INTRODUCTION

� BEFORE GOING TO THE TOPIC STRAIGHTAWAY, LETS FIRST UNDERSTAND:

‘WHAT IS INSURANCE’?

� INSURANCE IN NOTHING BUT PROTECTION AGAINST THE PREDETERMINED RISKS AND

� THE RISK MAY BE IN SHAPE OF:

� EARLY DEATH (LIFE INSURANCE) OR

� LOSS OF AN ASSET (NON-LIFE INSURANCE).

2By S. M. Gupta

WHY INSURANCE?

� WE ALSO KNOW THAT EVERY ASSET HAS A VALUE

� INSURANCE IS CONCERNED WITH ECONOMIC VALUE OF THE ASSETS

� SUCH ASSETS HAS AN EXPECTED LIFE TIME� OWNER EXPECT INCOME/ COMFORT

DURING ITS LIFE AND� KEEPS FUND TO REPLACE THE ASSETS

AFTER ITS PLANNED LIFE IS OVER.� INSURANCE HELPS IF:

� PLANNED ARRANGEMENT FAILS DUE TO UN-TIMELY DAMAGE OR LOSS BY PERIL INSURED i.e. FIRE, LIGHTNING, FLOOD OR ACCIDENT ETC.

3By S. M. Gupta

CONCEPT OF INSURANCE

� INSURANCE IN THE CIRCUMSTANCES,

AS EXPLAINED EARLIER, IS THUS:

� AN AGREEMENT ENFORCEABLE BY

LAW AND

� THIS AGREEMENT IS ARRIVED AT BY

MEANS OF:

� A CONTRACT OF INSURANCE.

4By S. M. Gupta

5By S. M. Gupta

INTRODUCTIONINTRODUCTION

� THE ‘INDIAN CONTRACT ACT’

EXTENDS TO:

� THE WHOLE OF INDIA AND

� IT CAME INTO FORCE ON:

� THE FIRST DAY OF SEPTEMBER, 1872.

By S. M. Gupta 6

INTRODUCTIONINTRODUCTION

� WHAT IS A CONTRACT?

� IT IS AN AGREEMENT

� WHICH IS ENFORCEABLE BY LAW.

� THUS FOR THE FORMATION OF A CONTRACT, THERE MUST BE:

� AN AGREEMENT AND

� THE AGREEMENT SHOULD BE ENFORCEABLE BY LAW.

By S. M. Gupta 7

INTRODUCTIONINTRODUCTION

� AN AGREEMENT IS DEFINED AS:

� EVERY PROMISE AND EVERY SET OF

PROMISES

� FORMING THE CONSIDERATION FOR

EACH OTHER AND

� A PROMISE IS AN:

� ACCEPTED PROPOSAL.

By S. M. Gupta 8

WHO CAN ENTER INTO A

CONTRACT?

� A PERSON WHO:� IS OF THE AGE OF MAJORITY ACCORDING TO

THE LAW TO WHICH HE IS SUBJECT

� IS OF SOUND MIND i.e. A PERSON IS SAID TO BE OF SOUND MIND FOR THE PURPOSE OF MAKING A CONTRACT IF

� AT THE TIME WHEN HE MAKES IT, HE IS CAPABLE OF UNDERSTANDING IT AND OF FORMING A RATIONAL JUDGMENT AS TO ITS EFFECT UPON HIS INTERESTS

� IS NOT DISQUALIFIED FROM CONTRACTING BY ANY LAW TO WHICH HE IS SUBJECT.

9By S. M. Gupta

WHO CANNOT ENTER

INTO A CONTRACT?

� THE FOLLOWING PERSONS ARE

THEREFORE INCOMPETENT TO

ENTER INTO A CONTRACT:

� MINORS

� PERSONS OF UNSOUND MIND AND

� PERSONS DISQUALIFIED BY LAW TO

WHICH THEY ARE SUBJECT.

By S. M. Gupta 10

ESSENTIALS OF A VALID

CONTRACT

� ALL AGREEMENTS ARE CONTRACTS,

IF THEY ARE MADE BY:

� THE FREE CONSENT OF PARTIES

� FOR A LAWFUL CONSIDERATION

� THE OBJECT MUST ALSO BE LAWFUL

AND

� NOT EXPRESSLY DECLARED TO BE

VOID.

