3) Insurance i) Types of insurance ii) Principles of insurance INTRODUCTION Risk and uncertainty are incidental to life.

Human beings meet their untimely deaths they suffer from accidents, destruction of property, fire, floods, earthquakes and other natural calamities. Life is therefore uncertain, risky and insecure. Insurance comes into e istence as a means to pro!ide against risk and insecurity. Insurance doesn"t eliminate loss but it only spreads the loss o!er a large number of people, #ho insure themsel!es against the particular risk. The main principle of insurance is the spread of risks to a pool. It is a cooperati!e de!ice to spread the loss caused by risk o!er a large number of persons #ho are e posed to the same risk. $ %ontract of insurance is one #hereby a person called the insurer undertakes to make good the loss on the happening of a specified e!ent. $ The consideration for a contact of insurance is called &premium" i.e the price mutually agreed bet#een the assured and the under#riter for risk undertaken by the latter. $ The person #ho undertakes to indemnify the other against loss is called Insurer. $ The person #ho is gi!en protection is called insured. $ The document in #hich contract of insurance is contained is called Policy. The policy itself is not the contract but it is the e!idence of the contact. $ The thing or property insured is kno#n as &sub'ect matter" of insurance. It has been obser!ed that the contract of insurance is basically go!erned by rules #hich form part of the general la# of contract. (ut equally, there is no doubt that o!er the years, it has attracted many principles of its o#n to such an e tent that it is perfectly proper to speak of the la# of Insurance. )s a general rule, statutes dealing #ith the regulation of insurance business do not or ha!e not defined the contract of insurance to ob!iate the danger of e cluding contracts #ithin or that should be #ithin their scope. Ho#e!er a definition is essential as insurance business is closely regulated. In the #ords of I!amy, *eneral Principles of Insurance, ) contract of insurance in the #idest sense of the term may be defined as a contract #hereby one person called the insurer undertakes in return for the agreed consideration called the premium, to pay to the other person called the assured, a sum of money or its equi!alent on the happening of a specified e!ent In the #ords of +ohn (irds, ,odern Insurance La#, Pg -., It is suggested that a contract of insurance is any contract #hereby one party assures the risk of an uncertain e!ent #hich is not #ithin his control happening at a future time. In #hich e!ent the other party has an interest and under #hich contract the first party is bound to pay money or pro!ide its equi!alent if the uncertain e!ent occurs. Distinction between Insurance and Wagering Contracts ) #ager is a contract #hereby t#o persons or groups #ith different !ie#s on the outcome of an uncertain e!ent agree that some consideration is to pass depending on the outcome. The contract is speculati!e and contingent. Ho#e!er it differs from insurance in !arious #ays. -. /agers are generally unenforceable #hilst insurance contracts are enforceable. 0. The fundamental distinction bet#een insurance and a #ager is the risk in that #hereas in insurance risk e ists a priori, in a #ager there is a deliberate assumption of risk.

.. In #agering contracts neither of the contracting parties has the interest other than the sum to be #on or lost depending on the outcome. Payment is dependant upon the e!ent as agreed to by the parties and is not paid by #ay of indemnity or other#ise. In insurance, the insured has an interest of the sub'ect matter in respect of #hich he may suffer loss. 1. The uncertain e!ent upon #hich the uncertain e!ent depends is prima facie ad!erse to the insured"s interest and insurance is effected so as to meet the loss or detriment #hich may be suffered on the happening of the e!ent. In the #ords of (lackburn + in Wilson Vs. Jones [1867] L.R. 2 EX 139. 2. In #agers it is essential that either party may #in or lose depending on the outcome of the uncertain e!ent. In insurance, the insured pays a premium to furnish consideration, it is not dependant upon the e!ent insured against and the insured cannot be called upon to contribute anything more, #hether or not the e!ent occurs. TYPES OF INSUR NCE The types of insurance #hich are generally a!ailable are3 !i"e assurance This is a contract by #hich the insurer, in return for either a lump sum or periodical payments, undertakes to pay the person for #hose benefit the policy is effected, a sum of money3 $ on the death of the person #hose life is insured, or $ on a specified date, or on the death of the person #hose life is insured, #hiche!er happens first. In the case of 4a), the policy is called a /hole life policy. In the case of 4b), the policy is called an endo#ment policy. Dalby v The n!ia an! Lon!on "ss#$an%e &o It #as e plained that a life assurance policy is not a contract of indemnity. This is because a human being has no market !alue. Fire insurance ) fire insurance contract is intended to co!er loss caused by fire during a specified period. The #ord 5fire5 is usually defined in the policy. ) fire insurance policy is a contract of indemnity. #otor $e%ic&e Insurance ) motor !ehicle insurance contract is one effected pursuant to the ,otor Insurance 4,otor 6ehicle Third Party Risks) )ct to co!er any liability #hich a motorist may incur as a result of causing the death or in'ury of a third party 4including other motorists). The third party has a statutory right to sue the insurer direct, and is not affected by the pri!ity of contract rule. 