In absence of a contract to the contrary, an assured is entitled to have the full amount of loss made good at the hands of the insurers. But nowadays in many insurance policies of different insurers contains a condition called the average clause by which the assured is called upon to bear a portion of the loss himself. One of such conditions is that if the property covered by the policy is, at the time of the fire, of greater value than the amount of insurance specified in the policy, the insured must be considered to be his own insurer for the different and bear a rate able proportion of loss. This condition is called the pro-rata condition of average. The portion of the loss is ascertained by a rule-of-three sums as follows;

  1. Value of property covered;
  2. Insured amount
  3. Damages payable


Mr. A has insured his house property values at Rs. 5.00 Lakhs and he has taken an insurance policy of sum assured Rs. 4.00 Lakhs and the damage done to his house due to fire is Rs. 1.00 Lakhs. Now in this case the insurance company will pay him Rs. 0.80 Lakh as insurance claim and he has to bear Rs. 0.20 Lakh as his own.


  1. This condition only comes into operation if the assured is under-insured and in the case of partial loss, he would be paid in the ratio above mentioned. In case of total loss Mr. A is entitled to be paid total sum insured i.e., Rs. 4.00 Lakhs.
  2. The policies which are not subject to Average Clause are called Specific Policies. It means that the amount insured is payable irrespective of the value of the property within the risk at the time.
  3. The Average Clause policies are generally used in Commercial or mercantile transactions
  4. The Specified Policies generally cover personal property.

We know that insurance indemnifies us in case of risk or perils. An insurance policy financially helps us facing adverse effects of peril insured. We cannot make profit from insurance policies and we cannot claim more than damages incurred to us against risk/perils insured. Many persons are accustomed to take various insurance policies for same subject manner and same type of peril. In this case if loss or damage occurred then assured/insured cannot claim compensation from each insurer more than amount of loss or damage. Now Doctrine of Contribution provides that in this case where there are more than one insurer insuring same subject matter against same interest then the contribution will be distributed amongst then on the basis if rate able proportion.

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