By S. M. Gupta 11

12

By S. M. Gupta 13

INTRODUCTION

� AS PER ‘THE INDIAN CONTRACT ACT 1872’, INSURANCE IS AN SPECIALISED TYPE OF CONTRACT WHERE:

� APART FROM THE ESSENTIALS OF A VALID CONTRACT

� INSURANCE CONTRACTS ARE SUBJECT TO ADDITIONAL PRINCIPLES.

� THESE ADDITIONAL PRINCIPLES ARE…..

By S. M. Gupta 14

PRINCIPLES OF

INSURANCE

� UTMOST GOOD FAITH

� INSURABLE INTEREST

� INDEMNITY

� SUBROGATION

� CONTRIBUTION AND

� PROXIMATE CAUSE.

15By S. M. Gupta

APPLICATION

� THESE DISTINCTIVE FEATURES ARE

BASED UPON THE BASIC PRINCIPLES

OF LAW AND:

� ARE APPLICABLE TO ALL TYPES OF

INSURANCE CONTRACTS.

� THESE PRINCIPLES PROVIDES

GUIDELINES BASED UPON WHICH:

� INSURANCE CONTRACTS ARE BEING

UNDERTAKEN.By S. M. Gupta 16

IMPLICATIONS

� A PROPER UNDERSTANDING OF THESE PRINCIPLES IS NECESSARY, AS THEY PROVIDES FOR:� CLEAR INTERPRETATION OF THE

INSURANCE CONTRACT

� HELPS IN PROPER TERMINATION OF THE CONTRACT

� SETTLEMENT OF CLAIMS

� ENFORCEMENT OF RULES AND

� SMOOTH AWARD OF VERDICTS, IN CASE OF DISPUTES.

By S. M. Gupta 17

By S. M. Gupta 18

INTRODUCTION

� INSURANCE CONTRACTS ARE DIFFERENT

FROM OTHER COMMERCIAL CONTRACTS

WHICH RELY UPON THE PRINCIPLE OF

‘LET THE BUYER BEWARE’ i.e.

� THE BUYER IS RESPONSIBLE FOR:

� EXAMINING THE GOODS OR SERVICES &

� THEIR FEATURES OR FUNCTIONS.

� IT IS NOT BINDING UPON THE PARTIES TO

DISCLOSE THE INFORMATION, WHICH IS

NOT ASKED FOR.

By S. M. Gupta

19

INTRODUCTION

� HOWEVER IN CASE OF INSURANCE, THE PRODUCT SOLD ARE INTANGIBLE

� THE FACTS RELATES TO THE PROPOSER ARE VERY PERSONAL & KNOWN TO HIM ONLY

� THE LAW THEREFORE, IMPOSES A GREATER DUTY, TO THE PARTIES OF THE INSURANCE CONTRACT i.e.

� THEY NEED TO HAVE UTMOST GOOD FAITH IN EACH OTHER, WHICH IMPLIES

� FULL & CORRECT DISCLOSURE OF MATERIAL FACTS BY BOTH THE PARTIES TO THE CONTRACT

� IT FURTHER GOES ON TO STATE THAT:

� NOT ONLY THE FACTS ‘THEY KNOW’, BUT THEY ‘OUGHT TO KNOW’, MUST BE DISCLOSED.

By S. M. Gupta 20

MATERIAL FACT

� THE TERM ‘MATERIAL FACT’ UNDER

INSURANCE REFERS TO:

� EVERY FACT OR INFORMATION

� WHICH HAS A BEARING ON THE

DECISIONS WITH RESPECT TO:

� THE SEVERITY OF THE RISK INVOLVED AND

� THE AMOUNT OF PREMIUM.

� THE DISCLOSURE OF MATERIAL FACT,

DETERMINES THE TERMS OF COVERAGE OF

THE INSURANCE CONTRACT.

By S. M. Gupta 21

THE FACTS WHICH MUST

BE DISCLOSED

� THE FOLLOWING FACTS NEEDS TO BE

DISCLOSED TO THE INSURER’S:

� WHICH SHOWS THE RISK REPRESENTS A

GREATER EXPOSURE THAN WOULD BE

EXPECTED, FROM ITS NATURE AND CLASS

� EXTERNAL FACTORS, WHICH MAKE THE RISK

GREATER THAN THE NORMAL RISK

� PREVIOUS LOSSES AND CLAIMS UNDER

OTHER POLICIES

� ANY DECLINATURE OR SPECIAL TERMS

IMPOSED UPON, BY THE PREVIOUS INSURER’S.