'urg&ar( insurance ) burglary insurance is a contract to indemnify the assured against loss arising from burglary. 7uch a policy #ould be !oidable at the option of the insurer if the property insured is deliberately o!er!alued. ccident insurance )n accident insurance is a contract by #hich the insurer agrees to pay a specified sum of money upon the happening of certain e!ents, usually death of the insured in an accident. ) smaller sum is usually payable in the e!ent of the insured8s disablement 4total or partial), either on a monthly or #eekly basis. )n accident insurance is not a contract of indemnity. FUND #ENT ! PRINCIP!ES OF INSUR NCE ) contract of insurance must satisfy all the essential requirements of a !alid contract as laid do#n in la# of contract. The insurance contract is contract like any other, but #ith particular peculiar principles. This are summarised as follo#s3

)* INSUR '!E INTEREST In e!ery contract of insurance, the insured must ha!e insurable interest in the sub'ect mater of insurance. Insurable interest means the legal relations #ith property insured. It means the financial or monetary interest. It refers to the financial loss or gain the insured has in the e istence or non$e istence of the sub'ect mater. Thus, a person is not entitled to insure another person"s property or life, unless he has some definite financial stake in the sub'ect matter. In life insurance, insurable interest must e ist at the time of making the contract. In fire insurance, it must e ist both at time of making contract and time of loss of sub'ect matter. In marine insurance, it must be present at time of loss of the sub'ect matter. The case of L#%ena v &$a#'#$! (18)6* gi!es meaning to insurable interest as follo#s3 ) man is interested in a thing to #hom ad!antage may arise or pre'udice happen from the circumstances #hich may attend it (elo# are e amples of situations #hich may gi!e rise to insurable interest3 a. ) creditor has an insurable interest in his debtor to the e tent of his debt. b. ) partner has an interest in his partners during the subsistence of the partnership. c. )n employer has an interest in his employee #hile in his employment. d. ) surety has an interest in the trust estate. e. ) husband has an insurable interest in his #ife"s life and !ice$!ersa. f. ) person has an insurable interest in his o#n life. +* U'ERRI# E FIDEI This phrase means &utmost good faith." ) contact of insurance is one based on utmost good faith, #hereby the insured is required to disclose all the rele!ant material facts to the insurer. This enables the insurer to assess the risk and establishes the premium payable. 9ailure of utmost good faith #ill make the #hole contract !oid. ,aterial facts requiring disclosure are any facts, #hich influence a prudent insurer to decide #hether to, accept the risk and at #hat rate of premium if he elects to accepts the risk. This concept #as e plained in Ro+anes Vs. ,o-en (1928* as follo#s3 It has been for centuries in :ngland the la# in connections #ith insurance of all sorts, marine fire, life, guarantee and e!ery kind of policy that, as the under#riter kno#s nothing and the man #ho comes to him to ask to be insured kno#s e!erything, it is the duty of the assured$ the man #ho desires to ha!e a policy, to make a full disclosure to the under#riter #ithout being asked of all the material circumstances, because the under#riter kno#s nothing and the assured kno#s e!erything. This is e pressed by saying that it is a contract of utmost good faith &.be$$i/ae 'i!ei0 3* IDE#NITY )ll the contract of insurance e cept life and personal accident insurance are contracts of indemnity i.e. replacement of loss. This means that incase of loss, the insured #ill be paid the actual amount of loss not e ceeding the amount contained in policy. Indemnity is the controlling principle of insurance because purpose of insurance is to replace the loss, as it is not a contract of making profit. ,* SU'RO- TION This principle is in support of the doctrine of indemnity. It also applies to fire and marine insurance only. )ccording to the doctrine of subrogation, after the insurer has replaced the loss he steps into the shoes of the insured, and is required to reco!er any claims the insured may ha!e against any .rd party. This rule is intended to pre!ent the insured from recei!ing double benefit through reco!ering from the .rd party, thereby making profit from the unfortunate e!ent.

