LAW OF INSURANCE

INTRODUCTION : Risk and uncertainity are incidental to life Examples : Man may meet untimely death accident destruction of property fire sea perils floods other natural perils earthquakes uncertainity results in risk and insecurity protection against this resulted in insurance Insurance does not avert or eliminate loss from uncertain events but spreads the risk over a large number of people Principle pooling of risks a co-operative device to spread the loss of risk over a large number of persons exposed to the risk

CONTRACT OF INSURANCE A contract of insurance is a contract by which a person in consideration of a sum of money undertakes to make good the loss of another against a specified risk. Eg. fire or happening of a specified event. Eg. accident or death Insurer - person undertaking the risk (Assurer or Underwriter) Insured - person whose loss is made good (Assured) Premium - the consideration for which the Insurer undertakes to indemnify - single or periodical Policy - the instrument in which the contract of insurance is embodied - it is not the contract but evidence of it Subject matter of Insurance and Insurable Interest the thing insured interest of the insured Perils insured against - Eg. death Kinds of Insurance 1) Life Insurance - payable on death or after a fixed period 2) Fire Insurance - covers loss in case of fire 3) Marine Insurance - covers losses incidental to marine adventure 4) Personal Accident Insurance - personal injury Insurance business in India is nationalised - Life Insurance on 19.01.1956 - General Insurance on 13.05.1971

NATURE OF CONTRACT OF INSURANCE socialises responsibility earlier degraded as a speculation it is an aleatory (depending on contingencies) contract depends on uncertain event but not a wagering agreement

DIFFERENCE BETWEEN INSURANCE AND WAGER INSURANCE 1) 2) 3) 4) 5) 6) 7) WAGER a contract of indemnity no indemnity and covers no risk except life, accident and sickness object to protect against losses object to earn speculative gains assured has a pecuniary or neither party has any pecuniary interest insurable interest of utmost good faith good faith not required legally enforceable void-ab-initio encouraged as it benefits the community scientific and acturial a gamble involving no scientific calculation of risks calculation causes varying degrees of either won or lost loss or damage but a contract of insurance by way of wager is void

CONTRACT OF INSURANCE - A SPECIES OF GENERAL CONTRACT governed by general principles of contract offer and acceptance parties to agree on all material terms lawful object consent to be free and genuine supported by consideration embodied into a formal document called policy policy to be duly executed

FUNDAMENTAL ELEMENTS OF INSURANCE 1) Utmost good faith contracts uberrimae fidei i.e. disclosure of material facts - but not ones after contract is entered into caveat emptor not applicable no supressio veri or suggetio falsi is a question of fact relevant to each case Indemnity Insurance a contract of Indemnity except, life, personal accident and sickness

2)

3)

applicable in fire, marine and burglary to be put in some financial position but not to make profit

Insurable Interest i.e. the person is so circumstanced with respect to the subject matter of policy as to have benefit from its existence or prejudice from its destruction must be present at the time of loss Causa Proxima assured to recover the loss only if it is proximately caused by the perils insured against i.e. causa proxima non remota spectator proximate or immediate or not remote helps when there is succession of causes must be proximacy in efficiency and not time Risk must attach if no risk premium to be returned Mitigation of loss insured to reduce loss Contribution arises when a) different policies relate to same subject matter b) all policies in force at time of loss c) one has paid more than his share d) policies cover same peril Subrogation applies only to fire and marine insurer stepping into the shoes of the assured subject to following limitations : a) only to rights and remedies available b) insurers right arises only when he has paid for the loss c) insurer not entitled to any benefit untill assured is fully paid up Period of Insurance a continuing contract with premium to be paid at intervals

4)

5) 6) 7)

8)

9)

PREMIUM is the consideration paid by the assured to the insurer for risk undertaken by later cash or kind generally determined by insurer based on law of averages duty of assured to pay premium generally by installments annual, half yearly, quarterly or monthly duty of insurer to issue policy policy lapses if premium not paid on time

