I was reading up on Contribution Principle of Insurance when I came across the following example used to explain the concept
In the homeowner example, if the owner bought two $250,000 policies on his home from different companies, and a fire occurred that was covered under both policies, the owner files a claim with one company. That company will pay out the $250,000 to the owner. Then, in accordance with the contribution principle, the company can collect half of that amount, $125,000, from the other company.
I have the following questions:
Why would the home owner buy two policies of the same type when he can only claim from one insurance company ? It does not make sense to pay the premium for two policies and then be able to only claim from one company.
Assuming we have insurance company A & B and the homeowner claims from B, how does B know that homeowner has the same insurance policy with insurance company A ?