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

2. 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

3. 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

4. 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

5. By S. M. Gupta 5

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 12

13. By S. M. Gupta 13

14. 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

15. PRINCIPLES OF
INSURANCE
UTMOST GOOD FAITH
INSURABLE INTEREST
INDEMNITY
SUBROGATION
CONTRIBUTION AND
PROXIMATE CAUSE.
By S. M. Gupta 15

16. 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

17. 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

18. By S. M. Gupta 18

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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.

27. 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

28. 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

29. 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

30. 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

31. By S. M. Gupta 31

32. 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

33. 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

34. 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.

35. 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

36. 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

37. 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

38. 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

39. By S. M. Gupta 39

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. 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

50. 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

51. By S. M. Gupta 51

52. 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.

53. 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

54. 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

55. 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

56. 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

57. 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

58. 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

59. By S. M. Gupta 59

60. 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

61. 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

62. 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

63. 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

64. By S. M. Gupta 64

65. 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

66. 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

67. 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

68. 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

69. 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

70. 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

71. 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

72. By S. M. Gupta 72