Return of Premium : a) consideration has failed if partially failed apportionment is made b) where there is no binding contract c) assured has no insurable interest d) assured is over insured e) assured is over insured bonafide not knowing

RE-INSURANCE AND DOUBLE INSURANCE Re-insurance : every insurer has a limit of risk he can undertake when insurer undertake risk beyond his capacity he can reinsure to help spread risk applicable to all kinds of risk a kind of contract of indemnity as liable to pay only if original insurer fails to pay re-insurer not liable to assured no privity of contract exists policy of re-insurance co-extensive with original policy contract uberrimae fidei reinsurer subrogated to rights of original insurer on payment Double Insurance : when assured is insured against same risk with two or more independent insurers and total sum exceeds value of subject matter the assured is over insured by double insurance Rules applicable : a) Recovery of actual loss and not more than loss as it is contract of indemnity and can recover in such order as he deems fit b) Excess amount recovered is held in trust and proportioned later c) Liability of insurers - contribution in proportion to amount for which each one is liable d) No limit on life insurance - assured may take any number of policies for any amounts

LIFE INSURANCE INTRODUCTION covered by Insurance Act 1938 & Life Insurance Corporation Act 1956 Life Insurance nationalised in January 19, 1956 benefit - a) deepens possible channels of public savings b) mobilises savings

LIFE INSURANCE CONTRACT is a contract by which the insurer, in consideration of the payment of certain sums called premium undertakes to pay a certain amount on the death of a person whose life is insured or on expiry of a certain period whichever is earlier premium lumpsum periodical installments

Insurance and Assurance - Distinction applied to : earlier origin related to life fire marine burglary, etc. but now commonly used Insurance (Fire & Marine) 1) Certainty of Event : 2) Indemnity 3) Valuation of insurable interest 4) Time of insurable interest 5) Duration of Contract of Insurance May or may not happen Assurance bound to happen sooner or later uncertainty only relates to time term is payable irrespective of proof not possible

Yes - on happening of event can claim capable of valuation in terms of money insurable interest to be there at time of contract and time of loss a contract from year to year - fire a particular voyage or period - marine

need to exist only at time of contract and not necessarily when policy falls due a continuing contract lapses when premium not paid

Insurable Interest applicable to life insurance insurable interest to be there at time of contract otherwise void - not void if i.e. has some pecuniary loss at the time of death insurable interest not existing at time of death presumption of insurable interest : 1) Every person is presumed to have insurable interest in his life upto any amount 2) Husband to have insurable interest in wife and vice versa 3) has insurable interest in lives of those who are dependant on him in other cases to be proved following persons to have insurable interest : Family - a person has insurable interest in the life of a relative by whom he is supported son is supporting father but father has in son only when dependant on him elder brother does not have insurable interest in younger brother a proprietor of a dramatic company in the lives of actors and actresses engaged by him servant in employer for salary for term of office creditor on debtor upto amount of debt and life of surety to extent guaranteed Surety in co-surety and principal debtor Partner in life of other partners

1)

2) 3) 4) 5)

RIGHT OF INSURER TO AVOID LIFE POLICY a contract uberrimae fidei i.e. must have full disclosure failure to disclose avoid policy exception : insurer to question material suppression within 2 years after 2 years policy becomes unchallengeable except in fraud if policy lapses and it revives period of 2 years not from date of revival but date of original policy this protects assured

TYPES OF POLICY 1) Endowment Policy : payable at end of specified term of years or if death should occur sooner most popular form of insurance Childrens Endowment Policy - may be taken for the provision of marriage of children when they attain age of marriage education in the form of annuity payments payable at end of selected term of years

2)

