Principles of Insurance: Indemnity

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Chapter

Principles of Insurance


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INDEMNITY : GENERAL

FEATURES1.This means the object of insurance

contracts is to place the insured, as nearly

as possible, in the same financial position

after a loss as that occupied immediately

before the happening of the insured event.

2.Indemnity is linked with insurable interest.

Is not necessarily provided by means of amoney payment, as reinstatement, repair or

replacement is sometimes convenient to

both parties.


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INDEMNITY APPLIED TO VARIOUS

BRANCHES OF INSURANCE

Marine The ship (hull) allows for a fair value to the ship owner,

and the cargo policy allows the merchant to insure hisprofit as well as the actual cost price of the goods. Inother words, a commercial indemnity, instead of a strictindemnity is provided.

In the event of total loss, the measure of indemnity is thevalue fixed by the policy. where there is a partial loss of

goods, a settlement is made of a proportion of the greedvalue according to the amount of depreciation. In theevent of a partial loss of a ship, the indemnity isrepresented by the cost of repairing the damage.


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Fire and accident( other than personal accident)

Life and personal accident:

The amount of life assurance that a man can effect isnormally controlled by his ability to pay premiums and is

thus roughly scaled to his position in life. In personal

accident insurance, insurers Endeavour to ensure that

the amount of weekly benefit provided in the event of

disablement is in line with the insureds normal earning

capacity.


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METHODS OF PROVIDING INDEMNITY

(a) Cash payment

(b) Repair

(c) Replacement (d) Reinstatement


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SUBROGATION

Subrogation is the right which one

person has of standing in the place of

another and availing himself of all therights and remedies of that other,

whether already enforced or not.

It does not apply to personal accident

or life policies.


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HOW SUBROGATION ARISES

(a)Rights arising out of tort

(b) Rights arising out of contract

(c) Rights arising by statute


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WHEN SUBROGATION ARISES

Fire and accident

Marine


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EXTENT OF SUBROGATION

A policyholder is under insured and

more is recovered from a negligent

third party than the amount paid bythe insurer under the policy, the

balance belongs to the policyholder.


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Principle of Contribution

Contribution is the right of an insurer who

has paid under a policy, to call upon other

insurers equally or otherwise liable for the

same loss to contribute to the payment.

It supports the principle of indemnity and

applies only to the contracts of indemnity.

But in case of medical expenditure

incurred is subject to contribution.


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When the doctrine operates

When the same person insures same

interest with more than one office.

The policies concerned must cover the same

peril, which caused the loss

They must protect the same interest of the

same insured

They must relate to the same subjectmatter They must have been in force at the time of

the loss


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Order of contribution

LossXinsuredsumTotal

officeindividualwithinsuredeSum


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DIFFERENT INTERESTS: NO

CONTRIBUTION

It is possible for Circumstances to arise in

which two insurers may each have to pay

the same loss in full because different

interests are involved.

Where different interests are involved, one

insurance is usually effected in the joint

names.


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Principle of UTMOST GOOD

FAITH

Contracts of insurance are different becauseone party to the contract alone-the prosper-knows, or ought to know, all about the riskproposed for insurance, and the other party-theinsurer has to rely largely upon the informationgiven by the prosper in his assessment of thatrisk. For this reason, insurance contracts arecontracts of the utmost good faith.

The failure of one party to exercise the utmostgood faith enables the aggrieved party torepudiate the contract.


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DUTY OF DISCLOSURE

It is the duty of the proposer to disclose,

clearly and accurately, all material facts

relating to the proposed insurance. It is a

positive, not a negative duty. It is confined,however to matters of fact; it does not

include matter of opinion.

Material Fact


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Duration of the duty of disclosure

The duty must be observed throughout the

negotiations, and continues until they are

completed and the contract is operative.

If an alteration is made to an existing

policy, the duty applies so far as that

alteration is concerned.

Disclosure by agent effecting insurance


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MATERIAL FACTS

(a) Facts which tend to render a risk proposedgreater than normal.

(b) Facts necessary to explain the exceptional

natureof a risk proposed for insurance.

(c) Facts which appear to suggest some special

motivefor insurance.

(d) Facts which show that the proposer himself

is in some way abnormal.


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Facts which need not to be

disclosed

(a) Facts which lessen the riskproposed

for insurance.

(b) Facts which could or should be

inferred by the insurer in the light of the

particulars actually disclosed.

(c) Facts of public knowledge

(d) Matters of Law

(e) Facts possible of discovery


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(f) Facts which it can be reasonably

concluded are a matter of indifferenceto

the insurer.

(g) Facts which it is superfluous to

disclose by reason of a warranty in the

proposed insurance.

Facts which need not to be

disclosed


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Representation

A representation is a statement, verbal or

in writing made by the proposer to the

insurer bearing on a risk to be insured.

Every such representation, if material,

must be substantially true.


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Warranty

A warranty is an undertaking by the

insured to the effect that he shall or shall

not do a certain thing or that some

condition shall be fulfilled.


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Distinction

A representation must be substantially true

and a warranty must be strictly complied

with.

Misrepresentation should relate to material

fact but breach of warranty can be material

or immaterial

Representation does not appear in the

policy but warranty appear in the policy


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Breaches of the duty

Non disclosure

Concealment

Innocent misrepresentation

Fraudulent misrepresentation


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On discovery of a breach

To overlook the breach

To repudiate liability

To bring an action for cancellation of thepolicy

If the policy is matured, the insurer may

make no payment and simply leave the

insured to take proceedings which the

insurer will defend


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Void Contract

Voidable Contract

Unenforceable Contract


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Principle of Proximate Cause


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Rules of Proximate Cause

Single Cause

Concurrent Cause

Unbroken Sequence

Broken Sequence

Principles of Insurance: Indemnity

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