Introduction

The definition of the term is that Insurance is a contract in which sum of money is paid in
consideration of the insurer’s incurring the risk of paying a large sum of money upon a given
contingency.

Nature of Insurance is where it does not eliminate risk but reduces the risk & financial burden

1. Sharing of risk

All insured persons share the loss caused by a specified event by way of premium paid by them

2. Co-operative Device

Co-operation of large number of persons- agree- to share financial loss. Persons brought together
voluntarily/through solicitation

3. Value of risk - Premium is directly proportional to risk

4. Payment at Contingency

Life insurance-contract of certainty- payment is certain either on death/maturity of policy. In other

insurances-the contingency is fire/marine perils- which may/not occur

5. Amount of Payment

Insurance is contract to compensate the loss- the amount of payment is equal to actual loss suffered
by the insured/amount of policy, whichever is less. Life Insurance- fixed amount is paid

6. Large number of insured persons

Nature of Insurance: • System for distributing losses resulting from events (shipwreck, fire,
premature death, disability)

Objective: to guard against loss of property / future earnings caused from event

General fund – imposition of proportionate contribution (premium) on many exposed to the common
hazard – few who actually suffer indemnified • Promise by insurer to indemnify insured/assured
Theories of Insurance:

1. Theory of co-operation Common purpose - Exposed to same/similar risk -Distribution of risk

over large number of persons - Voluntary contribution to fund (premium) - Indemnity to persons who
actually suffer loss

2. Theory of probability Contribution (premium) proportional to risk (higher risk, higher

premium) - Premium calculated with theory of probability - Past experience of loss - Probability of
happening of uncertain events – Premium to include sufficient margin to cover unfavourable
conditions (moral hazards etc)

(i) Principles of Co-operation: Insurance is a co-operation device. If one person is providing for his
own losses, it cannot be strictly insurance because in insurance, the loss is shared by a group of
persons who are willing to co-operate. In ancient period, the persons of a group were willingly
sharing the loss to a member of the group. They used to share the loss to a member of the group.
They used to share the loss at the time of damage. They collected enough funds from the society and
paid to the dependents of the deceased or the persons suffering property losses. The mutual co-
operation was prevailing from the very beginning up to the era of Christ in most of the countries.
Lately, the co-operation took another form where it was agreed between the individual and the
society to pay a certain sum in advance to be a member of the society. The society by accumulating
the funds, guarantees payment of certain amount at the time of loss to any member of the society.
The accumulation of funds and charging of the share from the member in advance became the job of
one institution called insurer. Now it became the duty and responsibility of the insurer to obtain
adequate funds from the members of the society to pay them at the happening of the insured risk.
Thus, the shares of loss took the form of premium. Today, all the insured give a premium to join the
scheme of insurance. Thus, the insured are co-operating to share the loss of an individual by payment
of a premium in advance.

(ii) Principles and Theory of Probability: The loss in the shape of premium can be distributed only on
the basis of theory of probability. The chances of loss are estimated in advance to affix the amount of
premium. Since the degree of loss depends upon various factors, the affecting factors are analysed
before determining the amount of loss. With the help of this principle, the uncertainty of loss is
converted into certainty. The insurer will have not to suffer loss as well have to gain windfall.
Therefore, the insurer has to charge only so much of amount which is adequate to meet the losses.
The probability tells what the chances of losses are and what will be the amount of losses. The inertia
of large number is applied while calculating the probability. The larger the number of exposed
persons, the better and the more practical would be the findings of the probability. Therefore, the law
of large number is applied in the principle of probability. In each and every field of insurance the law
of large number is essential. These principles keep in account that the past events will incur in the
same inertia. The insurance, on the basis of past experience, present conditions and future prospects,
fixes the amount of premium. Without premium, no co-operation is possible and the premium cannot
be calculated without the help of theory of probability, and .consequently no insurance is possible. So
these two principles are the two main legs of insurance

History of Insurance in India

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu (Manusmrithi
), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of
resources that could be re-distributed in times of calamities such as fire, floods, epidemics and
famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has
preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts.
Insurance in India has evolved over time heavily drawing from other countries, England in particular.

In 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life
Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras
Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the
enactment of the British Insurance Act and in the last three decades of the nineteenth century, the
Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay
Residency. This era, however, was dominated by foreign insurance offices which did good business
in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance
and the Indian offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India. The
Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business.
In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect
statistical information about both life and non-life business transacted in India by Indian and foreign
insurers including provident insurance societies. In 1938, with a view to protecting the interest of the
Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938
with comprehensive provisions for effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large
number of insurance companies and the level of competition was high. There were also allegations of
unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life
Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-
Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had
monopoly till the late 90s when the Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west and the
consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy
of British occupation. General Insurance in India has its roots in the establishment of Triton
Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile
Insurance Ltd, was set up. This was the first company to transact all classes of general insurance
business.

