General Principles Of Insurance

CS Deepak Pratap Singh

Our life is full of uncertainties. We are facing uncertainties on every step, while proceeding in our life. Same in the field of business also, there are various types of uncertainties, such as uncertainty of flood, war, earthquake, riots, civil war, etc. Some time the prices of good produced fluctuates so that business suffers loss. Some time machinery installed became obsolete due to modern innovation in the same field. Where goods are in transit they may damaged or destroyed by fire or other natural calamities. Some time offices, factories, buildings are damaged due to various natural and manmade calamities. So the business face various types of risks and a business man to reduce impact of these risks go for insurance for smooth sailing of his/her business.

Insurance prevents or minimises the hindrance due to risks of various kinds, it has attained such an importance that without it modern business cannot function properly.

Our life is also going through various types of risks. A human being is prone to various types of diseases, death, accidents or injuries. We have to insure ourselves for our family members.

MEANING OF INSURANCE;

“ Insurance is a contract in which one party , known as the insured or assured , insures with another person, known as the insurer , assures or underwriter, his property of life or the life of another person in whom he has a pecuniary interest, or property in which he is interested , or against some risk or liability, by paying a sum of money as a premium.

Under the contract, the insurer agrees to indemnify the insured against a loss which may accrue to the other on the happening of some event.

The instrument or the contract is called Policy of Insurance.

GENERAL PRINCIPLES OF INSURANCE; Some of the principles of insurance are;

INDEMNITY; A contract of insurance is a type of contract of indemnity ( except in the case of life and personal accident insurance) in which an insurer contract with the insured to mitigate any monitory loss held to the insured on happening of some event as mentioned in the contract.

It is necessary that some monitory or pecuniary loss happen to the insured due to happening of some event.

The insured is not permitted to make profit from the insurance. Suppose Mr. X taken a policy to insure his car against theft and accident of Rs. 1, 00,000. He got the accident and damage cost is of Rs. 10000. Then the insurance company will allow his claim up to Rs. 10000 only. In case his car has been stolen then they may claim maximum claim of Rs. 100000 in case of total loss.

GOOD FAITH; The contract of insurance must me on good faith. The insured is of the obligation to declare full and true disclosure of facts to the insurer. The insurance company on the facts declared by the insured will decide the type of insurance and the liability and as well as the premium. So the true disclosure of all facts is necessary. The insurance company may declare any contract as void, if later found that the facts declared by the insured are not true.

So all contracts of insurance are the contracts “ Uberrimae fidei”, i.e., the contracts of utmost good faith and therefore non disclosure of a material fact entitles other party to avoid the contract.

Note: a new material fact , which is not material at the time of entering into the contract but later it became material during the course of time on the basis of which the insurer may declare the contract void or not ready to renew the contract , should be declare by the insured to the insurer as soon as he came to know the fact.

Any material facts comes in the knowledge of the insured subsequently need not to be disclosed.

INSURABLE INTEREST; it is some monitory or pecuniary interest. A person is said to have an insurable interest when he is so situated with regard to thing insured that he would have benefit from its existence and loss from its destruction.

The insured must has insurable interest in every contract of insurance with respect of any object or life.

A factory owner has insurable interest in the factory or if a person has a car has insurable interest in the car. Suppose Mr. A has car and the car cannot insured by Mr. B, since Mr. B has no insurable interest in Mr. A’s car.

The insurable interest of a husband will be in the life of his own and his wife or wife has insurable interest in the life of her own or his husband in case of life insurance policies.

The insurable interest must be pecuniary interest.

CAUSA PROXIMA; i.e. the “proximate cause” this is applicable in case of marine and fire insurance. In these cases when damage has resulted due to two or more causes, we have to look to the proximate or the nearest cause of damage, although the damage might have not been taken without remote cause. In the case of loss the proximate cause should be considered not the remote cause. If the cause of the loss is the peril as mentioned in the contract then the insured will get the claim otherwise not.

As held in case of Pink v. Fleming (1899) 25 QBD 396, lord Esher observed, “The question, which is the cause proxima of a loss, can only arise where there has been a succession of causes. When a result has been brought by two causes, you must, in insurance law, look to the nearest cause; although the result would no doubt not have happen without the remote cause. In the above case the ship collided with another ship, resulting in delay and mishandling of cargo of oranges which deterioted. It was held that the deteriotion of oranges was not due to collision of ships (peril insured) but that was due to mishandling and improper storage.

MITIGATION OF LOSS; it is an important principal of insurance, that in case of peril or accident the insured must try his best to save insured interest in the property or life. That he must take all measures to minimise the loss that he would have taken if the property were uninsured.

RISK MUST ATTACH; the risk must attached i.e. the insurer receives the premium in a contract of insurance for running a certain risk. If the risk is not run or not continuous on the business or the property of the insured then the premium received by the insurer should be returned.

SUBROGATION: it applies in case of fire and marine policies Subrogation is a right of the insurers to enforce for their own benefit all the rights and remedies which the insured posses against third parties in respect of subject matter. Subrogation is thus the substitution of one person in place of another in relation to the claim, its rights, remedies or securities.

Suppose two ships were insured and belong to Mr. X and Mr. Y, they have collided and Mr. X received insurance claim from insurance company. Now in this case insurance company may sue Mr. Y for negligence and claim for damages.

CONTRIBUTION: Where a particular property is insured with two or more insurers against the same risk, it is called “double insurance”. In the event of loss, the insured will get compensation only for the amount of actual loss. He will compensated by the concerned companies on the basis of “principal of contribution”. The insurers must share the claim to the extent sum insured with them. If in this case whole loss is paid by one insurer then it is entitled to demand contribution from other insurers.

Note: in this case it is necessary that the different insurers insure the same interest, in respect of the same property and the same peril.