it is clear that she does have insurable interest in the car.

2. Principle of subrogation means replacing one creditor for another, i.e, in case the insured claims losses from his insurance company, then the company will pay the claims, assume ownership of the asset/subject and try to recover the amount of claims paid from the third party who had caused damages to the asset of the insured.

As per the question, Karin's motor insurance company will use this principle to recover the claims from the drunk driver's motor insurance company.

3. Indemnity means compensating the insured for the losses incurred and restore the insured to the position he was in before the uncertain event took place. In this question, Karen's motor insurance company will indemnify Karin for the losses incurred due to car damage.

4. Principle of contribution states that in case an insured person has multiple insurance contracts on the same subject, then all such insurers are liable to make their respective contributions to the losses incurred by the insured due to the damages caused to the same subject. In this question, it is mentioned that Karin has only one motor insurance contract, hence this principle might not be applicable here. (we are assuming there is one one insurance contract)