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Welcome To Our Presentation

Presented to
Ms Samia Sultana Tani Assistant Professor Department of Finance University of Dhaka.

Presented By

Our objectives

To discuss the principle of insurance. To know about the different terms of the insurance. To get an overview on the principle of Utmost good faith and Insurable interest. To discuss the different related and unrelated facts that should be enclosed.

Our Agenda
Principles of utmost good faith

warranties

Principle of insurable interest

Representation

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Robin Kumar Saha ID-!6-39

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Titu Chowdhury ID-!6-31

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Deepangkar Saha ID-!6-

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Md. Nurul Hoque ID-!6-09

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Ananya Nandy
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Principles Of Insurance

Definition of Utmost Good Faith


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Both parties to the insurance contract must disclose all facts material to the risk voluntarily to each other. Unlike other contracts Caveat emptor Let the buyer be aware is not applicable here as The goods is not tangible and visible.

If there is any breach of duty the aggrieved party (suffered party) can reject the contract at the option of the voidable contract .

Duration of the duty

The duty of disclosure must be observed throughout the negotiations and continues until the completion of the contract. For general insurance contracts, the duty revives at renewal if it is a fresh contract & it completed on acceptance of risk by the insurer. In life insurance contracts, the duty of disclosure does not apply afresh for long-term agreement &completed with the payment of premiun.

Facts required to be disclosed


Fact which would render a risk greater than normal. For example, commercial storage of kerosene in the private dwelling house as side business.

Facts suggested some special motive behind insurance e.g. excessive or gross over insurance. Facts suggested the abnormality of the proposer himself e.g. making frequent claims. Facts explaining the exceptional nature of the risk.

Facts need not be disclosed


Facts which are known by public, they all have knowledge of that. Facts which lessen the risk Any matter relating to Law, which needs special precaution by the factory owners as per Factory Act Facts possible to discover by the insurance company through enquiry, need not to be disclosed

Facts which could be inferred (incidental) by the insurance company


Facts which insurers do not attach much importance. Facts which are superfluous (extra) to disclose because of the application of warranty.

Representation & Warranties


Statement made by the proposer to the insurer relating to a proposed risk. Such a representation may pertain to both material and immaterial facts. an undertaking by the insured to the effect that he shall or shall not do a certain thing or that some conditions shall be fulfilled or where by he affirms or negatives the existence of a particular state of affairs.

representation

warranties

Distinction

Representation

warranties

Complies strictly and literally

Required to be Strictly and literally substantially true complied with. (material portion literally true & immaterial portion need not) If & only if the misrepresentation relates to the material facts, insurer can avoid the contract. Does not appear in the policy. Any material and immaterial breach is enough to avoid the contract. Must appear expressly or by way of reference.

Avoid contract

Appearance in the policy

Breaches of the duty


Nondisclosure

Omission to disclose a material fact inadvertently (unintentionally) or because he innocently thought the information to be immaterial.

Concealmen t

Concealing a, material fact intentionally, knowing it to be material.

misrepresent ation

Innocent

Making an inaccurate or false statement pertaining to material facts innocently and believing it to be true. Making a false statement pertaining to facts material to the risk, intentionally and with the intention to deceive the insurer.

misrepresen tation

Fraudulent

Breaches of the duty


Any breach of the duty shall render the contract voidable at the option of the suffered party. If the insured makes a breach, the insurers may: Refuse to bear any liability regarding the claim. b. Cancel the policy if still in force running. Overlook the breach and continue the contract by unaffecting that.

Types of contract

Void contract Voidable contract Unenforceable contract

Void, Voidable & Unenforceable contracts

Void contracts: Void contracts are those which are not contracts at all. They cant be bought in the court of Law for any action. For example: gaming and wagering (gamble). A void contract is not necessarily an illegal contract. It should be remembered that all illegal contracts are void, but all void contracts are not illegal. Voidable contracts Voidable contract are those where minor breaches exist, such as breach of the duty of utmost good faith. That is breach of any duty which is minor in nature. In case of voidable contract, the aggrieved party can decide whether the contract will remain valid or not. It remains valid until it is declared void.

Unenforceable contracts

Unenforceable contract

-Unenforceable contracts are those which are very much valid contract, but simply cant be enforced in a court of Law because of absence of some legal requirement or evidential features. For example, Stamp Act requires that insurance policy are to be appropriately stamped.

stamp Act does not properly followed

Definition of Insurable Interest

Insurable Interest : For an insurance


contract to be valid, the insured must possess an insurable interest in the subject matter of insurance. The Insurable Interest is the pecuniary interest whereby the policyholder must have benefit from the existence of the subject matter and is prejudiced by the death or damage of the subject matter. It is legal financial interest of a person on the property, the interest being such that by the safety of the subject matter he is benefited, by the loss, damage or destruction thereof he is prejudiced.

There must be a property, rights, interest, life or limb or potential liability devolving upon the insured capable of being covered

Such property, rights, interest, life , limb or liability must be the subject matter of the insurance.

In insured must bear some relationship, recognized by law, to the subject matter whereby he benefits by the safety of the property, rights, interest, life or limb or freedom from liability and is prejudiced by any loss, damage or injury or creation of liability.

Examples of insurable interest

Owners: have got to the extent of full value. Part or joint owners: to the extent of their or financial interest. Mortgagee or mortgagor: interest of the mortgagee is limited to the sum of money that he has advanced. Bailees: A bailee is one who has potential liability being created if goods belonging to the others get lost or damaged in their custody. Example. Warehouseman.

Examples of insurable interest

Carriers: Like bailees, carrier has potential liability for any mishap to the goods belonging to others whilst in their custody. Administrator, executors & Trustees: Responsibility put on them by law. Life: A husband has an insurable interest in his wifes property as he is legally entitled to share her enjoyment of it and a wife similarly has an insurable interest in her husbands property as their relationship is reciprocal.

Examples of insurable interest

Debtor and creditor A creditor has an insurable interest in the life of a debtor, to the extent of the debt at the time when the insurance is effected. Insurers: A potential liability undertaken from insured under a policy and justifies taking out a reinsurance policy.

When insurable interest must exists


In Fire insurance both at the of effecting the policy and at the time of claim.

In marine insurance Only at the time of claim

In life insurance Only at the time of effecting the policy.

In accident insurance Both at the time of claim and effecting the policy like fire insurance.

Conclusion
Thats the full overview of the principles of Utmost good faith and insurable interest. This will help us to understand the learning on the insurance in a more specific way. We think that will be very much beneficial in our future.

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