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 it’s 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 average-
If 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?