Whole-Life Policy : premiums are payable throughout the lifetime of the life assured sum payable only on death cheapest form of policy Limited Payment Life Policy : premiums payable for selected period of years until death if it occurs within this period assured pays known amount despite time of death resembles endowment policy as regards payment of premium amount payable only on death Joint Life Policy (on two or more lives) : payable at the end of endowment term on first death if earlier popular with partnership firms to provide for return of the capital of deceased partner Convertible Whole Life Policy : popular with young persons with increase in income after some years in earlier years premium paid is at lower rate after expiry of period option given to assured to convert into endowment policy if option not exercised converts to whole life policy with premiums ceasing at a certain age Anticipatory Policy : provides for payment of percentage of sum assured at end of specified intervals and balance at end of policy and on death full amount becomes payable Annuity Policy : not payable in one lumpsum may be monthly, quarterly, half yearly or annual installments after assured attains a certain age premium may be paid over a period or a single premium at outset generally taken by people to provide a regular income for themselves and dependants for a specified period Sinking Fund Policy : useful to companies for redeeming their debentures or paying off their loans a fixed amount is paid as premium annually - which accumulates interest after the period amount of policy paid to company company on receipt of amount redeems debentures or pays off loan provides for replacement of asset after a period

3)

4)

5)

6)

7)

8)

9)

Janta Policy : cover risk of death by accident for one year only premium nominal on death or accident fixed amount payable

Surrender Value : the amount the insurer is prepared to pay the assured in case of discontinuance of policy for surrender of right, title and interest Policy to have run for a number of years to acquire surrender value surrender value increases as more and more premiums are paid

Loan on Policies : Insurers offer assured facility of loan on policies on which a certain number of premiums have been paid Policy operates as a security to the loan of surrender value loan to be paid back on maturity of policy

Proof of Age and Death : premium is dependant on age of person proof to be given at time of taking policy and recorded as admitted age

SUICIDE Life Insurance policies generally include a clause that amount is not payable in case of suicide onus of proof of suicide is on insurer suicide is not a crime therefore payment cannot be avoided Life Insurance Corporation - if person commits suicide within one year of taking policy no payment need be made

ASSIGNMENT AND NOMINATION Assignment : interest in a policy is an actionable claim and can be assigned assignment has the effect of transferring the rights of transferor to transferee

Relevant Rules : a) Procedure by indorsement on the policy or by instrument in writing to be signed by assignor and attested by at least one witness Notice Assignment binding on insurer on notice and certified copy given

b)

c)

Priority in case of more than one assignment priority of claims is determined in order of notice given Recognition Insurer recognises rights of assignee on date of receipt of notice Assignment subject to Equities Assignee on notice to Insurer is only person entitled to benefit and is subject to all liabilities and equities to which Assignor is liable at date of assignment Conditional assignment i.e. the interest shall pass to another person during lifetime it is valid

d) e)

f)

Nomination : holder of instrument may appoint nominee liable to obtain rights on death can be more than one nominee

Rules : a) Procedure incorporated into policy itself communicated to Insurer and registered accordingly and Insurer to give written acknowledgement Cancellation and change before maturity by notice in writing to Insurer Automatic Cancellation transfer and assignments gets automatically cancelled on nomination maturity during lifetime then payment becomes payable to policy holder, legal heirs or legal representatives same to nominee Discharge of Insurer by payment to assured during his lifetime on maturation nominee is only a trustee of legal heirs to receive the monies and has no title to insurance money, only name of person to receive money to get valid discharge on payment amount can be claimed by legal heirs as per law of succession or as indicated in Will

b) c)

d)

Difference : Assignment 1) 2) 3) by indorsement in policy or by separate instrument property in policy goes to Assignee Assignee becomes owner and deals with the policy in any manner he likes acts as transfer of rights is irrevocable money paid to Assignee Nomination by mentioning the name in policy or the indorsement policy continues to be at disposal of assured during lifetime gets only beneficial interest gets rights on policy only on death beneficiary recovers money on maturity i.e. on death of assured revoked at any time before maturity by notice to insurer paid to nominee on him surviving assured

4) 5) 6)

10

FIRE INSURANCE INTRODUCTION law contained in The Insurance Act 1938 General Insurance Business Nationalisation Act 1972 subject to provisions of Contract Act and Indian Stamp Act Indian and English precedent law applicable

