Principles Of Insurance Essay
Essentials of the insurable interest:
1. Subject matter must be present.
2. Damage to the subject matter must result in the financial loss.
For example:- a person has insurable interest in the building he owns; employer can insure the lives of his employees because of his pecuniary interest in them; a businessman has insurable interest in his stock, plant and machinery, building, etc. So, all these people have something at stake and all of them have insurable interest. It is the existence of insurable interest in a contract of insurance which distinguishes it from a mere wagering agreement.
In case of life insurance, insurable interest must be present at the time when the insurance is affected. It is not necessary that the assured should have insurable interest at the time of maturity also. In case of fire insurance, insurable interest must be present both at the time of insurance and at the time of loss. In case of marine insurance, interest must be present at the time of loss. It may or may not be present at the time of insurance. Cause ProximaThe rule of ‘causa proxima’ means that the cause of the loss must be proximate or immediate and not remote. If the proximate cause of the loss is a peril insured against, the insured can recover. When a loss has been brought about by two or more causes, the real or the nearest cause shall be the causa proxima, although the result could not have happened without the remote cause. But, if the loss is brought about by any cause attributable to the misconduct of the insured, the insurer is liable. RiskIn a contract of insurance the insurer undertakes to protect the insured from a specified loss and the insurer receives a premium for running the risk of such loss. Thus, risk must attach to a policy. Mitigation of lossIn the event of some mishap to the insured property, the insured must take all necessary steps to mitigate or minimise the losses, just as any prudent person would do in those of loss attributable to his negligence. But it must be remembered that though the insured is bound to do his best for his insurer, he is, not bound to do so at the risk of his life. SubrogationThe doctrine of subrogation is a corollary to the principle of indemnity and applies only to fire and marine insurances. According to it, when an insured has received full indemnity in respect of his loss, all rights and remedies which he has against third person, will pass on to the insurer and will be exercised for his benefit until he(The insurer) recoups the amount he has paid under the policy. The insurer’s right of subrogation arises only when he has paid for the loss for which he is liable under the policy and this right extends only to the rights and remedies available to the insured in respect of the thing to which the contract of insurance relates. ContributionWhen there are two or more insurances on one risk, the principle of contribution comes into play. The aim of contribution is to distribute the actual amount of loss among the different insurers who are liable for the same risk under different policies in respect of the same subject matter. Any one insurer may pay to the insured the full amount of the loss covered by the policy and then become entitled to contribution from his co-insurers in proportion to the amount which each has undertaken to pay in case of the loss of the same subject matter.
In other words the right of contribution arises when:
* There are different policies which relate to the same subject matter.
* The policies cover the same peril which caused the loss.
* All the policies are in force at the time of the loss.
* One of the insurers has paid to the insured more than his share of the loss.