1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of
India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound
business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency
margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance
business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and
grouped into four companies, namely National Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd.
The General Insurance Corporation of India was incorporated as a company in 1971 and it
commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly 200 years.
The process of re-opening of the sector had begun in the early 1990s and the last decade and more
has seen it been opened up substantially. In 1993, the Government set up a committee under the
chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in
the insurance [Link] objective was to complement the reforms initiated in the financial sector.
The committee submitted its report in 1994 wherein , among other things, it recommended that the
private sector be permitted to enter the insurance industry. They stated that foreign companies be
allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance
Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate
and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000.
The key objectives of the IRDA include promotion of competition so as to enhance customer
satisfaction through increased consumer choice and lower premiums, while ensuring the financial
security of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for registrations.
Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame
regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed
various regulations ranging from registration of companies for carrying on insurance business to
protection of policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured
as independent companies and at the same time GIC was converted into a national re-insurer.
Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are 31 general insurance companies including the ECGC and Agriculture Insurance
Corporation of India and 24 life insurance companies operating in the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with
banking services, insurance services add about 7% to the country’s GDP. A well developed and
evolved insurance sector is a boon for economic development as it provides long- term funds for
infrastructure development at the same time strengthening the risk taking ability of the country.
Types of Insurance:

A. Business point of view

o Life insurance – protection & investment

o General insurance – property (marine, fire, burglary), liability
o Social insurance – pension, disability, unemployment benefits

B. Risk point of view

o Property insurance: specific risks (fire, marine, miscellaneous)

o Liability insurance: risk to pay third party (fidelity, MV, machine)
o Other insurance: state employees insurance, export-credit insurance

C. Nature of interest affected

o Personal insurance: life, health, personal accident

o Property insurance: fire, marine perils, damage to property
o Liability insurance: third party payment (MV, aviation etc)

D. Nature of event

o Life insurance: payable on death or attainment of specific age

o Fire insurance: payable on fire accident & property damage
o Marine insurance: payable on happening of marine peril
o Miscellaneous insurance: MV insurance, aviation insurance, social insurance,
Liability insurance
 GENERAL PRINCIPLES OF INSURANCE LAW

Essentials of insurance Contract

Proposal and acceptance

Like every other contract, a contract of insurance is also concluded through proposal and its
acceptance. The offer for entering into the contract may come from the insured. The insurer may also
propose to make the contract. Whether the offer is from the side of an insurer or the side of the
insured, the main fact is acceptance. Any act that precedes it is the offer or a counter-offer. All that
preceded the offerer counter-offer is an invitation to offer.

Acceptance is complete only when communicated to the offeror. Mere silence after receipt and
retention of premium cannot be construed as acceptance. Followed the decision in General Assurance
Society v Chandmull Jain where it was observed that a contract is formed when the insurer accepts
the premium and retains it. The decision further says that in the case of the assured, a positive act on
his part by which he recognizes or seeks to enforce the policy amounts to an affirmation of it.

Legal relationship

The parties to the contract must be legally qualified to enter into contracts by Sec.11 of Indian
Contract act. A minor’s property can be insured- persons competent to act for him.

Legal Consideration

The promisor to pay a fixed sum at a given contingency is the insurer who must have some return or
his promise. It need not be money only, but it must be valuable. The amount of premium is not
important to begin the contract. The fact is that without payment of premium, the insurance contract
cannot start.

Free Consent

Parties entering into the contract should enter into it by their free consent. The consent will be free
when it is not caused by—

(1) Coercion, (2) Undue influence, (3) Fraud, or (4) Misrepresentation, or (5) Mistake.
If any contract is formed without free consent is voidable by the insurer by Sec.45 of the Insurance
Act.

Legal Object

In the proposal from the object of insurance is asked which should be legal and the object should not
be concealed. If the object of insurance, like the consideration, is found to be unlawful, the policy is
void. It should be within the scope of Sec.23 of the Indian Contract Act.

Insurable Interest

For an insurance contract to be valid, the insured must possess an insurable interest in the subject
matter of insurance. The insurable interest is the pecuniary interest whereby the policy-holder is
benefited by the existence of the subject-matter and is prejudiced death or damage of the subject-
matter.

Wager and insurance

In a wager neither party has any interest in the happening of the event other than the sum or stake he
will win or lose. This is what marks the difference between a wagering agreement and a contract of
insurance.