22By S. M. Gupta

FACTS WHICH NEED NOT

TO BE DISCLOSED

� FACTS OF LAW

� FACTS OF COMMON KNOWLEDGE EXAMPLE: RIOTS/ FLOOD/ EARTHQUAKE PRONE AREAS ETC.

� FACTS, WHICH REDUCES THE RISK

� FACTS, WHICH COULD REASONABLY BE DISCOVERED

� FACTS WHICH COULD BE REVEALED BY A SURVEY

� FACTS COVERED BY POLICY CONDITIONS.23By S. M. Gupta

P A & MISCELLANEOUS

� ‘P A’: OCCUPATION

� AGE, HEIGHT & WEIGHT

� DISABILITY IF ANY.

� ‘THEFT INSURANCE’: NATURE OF

GOODS STORED i.e. ELECTRONICS/

BULK/ SIZE ETC.

� VALUE OF STOCKS AND SECURITY

ARRANGEMENT ETC.

24By S. M. Gupta

FIRE INSURANCE

� UNDER FIRE INSURANCE FOLLOWING ARE CONSIDERED TO BE MATERIAL FACTS:� CONSTRUCTION OF BUILDING

� OCCUPANCY i.e. NATURE OF USE

� NATURE OF GOODS, i.e. NON HAZARDOUS, HAZARDOUS, EXTRA HAZARDOUS ETC.

� PRESENCE OF FIRE DETECTION AND FIRE FIGHTING EQUIPMENTS

� HEIGHT OR NUMBER OF STORIES ETC.

25By S. M. Gupta

MARINE INSURANCE

� NATURE OF PACKING:

� SINGLE OR DOUBLE GUNNY BAG, OLD OR

NEW DRUMS ETC.

� NATURE OF GOODS:

� MACHINERY NEW OR OLD ETC.

� VESSEL CARRYING:

� AGE, CONDITION OF THE VESSEL ETC.

� PORT OF SHIPMENT:

� LOADING, SECURITY ARRANGEMENT ETC.

� DESTINATION:

� UNLOADING, SECURITY AND CLEARANCE

ARRANGEMENT ETC. .26

MOTOR INSURANCE

� INSURED DECLARED VALUE

� TYPE OF VEHICLE

� CUBIC CAPACITY

� CARRYING CAPACITY

� GROSS VEHICLE WEIGHT

� MODEL

� AGE OF PERSON i.e. OWNER/ DRIVER

� GEOGRAPHICAL AREA.27By S. M. Gupta

DUTY OF DISCLOSURE

� CEASES NO SOONER POLICY/ COVER

NOTE IS ISSUED BUT:

� AT THE TIME OF RENEWAL

� AGAIN ALL MATERIAL FACTS ARE TO

BE DISCLOSED.

� IT IS VERY IMPORTANT TO NOTE

THAT, IF SOME MATERIAL CHANGE

TAKES PLACE, DURING CURRENCY

OF THE CURRENT POLICY:

� THAT MUST BE ALSO DISCLOSED. 28

CONTRACTUAL DUTY

� EVERY PROPOSAL HAS A

DECLARATION CLAUSE, WHICH IS

REQUIRED TO BE SIGNED BY THE

INSURED CONFIRMING THAT:

� ALL MATERIAL FACTS HAVE BEEN

DISCLOSED. THE INSURER CAN AVOID

THE CONTRACT IF:

� ANY ANSWER IS NOT CORRECT AND MAY

NOT BE EVEN MATERIAL TO THE

CONTRACT.29By S. M. Gupta

THE BREACH OF UTMOST

GOOD FAITH� UNINTENTIONAL: IF THROUGH AN OVERSIGHT

CERTAIN DETAILS/ INFORMATION’S, WHICH ARE NOT MATERIAL TO THE RISK, IS NOT DISCLOSED, THE CONTRACT IS VOID-ABLE.

� INTENTIONAL: IF NON-DISCLOSURE OR MIS-REPRESENTATION IS WITH FRAUDULENT INTENTION, CONTRACT IS VOID. VOID CONTRACT IS NEITHER LEGAL NOR A CONTRACT AT ALL.

