Insurance Contracts

Insurance contracts are meant to restore the insured property to the exact position of it
was before damage occurred. Majority of insurance contract are indemnity contracts whereby an
insurer agrees to pay the actual amount of the loss suffered and not more or less. The indemnity
concept of insurance has importance not only to the insurer, but also to the society. In some
cases, two companies can deal with one person and undertake to indemnify the person against
the loss of the same insured property. The two insured companies are entitled to pay their
customer according to their insurance policies. The feature f double insurance are that when a
person is insured with two or more company, then the person can claim the amount from all
policies and the insurer cannot claim amount that exceeds the actual loss. Because double
insurance is governed by the basic insurance principles, it does not allow unjust enrichment of
the insured.
In this case, Walter Brown is double insured his warehouse in Chicago which got totally
destroyed by fire while its value was at $400,000. The motive behind Walter’s double insurance
is to make sure that he is properly insured so that incase the warehouse can be totally destroyed;
he could not be forced to secure funds outside to restore the building at its original position. As a
result, he decided to by two insurance packages from two companies whose replacement costs
are $250,000 each. Because one package cannot fully restore the value of the building, the two
packages combined can fully restore the building. In case the building gets destroyed by fire at a

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value of $400,000, then the then the amount each insurance company will pay will be given by
the following working:
Amount of insurance, Company X $250,000
Amount of insurance, Company Y $250,000
Total amount of insurance $500,000
Company X pays 250,000/500,000×400,000=
$200,000
Company Y pays 250,000/500,000×400,000=
$200,000
Total paid $200,000

Therefore, both the insurance companies will pay $250,000 each because they offer equal
amounts payable to Walter. As a result, Walter’s total insurable interest will be $400,000, equal
to the value of the building prior to fire destruction. This is because double insurance is governed
by the basic insurance principles which does not allow for unjust enrichment of the insured. And
from the indemnity concept, insurer can only pay the exact amount of the value of the building
and not more or less.
In some situations, an insurance company can deny claims from the insured based on the
circumstances surrounding the loss and the precise coverage of the insurance policy. When an
issue rises concerning the policy language, the general rule requires the court to choose an
interpretation that favors the insured. When an insurance company denies a claim because it paid
for the similar claim three years ago, then the insurance company will be violating their duty of
“Good Faith and Fair Dealing”. This duty is enough to protect the insured because when the
claim is genuine, has followed the right channel, the insured has never missed any of the
payment, and the insurer is entitled to be paid his or her claims. If the company remains adamant
to pay the claims, then the insured can seek for help from an insurance lawyer. The good news is
that the insurer will be liable to the attorney’s fees and any other damages available.