Every contract of insurance requires for its validity the existence of insurable interest. An insurance
effected without insurable interest is no more than a wagering agreement and therefore, void.
Insurable interest” means the risk of loss to which the assured is likely to be exposed by the
happening of the event assured against. In a wager, on the other hand, neither party is running any
risk of loss except that which is created by the agreement itself.

Whether an agreement is of a wagering nature depends upon the substance and not the words of the
agreement. The real object of the parties must be discovered.

Insurance is intended to cover a risk of loss. In a wager there is no risk. The game is played for the
pleasure of it. In insurance the event insured against may not occur. The wagering transaction is
bound to mature one way or the other. Where the event insured against materialises, it may cause
varying degrees of loss and the amount payable under indemnity insurance will vary according to the
extent of loss. In a wager, a fixed amount changes hands one way or the other.
Nature of Insurance Contract

1. Contingent contract: sec 31, 32 of Indian Contract Act

2. Aleatory contract: based on chance/possibility of loss

3. Contract of utmost good faith: duty of full disclosure by parties

4. Contract of indemnity: restore status quo, not profit/investment

1. Contingent Contract For example, in a life insurance contract, the insurer pays a certain amount
if the insured dies under certain conditions. The insurer is not called into action until the event of the
death of the insured happens. This is a contingent contract. Under Section 31 of the Indian Contract
Act, 1872, contingent contracts are defined as follows: “If two or more parties enter into a contract to
do or not do something, if an event which is collateral to the contract does or does not happen, then it
is a contingent contract.” Section 32: Enforcement of Contracts contingent on an event happening -
Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be
enforced by law unless and until that event has happened. If the event becomes impossible, such
contracts become void.”

2. Aleatory Contract: An aleatory contract is an agreement whereby the parties involved do not
have to perform a particular action until a specific event occurs. The trigger events aleatory contracts
are those that cannot be controlled by either party, such as natural disasters or death. Insurance
policies use aleatory contracts whereby the insurer doesn't have to pay the insured until an event,
such as a fire resulting in property loss.

3. Contract of utmost good faith The doctrine of utmost good faith is a principle used in insurance
contracts, legally obliging all parties to act honestly and not mislead or withhold critical information
from one another. Insurance agents must reveal critical details about the contract and its terms, while
applicants are required to provide honest answers to all the questions fielded to them. Violations of
the doctrine of good faith can result in contracts being voided and sometimes even legal action.

4. Contract of Indemnity means making compensation payments to one party by the other for the
loss occurred. Description: Indemnity is based on a mutual contract between two parties (one insured
and the other insurer) where one promises the other to compensate for the loss against payment of
premiums.
Principles of Insurance policies

Principle of Insurable Interest

The first major principle of the law of insurance is the need for insurable interest. In the absence of
an insurable interest in the life or the thing insured, the insurance will simply be a wager and,
therefore, void. Thus insurable interest is necessary to the validity of every insurance policy. The
interest which one has in the safety or preservation of a thing is called insurable interest.

But, if a person having no such chance of a loss arising out of rains, the policy. if any, taken out by
him would be a bare attempt to make money out of a chance and, hence a wager.

Not defined in any statute

Passing reference to the words, insurable interest – Insurance Act 1938

The definition in Section 7 of the Marine Insurance Act, 1963-

• 7 (1) A person has an insurable interest if he is interested in marine adventure

• 7(2) In particular a person is interested in a marine adventure where he stands in any legal or
equitable relation to the adventure or to any insurable property at risk therein, in consequence
of which he may benefit by the safety or due arrival of insurable property, or may be
prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability
in respect thereof.

In India, Marine insurance Act, 1963 lays down requirement of insurable interest.

In other branches of insurance- Sec 30 of the Contract Act requires it by implication E.g.

X cannot insure the house belonging to Y- no insurable interest

If the house belonging to Y is mortgaged with X- he can insure, if hedesires so, to protect his interest

X cannot insure the life of Y- unless he has some monetary interest

X has given a loan to Y- he can insure the life of Y to the extent of his debt

Time and duration when insurable interest must exist

Life insurance- must exist at the commencement of the policy- not necessary afterwards, not even at
the time of happening of contingency

Fire Insurance & motor insurance – must exist at the commencement of the policy & at the time of
loss

Marine Insurance- must exist at the time of loss

Macaura v Northern Assurance Co Ltd 1925 AC 619

In this case, the House of Lords held that neither a shareholder nor a simple creditor of a company
has any insurable interest in any particular asset of the company despite the fact both the shareholder
and the creditor may suffer loss upon destruction of their company’s property.

