Basics of 'Indian Contract Act, 1872 & 'Principles Of Insurance'

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Basics of ’Contract Act’ and ’Insurance Principles’ with special ref. to General Insurance.

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Basics of 'Indian Contract Act, 1872 & 'Principles Of Insurance'

  1. 1. 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). By S. M. Gupta 2
  2. 2. 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. By S. M. Gupta 3
  3. 3. 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. By S. M. Gupta 4
  4. 4. By S. M. Gupta 5
  5. 5. INTRODUCTION INTRODUCTION 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
  6. 6. INTRODUCTION INTRODUCTION 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
  7. 7. INTRODUCTION INTRODUCTION 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
  8. 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. By S. M. Gupta 9
  9. 9. 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
  10. 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
  11. 11. 12
  12. 12. By S. M. Gupta 13
  13. 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
  14. 14. PRINCIPLES OF INSURANCE UTMOST GOOD FAITH INSURABLE INTEREST INDEMNITY SUBROGATION CONTRIBUTION AND PROXIMATE CAUSE. By S. M. Gupta 15
  15. 15. 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
  16. 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
  17. 17. By S. M. Gupta 18
  18. 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
  19. 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
  20. 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
  21. 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. By S. M. Gupta 22
  22. 22. 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. By S. M. Gupta 23
  23. 23. 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. By S. M. Gupta 24
  24. 24. 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. By S. M. Gupta 25
  25. 25. 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 .26 ARRANGEMENT ETC.
  26. 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. By S. M. Gupta 27
  27. 27. 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
  28. 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. By S. M. Gupta 29
  29. 29. 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. By S. M. Gupta 30
  30. 30. By S. M. Gupta 31
  31. 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
  32. 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
  33. 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.
  34. 34. 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
  35. 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
  36. 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. By S. M. Gupta 37
  37. 37. 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. By S. M. Gupta 38
  38. 38. By S. M. Gupta 39
  39. 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
  40. 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. By S. M. Gupta 41
  41. 41. 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. By S. M. Gupta 42
  42. 42. 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. By S. M. Gupta 43
  43. 43. 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. By S. M. Gupta 44
  44. 44. 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. By S. M. Gupta 45
  45. 45. 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. By S. M. Gupta 46
  46. 46. 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: By S. M. Gupta 47
  47. 47. 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. By S. M. Gupta 48
  48. 48. 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
  49. 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. By S. M. Gupta 50
  50. 50. By S. M. Gupta 51
  51. 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.
  52. 52. 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. By S. M. Gupta 53
  53. 53. 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
  54. 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. By S. M. Gupta 55
  55. 55. 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
  56. 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
  57. 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????? 58 By S. M. Gupta
  58. 58. By S. M. Gupta 59
  59. 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. By S. M. Gupta 60
  60. 60. 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
  61. 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. By S. M. Gupta 62
  62. 62. EXAMPLE 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 SINCE THE LOSS IS 10% OF THE SUM INSURED EACH POLICY PAYS 10% OF THE LOSS. 63
  63. 63. By S. M. Gupta 64
  64. 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
  65. 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
  66. 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. By S. M. Gupta 67
  67. 67. 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. By S. M. Gupta 68
  68. 68. 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? By S. M. Gupta 69
  69. 69. 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. By S. M. Gupta 70
  70. 70. 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. By S. M. Gupta 71
  71. 71. By S. M. Gupta 72

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