9 Law of Insurance

LAW OF INSURANCE
FEATURES
Main principle of Insurance
is the pooling of risks. It
spreads the loss over a large
number of people who
insure themselves against
the risk.
FEATURES
Insurance does not avert or

eliminate loss arising from
uncertain events.
FEATURES
It is a co operative device to
spread the loss caused by a
risk over a large number of
persons who are also exposed
to the same risk and insure
themselves against that risk.
INSURANCE INVOLVES:
Contract of Insurance is
between the Insurer &
Insured for a consideration
called premium.
INSURANCE INVOLVES:
The instrument in which the

contract of insurance is generally
embodied is called the policy. It
is the evidence of the contract.
INSURANCE INVOLVES:
The thing insured is called
the subject matter & the
interest of the insured in the
subject matter is called
insurable interest.
INSURANCE INVOLVES:
The uncertain events or

casualties are called perils
insured against.
IS INSURANCE A WAGERING
AGREEMENT?
A contract of Insurance bears a
superficial resemblance to a
wagering agreement. The difference
being that the object of Insurance is
to protect the assured against
losses whereas the object of
wagering agreement is to earn
speculative gain.
FUNDAMENTAL ELEMENTS
The Principle of Utmost Good
Faith. (UBERRIMAE FIDEI): The rule
caveat emptor, i.e. let the buyer
beware, does not apply. The assured
being in the vantage point, since he
knows the subject matter, he cannot
SUPPRESSIO VERI, i.e. suppress facts
or SUGGESTIO FALSI, i.e. make false
suggestions or statements.
Indemnity: The assured, in case of
a loss, shall be paid the actual
amount of loss not exceeding the
amount of the policy. The object of
every contract of insurance is to
place the assured in the same
financial position, as nearly as
possible, after the loss as if the loss
had not taken place at all.
NOTE : Life insurance is not a
contract of indemnity
Insurable Interest: The assured must be
in a legally recognised relationship to what
is insured so that he will suffer a direct
financial loss on the happening of the
event insured. This point distinguishes it
from a wagering agreement.
It exists where a person is so
circumstanced with respect to the subject
matter of the policy as to have benefit
from its existence or prejudice from its
destruction.
CAUSA PROXIMA NON REMOTA
SPECTATUR: The assured can recover the
loss only if it is proximately caused by any
of the perils insured against. If the loss is
due to remote causes, the assured will not
be indemnified.
The question, which is the causa proxima of
a loss, arises only when there is a
succession of causes.
Proximate cause is the dominant cause -
it does not have to be the first.
Proximate does not mean nearest in time
but that which is proximate in efficiency.
PROXIMATE CAUSE
Doctrine based on cause and effect
PROXIMATE CAUSE
Direct
Most dominant
Most effective
Closely connected to loss in efficiency
and effectiveness
Common sense
Mitigation of loss: The assured
must take all necessary steps or
measures as may be reasonable for
the purpose of averting or minimising
a loss.
The risk must attach: The insurer
receives the premium in a contract of
insurance for running a certain risk. If for
any reason the risk is not run, the
consideration for which the premium was
given fails. In such an event the insurer
must return the premium.
Contribution: The right of contribution
arises when the subject matter is insured
with two or more insurers against the
same peril. Either, one insurer meets the
loss and claims it from the others or they
meet the loss proportionately.
Subrogation: This applies to fire & marine
policy i.e. the insurer, after making good
the loss, is entitled to be put into the place
of the assured. That is to say, the insurer
steps into the shoes of the assured when
he has paid the amount of the policy to the
assured & is entitled to all the rights &
remedies that the assured would have had
against third persons regarding the loss.
The period of Insurance Fire
insurance is from year to year, marine
insurance is from year to year or
voyage to voyage. Life insurance is a
continuing contract if premium is paid.
SOME POINTS
An Insurer can reinsure the risk with other
insurers. This is termed as reinsurance.
In Life Insurance, there are three cases in
which insurable interest is presumed; own
life, life of a spouse (husband & wife). In
all other cases, insurable interest has to
be proved.
All LIC policies contain a clause that if the
assured commits suicide within one year
of the policy being taken, the risk does not
attach.
A Life Insurance Policy can be surrendered
before the completion of the period of
insurance. A life insurance policy can be
assigned Also, based on the surrender
value of the policy, the insurer can avail a
loan from LIC or from banks by assigning
the policy to them. Nomination facilities
are also available on life insurance
policies.
Fire Insurance policy contains an average
clause.
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LAW OF INSURANCE

Insurance does not avert or

The instrument in which the

The uncertain events or

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