Rogerson v Scottish Automobile and General Insurance Co

Thus where a person took out a policy of indemnity against loss that may be caused by his motor car
or any other car being driven in its place, he could not recover, because he had sold the car and the
loss was caused by new car purchased by him. His interest in the car ceased when he sold it and the
new car was not being used instead of it.

Principle of Utmost Good faith

Every contract of insurance is a contract of utmost good faith (uberrima fides). The insured should
not only make any misrepresentation but should also disclose all facts affecting the risk insured
against. The general principle of the law of contract is that neither party should make any
misrepresentation or commit any fraud.

Materiality of the Fact

The duty of making disclosure is not confined to such facts as are within the actual knowledge of the
assured. It extends to all material facts which he ought in the ordinary course of business to have
known and he cannot escape the consequences of not disclosing them on the ground that he did not
know them.

Test of materiality:

Facts which would influence judgment of prudent insurer in:

 • fixing premium or determining to take the risk
• Material facts – affect nature/incidence of risk & affect character of insured

Facts not known to the assured

It has been pointed out in Joel v Law Union and Crown Insurance Co. that the duty to disclose
does not extend to facts which the assured did not know or could not have known.

Carter v. Boehm (1766)

Carter was the Governor of Fort Marlborough built by the British East India Company. Carter took
out an insurance policy with Boehm against the fort being taken by a foreign enemy The French
successfully attacked, but Boehm refused to indemnify Carter. Insurance is a contract based upon
speculation. The special facts, upon which the contingent chance is to be computed, like most
commonly in the knowledge of the insured only; the underwriter trusts to his representation and
proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to
mislead the underwriter into a belief that the circumstance does not exist, and to induce him to
estimate the risk as if it did not exist. Good faith forbids either party by concealing what he privately
knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.
Lord Mansfield found in favor of the policyholder on the grounds that the insurer knew or ought to
have known that the risk existed as the political situation was public knowledge.

The very same principle was followed in

LIC v. Asha Goel (2001)

Late Naval, husband of Smt Asha Goel submitted a proposal for a life insurance policy at Meerut in
the Uttar Pradesh on 29-5-1979 which was accepted and the policy was for a sum of Rs 1,00,000 was
issued. The insured passed away on 12-12-1980. The cause of death was certified as acute cardiac
arrest. Smt Asha goel being nominee submitted the claim for the sum insured. But The Divisional
Manager refused to pay & repudiated any liability under the policy, he refused on the ground that the
deceased had withheld information regarding his health at the time of affecting the insurance with the
Corporation. The Manager stated that while claimant at the time of submitting the proposal on 29-5-
1979 had stated that he had not consulted a doctor in the past 5 five years for any problem and had
answered that he has not remained absent from work on ground of health in the past 5 years.
The Division Bench did not accept the objection raised by the Corporation against maintainability of
the writ petition on the ground under Article 226 of the Constitution the bench is not the proper
forum. As per Section 45 of the Insurance Act, Mere inaccuracy or falsity in respect of some recitals
or items in the proposal is not sufficient. The burden of proof is on the insurer to establish the
circumstances or there is no question of the policy being avoided on ground of misstatement of facts.
The duty to disclose material facts lies on the insured and it continues to determine the conclusion of
the contract. If there are any misstatements or suppression of material facts, the policy can be called
into question. To determine whether there has been suppression of any material facts it is necessary
to examine whether the knowledge of suppressed fact relates to the person intending to take the
policy and it could not be ascertained by reasonable enquiry by a prudent person.

Conclusion of Insurance Contract/Commencement of Risk

Offer and Acceptance (mutual agreement between insured and insurer)

Offer by one & unqualified acceptance of it by the other. The contract of insurance will be
concluded- party to whom an offer has been made accepts its unconditionally & communicates
acceptance to the person making the offer.

Whether final acceptance is that of assured/insurer – depends on the way the negotiations for
insurance have progressed.

Only based upon the judicial decisions it is concluded Acceptance has occurred or not.