CONTRACT OF FIRE INSURANCE a contract whereby insurer undertakes in consideration of premium paid to make good any loss or damage caused by fire for specified period Contract specifies maximum amount which assured can claim in case of loss fixed by parties at time of contract not an assessment of loss as loss can be measured only after the fire insurer to only pay maximum amount fixed Characteristics of a Fire Insurance Contract 1) 2) 3) 4) 5) 6) Contract of Indemnity - amount paid only on loss and upto maximum amount specified Contract uberrimae fidei - assured to disclose everything related to the contract Assured to have insurable interest at time of insurance and at time of loss to be capable of valuation in terms of money risk covered is loss resulting from fire or some proximate cause subject to principles of subrogation and contribution is a contract from year to year - renewed on payment of premium during grace period

Formation of Contract proposal and acceptance made in writing in printed form and paying premium the insurer issues deposit receipt called a cover note then proposal accepted Insurer issues a regular policy

AVERAGE CLAUSE IN A FIRE POLICY subject matter of fire insurance may be overinsured or underinsured gets automatically checked in case of loss insurer to pay actual loss subject to upper limit in case of partial loss entitled to recover full value of loss

11

generally people go in for under insurance covered by subject to the average clause recover only such proportion of actual loss suffered as the sum insured bears to the total value of the insured property Eg. Property worth Rs.1,00,000 insured for Rs.80,000 Policy contains average clause Therefore sum to be recovered = Value of Policy x Actual loss Full value of subject matter 80,000 x 50,000 = Rs.40,000/1,00,000 no average clause full value of loss within amount insured can be recovered

INSURABLE INTEREST assured to have insurable interest at time of contract and time of loss in case of goods insurable interest may arise on account of a) ownership b) lawful possession c) contract Persons having insurable interest in subject matter of insurance in case of policy are a) owner b) mortgagee or pledge c) insurer d) pawn broker e) official receiver or assignee in solvency f) warehouseman in respect of goods of customer g) person in lawful possession h) common carrier i) innkeeper j) wharfinger k) commission agent l) factor m) finder of goods n) trustee a person with limited interest in property may insure them to cover his and others interest in them shareholder and unsecured creditor have no interest in property of company

FIRE AND LOSS BY FIRE fire policies cover loss by fire fire means a fire which has broken bounds fire means production of light and heat by combustion - ignition and flame is a necessary ingredient and not heat alone Lightning is not fire but if it ignites something loss is covered by fire policy sane applicable to electricity

12

CAUSA PROXIMA the proximate cause of loss is fire and loss is recoverable loss caused by explosion is not covered but if explosion caused fire covered but insurer can exclude himself

The following losses are caused proximately by fire : 1) 2) 3) 4) Loss which is the necessary consequence of fire in the sense that if there had been no fire it would not have happened Loss which is the reasonable consequence of fire in that it results in the ordinary course of events from the happening of fire Loss caused by water used to extinguish fire destroying property or loss caused due to efforts made to arrest or extinguish fire. For eg. loss caused by fire brigade in execution of their duties Loss arising as a consequence of removal of the property from the building in which fire is raging with intention of saving it or loss due to theft during the confusion caused by the fire fire should not have been deliberately caused by assured exception being inadvertently or negligently caused by him

RIGHTS OF INSURER 1) 2) 3) 4) 5) 6) Right of avoiding the contract for non-disclosure or concealment of any material fact which assured knew and was deemed to know Right of control over the property on fire to mitigate loss Right of entering the property on notice of fire having taken place where the things are Right of Subrogation on payment steps into the shoes of assured Right to Salvage i.e. to take possession of property and things saved after fire right flows from contract of indemnity Right of Reinstatement instead of paying money can replace property insists on this right when i) by his contract has reserved express power to do so ii) has any suspicion of fraud or arisen iii) requested to do so by any person other than assured who is interest or entitled to the premises damaged by fire Right of Contribution in case of two or more insurer

7)

