Monday, June 23, 2008

Fundamental elements of insurance

Utmost good faith:
The general in a contract is that each party to a contract is entitled to make the best bargain he can. But there are certain cases where the knowledge of the fact is almost exclusively on one side, in such cases the contract is vitiated by a non-disclosure of any material fact. Such contract are known as contracts of uberrimae fidei(of the fullest confidence) or contracts requiring good faith. the rule of ‘caveat emptor’ ie. Let the buyer beware…..doesnt apply to them and non-disclosure of material facts would go to the being regarded as the fatal to the validity of contract. Contracts of insurance are based on the foundation of utmost good faith.


A contract of insurance (except life, personal accident and sickness insurance) is a contract of indemnity. This means that that the assured , in case of loss against which the policy has been issued , shall be paid the actual amount of loss not exceeding the amount of policy, indemnity is the controlling principle in contracts of fire, marine and burglary insurances. 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. It would be against public policy to allow an assured to make a profit out of the happening of the loss or damage insured against.

Insurable interest:
It is necessary to support every contract of insurance. It is the legal right of a person to insure. It means that the assured must be in a legally recognized relationship to what is insured so that he will suffer a direct financial loss on the happening of the event insured. It exists where a person is so circumstanced with respect of the subject matter of the policy as to have benefit from its existence or prejudice from its destruction.
Causa proxima
The assured can recover the loss only if it is proximately caused by any of the perils insured against. The rule is causa proxima non remota spectator, ie the proximate or immediate and not the remote cause is to looked to , and if the proximate cause of the loss is a peril insured against, the assured can recover the amount of loss from the insurer. Every loss that clearly or proximately results, whether directly or indirectly, from the event insured against is within the policy.

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 the premium. The premium is also to be returned even where the risk is not run or could not be run due to the fault, will or pleasure of the assured.
Mitigation of loss:
In the event of some mishap to the insured property , the assured must take all necessary steps or measures as may be reasonable for the purpose of averting or minimizing a loss.


Carl said...

I'm afraid I don't understand the cartoon.

Amiya_81 said...

Dear Mr. Carl ! The Meaning of the above Cartoon is very Simple. It means,"State govt thinks Insurance Companies as a Money Bank so that, whatever happens, the co. will bear the whole financial burden. But, in other hand, in real, Insurance Co.s are there to plunder wealth/money away from the state." Am I right readers ?