If a policyholder receives a settlement for a fire loss and later claims from the contractor, how much must they repay to the insurer?

In the context of insurance claims and settlements, the principle of indemnity is crucial. This principle stipulates that a policyholder should not profit from their loss but should be restored to approximately the same financial position they were in before the loss occurred.

When a policyholder receives a settlement from their insurer for a fire loss, this amount typically reflects the insurer's total liability for that specific type of loss. If the policyholder subsequently claims an additional amount from a contractor for the same fire loss, they may be entitled to recover any expenses incurred beyond what was compensated by the insurer. However, any settlement received from the insurer must be adjusted against these additional claims.

If the insurer initially provided a settlement amount of £10,000, and the policyholder later claims £18,000 from the contractor, they would need to repay the insurer the £10,000 received. This ensures the policyholder does not profit from the loss since their total recovery (from both the insurer and the contractor) should not exceed the actual loss incurred. Thus, they must repay the full settlement amount of £10,000 to the insurer upon receiving the additional compensation from the contractor.

Therefore, the correct repayment amount to the insurer in this scenario is £10,000