The document outlines 7 principles of health insurance: 1. Principle of utmost good faith requires truthful disclosure of all relevant information by both parties. 2. Principle of insurable interest requires the insured to have a financial stake in the insured subject or person. 3. Principle of proximate cause requires the insurer to only cover losses directly caused by covered risks or events, not more indirect or remote causes.

1. Principles of Health Insurance
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2. 7 basic principles that should be upheld in an
Insurance Contract
1. Principle of Utmost good faith
2. Principle of Insurable interest
3. Principle of proximate cause
4. Principle of indemnity
5. Principle of subrogation
6. Principle of contribution
7. Principle of loss of minimization
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3. 1. Principle of Utmost Good Faith (uberrimae fides)
This is the fundamental principle of insurance for buying and selling of
products. Both the parties in an insurance contract should act in good
faith towards each other. According to this principle, you have to disclose
all the information that is related to the risk, to the insurance company
truthfully. It is a duty not to misrepresent any matter relating to the
insurance.
◼ You must not hide any facts that can have an effect on the policy from
the insurer. It is a duty to disclose all material facts relating to the
contract. If some fact is disclosed later on, then your policy can be
cancelled. On the other hand, the insurer must also disclose all the
features of a life insurance policy.
◼ Eg, Factors relating to the health, habits, personal history, family history,
occupation.
◼ Thus the principle operates through a declaration by the proposer to the
insurer. Example – Jacob took a health insurance policy. At the time of
taking insurance, he was a smoker and failed to disclose this fact. Later,
he got cancer. In such a situation, the Insurance company will not be
liable to bear the financial burden as Jacob concealed important facts.
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4. 2. Principle of Insurable Interest
◼ According to this principle, the insured must have an insurable interest
in the subject matter. That is, Insurance company will suffer financially if
the insured dies and/or also lead to a financial loss if there is any
damage, destruction or loss. The insurance contract must provide some
financial gain to the insured.
◼ The interest must be pecuniary i.e. capable of estimation in terms of
money, anything which can’t be measured in terms of money like
disadvantage, inconvenience or mental distress can’t be regarded as
insurable interest. The interest must be lawful i.e. it should not be illegal
or immoral.
◼ Every person is presumed to have insurable interest on his own health
without any limitation.
◼ The insurable interest is very important at the time of accepting
proposal for health insurance. It guides the insurance company who can
pay the premium for that particular policy.
◼ Example – the owner of a vegetable cart has an insurable interest in the
cart because he is earning money from it. However, if he sells the cart,
he will no longer have an insurable interest in it. 4

5. 3. Principle of Proximate Cause
◼ Also called the principle of ‘Causa Proxima’ or the nearest
cause. While calculating the claim for a loss, the proximate
cause, i.e., the cause which is the closest and the main reason
for a loss should be considered.
◼ Example-An ordinary fire policy was given to cover a
warehouse, and the policy excluded war or warlike operations,
etc. Nevertheless, the warehouse was completely damaged by
fire arising from a bomb being dropped from an enemy aircraft.
The insurer repudiated the liability on the ground that even
though the warehouse was damaged by fire, the proximate
cause of the damage was a warlike operation (i.e., enemy
action), and the fire was simply a remote cause. On the other
hand, the judgment was given in favor of the insurer
maintaining that the loss was proximately caused by an enemy
action not covered by the policy.
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6. What is a Proximate Cause?
The term proximate cause refers to the
nearest cause leading to the loss. It is the
direct cause of a loss event. The principle of
proximate cause is the cause that is primary
to the occurred event. It could also be the
most significant incident which cascades
into the loss event.
The insurer will entertain the claim only if
this significant cause is close enough to the
loss.
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7. The Principle of Proximate Cause in
Medical Claims
◼ Ms. Ho was admitted to hospital with lower back pain last month and was diagnosed with a
prolapsed intervertebral disc which required a surgical operation to be performed. Unluckily, Ms.
Ho's abdominal aorta wall was punctured during the operation and she went into shock with
internal bleeding. As a matter of urgency, she was transferred to another hospital to undergo a
repair operation on her blood vessel.
◼ Ms. Ho admitted that her operation for treatment of a prolapsed intervertebral disc was a pre-
existing condition which should be excluded from the policy. When she was discharged from
hospital, she only submitted a claim to her medical insurance company for reimbursement of
medical expenses incurred during the second operation.
◼ However, the insurance company rejected her claim. Why was Ms. Ho's second hospitalisation
not covered by her medical insurance policy?
◼ Ms. Ho thought that her emergency confinement for the second operation, the aim of which was
to remedy the blood vessel puncture that occurred during the first operation, was entirely
unforeseen and unexpected. As a result, she believed that her insurance company should
reimburse her medical expenses incurred for the second operation.
◼ The second operation for remedying the puncture was caused by a potential operation risk
arising from the first operation for her prolapsed intervertebral disc. If the first operation had not
taken place, the second operation would not have been necessary. As the proximate cause of the
second operation was related to the first operation and the first operation was excluded from Ms.
Ho's medical policy, her insurance company was not liable for Ms. Ho's hospitalisation claim.
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8. 4. Principle of Subrogation
◼ This principle comes into play when a loss has
occurred due to some other person/party and
not the insured. In such a case, the insurance
company has a legal right to reach that party for
recovery.
◼ Example – If Mr A gets injured in a road
accident, due to reckless driving of a third party,
the company with which Mr A took the
accidental insurance will compensate the loss
occurred to Mr A and will also sue the third party
to recover the money paid as claim.
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9. ◼5. Principle of Indemnity
◼ The principle of indemnity states that the insurance will only cover
you for the loss that has happened. The insurer will thoroughly
inspect and calculate the losses. The main motive of this principle
is to put you in the same position financially as you were before
the loss. This principle, however, does not apply to life insurance
and critical health policies.
◼ Example – The owner of a commercial building enters an
insurance contract to recover the costs for any loss or damage in
future. If the building sustains structural damages from fire, then
the insurer will indemnify the owner for the costs to repair the
building by way of reimbursing the owner for the exact amount
spent on repair or by reconstructing the damaged areas using its
own authorized contractors.
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10. ◼ 6. Principle of Contribution
◼ According to the principle of contribution, if you have taken
insurance from more than one insurer, both insurers will share the
loss in the proportion of their respective coverage.
◼ If one insurance company has paid in full, it has the right to
approach other insurance companies to receive a proportionate
amount.
◼ The insured cannot make a profit by claiming the loss of one
subject matter from different policies or companies.
◼ Example – A property worth Rs. 5 Lakhs is insured with Company
A for Rs. 3 lakhs and with company B for Rs.1 lakhs. The owner in
case of damage to the property for 3 lakhs can claim the full
amount from Company A but then he cannot claim any amount
from Company B. Now, Company A can claim the proportional
amount reimbursed value from Company B.
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11. 7. Principle of Loss Minimisation
◼ As a owner, it is obligatory to take all the necessary steps
to limit or minimize the loss to the insured property. You
must take all the necessary precautions to prevent the loss
even after purchasing the insurance. The principle does
not allow the owner to be irresponsible or negligent just
because the subject matter is insured.
◼ Example – If a fire breaks out in your factory, you should
take reasonable steps to put out the fire. You cannot just
stand back and allow the fire to burn down the factory
because you know that the insurance company will
compensate for it.
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