13

TYPES OF FIRE POLICIES 1) Specific Policy covers loss upto a specific amount which is less than real value of the property case of under insurance generally includes average clause Comprehensive Policy covers losses against risks like fire, theft, burglary, third party risks, etc. also known as all-in-one policy also covers losses due to closure of business due to fire Valued Policy amount to be paid on loss fixed at time policy can be challenged as it is not a contract of indemnity Floating Charge policy which covers property at different places against loss by fire always subject to average clause Replacement or Reinstatement Policy to prevent fraudulent practices insurer undertakes to pay cost of replacement of property damaged or destroyed by fire insurer can exercise option of payment or reinstate

2)

3)

4)

5)

ASSIGNMENT can be assigned like a chose-in-action under Transfer of Property Act by indorsement or separate deed of assignment insurer to be given notice of assignment Assignee - property gets vested in him with all rights transferee can use money received under policy for reinstatement

14

MARINE INSURANCE INTRODUCTION integral part of present day commerce Law codified in The Marine Insurance Act 1963 also applicable Indian Contract Act, 1872 Insurance Act 1938 General Insurance Business (Nationalisation) Act 1972 based on English Marine Insurance Act 1906 based of Law Merchant

CONTRACT OF MARINE INSURANCE a contract whereby an insurer undertakes to indemnify assured against marine losses i.e. losses incurred in marine adventure may be extended to losses on inland water land risk incidental to sea voyage Marine Adventure : a) any ship, goods or movable property is exposed to marine perils b) earning or acquisition of any freight, passage money, commission, profit or other pecuniary benefit or security for advances, loans or disbursements is endangered by exposure to maritime perils c) any liability of third party may be incurred by the owner or person interested by reason of maritime perils Insurable Property means ship goods exposed to maritime perils other moveables Maritime Perils : means perils consequent or incidental to navigation on sea Egs. perils of sea fire war perils pirates rovers thieves captures seizures restraints and detainments of princes and peoples jettisons (throwing of goods overboard with a view to saving the residue of the ship and cargo) Barratry (fraudulent practices of master of a ship to the prejudice of owners) perils of sea all perils and misfortunes which underwriter of marine insurance takes upon himself i.e. all accidents or casualties of sea but not ordinary wear and tear

15

Losses covered by perils of sea : 1) loss of vessal striking a sunken rock 2) loss by foundering i.e. one ship colliding with another ship even though negligence is of other ship 3) negligent navigation as long as it is not willful misconduct 4) damage to rice due to heating 5) damage to cargo by sea water seepage due to rat holes or accidental acts Losses not covered by perils of sea : 1) loss occasioned by natural chemical action of salt water 2) damage by rats 3) action of worms on timber 4) death of cattle due to lack of fodder - voyage lengthened

Mode of Contracting : proposal by assured accepted by insurer irrespective of issue of policy proof : ship covering note customary memorandum of contract need not be stamped generally a broker with underwriter / underwriters with slip details of ship and cargo complete and final contract but recent judgement say there should be a contract (Lloyds Policy)

INSURABLE INTEREST when the person benefits by safe arrival of the property or is prejudiced but its loss, damage or detention should exist at time of loss

Lost or not Lost : when insurance is effected when ship is on voyage insured as lost or not lost makes policy retrospective assured to act in good faith otherwise insurer need not pay

Interest which are insurable : 1) 2) 3) 4) 5) 6) 7) 8) 9) A defeasible (capable of being annulled) or contingent interest A partial interest Insurer may re-insure The lender of money or bottomry (contract by which money is borrowed on security of ship) of respondentia (contract by which money is borrowed on the security of cargo) as they have insurable interest in respect of the loan Master and crew for their wages Person advancing freight Assured has insurable interest in charges Mortgagor where subject matter is mortgaged and Mortgagee Owner of the property

16

Insurable Value : not insurable interest it is the amount of valuation of an insurable interest and is a) ship - its value b) freight - gross amount of freight and charges of insurance c) goods - prime cost and expenses of shipping and charges of insurance d) any other subject matter - amount of risk and charges of insurance

