ifim business law insurance

8/14/2019 Ifim Business Law Insurance.

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Contract of InsuranceA contract of insurance is a contract wherebyone party undertakes, in return of aconsideration called premium, to pay to theother party a certain sum of money on thehappening of a certain event (death orattainment of a certain age) or to indemnifythe other party against a loss arising from therisk insured (in case of property).


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Contract of InsuranceInsurance is a contract in which one party,known as the insured or assured, insures withanother person, known as the insurer, assureror underwriter, his property or life, or the lifeof another person in whom he has a pecuniaryinterest, or property in which he is interested,against some risk or liability, by paying a sumof money called the premium.


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Insurance Contract and Wagering AgreementInsurance Contract

1. The object is to protect theinsured against losses on thehappening of some uncertainfuture event

2. The insurd has an insurableinterest in the life and propertysought to be insured.

3. Except life, accident andsickness, it is based on theprinciple of indemnity.

4. Based on scientific calculation ofrisks and premium isascertained after taking intoaccount various factors.

Wagering Agreement

1. The object is to gamble formoney and money only.

2. Neither party has any pecuniaryor insurable interest, except theresulting gain or loss.

3. There is no question ofindemnity as it does not coverany risk.

4. There is no question of anycalculation whatsoever. It is apure and simple gamble.


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General Principles of

Insurance Contracts:1. Utmost good faith

Ubberrimae fidei

2. Indemnity.

3. Insurable Interest

4. Causa Proxima

Proximate cause.

5. Risk must attach.

6. Mitigation of Loss

7. Doctrine of subrogation.

8. Doctrine of contribution.

9. Terms of Policy.


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Utmost good faith Ubberrimae

fideiBoth the parties are dutybound to disclose all

material facts relating to the subject-matter.

A material fact is one which would affect thejudgment of a prudent person, in consideringwhether he would enter into a contract at all or ifso, on what terms.

If utmost good faith is not observed by eitherparty, the contract becomes voidable at theoption of the party not at fault.


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Indemnity:All contracts of insurance, except those of life

and personal accident, are contracts ofindemnity.

The object of indemnity is to place the insuredafter a loss in the same position as heoccupied immediately before the event. Under

no circumstances, the insured should benefitmore than the loss suffered.


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Insurable InterestInsurable Interest is an essential pre-requisite in a

contract of insurance, without which the contractwill be treated as a wager, and shall be void and

unenforceable.A person is said to have an insurable interest when

he is so situated with regard to the thing insuredthat he would have benefit from its existence andloss from its extinction.

Insurable interest must be a pecuniary. A purelysentimental interest would not be enough.


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Insurable Interest

(Contd.)In the case of fire insurance, insurable interest

must be present, both at the time of taking outthe policy and at the time of loss.

In the case of marine insurance, it must bepresent at the time of loss; it may or may not bepresent at the time of taking out the policy.

In the case of life insurance, it must be presentat the time of taking out the policy, but need notbe afterwards.


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Causa Proxima Proximate

CauseLord Esher in Pink v. Fleming observed:The question, which is the cause proxima of a

loss, can only arise where there has been asuccession of causes. When a result has beenbrought about by two causes, you must, ininsurance law, look to the nearest causealthough the result would no doubt, not havehappened without the remote cause. Thus indeciding whether the loss has arisen through any ofthe risks insured against, the proximate or the last ofthe causes is to be looked into and others rejected.


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Risk must attachIf the insurers have never been on the risk, they cannot

be said to have earned the premium.

For a valid contract of insurance, risk must attach.

Similarly, risk does not attach when the policy is declaredto be void ab-initio on account of some defect, such as

no insurable interest or incompetency of insured ,illegality etc.


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Mitigation of Loss:In the event of a mishap, the insured must

act as though he was uninsured, that is, hemust take all those measures to minimize

the loss that he would have taken if theproperties were uninsured.

Of course, the insured is entitled to claimcompensation for the loss and expensessuffered by him in taking such steps fromthe insurer.


