Indemnity: The person suffering from loss must be restored to the financial position in which he was just before the loss. In principle, no “profit” should be made.
The assured is not put in a better position. This principle leads to a number of points which can be made:
(a) If the assured has no insurable interest in the subject-matter insured he does not have to be indemnified. “Insurable interest” is the second principle of insurance and will be examined shortly.
(b) If the assured replaces the lost or damaged subject-matter with a new item, he would be in a better position compared with his pre-loss position. Therefore insurers can and do make a “newfor- old” deduction for the amount of the claim. In the case of hull insurance it is customary for underwriters to waive this deduction. Indeed, in the Institute Time Clauses (Hulls) 1983, for example, it is expressly stated that “Claims are payable without deduction new for old”. Cargo policies are usually “valued” policies. A valued policy specifies the agreed value of the subjectmatter insured. Therefore the claim will be up to the extent of the insured value. This may introduce an element of profit but some certainty is ensured. If the cargo policy was unvalued, the value at the time of the loss is taken to be the value on board at loading, plus the insurance premium and any expenses such as commissions. However, the “value” of the cargo on board is quite an uncertain amount if we consider the worth to the assured.
(c) If the assured over-insures by double insurance he may claim payment from the underwriters as he wishes up to the limit of the indemnity, i.e., his actual loss or insured value. In the case of a valued policy, the assured must give credit for any other amount received by him under any insurance without any consideration of the agreed value. If the assured receives an excess of indemnity he holds this in trust for the underwriters according to their right of contribution among themselves. “Contribution” means that when the assured is over-insured by double insurance, each underwriter is bound to contribute to the loss in the same proportion as the underwriter’s liability. So, if the assured claims on only one insurer, this insurer can obtain a contribution from any other insurer.
(d) Subrogation—When the assured has been paid his indemnity for a partial or total loss, the insurer is “subrogated” to any rights which the assured may have against a third party. Subrogation means “taking the place of another”. If subrogation did not exist, the assured would perhaps be in a better position than his pre-loss position: he would have been paid by the underwriters and still have the ownership and control of the damaged subject-matter and/or rights against a third party if the loss or damage was caused by that third party’s negligence. Therefore, when the insurer pays for a total loss he takes over all rights and remedies of the assured relating to the subject-matter.
In the case where the insurer pays only for a partial loss he is still subrogated to all the rights and remedies of the assured.
So, for example, an underwriter indemnifying a cargo owner for loss of cargo caused by negligence of a ship would be entitled to seek compensation from the shipowner.