DISCLOSURE AND REPRESENTATIONS Duty of Disclosure contract uberrimae fidei if not observed other party can avoid it assured must reveal every material circumstance deemed to have known in ordinary course of business material circumstance which would influence the judgement of a prudent insurer in fixing amount and are : 1) Ship was sunk and developed leak before insurance was effected 2) Merchant on hearing that a vessal similar to his own was captured effected insurance without disclosing this information 3) Nationality concealed when important material circumstance depends on facts of each case following circumstances need not be disclosed : i) which could diminish risk ii) what is known in course of business iii) what is waived by insurer as superflows

Disclosure by Agent effecting insurance : all material circumstance known to assured is deemed to be known to agent

Representations : every material disclosure made during negotiations and time of concluding contract to be true otherwise insurer can avoid payment valid representation is one which would influence whether insurer will take or not take risk and a question of fact a belief of truth made in good faith may be withdrawn or corrected before contract is concluded

MARINE POLICY document incorporating the terms and conditions of contract between assured and insurer marine insurance is evidenced only when embodied into a marine insurance policy to be issued at time of contract or afterwards

17

to include : i) name of assured ii) subject matter insured and risk insured against iii) voyage and period of time iv) sum or sums insured v) name of insurer / insurers

Types of Marine Policies : 1) Marine Insurance Act deals with following types : Voyage Policy 2) when subject matter is insured from one place to another covers risk from port to port can be at port or only when voyage commences

Time Policy when subject matter insured for a specified time cannot be for more than a year can have a continuation clause if ship is at sea beyond the time and a fresh policy to be taken for the extra period

3)

Mixed Policy combination of voyage and time policies covers time and period rule applicable to both apply liability of underwriter arises only : a) only during period of insurance b) course of insured voyage

4)

Valued Policy which specifies the agreed value of subject matter insured in absence of fraud and misrepresentation value mentioned is conclusive evidence of value of subject matter effect to make value conclusive between assured and insured

5)

Open or Unvalued Policy value not mentioned value to be assessed at time of loss subject to sum insured

6)

Floating Policy : insurance described in general terms only amount mentioned all details to be defined by subsequent declarations made by indorsement or other customary manner

18

7)

Wagering Policy : when assured has no insurable interest and contract is entered into with no expectation of acquiring such an interest PPI Policy Proof of Interest or Honour policies

Form of Marine Policy : contained in Schedule to Marine Insurance Act an adaptation of Lloyds Policy Rules of construction of Policy : 1) Lost or not Lost when above phrase is mentioned and loss occurred prior to contract assured entitled to payment when assured not aware 2) Duration of the risk in case of place risk attaches only from that place irrespective of time when risk attaches from the loading thereof applicable only when goods are on board 3) Touch and Stay this does not authorise ship to deviate from route 4) Inchmaree clause covers losses caused by a) negligence b) explosion, bursting of boilers and breakage of shafts c) latent defect in machinery or hull 5) Running down or collision clause covers loss caused by collision of ship due to person in charge 6) Free of Particular Average clause or FPA defines the losses covered 7) Free of Capture & Seizure clause or FC&S insures avoid loss due to capture or seizure NB at end of policy known as memorandum clause protects insurer against partial losses in case of perishable goods Assignment of Policy can take place unless policy prohibits it assignee to sue in own name by endorsement or customary manner assignment cannot take place when there is no insurable interest

WARRANTIES IN A CONTRACT OF MARINE INSURANCE Warranty has a meaning different from Sale of Goods Act here it means that the assured i) undertakes that some particular thing shall or shall not be done ii) some stipulation shall be fulfilled iii) particular state of facts does or does not exist

19

once inserted strict compliance required breach results in discharge of insurer equivalent to condition in sale of goods can be Express or Implied : Express : expressly stated in Policy and are : i) ship seaworthy on a particular day ii) ship will sail on a specified day iii) ship will proceed to the destination without deviation iv) ship is neutral and shall remain so during voyage Implied : not incorporated in policy but assumed to have been included in policy by law, custom or general agreement and are i) seaworthiness - at time of commencement for a particular voyage and during sailing a) i.e. the ship is properly constructed machinery is in proper working order has sufficient and efficient crew and master is sufficiently provided with the necessities of voyage is not overloaded or badly loaded sound as regards its hull and it is properly stowed b) In voyage policy if voyage is to be performed in stages ship to be seaworthy at commencement of each stage c) Policy cover while in port ship can bear ordinary perils of port d) Policy for goods, ship is capable of carrying those goods ii) Legality of Voyage adventure is lawful and shall be carried out lawfully and neutral regards nationality iii) non-deviation - from prescribed or customary route

