Insurance - General Provisions

CONCEPT OF RISK  Risk is prospect of loss on the happening or non happening of an event 

In risk two elements are present 1. the out come is uncertain 2.these outcomes one is favorable and other is not

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There are different types of risk like:PURE AND SPECULATIVE SPECULATIVE

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Pure risk is one where is a loss or no loss but no gain and a speculative is one where is a chance of gain or loss

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Pure risks can be insured and speculative can

Meaning of Insur Insurance ance 

Insurance is defined as a cooperative device to spread a particular risk .It does not reduce risk or change the probability of risk ,it only reduces the financial losses

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In legal terms insurance is a contract where by one party agrees for a consideration called premium to compensate the other party for losses Thus it involves the following :-

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1.Insurer 2. Insured 3 .Premium 4. Policy

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The person or the the company company who is covering the risk risk is called insured

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The person whose interest is being insured is called

Insurance And Assurance

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It Insurance(n0n-life) Assurance(life) is used for life non insurance life insurance contracts

Functio unctions ns And BENIFIT BENIFITS S Of Insurance 

It helps in capital formation

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It increases the business efficiency as the executives can freely freel y work without worrying about the insurable interest

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It helps in risk sharing and risk transfer

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It provides certainty as risks are calculated in advance

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It provides protection as on the happening of  uncertainty payment payment is made and is i s true for all non life insurances

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The amount of payment depends upon the

Insurable Risk 

The risk involved must have a Financial value

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Homogeneous exposure

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It is concerned with only pure risks and not speculative

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The loss must be uncertain and it should not be based on a certain event

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It should not be against public policy

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Insurance is undertaken not to pay any kind of fines

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The insured and the insurer should have

Essentials of insur insurance ance contract 

OFFER

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The person who wants to cover a risk will wil l make an offer. Offer and invitation to offer are different

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An invitation precedes offer and any act that precedes acceptance is offer

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ACCEPTANCE

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Consent given offer is acceptance and it should be absolute and unqualified any variation is no acceptance

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Acceptance should be communicated before

CONSIDERATION 

Something in return is consideration and it must:---1.move must:---1.move from promises 2. need move to promisor 3. be sufficient

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Premium being a valuable consideration conside ration must be given for starting an insurance contract and a promise to compensate or indemnify as per the terms and conditions of the policy

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A contract of insurance without payment of  premium is void

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CAPACITY

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Every person is competent to contract (a)

FREE CONSENT 

Where the consent of one party or other has been induced by coercion, undue influence, or fraud misrepresentation, contract is voidable at the option of insurer i nsurer

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A 56 year man insured himself himse lf but died die d within 2 years the insurer refused to pay but court said man of such age carries own risk and insurance company accepted it with open eyes

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The burden of proof lies on the insurer t o show that the fact was misstated

Discharge of contract 

A contract contract terminates in following situations:

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1.Performance: 1.Performance: when all the terms of  contract in terms of performance have been carried out

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Release: when one party agrees to excuse performance like denial of claim in case of  fraud

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Discharge by implied consent or impossibility of performance. contract is discharged when performance becomes impossible;

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1. due to destruction of subject s ubject matter

Principals of Insur Insurance ance 

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1.Utmost good faith:-Insurance is a contract of uberrimae fidei. The assured must disclose to the insurer all material facts known to him . A mis-statement or withholding of any material information is fatal to the contract of insurance. Both the parties are under obligation for the full disclosure of material information. The rule ‘ caveat emptor ’ does not apply to them. To them. However the following facts are not to be disclosed A. facts common to the public B. Facts which tends to reduce the risk

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. Example…1.Utmost good faith [London Insurance Co. vs. Mansel (1879)] In making a proposal for insurance, M, in reply to a question asking whether previous proposals on his life had been made to any other office. He omitted to disclose that his proposal for life insurance had been declined by several other offices. Held , this was a material failure to disclose and the policy could be set aside.

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A proposer should disclose all material facts at the time of making the proposal for

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2. Principle Principle of Indemnity:-

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Indemnity means to make good the loss . All contracts of insurance are contracts of  indemnity except life insurance. Indemnity can be achieved in following ways:-cash payment, Reinstatement ,Repair ,Replaced

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Insurance is not allowed to be used to earn profit and loss is limited to the amount insured .The insured has to prove :-

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The monetary loss is sustained

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Castellion vs. Preston(1883) P insured his house against fire. Subsequently he agreed to sell his house to R. Before the sale, the house was destroyed by fire and P received his value from the insurance company. P then received the price from R as per the contract of sale. Held , the insurance company could recover from P the money they had paid.

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3. Insurable Interest :-It is subject matter of  insurance contract and its absence renders the contract void and without it there is no sanction of law and renders the contract void and hence unenforceable

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It is insurable interest that distinguishes insurance from gambling

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It should exist both at time of proposal and at the time of claims

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It can be acquired by ownership ,legal possession custody of property p roperty ,husband and wife have insurable interest in each others

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4. SUBROGATION:-Indemnity is a fundamental principle of insurance law, and the principle of Subrogation is a corollary of this principle The most common form of subrogation is when an insurance company pays a claim

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caused by the negligence of another. The doctrine of subrogation confers two specific rights on the insurer. 1. the insurer is entitled to all the remedies which the insured has against the third party

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2., the insurer is entitled to the benefits received by the assured from f rom the third party

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5.Proximate Cause

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A loss is due to a cause and that cause which is dominant is proximate cause

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This is a Latin term means nearest ne arest or immediate

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The insurer has to make good the loss of the insured that clearly and proximately results, whether directly or indirectly, from the event insured against in the policy. The burden of proof that the loss occurred on account of the proximate cause, lies on the insured.

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A ship insured against damage by enemy action was damaged while passing over a torpedo. Held the insurance co. was not liable as no enemy action took place p lace

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6.CONTRIBUTION

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If an insured obtains more than one policy covering the same risk he cannot recover the same loss from more than one source

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The insured can not be allowed to gain profits from indemnity

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It checks that each policy pays only a rateable portion under each separate policy. The contribution arises when ---1 there are different policies which relate to the subject-matt