� UNENFORCEABLE: CONTRACT ARE UNENFORCEABLE AT LAW i.e. THE POLICY IS NOT STAMPED AS PER STAMP ACT, IT CANNOT BE AN EVIDENCE IN THE COURT OF LAW.

30By S. M. Gupta

By S. M. Gupta 31

INTRODUCTION

� ALL RISKS ARE NOT INSURABLE. IN

ORDER TO BE INSURABLE, THE RISK

MUST BE:

� QUANTITATIVELY MEASUREABLE IN

TERMS OF MONEY AND

� THERE SHOULD BE INSURABLE INTEREST

IN THE ASSET, THAT IS TO BE INSURED.

� INSURABLE INTEREST PROVIDES THE

RIGHT TO INSURE.

By S. M. Gupta 32

INTRODUCTION

� INSURABLE INTEREST MEANS THE

POLICY HOLDER MUST HAVE A

PECUNIARY OR MONETARY

INTEREST IN THE PROPERTY, WHICH

HE HAS INSURED

� ANY DAMAGE TO PROPERTY MUST

RESULT IN FINANCIAL LOSS TO HIM.

ONLY THEN THE INSURABLE

INTEREST IS SAID TO EXIST.By S. M. Gupta 33

ESSENTIAL OF INSURABLE

INTEREST

� THERE MUST BE:

� PROPERTY, RIGHT, INTEREST, LIFE, LIMB OR POTENTIAL LIABILITY CAPABLE OF BEING INSURED AND SUCH

� PROPERTY, RIGHT, INTEREST, BE THE SUBJECT MATTER OF INSURANCE.

� RELATIONSHIP WITH THE INSURED SUBJECT MATTER OF INSURANCE EXIST:

� WHEN THE INSURED IS BENEFITED BY ITS SAFETY, WELL BEING OR FREEDOM FROM LIABILITY AND

� WOULD BE PREJUDICED BY ITS LOSS, DAMAGE OR THE EXISTENCE OF LIABILITY.

LAW ABOUT ESSENTIALS

OF INSURABLE INTEREST

� LAW MUST RECOGNIZE THE RELATIONSHIP OF INSURED AND THE SUBJECT MATTER OF INSURANCE E.g.

� IN LIFE INSURANCE CONTEXT, INSURABLE INTEREST IS DEEMED TO EXIST IN CASE OF CERTAIN RELATIONSHIPS BASED ON SENTIMENTS:

� HUSBAND AND WIFE,

� PARENT AND CHILD.35

WHO CAN INSURE

� OWNER OF PROPERTY CAN INSURE

� BANKS/ FINANCIERS/ MORTGAGEE AND MORTGAGOR HAVE INSURABLE INTEREST IN VEHICLE OR PROPERTY

� BUYERS, SELLERS, SHIPPER OF THE GOODS/ CARGO

� ONE HAS INSURABLE INTEREST IN SELF, WIFE & CHILDREN

� OWNER OF THE VEHICLE IN, THIRD PARTY, OCCUPANTS OF CAR

� EXECUTORS AND TRUSTEES IN THE PROPERTY UNDER THEIR CHARGE.

36

WHEN INSURABLE

INTEREST � FIRE & MISCELLANEOUS INSURANCE: AT ALL

THE TIME i.e. AT THE TIME OF EFFECTING INSURANCE AS WELL AS AT THE TIME OF LOSS/ CLAIM.

� MARINE: THE INSURABLE INTERESTS NEED NOT TO EXIST AT THE TIME OF INSURANCE BUT MUST EXIST AT THE TIME OF LOSS. EXPORTER, IMPORTER, SHIPPER AND CARRIER CAN AFFECT INSURANCE.

� LIFE INSURANCE: THE INSURABLE INTEREST IS REQUIRED TO EXIST AT THE TIME OF ENTERING IN TO A CONTRACT.

37By S. M. Gupta

ASSIGNMENT

• TRANSFER OF RIGHT AND LIABILITIES: PERSON WHO HAS ATTAINED INSURABLE INTEREST, IS KNOWN AS ASSIGNEE. HE CAN DIRECTLY DEAL WITH THE INSURANCE COMPANY IN HIS OWN NAME.

