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INTRODUCTION
Insurance may be defined as a contract between two parties whereby one party
called insurer undertakes in exchange for a fixed sum called premium to pay the
other party called insured a fixed amount of money after happening of a certain
event. Insurance policy is a legal contract & its formation is subject to the
fulfillment of the requisites of a contract defined under Indian Contract Act 1872.
Central to any insurance contract is the insuring agreement, which specifies the
risks that are covered, the limits of the policy, and the term of the policy.
Conditions, which are requirements of the insured, such as paying the premium or
reporting a loss;
Limitations, which specify the limits of the policy, such as the maximum amount
that the insurance company will pay;
Exclusions, which specify what is not covered by the contract.
The common law of contract proceeds on the basis that not all obligations created by
an agreement are of equal significance or importance to the parties. The orthodox
classification of contractual terms categorizes such obligations as either ‘conditions’
on the one hand, or ‘warranties’ on the other. A condition is an essential term of the
contract and is fundamental in nature,1 the effect of its breach is to entitle the
innocent party to terminate the contract and sue for damages. A warranty, however, is
a subsidiary promise, the breach of which entitles the innocent party to damages only
and not to terminate the contract.2
GENERAL ANALYSIS
The word condition may also carry a different meaning insofar as such a term may be
either a condition precedent or a condition subsequent. A condition precedent is a
term ‘which must be fulfilled before any contract is concluded at all’.3 In this sense it
has been described as a pre-condition, ‘something which must happen or be done
before the agreement can take effect’.4 Although the contract crystallizes as soon as
the parties conclude their agreement, if the contingent event does not occur, the
contract does not become operative.5 It should be noted that a condition precedent is
not restricted to the situation where the contract provides for a third party to perform
some specified act, but may also arise where one of the contracting parties themselves
is required to carry out some act.6
The nature of insurance depends on the nature of the risk sought to be protected. The
chief and classical varieties of insurance contracts are (i) life, (ii) re, (iii) marine and
in the modern times new varieties have been added from time to time like liability
insurance, third party risk. In fact, in modern times, the happening of any event may
be insured against at a premium directly proportional to the risk involved on its
happening. An element of uncertainty must be present in the course of the happening
of the event insured against; in some cases, in almost all non-life insurance contracts,
the happening of the event itself is uncertain while in life insurance the event insured,
that is, the death of an individual is a certain event, but the uncertainty lies in the time
when it happens.
The fundamental function of insurance is to shift the loss suffered by a sole individual
to a willing and capable professional risk-bearer in consideration of a comparatively
small contribution called premium. In this process the professional risk-bearer, the
insurer collects some small rate of contribution from a large number of people and if
there is any unfortunate person among them, the risk-bearer, the insurer relieves the
sufferer from the effects of the loss by paying the insurance money. Thus it serves the
social purpose; it is “a social device whereby uncertain risks of individuals may be
combined in a group and thus made more certain; small periodic contribution of the
individuals providing a fund out of which those who suffer losses may be reimbursed.
The insurers collect the contributions of numerous policyholders and those funds are
invested in organized commerce and industry. They help the running of giant
industries and mobilize the capital formation.
The terms “Assurance and Insurance are commonly used in insurance contracts. On
historical point of view, the word “Assurance is more older used in all types of
insurance contracts by the end of 16th century. But, from the year 1826, this term is
used to indicate life insurance only and the word “Insurance” for all other types of
insurance like marine, fire, etc. This is because that in life insurance, there is an
assurance from the insurer to make payment of the policy either on the maturity or on
death. Thus, the word “Assurance” indicates certainly on the other hand, the word
insurance is used against indemnity insurance, the insurer is liable to indemnity only
in case of loss to property or goods, otherwise not4. In brief, the differences between
the two terms are given in the following table below.
Difference between Assurance and Insurance (or Life Insurance and indemnity
(General/Non life) insurance.
TABLE1.1
DIFFERENCES BETWEEN ASSURANCE AND INSURANCE
Basis of
Assurance Insurance
Difference
This term is used only in life insurance This term is used for all
1. Scope and therefore the scope is comparatively other types of insurance and
limited. therefore, the scope is wider.
The life insurance contract is a continuing It is not certain that the
2. Renewal
contract and it will not lapse unless the event insured against may
of Policy
premium is regularly paid. happen or not.