Normal formation of Insurance contract

• Proposal form filled by the applicant (proposer for insurance)

• Declaration – warrants truth of the statements made in the proposal form-agrees that it shall
be the basis of contract.
• Enables the insurer to decide whether to accept/decline the risk/ to determine the rates, terms
and conditions of a cover to be granted
• The insurer informs- applicant- that he is agreeable to enter into a contract if the proposer
pays the first premium quoted in the acceptance letter ( conditional acceptance/counter offer)
• The unqualified acceptance- payment of premium by the proposer

LIC v Raja Vasireddy

The insurer had received the proposal form along with the first premium and it was still awaiting
acceptance when the proposer died, no liability to pay arose. It was immaterial that the groundwork
for acceptance was under preparation and the agent had assured that the proposal would be accepted.
The court said:

"Mere receipt and retention of premia until after the death of the appellant or mere preparation of the
policy document is not acceptance and therefore, do not give rise to a contract. There general rule is
that the contract of insurance will be concluded only when the party to whom an offer has been made
accepts it unconditionally and communicates his acceptance to the person making the offer. Whether
the final acceptance is that of the assured or insurers, however, depends on the way in which
negotiations for insurance have progressed. Mere delay in giving an answer cannot be construed as
an acceptance.
So, It was laid down in that case that "a mere receipt or retention of premium until after the death of
the applicant or the mere preparation of the policy documents is not acceptance. Acceptance must be
signified by some act or acts agreed on by the parties after which the law raises a presumption of
acceptance".

Commencement of Risk

Unless some specific time for commencement of the policy is mentioned in the proposal form or
policy document, a policy is deemed to commence with effect from midnight of the day on which it
was effected.

Non – Disclosure of material Facts

LIC v. Venkatdru Koteshwaramma 2002 (3) ALT 284

• Venkatdru- insured his life for Rs. 25000

• Proposal was submitted on 15/3/1982 along with premium through agent
• Administrative Officer- signed the proposal review slip- in token of acceptance on the same
day
• Insured -medical examination on 28/3/1982
• Insured died on 2/4/1982
• The policy document signed on 23/6/1982 forwarded to the address of the insured-but was
returned
• Wife- nominee- claim denied/repudiated on the grounds-
o Non-disclosure of the fact that he was suffering from Diabetes, while submitting the
proposals for the policy
o No acceptance of the policy
• In this case, the proposal emanated from the insured. The decision to accept is at the end of
the appellant. That brought about a concluded contract before the insured died.

Mithoolal Nayak v LIC

Where the insured himself is guilty of a fraudulent suppression of material facts on which the
insurance company is discharged from performing its part of the contract under Section 45 of the
Act, a person (the son of the insured in this case), who holds an assignment of the policy cannot stand
on a better footing. Therefore, there is no force in the contention that Section 38 provided a complete
code for assignment and transfer of insurance policy and the assignment made in favour of his son by
the insured in such a case was an assignment free from equities. Moreover, the appellant was not
entitled to a refund of the money paid as premium.

It also laid down that when a claim is repudiated by the insurer after the expiry of two years, three
conditions are necessary for the applicability of Section 45 of the CASE PILOT Insurance Act, 1938,
namely:

▪ The misstatement must be of a material nature or there must be suppression of

facts which it was material to disclose;
▪ Suppression must be fraudulently made by the policy-holder; and
▪ The policy-holder must have known at the time that his statement was false or
that he suppressed facts which it was material to disclose.

Section 45 of the Insurance Act puts the burden on the insurer to establish these circumstances and
unless the insurer is able to do so there is no question of the policy being avoided simply on the
ground of misstatement of facts.

Cheque dishonored

The Insurance Act mandates under section 64VB- no insurer shall assume risk unless premium is
received in advance.

• When the premium is paid through cheque & cheque is dishonored before/after happening of
the contingency
• When premium paid to an agent who is expressly prohibited under the rules to receive the
premium on account of insurer & the premium is not received by the insurer before
happening of the event

United India Insurance Co. Ltd. v. Laxmamma, (2012) 5 SCC 234

Ss. 149, 146 and 147 - Insurer's liability against third-party risk - Extent of, when cheque issued for
payment of premium was dishonored and subsequent to the accident, insurer cancelled policy of
insurance - Held, in such circumstances, statutory liability of insurer to indemnify third parties which
policy covered subsists and insurer has to satisfy award of compensation unless policy of insurance
was cancelled by insurer and intimation of such cancellation had reached insured before the accident
National Insurance Company v. Seema Malhotra (2001) 1 SCR 1131

There is no dispute that the insurer is liable as against third parties because it is covered by the
statutory provisions contained in the Motor vehicles Act 1988

The liability of insurer when the claim is made by insured himself/legal heirs?

When the insured fails to pay the premium promised, or when the cheque issued by him towards the
premium is returned dishonored by the bank concerned the insurer need not perform his part of the
promise. Under Section 25 of the Contract Act an agreement made without consideration is void.
However, if the insured makes up the premium even after the cheque was dishonored but before the
date of accident it would be a different case as payment of consideration can be treated as paid in the
order in which the nature of transaction required it.

