Which contract principle ensures the insured must have a legitimate stake in the subject of insurance?

The principle that ensures the insured must have a legitimate stake in the subject of insurance is insurable interest. This principle is fundamental in insurance contracts because it prevents moral hazard and ensures that the insured has a genuine interest in the preservation of the insured item or life.

Insurable interest requires that the individual or entity purchasing the insurance would suffer a financial loss should the insured event occur, creating a valid reason to insure the subject. This principle is not only a legal requirement but also serves to promote ethical behavior in insurance practices, ensuring that individuals do not take out policies on items or lives they have no connection to or interest in.

The other options relate to different aspects of insurance contracts: indemnity focuses on compensating the insured for actual losses incurred, contribution deals with the situation where multiple policies cover the same risk, and subrogation allows insurers to pursue recovery from third parties responsible for an insured loss. None of these concepts directly establish the necessary connection between the insured and the subject of insurance like insurable interest does.