.* CONTRI'UTION /here there are t#o or more insurers on the same risk and sub'ect matter the doctrine of contribution applies. The purpose of contribution is to distribute the loss on the insurers according to the liability on sub'ect matter. In case of loss anyone insurer may pay the full amount of loss to the insured. )fter payment of his amount, the insurer is entitled to claim contribution from the other core insurers. This is therefore an equitable right #hich enables an insurer #ho has paid more than his share of liability to reco!er the e cess from the other insurers. 9or the right or contribution to be e ercisable, the follo#ing conditions are necessary3 -. There must ha!e been more than one policy on the same sub'ect matter and risk. 0. The policies must ha!e been taken out by or on behalf of the same person. .. The policies must ha!e been taken out #ith different insurers. 1. )ll the policies must ha!e been legally binding agreement. 2. )ll the policies must ha!e been in force #hen loss occurs. ;. <one of the policies must ha!e e empted themsel!es form contribution. /* C US PRO0I# It means pro imate cause. )ccording to this principle, the inured can reco!er the loss from insurer only if the loss is caused by pro imate cause. Pro imate cause refers to the e!ent insured against. The principle of pro imate cause is embodied in the ma im %a#sa 1$o2i/a non $e/o3a s1e%3a3#$$ #hich means that the pro imate cause of an e!ent is the cause to #hich the e!ent is attributable. It is the more dominant, direct, operati!e and efficient cause of the e!ent. It is the cause #ithout #hich the e!ent #ould not ha!e occurred. It is a cause #hich a reasonable person #ould attribute the e!ent. It is an important #eapon in the hands of the insurers by #hich an insurer can escape liability by demonstrating that the pro imate cause #as e empted. 4a/il3on 5$aise$ Vs. 6an!$o'' (1887* ) cargo of rice in a ship #as destroyed by sea$#ater flo#ing through a hole dug by rats in a bathroom. In the circumstances, the court held that insurer #as liable to pay because the damage #as due to a risk of sea$#ater. In this case sea$#ater #as the pro imate cause #hile the rats #ere the remote cause. 1* #ITI- TION OF !OSS In case the e!ent insured against occurs, the insured must take all the necessary steps to minimi=e or reduce the loss. He must act as if the sub'ect matter #as not insured. If he does not do so, the insurer can a!oid payment of loss resulting from negligence from the part of insured. 2* ' NDON#ENT This is the unconditional surrender by the insured to the insurer of the remains of the sub'ect matter for full indemnity. It is the gi!ing up by the insured of the remains for indemnity. The insured must surrender the sub'ect matter and the document of the title to the insurer. This principle is generally applicable in constructi!e or total loss e.g. #here it is too e pensi!e to retrie!e the sub'ect matter or #here total loss is ine!itable. )bandonment depends on the insurer.s decision. The insured must notify the insurer on his intention to abandon the sub'ect matter. The notice must be gi!en in accordance #ith the terms of the polity.