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Doctrine of subrogationLord Cairns in Simpson v. Thompson:

Subrogation is a right founded on the wellknown principle of law that where one person

has agreed to indemnify another he will, onmaking good the indemnity, be entitled tosucceed to all the ways and means by whichthe person indemnified might have protected

himself against or reimbursed himself for theloss.


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Doctrine of subrogation

(contd.)1. The doctrine will not apply until the assured

has recovered a full indemnity in respect ofhis loss from the insurer.

2. The insured should provide all such facilitiesto the insurer which may be required by theinsurer for enforcing his rights against thirdparties.

3. The insurer gets only such rights which areavailable to the insured.


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Doctrine of contribution:

This principle states that in case of doubleinsurance, all insurers must share the burdenof payment in proportion to the amountassured by each. If an insurer pays more thanhis rateable proportion of the loss, he has aright to recover the excess from hiscoinsurers, who have paid less than their

rateable proportion.


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Terms of policy:A contract of life insurance is not a contract

for a year only, but is a continuing contractand covers either a specified number of

years or the balance of the insureds life.In the case of fire insurance, the policy is

usually for one year, and the liability comesto an end on the expiry of that period.

In the case of marine insurance, it is for aparticular voyage or a certain period and thepolicy liability ceases when the voyage iscompleted or when the term expires.


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Contract of Life InsuranceA contract of life insurance is a contract wherebythe insurer, in consideration of a certainpremium, undertakes to pay to the assured, orto the nominee/assignee or the legal successor(as the case may be ) of the assured in case ofhis death, a stated sum of money or annuity (i.e.payment in monthly, quarterly, half-yearly oryearly instalments), on the death of the insured(the person whose life is insured) or on the

expiry of a certain period, whichever is earlier,in case of an Endowment Policy, and on thedeath of the insured, under a Whole Life Policy.

Diff b t Lif I


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Difference between Life Insuranceand Other forms of Insurance

Life Insurance

1. Subject matter ishuman life.

2. The event insured,namely death, isbound to happen,sooner or later.

3. Life insurance is a

valued contract. Not acontract of indemnity.

Other forms of Insurance

1. Subject matter is goodsor property.

2. In the case of firemarine or accidentinsurance, the eventinsured may or maynot happen.

3. Any other form, is acontract of indemnity.


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Life Insurance and Other forms of

Insurance4. In life insurance,

assured must havean insurable

interest, at thetime of effectingthe policy neednot be afterwards.

5. Life insurance is alongterm contract.

4.In fire insurance,insurable interest bothat the beginning and atthe time of loss. In

marine at the time ofloss, not essentialearlier.

5. Non-life insurancecontract is entered intoyear to year.

in the follo ing three cases of life


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in the following three cases of lifeinsurance.No proof required.

1. In ones own life.

2. Wife in the life of her husband.

3. Husband in the life of his wife.

For other relations, proof is required.


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Following cases allowed to limitedextent:

(life insurance)1. Creditor in the life of debtor to the extent

of the debt.2. Creditor in the life of surety and surety in

the life of principal debtor and of co-surety,to the extent of his guarantee.3. Partner in the life of co-partner in a firm to

the extent of capital invested.

4. Employee in the life of employer, uptowages or salaries for the term of service.5. Employer in the life of his key employee

until a man of equal calibre is found out.

Different types of Life Insurance


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Different types of Life InsurancePolicies:

These can be with profit or without

profit1. Whole life policy.2. Endowment policy.

3. Limited payment life policy.4. Convertible whole life policy.

5. Joint life policy.6. Annuity policy.

7. Education/Marriage endowment policy.

8. Childrens deferred endowment

assurance policy9. Childrens anticipated policy.

M i f f ll i


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Meaning of followingexpressions:

1. Surrender value 30% of premia paid less 1year premium and premia for accident. available after 2 or 3 years.

2. Paid-up value.

3. Loan value.

4. Assignment of life policies.

5. Nomination by Policy holder.

6. Days of Grace 30 days & 15 days.

7. Revival of lapsed policies.

8. Claims concession clause

6 months (3 years run ) 12 months (5 years run)

.