• FIRE & MISCELLANEOUS POLICY: CAN BE ASSIGNED WITH THE CONSENT OF INSURER.

• MARINE POLICY: IS FREELY ASSIGNABLE WITHOUT KNOWLEDGE AND CONSENT OF INSURER. MERE SIGNING/ ENDORSING AT THE BACK OF POLICY DOCUMENTS IS SUFFICIENT. HOWEVER, MARINE HULL POLICY CANNOT BE ASSIGNED, WITHOUT CONSENT OF INSURER.

38By S. M. Gupta

By S. M. Gupta 39

INTRODUCTION

� THE LITERAL MEANING OF THE

TERM INDEMNITY IS MAKING GOOD

THE LOSS

� ON HAPPENING OF AN INSURED

EVENT FOR WHICH THE INSURANCE

POLICY IS TAKEN UP

� THE INSURED SHOULD BE

REPLENISHED WITH THE AMOUNT

OF LOSS SUFFERED.By S. M. Gupta 40

OBJECTIVE

� THE OBJECT OF THE PRINCIPLE IS TO:� PLACE THE INSURED IN THE SAME FINANCIAL

POSITION AS FAR AS POSSIBLE

� TO THE POSITION HE OCCUPIED IMMEDIATELY BEFORE THE LOSS.

� THIS PRINCIPLE IS MOST EFFECTIVE AND:� PREVENT THE INSURED FROM MAKING PROFIT

OUT OF HIS LOSS OR GAINING BENEFIT/ ADVANTAGE.

� IF IT IS NOT THERE, THE INSURED HIMSELF:� WILL BRING ABOUT THE LOSSES SO AS TO

MAKE PROFIT.

41By S. M. Gupta

HOW INDEMNITY IS

PROVIDED

� THE COMPANY MAY AT ITS

OPTION INDEMNIFY THE

INSURED BY:

� PAYMENT OF THE AMOUNT OF

THE LOSS OR DAMAGE BY CASH

� BY REPAIR OR

� BY REPLACEMENT OR

� BY REINSTATEMENT.42By S. M. Gupta

CASH PAYMENT

� AN INSURANCE CONTRACT IS A CONTRACT TO PAY MONEY

� IN MOST OF THE CASES, INSURER’S PAYS CLAIM, BY WAY OF A CHEQUES TO INDEMNIFY THE INSURED

� IN LIABILITY CLAIMS, INSURER’S PAY BY WAY OF CHEQUES AND

� THE LIABILITY AMOUNT IS ESTABLISHED:

� EITHER BY COURT OR IS

� ARRIVED AT BY A COMPROMISE.

43By S. M. Gupta

REPAIR

� INSURERS MAKE EXTENSIVE USE OF

REPAIR AS A MEASURE OF

PROVIDING INDEMNITY

� IN MOST OF CASES ESPECIALLY

MOTOR INSURANCE, COMPANY

AUTHORISES REPAIRER TO CARRY

OUT REPAIR WORK ON DAMAGED

VEHICLES, AS A MEASURE OF

INDEMNITY.44By S. M. Gupta

REPLACEMENT

� UNDER THIS METHOD, THE LOSS IS COMPENSATED BY MEANS OF REPLACEMENT BY THE INSURER’S

� ALTHOUGH THIS METHOD IS NOT QUITE COMMONLY USED, THE COMPANY MAY EXERCISE THIS OPTION WHERE:� THE MARKET VALUE IS LOW BUT THE SUM

INSURED IS QUITE HIGH AND

� THE INSURED IS TRYING TO TAKE ADVANTAGE OF THE SITUATION.

45By S. M. Gupta

REINSTATEMENT

� UNDER THIS METHOD COMPANY

UNDERTAKES TO RESTORE OR

REBUILD THE DAMAGED PROPERTY

OR MACHINERY

� THE COMPANY WOULD NORMALLY

NOT EXERCISE THIS OPTION

BECAUSE OF:

� DIFFICULTIES TO BE FACED AT A

LATER STAGE. 46By S. M. Gupta

EXAMPLE

• BUILDING: THE COST OF REINSTATING

THE BUILDING OR REPAIRING THE

DAMAGED PORTION.