Proposal form containing blanks:

Roberts v. Avon Insurance Co. Ltd. (1956)2 Lloyds Rep 240

If the proposal form is not completely filled & there are blanks in it, the presumption would be that
the answers were in negative. If such negative answers were later found false, that would amount to
suppression of material facts

United India Assurance Co. Ltd. v. Gurdeep Singh Oberoi 1999 2 CPR NC

A blank form was accepted by the insurance company (only 6 out 16 questions answered)-
conclusion of concealment of fact cannot be drawn

Proposal form filled by the agent: Effect?

Bigger v. Rock life Insurance Company (1902) 1 KB 516

The court observed that it shall be presumed that the proposer had read and understood the questions
& declaration before answering and signing the proposal form. The customer gave the correct
answers to the agent who incorrectly transcribed them. The customer did not check over the
completed form. He failed in his action against the insurer. The decision in this, and later cases, is
based on the argument that one is bound by one’s signature and failing to read over a document
before signing it is a fault that should rest squarely on that person’s shoulders.
Maniluxmi Patel v. Hindustan Co-operative Insurance Society Ltd AIR 1962 Cal 625

The agent filling the form was not filling it as agent of the insurance company- instead acting as the
agent of the proposer.

Principle of Indemnity

“Contract of indemnity” defined under Sec124 of the Indian Contract act. A contract by which one
party promises to save the other from loss caused to him by the conduct of the promisor himself, or
by the conduct of any other person, is called a “contract of indemnity.”

All insurance policies, except the life policies and personal accident policies, are contract of
indemnity. This principle is based on the fact that the object of the insurance is to place the insured as
far as possible in same financial position in which he was before the happening of the insured peril.
Under this principle, the insured is not allowed to make any profit out of the happening of the event
because the object is only to indemnify him and profit making would be against this principle.

Over insurance is where the subject matter is insured more than its value. But the maximum amount
the insured can recover is the value of the property & not more than that. Because allowing to
recover more would be against the principle of indemnity.

Under Insurance is where the subject matter is insured less than its value. The insured can only claim
maximum insured value but he/ she can saves on premium. But fails to get full indemnity against the
risk.

There are certain obvious exceptions to the indemnity principle. Life insurance is one of them. No
money value can be placed on human life and, therefore, the insurer undertakes to pay a fixed or
guaranteed sum irrespective of the loss suffered. Secondly, accident and sickness insurance also form
an exception to the indemnity principle. In these cases also the liability is pay a fixed sum without
measuring the actual loss suffered. Thirdly, valued policies, namely, where the value of the subject
matter and the amount payable in the event of loss are agreed upon beforehand. In all the above
exceptions, however, except the first, the principle of subrogation may still apply and that will
prevent the assured from receiving anything more than the fixed sum.
Castellain v Preston

Every contract of insurance, except life assurance, is a contract of indemnity and no more than an
indemnity. The insurer undertakes, within the limit of the obligation, to compensate the insured for
his actual loss, but never more than compensate. To the extent to which the insured is damnified, he
will be indemnified, but no more than indemnified. The insured cannot make income out of
insurance.

Principle of Subrogation

This brings us to the fourth principle of insurance. As a matter of fact, this principle is a corollary to
principle of indemnity. This principle applies to all contracts of insurance except life insurance and
personal accident insurance. The right of subrogation is said to be a corollary of the principle of
indemnity. It is applicable to all insurance contracts which are by their nature contracts of indemnity.
The assured is to be fully indemnified but no more. Similarly, the insurer may not recover, through
the exercise of subrogation rights, more than the sum paid out under the contract: neither assured nor
insurer should make a profit.

Subrogation operates in two broad ways,

• first upon payment in full in accordance with the policy terms, the insurer acquires the benefit
of certain rights of action of the assured and,
• Secondly, the insurer acquires a right to monies recovered or recoverable from third parties
which reduce the insured loss.

Economic Transport Organization v. Charan Spg. Mills (P) Ltd., ( Indian position)

the Supreme Court which observed that the equitable assignment of the rights and remedies of the
assured in favour of the insurer, implied in a contract of indemnity, known as “subrogation”, is based
on two basic principles of equity:

• No tortfeasor should escape liability for his wrong;

• No unjust enrichment for the injured, by recovery of compensation
for the same loss, from more than one source.

The doctrine of subrogation will thus enable the insurer, to step into the shoes of the assured, and
enforce the rights and remedies available to the assured.
Principle of Contribution

The principle of contribution which is also a corollary to principle of indemnity. It may be explained
like this. If a property has been insured with several insurers, and in the event of loss one insurer has
to pay for the loss, such insurer has a right to recover a proportionate amount from other insurers, and
this right is known as contribution. Under this principle, the insured has the choice to select from
which insurer he wants to recover the loss. Thus, contribution is the right of an insurer, who has paid
under a policy; to call upon the other insurers who are liable to contribute equally otherwise those
other insurers shall be liable for the insured loss.