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Effect of Suicide:1. No payment if suicide takes place within 1

year.

2.After one year, LIC pays as in the case ofordinary death.

3. If policy assigned and recorded at least onemonth before death, LIC pays even if death

takes place within 1 year.


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Settlement of claims:

on production of proofs1. Proof of title of the claimant.

Self if alive .

Nominee or assignee or

Legal Representative

2. Proof of death.

3. Proof of Age.


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Contract of Fire

Insurance:A contract of fire insurance is a contractwhereby the insurer, in consideration of thepremium paid, undertakes to indemnify the

insured against financial loss which the lattermay sustain by reason of certain definedsubject matter being damaged or destroyedby fire during a specified period, subject tothe condition that the actual amount ofindemnity will never exceed the amount ofthe policy.


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Characteristics:1. Contract of indemnity.2. Utmost good faith.

3. From year to year.

4. Principles of subrogation andcontribution apply.

5. Loss by causa proxima.

6. Insurable interest both when insuredand at the time of loss.


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FIREFire which has broken bounds and is fortuitousin its nature. There must be actual ignition orburning, whether accidental or otherwise.

Heating unaccompanied by ignition is not fire.

Loss or damage by fire also includes damagecaused by efforts to extinguish the fire.


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Types of Fire Policies:1. Ordinary fire policy. depreciated value at the

date of loss.

2. Specific policy: Under insurance withoutaverage clause.

3. Average policy. average clause

4. Valued Policy.

5. Replacement Policy.6. Floating Policy.

7. Consequential loss Or Loss of Profits policy.


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Contract of Marine

InsuranceA contract of Marine Insurance is a contractwhereby the insurer (also called theunderwriter) undertakes to indemnify the

assured, in he manner and to the extentthereby agreed, against Marine Losses, that isto say, the losses incidental to marineadventure. The contract may also be extended

to protect the assured against losses on inlandwaters or on any land risk, which are incidentalto sea voyage.


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Types of Marine

Insurance:1. Hull Insurance vessel and equipments.

Owner effects hull insurance.

2. Cargo Insurance.3. Freight Insurance.

4. Liability Insurance Liability to third party byreason of collision etc.


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Maritime Perils:Maritime insurance policies protect the assuredagainst Maritime Perils.

Maritime Perils mean the perils consequent on,or incidental to, the navigatioin of the sea, thatis to say, perils of the seas, fire, war perils,pirates and rovers, thieves, captures, seizures,restraints and detainments of princes and

peoples, jettisons, barratry, and any other perilswhich are of the like kind or may be specified bythe policy.

Perils of the seas cover losses caused by sea water standing


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Perils of the seas cover losses caused by sea water, standing,

cyclone, storm, Lightning, fog, rough weather, collision with

other ship, striking upon a sunken rock or icebergs.

War perils cover loss sustained owing to histile acts of an enemy.

Pirates and rovers means sea robbers and rioters who attack

the ship from the shore.

Jettison refers to throwing a part of the goods overboard with a

view to lighten the ship in order to save the ship and residue of

the cargoes in an emergency.

Barratry means wrongful act wilfully committed by the captain or

crew in contravention of their duties, thereby causing prejudice

to the owners, for example, intentionally setting fire to ship or

running aground the ship.


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Characteristics of Marine

Insurance1. Indemnity except valued policies

2. Uberrimei fidei utmost good faith

3. Subrogation and contribution4. Average Policy with average clause.

5. Express and Implied Warranties.

6. Insurable Interest at the time of loss. Not

necessary at the time when policy effected.


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Kinds of Policies:1. Voyage Policy2. Time Policy maximum time is 12 months.

3. Mixed Policy Time and Voyage

4. Valued Policy.

5. Unvalued or open policy.

6. Floating Policy.

7. PPI (Policy Proof of Interest) or Honour Policy

Wagering Policy Interest or no interest8. Lost or not lost policy (retrospective effect)

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