The element of investment is present in It lacks the element if
3. Element of assurance since there is certainly of investment since there is no
investment receiving payment either on death or on certainty of receiving
maturity of the policy. payment.
The insurer gives assurance to the insured The insurer only promises to
4. Assurance to pay the claim in any case, either on secure the property in case
maturity or death. of actual loss.
The policy amount is paid to the assured The payment of claim is
5. Amount of in full on the maturity or on death along subjected to the element of
Claim with bonus, etc. announce by the actual loss but not more than
insurance company from time to time. the insured sum.
1) SHARING OF RISK
Insurance is a co-operative device to share the burden of risk, which may fall on
happening of some unforeseen events, such as the death of head of family or on
happening of marine perils or loss of by fire.
2) CO-OPERATIVE DEVICE
Insurance is a co-operative form of distributing a certain risk over a group of persons
who are exposed to it. A large number of persons share the losses arising from a
particular risk.
5) AMOUNT OF PAYMENT
The amount of payment in indemnity insurance depends on the nature of losses
occurred, subject to a maximum of the sum insured. In life insurance, however, a
fixed amount is paid on the happening of some uncertain event or on the maturity of
the policy.
7) TRANSFER OF RISK
Insurance is a plan in which the insured transfers his risk on the insurer. This may be
the reason that may erson observes, that insurance is a device to transfer some
economic losses would have been borne by the insured themselves.
9) A CONTRACT
Insurance is a legal contract between the insurer and insured under which the insurer
promises to compensate the insured financially within the scope of insurance policy,
the insured promises to pay a fixed rate of premium to the insurer.
This section is important under the insurance Act, as it places restrictions on the
right of the insurer to repudiate his liability under the policy. According to the
provision life insurance policy cannot be called in question after the expiry of
two years from the date on which it was effected on the ground of mis-statement
in the policy unless it is shown that all the three conditions enumerated under
S.45 are satisfied, viz.
Insurance can be only with reference to a previously existing risk and unlike a wager
it does not create risk with its inception. The interests of the parties in a pure wager
are centered round the fact that they have contracted to pay each other certain sums on
the happening or otherwise of a certain event thereby bringing into being risk not of
previous existence. In the case of insurance, the individual subjected to the risk before
negotiations, obtains security and to that extent there will be a shifting of risk rather
than a creation of it. Therefore, to say that insurance accomplishes the reverse of a
wagering contract seems to be correct proposition.
1. Most contracts of insurance are usually annual contracts and the insurers have
option to refuse renewal at the end of each and any period of insurance. In
some cases the insurer reserves to him the right to terminate the insurance any
time on a proportionate return of premium in respect of the unexpired period
of the risk. Life assurance contracts are, in the main, long-term contracts, and
in the absence of any fault or any aw the insurer has no option to cancel the
insurance.
2. The risk insured against under a re, accident or marine insurance contract may
or may not occur but the event insured against under life assurance contract is
bound to happen.
3. From the above we see that the general contract of insurance continues to be a
contract of indemnity, but life insurance is considered as an assurance
contract. Regarding the life insurance contract, McGillivray says, “the contract
of insurance may be to pay on the happening of the event insured against, a
certain or ascertainable sum of money irrespective of whether or not the
assured has suffered loss or of the amount of such loss if he has suffered any.”
As is evident from much of the case law on the place of conditions and warranties in
the general scheme of contract law there has been considerable judicial debate over
whether the dichotomy amounts to nothing more than an over simplistic approach to
determining the importance of contractual terms. This has seen the recent emergence
of a third category of terms, namely innominate or intermediate terms. Whether a
party may terminate the contract in the event of breach of an innominate term lies
within the discretion of the court. In this way, such terms operate as a flexible device
whereby termination is made to depend upon the court’s view of the seriousness of
the consequences flowing from the breach. Nevertheless, the classification of
contractual terms as major (conditions) or minor (warranties) obligations has
withstood the rigors of judicial challenge and continues to represent the orthodoxy.
Insurance companies have brought numerous changes into effect over the years after
consumer courts have ruled against them.
The Apex Court bench comprising of Justices Anil R. Dave and L. Nageswara Rao
upholding the order of MRTP commission observed that as per the Insurance contract
forcible entry is required for a claim to be allowed under the policy for burglary/house
breaking.
