Legal Principle: The insurer agrees to pay no more than the actual amount of the loss. Fact Situation:…
The correct choice is: “Sunny cannot recover any amount from Y.” This is the principle of indemnity: insurance compensates for the actual loss and must not become a source…
Choose your answer
Legal Principle: The insurer agrees to pay no more than the actual amount of the loss.
Fact Situation: Sunny insures his car worth rupees five lakh with X, an insurance company, for its value.
He again insures the same car with Y, another insurance company, on the same terms. There is an accident and the car suffers a total loss. In his separate suits against X and Y, if Sunny recovers rupees five lakh from X, how much can he recover from Y?
Which of the following statements is the most appropriate in relation to the legal principle stated above?
Answer and explanation
Correct answer B
The correct choice is: “Sunny cannot recover any amount from Y.”
This is the principle of indemnity: insurance compensates for the actual loss and must not become a source of profit. Sunny’s actual loss is ₹5 lakh (the value of the car). He has already recovered the full ₹5 lakh from X, so his loss is fully made good and he cannot recover anything more from Y. (Between themselves, X and Y may share the burden under the doctrine of contribution, but Sunny cannot collect twice.)
“Sunny can recover rupees five lakhs from Y.” would give him ₹10 lakh for a ₹5 lakh loss. There is no basis for “Sunny must pay Y, the rupees five lakhs he received from X.”. “Sunny cannot insure his car with both X and Y at the same time.” is wrong: double insurance is allowed; only double recovery is not.
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CLAT UG