Meaning of Insurance Contract A contract of insurance is a contract by which a person, in consideration of a sum of money , undertakes to make good the

loss of another against a specific risk, e.g., fire, or to compensate him or his estate on happening of a specified event, e.g., accident or death. INSURER & INSURED The person undertakes the risk is called the insurer , assuror or underwriter. The person whose loss is to be made good is called the insured or assured . PREMIUM The consideration for which the insurer undertakes to indemnify the assured against the risk is called the premium. . POLICY The instrument in which the contract of insurance is generally embodied is called the policy. The policy is not the contract; ..it is the evidence of the contract .

Subject matter of insurance and insurable interest The thing or property insured is called the subject matter of insurance , and the interest of the assured in the subject-matter is called his insurable interest .

FUNDAMENTAL ELEMENTS OF INSURANCE OR PRINCIPLES OF INSURANCE 1 .UTMOST GOOD FAITH : [ UBERRIMAE FEDEI ] Insurance is a contract of uberrimae fidei. The assured must disclose to the insurer all material facts known to him . A mis-statement or withholding of any material information is fatal to the contract of insurance. Both the parties are under obligation for the full disclosure of material information. The rule caveat emptor does not apply to them. Where the assured does not make a complete disclosure of everything which it was material for the insurer to know in order to judge, (a) whether he should accept the risk, and (b) what premium he should charge, the insurer can avoid the contract. Any fact is material if it has a bearing on the risk and would materially affect the insurer in deciding to make the contract or not . If the assured has knowledge of a fact which the insurer cannot ordinarily have, then he should not indulge himself in suppression very (suppression of truth) by making a suggestion which is false or suppressing a matter which is true

2.Indemnity

A contract of insurance (except life, personal accident and sickness insurances) is a contract of indemnity. In case of loss the assured is paid the actual amount of loss not exceeding the amount of the policy . Indemnity is the controlling principle in contracts of fire, marine, and burglary insurances. The object of every contract of insurance is to place the assured in the same financial position, as nearly as possible, after the loss as if the loss had not taken place at all. It would be against public policy to allow an assured to make a profit out of the happening of the loss or damage insured against . This is because, if that were so, the assured might be tempted to bring about the event insured against in order to get the money. Moreover, in the absence of principle of indemnity, there might be a tendency in the direction of over insurance.

3.Insurable interest: Insurable interest is necessary to support every contract of insurance . It is the legal right of a person to insure . It means that the assured must be so situated with regard to the thing insured that he would benefit from its existence and suffer loss from its destruction . It means that, the assured must be in a legally recognized to relationship so that he will suffer a direct financial loss on the happening of the event insured. It is the existence of insurable interest in a contract of insurance which distinguishes it from a wagering agreement. In life insurance, insurable interest must be present at the time when the insurance is effected. In fire insurance, it must be present at the time of insurance and at the time of loss. In marine insurance, it must be present at the time of loss of the subject matter. 4.Causa Proxima: The assured can recover the loss only if it is proximately caused by any of the perils insured against. This is called the rule of causa proxima . The rule is causa proxima non remota spectatur, i.e., the proximate or immediate and not the remote cause is to looked to and if the proximate cause of the loss from the insurer. Every loss that clearly and proximately results, whether directly or indirectly, from the event insured against is within the policy. The cargo of rice in a ship was destroyed by sea-water flowing in the ship through a hole made by rats in bathroom lead pipe. Held, the underwriter was liable as the damage was due to a peril of the sea. The proximae causa of the damage in this case is sea water. If however , the loss is caused directly by rats or vermin, the underwriter will not be liable. 5 Risk must attach: The insurer receives the premium in a contract of insurance for running a certain risk. If for any reason the risk is not run, the consideration fails, and the insurer must return the premium . 6..Mitigation of loss: In the event of some mishap to the insured property , if the assured does not take all necessary steps to mitigate the loss , the insurer can avoid the payment of loss which is attributable to the assured s negligence . He must act as an uninsured prudent person would act under similar circumstances in his own case. 7..Contribution:

Where there are two or more insurances on one risk, the principle of contribution applies as between different insurers. The aim of contribution is to distribute the actual amount of loss among the different insurers who are liable under different policies in respect of the same subject-matter . The contribution arises when (1) there are different policies which relate to the same subject-matter ,(2)the policies cover the same peril which caused the loss,(3) all the policies are in force at the same time of the loss;and (4) one of the insurer has paid to the assured more than his share of loss.

8.Subrogation: The doctrine of subrogation is a corollary to the principle of indemnity. According to it, the insurer who has agreed to indemnify the assured on making good the loss, is entitled to succeed to all the ways and means by which the assured might have protected himself against the loss. A insures his goods with B for Rs 1,000. The goods are damaged by fire caused by C , a miscreant . A recovers the loss from B and subsequently he succeeds in recovering this loss from C also. He must hold the amount recovered from C in trust for B. 9.Period of Insurance: A contract of life insurance is a continuing contract with a condition that the premium is to be paid at regular intervals. If the premium is not paid regularly, the contract lapses and can be revived subject to the fulfillment of certain conditions. An insurance policy specifies the terms or period of time it covers, often the nature of risk against which insurance is sought determines the period or life of the policy. 10 .Nature of contract : A contract of insurance like all other valid contracts , must have all the essential elements of contracts . 1.Offer and Acceptance 2.Intention to create legal relationship 3.Lawful Consideration 4.Lawful object 5.Free and Genuine Consent 6.Certainty and possibility of performance 7.Competency of the parties 8.Agreement not declared to be void 9.Legal Formalities