)cceptance of the notice by the insurer is conclusi!e e!idence of sufficiency of the notice and admission of the liability and the insured becomes entitled to full indemnity of the loss. 3* $ER -E C! USE This is a clause in an insurance policy to the effect that if the sub'ect matter is under insured and partial loss occurs, the insurer is only liable for a fraction of the loss suffered. If the loss is minimal, the insurer"s liability is e tinguished. )4* DOU'!E INSUR NCE >ouble insurance takes place #here the same risk and the same sub'ect matter is insured #ith more than one insurer. It is deferent from o!er$insurance #hich occurs #here the total amount insured e ceeds the !alue of the sub'ect matter insured. It is important to note that a contract of insurance is one of indemnity 4replacement of loss) hence double or o!er insurance has no !alue or ad!antage to the insured. Ho#e!er, the question of double or o!er insurance does not arise in the case of life and personal accident insurance because life is priceless. ))* RE5INSUR CE Reinsurance occurs if an insurer #ho has already insured specific property insures it #ith another insurer usually a larger company. This is done in order to spread the risk o!er a number of insurers. Thus, if an insurance company finds that it has entered into a contract #hich is a !ery e pensi!e proposition, it can relie!e itself of part or the #hole of liability by insuring the sub'ect matter #ith some other insurers. Ho#e!er, any claim arising under the policy #ould be paid and thereafter, it #ould reco!er the sum from the reinsurance company to the e tent of their liability under re$insurance contract. The person originally insured has rights only against the insurer #ho has insured the policy and not against the company #ere it is further insured i.e. re$insured. This is due to the pri!ity of contract rule. Re$insurance meets the follo#ing purposes3 $ It guarantees the meeting of losses if the insurer is not in a position to do so. $ It facilitates the spreading of economic benefit from one company to another. $ It also ensures that part of the funds polled locally by insurance companies is in!ested locally. )+* SSI-N#ENT ) contract of fire insurance may be assigned only #ith the consent of insurers. If they refuse to gi!e the consent, no assignment can take place. This #as e plained in 7a!!les &o/1any Vs. ,a!%o%8 (1793* ) life policy may be assigned by endorsement on the policy or by a separate instrument. /ritten notice of the assignment must be gi!en. )3* INSUR NCE -ENTS 7ection 0?-@ of the Insurance )ct, defines an agent as a person #ho being a salaried employee of an insurer #ho in consideration of a commission solicits or procurers insurance business for an insurer or broker. )n insurance agent commits both parties to the transaction. )t common la#, an insurance agent is the agent of the insured, if the proposer engages him to complete the proposal form. This is 'ustified on the doctrine of non$disclosure #hich assumes that the proposer is in control of the material facts affecting the sub'ect matter. %onsequently any incorrect statements affect the proposer ad!ersely. Ho#e!er in cases of acti!e fraud, the agent is deemed to be the agent for the insurance company.

4a$se Vs 6ea$l Li'e "ss#$an%e &o. L3! [19)9] 1 :, ;;8 HeldA /here the policy is illegal, the premium cannot be reco!ered if the insured is in 1a$i !eli%3o 4i.e parties are in equal fault) #ith the insurers. The plaintiff #as induced to insure his mother"s life by the insurer"s agent"s innocent misrepresentation that the policy #ould be a !alid one. The policy #as illegal under the Life )ssurance )ct -BB1, 7ec - since the plaintiff had no insurable interest. The plaintiff sought to reco!er the premium #hich he had paid. It #as held by the %ourt of )ppeal, that the premium #as not reco!erable because the parties #ere in pari delicto. ,oreo!er it #as found that there #as neither mis$ statement of fact nor fraud on the part of the agent. That there #as no greater impropriety on the part of the agent than there #as on the part of the plaintiff. Cnder the pro!ision of the Insurance )ct -DD- of :ngland, Insurance )gents are deemed to be agents of the Insurer, and in the e!ent of fraud, the insurer is liable. This principle #as applied in3 <.&onne$ Vs ,.D., :i$by an! &o an! "no3he$= [1971] 2 "LL ER 191;. The proposer #ho o#ned a motor !ehicle took out an insurance policy through the defendant insurance broker. He supplied the necessary information and the broker completed the proposer form. In response to one question, the proposer indicated that he had no garage and that the motor !ehicle #ould be parked by the side of the road. The broker indicated on the proposer form that the motor !ehicle #ould be kept in a garage. The proposer signed the proposer form #ithout detecting the mistake and a policy #as subsequently issued. The insured lodged a claim and the mistake #as disco!ered. The insurer repudiated liability #hereupon the insured sued the broker in damages for the loss suffered on the ground that the broker had breached his contractual duty to complete the proposal form correctly. Held3 The broker #as not liable in that, first, it is the duty of the proposer for insurance to make sure that the information contained in the proposal form is accurate and should not or ought not to sign it if it is inaccurate. )s it #as the insured"s duty to confirm the contents of the form, the effecti!e failure of the loss is his failure to do so. In >a!is L.+. 7aid at -10- EIt #as the duty of the insured to read this form. It #as his application, he signed it and if he #as so careless as not to read it properly, then in my opinion, he has himself to blameF Ho#e!er, under section D-?0@ of the Insurance )ct, #here an agent or ser!ant of an insurer #rites or fills in a proposal form for a policy of insurance #ith an insurer, a policy issued in pursuance of the proposal shall not be a!oided by reason only of an incorrect or untrue statement contained in the particulars so #ritten or filled in unless the incorrect or untrue statement #as in fact made by the proposer to the agent or ser!ant for the purpose of the proposal and the burden of pro!ing that the statement #as so made shall lie upon the insurer.