Principles of Insurance

INSURABLE INTEREST (i.i)

One major difference
between insurance and
gambling is the the
former has to be
supported by insurable
interest.

Subject Matter of Insurance - Contract

Subject matter of insurance
Life, limbs, property, rights or any
potential legal liability insured under a
policy.

Subject matter of contract

Insureds financial interest in the subject
matter of insurance.

What is i.i
The right to insure arising out of
legally recognized financial interest
which a person has in the subject
matter of insurance.
Which is the financial interest that is
recognized under the common law
or statute.

When i.i must exist?

At the time of inception and at the time of
loss.
EXCEPT:
Life insurance at the time of inception
Marine at the time of loss

ASSIGNMENT
The transfer of rights and
liabilities by one person to
another.
An assignee, the person who
takes over the assignment
rights will have no better
rights that those enjoyed by
the assignor.

Exception of the Rule

Marine Policies
Freely assignable by statutory provision.
Only cargo policies are freely assignable.

Life Policies
Freely assignable by statutory provision

Assignment of Policy Proceeds

Arises when an insured instructs his
insurer to pay the policy proceeds to a
third party.
The insurer remains a party to the
insurance contract and continue to
assume liabilities under it.
All policy proceeds are freely assignable
under the policy unless the contract
provides otherwise.

UTMOST GOOD FAITH (UGF)

Subject to duty of good faith
in relation to disclosure
during negotiation.
The buyer should ask
questions if the need more
information (caveat emptor
let the buyer beware)

Duty of UGF and

Contractual duty of UGF
Positive duty (of the insured) to disclosed fully
and accurately all material facts that he (the
insured) knows or ought to know, whether asked
for or not by the insurer.
The proposal form commonly contain a
declaration to the effect that the particulars given
in the proposal is true and correct.
By signing the form, the proposer warrants the
truth of this statement.

Material Fact
A fact which would influence the
PRUDENT underwriter in accepting the
risk or fixing the premium.
Eg; Motor Insurance----Alcohol Consumption

Duration
Lasts until the completion of the insurance
contract.
If any changes in the material facts occur
after they have been intimated to the
insurer but before the completion of the
contract, the proposer is required to notify
the changes to the insurer otherwise the
contract would be voidable.

Breaches of UGF
Breaches of UGF is committed the contract is
voidable.
Breaches of UGF if:
- Fails to provide the insurer with information
relating to the material fact, consider as nondisclosure or
- Misrepresent a material fact, i.e incorrect
information relating to a material fact, termed as
misrepresentation.

PROXIMATE CAUSE
When a loss has
occurred the onus is on
the insured to prove that
the loss in respect of
which a claim is made
was caused by the
operation of an insured
peril.

Definition
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 from a new
and independent source.

INDEMNITY
To make good a loss or
damage.
When the insured has
measurable insurable
interest the contract of
insurance will be a
contract of indemnity.

Methods and Measures

1C 3R

Cash
Repair
Replace
Reinstate

Measure
Total Loss
Method 1 Reinstatement /
Replacement deduct wear
and tear
Method 2
Market Value of a property
similar to the one destroyed

Partial Loss
Cost of repair

Factors Limiting Indemnity

Sum Insured
Average Condition
Policy Excess
Franchise

Policies Which Pay More Than

Indemnity
Reinstatement Policies
Agreed Additional Costs
Valued Policies

SUBROGATION
Taking the rights belonging to an insured by
the insurer after the latter has indemnified the
insured.
Rights including those rights against third
parties who are also liable for the loss which is
the subject of the claim and the right of the
insured in the salvage.
Substituting one creditor for another
According to the principle of subrogation, when
the insured is compensated for the losses due
to damage to his insured property, then the
ownership right of such property shifts to the
insurer.

Subrogation rights may arise

Subrogation arising from tort

Subrogation arising out of contract
Subrogation arising out of a statute
Subrogation arising out of salvage

CONTRIBUTION
The amount which each
insurer has to contribute
to the cost of a loss
when the loss is
covered by two or more
insurers

Principle of contribution and

reason for necessary
Principle of indemnity an insurer who has
indemnified the insures may call upon the other
insurers who are similarly liable for the loss to
contribute to the payment of indemnity.
If the insured is allowed to recover from more
than one insurer for the same loss, he may
recover more than the loss, because there is no
enrichment out of insurance claim.

Conditions
2 or more policies of
The policies must
indemnity exists.
cover a common
subject matter.
The policies must
Each policy must be
cover a common
interest.
liable for the loss.
The policies must
cover a common peril
which gives rise to the
loss.