• MACHINERY: MARKET VALUE AT THE

PLACE, DATE OF LOSS/ DAMAGE OF

MACHINERY OF SIMILAR AGE, MODEL

AND CONDITION, PRIOR TO LOSS.

• LIABILITY OF INSURER: MAJOR FACTORS

TO BE CONSIDERED AT THE TIME OF

SETTLEMENT OF CLAIMS ARE:47By S. M. Gupta

FACTORS FOR CLAIM

SETTLEMENT� HOUSEHOLD GOODS: LIKE MACHINERY

THE VALUATION IS CARRIED OUT.

� STOCKS: REPLACEMENT VALUE IS PAID AND NOT THE SELLING PRICE.

� MOTOR: INSURED DECLARED VALUE IS PAID IN CASE OF TOTAL LOSS CLAIMS AND FOR PARTIAL LOSSES, THE REPLACEMENT OF PARTS ARE SUBJECT TO DEPRECIATION AND SALVAGE VALUE.

� MARINE: MARINE POLICIES ARE AGREED VALUE POLICIES. THE INSURANCE IS GRANTED ON PRICE OF CARGO PLUS INCIDENTAL EXPENSES.

48By S. M. Gupta

LIMIT OF LIABILITY

� THE LIMIT OF LIABILITY DIFFERS ACCORDING TO THE TYPE OF POLICY AND POLICY CONDITIONS E.g.

� SUM INSURED IS THE HIGHEST AMOUNT FOR LOSS WHICH IS PAYABLE

� CONDITION OF AVERAGE IS APPLICABLE IN CASE OF UNDER INSURANCE

� CLAIM = SUM INSURED/ VALUE X LOSS.

� EXCESS OR FRANCHISE IS APPLIED AS THE CASE MAY BE AND

� SALVAGE APPLICATION.49

ADDITIONAL AGREED COST

� THIS ALSO IS PAYABLE IF THE SAME IS AGREED AND PREMIUM IS PAID FOR IT. E.g. ENGINEERING INSURANCE

� VALUED POLICY: IN CASE OF FIRE POLICY, WHERE VALUE IS NOT ASCERTAINED, THE INSURANCE IS GRANTED ON AGREED VALUE BASIS

� AT THE TIME OF CLAIM:� IN CASE OF TOTAL LOSS, SUM INSURED IS

PAID WHERE AS

� IN CASE OF PARTIAL LOSS, PRINCIPLE OF INDEMNITY IS APPLIED.

50By S. M. Gupta

By S. M. Gupta 51

INTRODUCTION

� TRANSFER OF RIGHTS AND REMEDIES BY

THE INSURED TO THE INSURER, WHO HAS

INDEMNIFIED THE INSURED IN RESPECT OF

LOSS SUFFERED BY HIM, IS CALLED

SUBROGATION

� THE PRINCIPLE OF SUBROGATION ARISES

FROM PRINCIPLE OF INDEMNITY

� AFTER PAYMENT OF CLAIM, THE INSURER

STEPS INTO THE SHOES OF INSURED AND

CAN CLAIM RECOVERY FROM THIRD

PARTY, RESPONSIBLE FOR THE LOSS AND:

� CAN SUE HIM IN THE NAME OF THE INSURED.

APPLICATION OF

SUBROGATION

� THE SUBROGATION APPLIES TO ALL

LOSSES OTHER THAN:

� LIFE AND PERSONAL ACCIDENT IN

WHICH CASE:

� THE PERSON CAN CLAIM MONEY FROM

THIRD PARTY WHO NEGLIGENTLY CAUSED

DEATH AND ALSO

� CAN RECOVER COMPENSATION FROM

� LIFE/ NON-LIFE INSURANCE COMPANY, IN

RESPECT OF HIS INSURANCE.53By S. M. Gupta

EXTENT OF SUBROGATION

RIGHTS� THERE IS STRONG LINK BETWEEN

‘INDEMNITY’ AND ‘SUBROGATION’

� THE INSURER’S ARE NOT ENTITLED TO RECOVER:

� MORE THAN THEY HAS PAID TO THE INSURED.