The Bench observed: “It is well-settled law that there is no difference between a
contract of insurance and any other contract, and that it should be construed strictly
without adding or deleting anything from the terms thereof. On applying the said
principle, we have no doubt that a forcible entry is required for a claim to be allowed
under the policy for burglary/house breaking.”
The Court further observed: “If there is any ambiguity or doubt the clause in the
Policy should be interpreted in favor of the insured. But we see no ambiguity in the
relevant clause of the policy and the rule of contra proferentem is not applicable.
Facts: The plaintiff is (beneficiary of the policy) and her husband late Mulchand
insured himself with the defendant on 28.3.1972 for the sum of Rs. 25000/-. He also
had filed a proposal form and personal statement on the same date and died within a
month on 16.4.71. The division manager refused the claim by the appellant on the fact
that he had concealed the fact that before filing for the present policy he had 3
policies in March 1965, which had lapsed in March 1970.
Judgment: The court applied section 17 and 19 of the contract act, 1872 and held the
insurer cannot repudiate the liability by showing some inaccuracy or falsity of the
statement, nor can avoid the policy for a material representation if it has no bearing on
the risk.
The National Consumer Disputes Redressal Commission has ruled that any delay in
the notification of theft to the Police or the insurer in motor vehicle policies is fatal to
the claim in its judgment of 4 December 2014.
1
AIR 1984 M.P 126.
HDFC ERGO General Insurance Co v Bhagchand Saini
Facts:
The insured informed the insurer of theft of his vehicle after a delay of 3 months. The
information to police was after a delay of 2 days. The insurer repudiated the claim on
the ground that the enormous delay in notification was in violation of policy
conditions.
The insured filed a complaint before the District Forum which allowed his claim on a
non-standard basis by applying the principle laid down by the Supreme Court in
Amalendu Sahoo v OIC AIR 2010 SC 2090, where the Supreme Court had directed
payment of 75% of the claim in case of an accident of a vehicle which was registered
for private use but was being used for commercial purposes. The State Commission of
Rajasthan upheld the order of the District Forum and the Insurer preferred a Revision
before the National Commission.
National Commission's Decision:
1 Any delay in informing the police of the theft of a vehicle was ruled to be fatal
to the claim and information must be given immediately, "..the word
immediately has to be construed, within a reasonable time having due regard
to the nature and circumstances of the case."
2 The National Commission relied upon the Supreme Court judgment in the
matter of OIC v Parvesh ChanderChadha (Civil Appeal No 6739 of 2010) to
state:
"On account of delayed intimation, the appellant was deprived of its legitimate right
to get an inquiry conducted into the alleged theft of the vehicle and make an endeavor
to recover the same."
3 The National Commission noted that a minor delay was also held to be
justification for denial of the claim by a previous judgment of the National
Commission itself:
"In the above case, a delay of 2 days in lodging the FIR and delay of 9 days in
reporting the matter to the Insurance Company was found fatal."
We acted on behalf of the insurer in the matter and were successful in overturning the
judgment of the State Commission.
CONCLUSION
This chapter deals with an overview of insurance sector The chapter covers
introduction of insurance with number of terms of insurance like risk insured, insurer,
beneficiaries, control etc. The chapter also reveals the history of general insurance in
world as well as in India, back ground and definition of general insurance, importance
and function of general insurance, Advantages and limitations insurance. The chapter
reveals basic principles of insurance, nature of insurance business, classification of
insurance and the organizational set-up and management of general insurance public
sector companies, The chapter deals with the regal framework of Insurance, the policy
of general insurance companies, products of general insurance companies and finally
the opportunities and challenges before the insurance industry in India as well as in
the world.
BIBLIOGRAPHY
BOOKS
1. Dr. Avtar Singh, “Principles of Insurance Law” , 17th ed., 2002, Wadhwa &
Co., Nagpur.
2. "Insurance Theory and Practice" Prentice - Hall of India Private Limited, New
Delhi, 2006.
3. “Insurance”, RSBA Publications, Jaipur B.S., 1998.
4. Brij Anand Singh, ‘New Insurance Law’, University Book agency, 4th ed.,
2000, Allahabad.
WEBSITES
1. www.nationalinsurance.com
2. www.orientalinsurance.nic.in
3. www.newindia.co.in
4. www.uiic.in