RISK AND RISK AND INSURANCEINSURANCE

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 is the life, limbs, property, rights or any potential legal liability insured under a policy.

Subject matter of contract is the insured’s 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.

Duration

Lasts until the completion of the insurance contract.

If any changes in teh 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 non- disclosure 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.

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 indemnity exists.

The policies must cover a common interest.

The policies must cover a common peril which gives rise to the loss.

The policies must cover a common subject matter.

Each policy must be liable for the loss.