� THE INSURED MAY SUCCEED IN RECOVERING MORE THAN THE CLAIM AMOUNT, FROM THE THIRD PARTY AND UNDER SUCH SITUATION, THE INSURER CANNOT

� RECOVER MORE THAN THEIR CLAIM AMOUNT. 54

EXTENT OF SUBROGATION

RIGHTS

� THERE ARE CIRCUMSTANCES IN WHICH THE INSURED HAS BEEN CONSIDERED HIS OWN INSURER FOR PART OF THE RISK

� THIS WOULD APPLY IN A CASE WHERE THERE IS EXCESS OR WHERE THE CONDITION OF AVERAGE APPLIES

� IN THIS EVENT HE IS ENTITLED TO RETAIN AN AMOUNT EQUAL TO THAT SHARE OF THE RISK, OUT OF ANY MONEY SO RECOVERED, FROM THE THIRD PARTY.

55By S. M. Gupta

MODIFICATION OF

SUBROGATION:

� THE COMPANY CAN EXERCISE THIS

RIGHT:

� BEFORE PAYMENT OR

� EVEN MAY NOT EXERCISE THE RIGHT

UNDER:

� KNOCK FOR KNOCK AGREEMENT.

� THE RIGHT MAY ALSO BE WAIVED IN

CASE THE INJURY OR DAMAGE TO

EMPLOYEE IS DUE TO NEGLIGENCE

OF OTHER EMPLOYEE. 56

IMPORTANT

� IT IS IMPORTANT TO KNOW THAT

THE PRINCIPLE OF SUBROGATION

IS INVOKED ONLY:

� WHEN A THIRD PARTY IS

RESPONSIBLE TO THE LOSS AND

�UNDER NO OTHER CIRCUMSTANCES

� THE SUBROGATION RIGHT CAN BE

EXERCISED, BY THE INSURER’S.

By S. M. Gupta 57

IMPORTANT

� THE SUBROGATION HELPS TO

ACHIEVE THE FOLLOWING:

� PREVENTS THE INSURED FROM

MAKING PROFIT OUT OF HIS LOSS

� THE GUILTY IS MADE TO PAY FOR THE

LOSS & RULE OF LAW IS ENFORCED

� IT HELPS INSURER’S TO RECOVER

PARTLY OR FULLY, THE AMOUNT PAID

FOR THE LOSS AND

� REDUCTION OF PREMIUM. HOW?????By S. M. Gupta 58

By S. M. Gupta 59

CONTRIBUTION

� AS PER THE DOCTRINE OF CONTRIBUTION, THE INDEMNITY PROVIDED FOR THE LOSS OCCURRING TO THE ASSET

� WHICH IS INSURED WITH SEVERAL INSURER’S, HAS TO BE:

� PROPORTIONATELY SHARED AMONG THEM

� ACCORDING TO THE RATEABLE PORTION OF THE LOSS.

� THE TOTAL COMPENSATION BY ALL THE INSURER’S SHOULD NOT EXCEED THE AMOUNT OF LOSS.

60By S. M. Gupta

CONTRIBUTION

� AN INSURED MAY BE HAVING INSURANCES WITH DIFFERENT INSURER’S AND IN THE EVENT OF LOSS:

� HE MAY RECOVER FROM ANY ONE INSURER

� FROM ALL INSURER’S AS PER INSURANCES.

� IN THE LATER CASE HE WILL MAKE PROFIT OUT OF HIS LOSS

� THE INSURER CAN RECOVER THE PROPORTIONATE AMOUNT OF LOSS FROM OTHER INSURER’S

� THIS IS WHAT IS KNOWN AS, PRINCIPLE OF CONTRIBUTION. 61

HOW CONTRIBUTION

ARISES?� REQUIREMENT OF COMMON LAW NEEDS

FOLLOWING TO BE MET:

� TWO OR MORE POLICIES OF INDEMNITY MUST EXIST

� THE POLICIES MUST COVER COMMON INTEREST

� COMMON PERIL WHICH GIVES RISE TO THE LOSS

� THERE MUST BE COMMON SUBJECT MATTER

� LIABILITY FOR THE LOSS IS IN RATEABLE PROPORTION i.e. EACH INSURER PAYS IN PROPORTION TO THEIR SUM INSURED.