It requires 3 conditions that for the exercise of this right,

• There should be two or more insurers fully covering the same risk for the same period. In
other words, subject- matter of insurance must be common.
• The peril due to which the loss has occurred must also be common to all the policies, though
other perils may also be included.
• The assured person should also be same and the policies should be in force at the time when
the loss occurred.

North British and Mercantile Insurance Co. v. London, Liverpool and Globe Insurance Co.,

The principle of contribution has been explained as under: Contribution exists where the thing is
done by the same person against the same loss, and to prevent a man first of all recovering more than
the whole loss or if he recovers from the other then to make the parties to contribute ratably. But that
only applies where there is the same person insuring the same interest with more than one office.

Principle of Causa Proxima

The maxim, as it runs, is causa proxima non remota spectatur which means “the immediate, not the
remote, cause”. In order to pay the insured loss, it has to be seen as to what was the cause of loss. If
the loss has been caused by the insured peril, the insurer shall be liable. If the immediate cause is an
insured peril, the insurer is bound to make good the loss, otherwise not.

The insurer is liable only if the loss is proximately caused by the risk insured against. This is the
doctrine of Causa Proxima. Latin word ‘ causa’ means cause and proxima means the ‘nearest /next’
does not mean nearest in time but nearest in effectiveness- direct, dominant and efficient cause.
The insured may recover damages from the insurers only in those cases where-

• The loss has been caused by the insured perils

• The cause has been the proximate/immediate to the loss

Determination of proximate cause

Loss caused by a single cause

• If the loss is a result of a single cause- the cause is an insured peril- the insurer will be liable

Loss caused by more than one cause or chain of events

• If the insured peril is the last cause/immediate cause of loss- the insurer is liable
• The insurer is not liable if the insured peril was brought into operation by an excepted cause

Leyland Shipping v. Norwich Union Fire Insurance (1918) AC 350

• Ship was insured against the perils of the sea except acts of warfare
• On her voyage- struck by enemy missile- badly damaged-got into nearby port for repair- 2
days
• After repair, again sailed - bad weather (not exceptionally so) and the ship was stranded and
lost Liability of the insurance Company -No
• attack by the enemy was the proximate (dominant)
• cause of loss- excluded peril loss- brought into operation by the excluded peril

Marsden v. City & County Assurance Company (1865) LR 1 CP 232

• Plate glass insurance covering breakages from any cause except fire
• Fire broke in a neighboring building & mob broke the plate-glass of insured premises- theft
• Insurer liable as action of mob was the proximate cause

Pink v. Fleming 1890 25 QBD 396

• Insurance of cargo- loss due to collusion

• The vessel – collusion-had to be put in the port for repairs
• Cargo had to be unloaded and loaded to carry out the repair of the ship
• The fruit was partly damaged due to handling in loading and unloading
 • Last cause of loss i.e handling of fruits
• Insurer not liable

Principle of Mitigation of loss

Mitigation means reducing risk of loss from the occurrence of any undesirable event. This is an
important element for any insurance business so as to avoid unnecessary losses. Description: In
general, mitigation means to minimize degree of any loss or harm. In insurance contracts, various
clauses and conditions are specified so as to ensure minimum losses to the insurer. The actuaries are
entrusted with the responsibility of underwriting the insurance policy. They employ a variety of
quantitative techniques in order to assess the risk associated with the insured and decide the
appropriate premiums commensurate with the risk. The primary objective of the exercise is to
mitigate the risk ingrained with the insured.

Re – insurance

• Reinsurance is a risk transfer mechanism where under insurance company passes on the risk
on an insurance policy to another entity called Reinsurer for consideration under a
Reinsurance treaty (contract).
• In simple words, reinsurance is insurance that is purchased by an insurance company
(reinsurer) from an insurer as a means of risk management, to transfer risk from the insurer to
the reinsurer.
• The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues thousands
of policies. It is an independent contract between the reinsurer and the insurer and the
original insurer is not a part of the contract.

London General Insurance Co v General Marine Underwriters Association

The Court of Appeal first held that the proposer of reinsurance should have known the contents of
casualty slips received from Lloyd's. So the proposer argued that by the same token there is no need
to disclose the contents to the reinsurer, for he should also have known the contents of the same slip.
The argument was rejected and the decision was in favor of the reinsured.
Types of Re-Insurance:

A. Facultative re-insurance - Facultative reinsurance is coverage purchased by a primary insurer to

cover a single risk—or a block of risks—held in the primary insurer's book of business. Facultative
reinsurance is one of two types of reinsurance (the other type of reinsurance is called treaty
reinsurance). Facultative reinsurance is considered to be more of a one-time transactional deal, while
treaty reinsurance is typically part of a long-term arrangement of coverage between two parties.

