Chapter Principles of Insurance

INDEMNITY : GENERAL FEATURES

1.This means the object of insurance contracts is to place the insured, as nearly as possible, in the same financial position after a loss as that occupied immediately before the happening of the insured event. 2.Indemnity is linked with insurable interest. Is not necessarily provided by means of a money payment, as reinstatement, repair or replacement is sometimes convenient to both parties.

INDEMNITY APPLIED TO VARIOUS BRANCHES OF INSURANCE

Marine
The ship (hull) allows for a fair value to the ship owner, and the cargo policy allows the merchant to insure his profit as well as the actual cost price of the goods. In other words, a commercial indemnity, instead of a strict indemnity is provided. In the event of total loss, the measure of indemnity is the value fixed by the policy. where there is a partial loss of goods, a settlement is made of a proportion of the greed value according to the amount of depreciation. In the event of a partial loss of a ship, the indemnity is represented by the cost of repairing the damage.

 Fire and accident ( other than personal accident) Life and personal accident: The amount of life assurance that a man can effect is normally controlled by his ability to pay premiums and is thus roughly scaled to his position in life. In personal accident insurance, insurers Endeavour to ensure that the amount of weekly benefit provided in the event of disablement is in line with the insureds normal earning capacity.

METHODS OF PROVIDING INDEMNITY

(a) Cash payment (b) Repair (c) Replacement (d) Reinstatement

SUBROGATION
Subrogation is the right which one person has of standing in the place of another and availing himself of all the rights and remedies of that other, whether already enforced or not. It does not apply to personal accident or life policies.

HOW SUBROGATION ARISES

(a)Rights arising out of tort (b) Rights arising out of contract (c) Rights arising by statute

WHEN SUBROGATION ARISES

Fire and accident

Marine

EXTENT OF SUBROGATION
A policyholder is under insured and more is recovered from a negligent third party than the amount paid by the insurer under the policy, the balance belongs to the policyholder.

Principle of Contribution
Contribution is the right of an insurer who has paid under a policy, to call upon other insurers equally or otherwise liable for the same loss to contribute to the payment. It supports the principle of indemnity and applies only to the contracts of indemnity. But in case of medical expenditure incurred is subject to contribution.

When the doctrine operates

When the same person insures same interest with more than one office.
The policies concerned must cover the same peril, which caused the loss They must protect the same interest of the same insured They must relate to the same subjectmatter They must have been in force at the time of the loss

Order of contribution
Sum insurede with individual office X Loss Total sum insured

DIFFERENT INTERESTS: NO CONTRIBUTION

It is possible for Circumstances to arise in which two insurers may each have to pay the same loss in full because different interests are involved. Where different interests are involved, one insurance is usually effected in the joint names.

Principle of UTMOST GOOD FAITH

Contracts of insurance are different because one party to the contract alone-the prosperknows, or ought to know, all about the risk proposed for insurance, and the other party-the insurer has to rely largely upon the information given by the prosper in his assessment of that risk. For this reason, insurance contracts are contracts of the utmost good faith.

The failure of one party to exercise the utmost good faith enables the aggrieved party to repudiate the contract.

DUTY OF DISCLOSURE
It is the duty of the proposer to disclose, clearly and accurately, all material facts relating to the proposed insurance. It is a positive, not a negative duty. It is confined, however to matters of fact; it does not include matter of opinion. Material Fact

Duration of the duty of disclosure

The duty must be observed throughout the negotiations, and continues until they are completed and the contract is operative.

If an alteration is made to an existing policy, the duty applies so far as that alteration is concerned.
Disclosure by agent effecting insurance

MATERIAL FACTS
(a) Facts which tend to render a risk proposed greater than normal. (b) Facts necessary to explain the exceptional nature of a risk proposed for insurance. (c) Facts which appear to suggest some special motive for insurance.

(d) Facts which show that the proposer himself is in some way abnormal.

Facts which need not to be disclosed

(a) Facts which lessen the risk proposed for insurance. (b) Facts which could or should be inferred by the insurer in the light of the particulars actually disclosed. (c) Facts of public knowledge (d) Matters of Law (e) Facts possible of discovery

Facts which need not to be disclosed

(f) Facts which it can be reasonably concluded are a matter of indifference to the insurer. (g) Facts which it is superfluous to disclose by reason of a warranty in the proposed insurance.

Representation
A representation is a statement, verbal or in writing made by the proposer to the insurer bearing on a risk to be insured. Every such representation, if material, must be substantially true.

Warranty
A warranty is an undertaking by the insured to the effect that he shall or shall not do a certain thing or that some condition shall be fulfilled.

Distinction
A representation must be substantially true and a warranty must be strictly complied with. Misrepresentation should relate to material fact but breach of warranty can be material or immaterial Representation does not appear in the policy but warranty appear in the policy

Breaches of the duty

Non disclosure Concealment

Innocent misrepresentation
Fraudulent misrepresentation

On discovery of a breach
To overlook the breach To repudiate liability To bring an action for cancellation of the policy If the policy is matured, the insurer may make no payment and simply leave the insured to take proceedings which the insurer will defend

 Void Contract Voidable Contract Unenforceable Contract

Principle of Proximate Cause

Rules of Proximate Cause

Single Cause Concurrent Cause Unbroken Sequence Broken Sequence