62By S. M. Gupta

EXAMPLE

� SINCE THE LOSS IS 10% OF THE SUM INSURED

� EACH POLICY PAYS 10% OF THE LOSS.63

TOTAL SUM INSURED 6,00,000

POLICY ‘A’ SUM INSURED 1,00,000

POLICY ‘B’ SUM INSURED 2,00,000

POLICY ‘C’ SUM INSURED 3,00,000

TOTAL CLAIM AMOUNT 60,000

POLICY ‘A’ CLAIM PAYABLE 10,000

POLICY ‘B’ CLAIM PAYABLE 20,000

POLICY ‘C’ CLAIM PAYABLE 30,000

By S. M. Gupta 64

INTRODUCTION

� NO INSURANCE POLICY, ANY WHERE IN

THE WORLD, IS ISSUED WHICH MAY

COVER ALL THE LOSSES

� THE POLICY IS ISSUED TO COVER

CERTAIN SPECIFIED PERILS, WHICH MAY:

� BRING ABOUT THE LOSS TO THE INSURED.

� THE INSURER’S ARE THEREFORE LIABLE

FOR THESE COVERED LOSSES ONLY AND

� THIS IS WHERE THE CONCEPT OF

PROXIMATE CAUSE CAME INTO BEING.By S. M. Gupta 65

MEANING

� THE TERM PROXIMATE LOSS

LITERALLY MEANS THE NEAREST

CAUSE OR THE DIRECT LOSS

� IN INSURANCE CONTEXT, IT

RELATES TO:

� THE IMMEDIATE CAUSE OF THE MISHAP

� WHICH RESULTS INTO A LOSS.

By S. M. Gupta 66

PROXIMATE CAUSE

� PROXIMATE CAUSE MEANS:

� THE ACTIVE, EFFICIENT CAUSE THAT SETS IN MOTION A TRAIN OF EVENTS

� WHICH BRINGS ABOUT A RESULT

� WITHOUT THE INTERVENTION OF ANY FORCE STARTED AND WORKING

� ACTIVELY FROM A NEW AND

� INDEPENDENT SOURCE.

67By S. M. Gupta

PROXIMATE CAUSE

� THE INSURANCE PROVIDES FOR LOSSES, COVERED UNDER THE INSURED PERILS

� IF LOSS IS BECAUSE OF ONE EVENT, IT IS EASY TO UNDERSTAND THE LIABILITY

� HOWEVER, IF THE LOSS IS, DUE TO TWO OR MORE EVENTS, THEN:

� IT IS IMPORTANT TO FIND THE MOST EFFECTIVE, MOST POWERFUL CAUSE

� WHICH HAS CAUSED THE LOSS

� THIS CAUSE IS A PROXIMATE CAUSE ALL OTHER CAUSES ARE REMOTE CAUSES.

68By S. M. Gupta

PROXIMATE CAUSE

� THE INSURANCE COMPANY IS LIABLE

FOR THE DAMAGES CAUSED BY THE

EVENT AND

� LOOKS INTO THE PROXIMATE CAUSE OF

THE LOSS WHILST ACCEPTING OR

REJECTING THE LIABILITY

� THE QUESTION THEREFORE ARISES AS

TO, HOW IS A PROXIMATE CAUSE TO BE

DETERMINED, IN ORDER TO FIX THE

LIABILITY?69By S. M. Gupta

NATURE OF PERILS

� THE PERILS CAN BE CLASSIFIED UNDER THREE HEADINGS:

� INSURED PERILS: THOSE NAMED IN THE POLICY AS INSURED i.e. FIRE, LIGHTENING, STORM AND THEFT ETC.

� EXCLUDED PERILS: STATED IN THE POLICY AS EXCLUDED PERILS i.e. RIOT, EARTHQUAKE, WAR OR CERTAIN TYPE OF EXPLOSIONS.

� OTHER PERILS: ALTHOUGH THESE PERILS ARE NOT MENTIONED IN THE POLICY i.e. SMOKE & WATER, (IN FIRE POLICY), THEY ARE HELD COVERED.

70By S. M. Gupta

DOCTRINE OF

PROXIMATE CAUSE

� A NEW ACT INTERVENING, TO BRING

ABOUT THE LOSS, MEANS THE

PRINCIPLE WILL NOT OPERATE AND

� LAST STRAW CASES:

� THE ORIGINAL PERIL WILL BE

PROXIMATE CAUSE

� EVEN THOUGH THE LAST STRAW

COMES FROM ANOTHER SOURCE.

71By S. M. Gupta

By S. M. Gupta 72