Insurance Definition

Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.

Risk
The term Risk is used to describe all the accidental happenings which produce a monetary loss. For e.g.: A factory catching fire, a ship sinking etc.

Principles of Insurance
Utmost Good Faith Insurable Interest Indemnity
Subrogation Contribution

Proximate Cause

Utmost Good Faith

Good faith- Let the buyer beware

Declaration of all material Information about the subject mater of insurance

 Material Information is that information which enables the insurer to decide:

a) whether he will accept the risk and; b) if so, at what rate of premium and subject to what terms and conditions

Breach of duty of utmost good faith arises in two ways:

Non-disclosure of material facts- oversight, proposer thought its not essential etc. Misrepresentation- Intentional.

Insurable Interest
The legal right enjoyed by the owner of a property to insure is called Insurable Interest. The insurance will become null and void, without the insurable interest.

Indemnity
The principle of Indemnity states that under the policy of insurance, the insured has to be placed after the loss in the same financial position in which he was immediately before the loss.

 Applicability:
o When the losses suffered by the insured can be measured in terms of money o It is practicable to place the insured in the same financial position which he occupied before the loss

In Marine Cargo where valued polices are issued, there is only commercial indemnity- the value declared for insurance is accepted at the time of loss.

Limitation of Insurers liability:

If the sum insured is less than the indemnity, only the sum insured is payable. Property insurances- Condition of averageIf there is under insurance only proportionate value is payable. Excess/Franchise

Exceptions for Indemnity: Personal Accident

Subrogation
Transfer of rights and remedies from the insured to the insurer who has indemnified the insured in respect of the loss.

Contribution
The right of insurers who have paid a loss under a policy to recover a proportionate amount from other insurers, who are liable for the same loss.

Proximate Cause
The active efficient cause that sets in motion a train of events which brings about a result without intervention of any force started and working actively from a new independent source.

Case: A man travelling in a crowded train falls down and gets injured badly. Because of his hurt and bleeding he becomes unconscious and lying by the side of the track. Someone finds him takes him home. He develops fever which ultimately leads to Tetanus and is hospitalised. He is treated in the hospital for ten days then finally he dies! His wife realising he has a personal accident policy makes a claim with the insurance company. Is this claim payable?