Contribution
Definition
The right of an insurer to share costs with other insurers when multiple policies cover the same loss. Each insurer pays a proportional share based on their policy limits or coverage amounts.
Example
A building insured for $1 million has two policies: Policy A covers $600,000 and Policy B covers $400,000. A $200,000 loss occurs. Policy A contributes $120,000 (60%) and Policy B contributes $80,000 (40%), totaling the full loss amount.
In Practice
Contribution applies when multiple policies cover the same risk and the total coverage exceeds the loss amount. The contribution method (pro rata by limits) is most common, but other methods exist. Policy language determines how contribution is calculated. Some policies include 'other insurance' clauses that specify contribution rules or attempt to make one policy primary and others excess.