VOYAGE to be described in policy ship to follow course specified in policy if course not specified, usual or customary course if ship sails to other place risk does not attach

Deviation of Voyage : is when ship takes unusual course or ports different in order if deviation takes place insurer not liable even if it regains route only liable prior to deviation intention to deviate is immaterial but a fact ship to take ports in order as mentioned when deviation excused : 1) authorised by special term in policy 2) caused by circumstances beyond control. Eg. rough weather, storm and cyclone 3) reasonably necessary to comply with express and implied warranty

20

4) 5) 6) 7) 8)

reasonably necessary for safety of ship necessary for saving human life aiding ship in distress when human life is in danger necessary for obtaining medical or surgical aid Barratrous conduct vessel blown out of course

Change of Voyage : a voluntary change of voyage contemplated in policy insurer discharged from time of change

Difference between change and deviation : policy becomes void PREMIUM payment of premium by assured concurrent terms issue of policy therefore insurer not bound to issue policy unless premium paid Return of Premium : 1) 2) 3) 4) 5) under the following cases policy provides for return of premium on happening of event and event happens consideration for premium fails totally and no illegality or fraud on the part of assured Policy void or avoided subject not imperiled assured has no insurable interest following cases proportionate port of premium payable : 1) Policy provides for return of proportionate part on an event 2) failure of apportionable part of premium 3) assured over insured under unvalued policy 4) assured over insured by double insurance to be a fact and policy to be challenged

LOSSES : insurer liable for loss proximately caused by peril insured against insurer not liable for loss caused by willful misconduct of assured Insurer not liable : 1) loss is not caused proximately by a peril insured against 2) loss caused by delay though delay is caused by peril insured against 3) loss caused by ordinary wear and tear, rats and vermin and injury to machinery loss in total or partial

21

Total Loss : 1) Actual total loss a) b) c) d) 2) subject matter actually destroyed or irreparably damaged subject matter ceases to exist in specie assured irretrievably deprived of subject matter subject matter lost by decree of Court

Constructive Total Loss : subject matter is reasonably abandoned expenditure to prevent actual loss exceeds value of subject matter a) assured is deprived of the possession of the ship. Eg. ship on fire b) cost of repairing damage would exceed value of ship c) cost of repairing ship and forwarding goods exceeds value of ship

Abandonment : 1) 2) 3) 4) 5) 6) 7) 8) 9) i.e. surrendering all proprietory rights in whatever remains of the subject matter Rules regarding abandonment : assured treats loss as actual total loss otherwise it will be treated as partial loss notice of abandonment in writing or oral as long as intention of abandonment is clear notice to be given with reasonable diligence when notice is properly given rights of assured not prejudiced by insurer not accepting abandonment acceptance of abandonment may be express or implied acceptance of abandonment amounts to acceptance of liability notice not required when it serves no benefit to insurer notice not necessary when waived by insurer when insurer is re-insured

Partial Loss : 1) Particular Average Loss 3 interest risked in voyage are a) ship means loss which any of these b) cargo interests sustains must be c) freight borne by that interest alone General Average Loss when extraordinary sacrifices are made or expenditure incurred for benefit of whole adventure a general average loss is borne by all interest in common adventure Contribution in case of general average loss there is general average contribution

2)

3)

RIGHTS OF INSURER ON PAYMENT 1) Right of Subrogation - i.e. takes place of assured in respect of balance of property

22

2) 3)

Right of Contribution - in case of over insurance by double insurance Right in case of under-insurance - to pay only to extent of insurance

23