B. Re-insurance treaties Treaty reinsurance is insurance purchased by an insurance company from

another insurer. The company that issues the insurance is called the cedent, who passes on all the
risks of a specific class of policies to the purchasing company, which is the reinsurer. Treaty
reinsurance is one of the three main types of reinsurance contracts. The two others are facultative
reinsurance and excess of loss reinsurance.

C. Reinsurance Pool — a risk financing mechanism used by insurance companies to increase their
ability to underwrite specific types of risks. The insurer cedes risk to the pool under a treaty
reinsurance agreement. The insurer may be a part owner of the pool and may assume a quota share of
the pool risk.

D. Retrocession -The reinsuring of reinsurance, Retrocession is a separate contract and document

from the original reinsurance agreement between a primary insurance company (as the reinsured) and
the original reinsurer

Life Insurance

There is no statutory definition of the term Life Insurance. The best explanation of the definition and
nature of a life insurance contract occurs in

Dalby v India and London Life Assurance Co.

(Difference between life fire & marine)

The basic fact about life insurance recognised in this case is that a contract of life insurance is not a
contract of indemnity. A policy of insurance on life is not a contract to indemnity against loss like a
fire or marine insurance policy, but is a contract to pay a definite sum in consideration of an annuity
paid during the life. This is commonly called as life insurance contract. When properly considered, is
a mere contract to pay a certain sum of money on the death of a person. The stipulated amount of
annuity is to be uniformly paid on one side, and the sum to be paid in the event of death is always
(except when bonuses have been given by prosperous offices) the same, on the other. This species of
insurance in no way resembles a contract of indemnity. The life insurance not being a contract of
indemnity is that on the happening of the event insured against the insurer should pay the agreed
amount irrespective of whether the assured suffers any loss or not.

So, Life insurance is in the nature of a contingency insurance. It does not provide an indemnity. It
provides for a payment on a contingent event. The sum to be paid is not measured in terms of a loss.
The policy states the amount payable. The sum undertaken to be paid becomes payable irrespective
of the value of the life or limb lost.

Essentials of Life Insurance contract.

• It is a contract relating to human life

• Provides for lump-sum amount and
• The amount is paid after expiry of certain period/on the death of assured

Insurable Interest

Time and duration when insurable interest must exist

Life insurance- must exist at the commencement of the policy- not necessary afterwards, not even at
the time of happening of contingency

Life Insurance policies and existence of insurable interest

A. By relationship by marriage, blood or adoption

B. By contractual relationship

C. By Statutory duty

No express provisions in India-decisions of foreign courts - England & America – principles of

justice, equity and good conscience

A. By relationship by marriage, blood or adoption

• On one’s own life

 • Husband and Wife- wife has insurable interest in the life of the husband and vice versa-
exception to general rule of –pecuniary interest
• Parent, child and relatives - A child, whether natural/adopted- presumed to have an insurable
interest in the life of the parent
• Parents have no right to insure the life of children unless some direct financial loss is likely to
arise from their death -mere love and affection not sufficient enough to constitute an
insurable interest
• A father can insure his son’s life in the name of the son & for his benefit- insurance of his
own life by the son- premiums are paid by the father
• In case of Halford v. Kymer, it was held that a father has no insurable interest in the life of
his son unless he is getting some pecuniary benefit from him
• In England- restricts sentimental interest- relationship of the husband and wife- in all other
relationships- courts require- proof of pecuniary interest
• USA- apart from relationship of husband & wife-relationship of parent & child, grandparent
and grandchild, brothers and sister are sufficient to raise the presumption of existence of
insurable interest - In other relationships they require the proof of pecuniary interest

B. By contractual relationship

• Debtor & creditor - creditor right to insure- life of the debtor- to the extent of debts-because
he stand to lose if the debtor dies without paying the debt
• Godsall v. Boldero, that if a creditor affects a policy of insurance upon the life of his debtor
for greater amount than due, then he will not be able to recover any greater sum than the
amount or value of his interest
• Landlord and tenant (landlord in the life of his tenant to the extent of his rent)
• Bailor and Bailee: A bailor has an insurable interest in the property bailed to the extent of
possible loss. The bailor has a potential loss from two sources. Compensation as provided for
in the contract of bailment might be lost. Second, the bailee may be held legally liable to the
owner if the bailee negligence cause the loss

C. Statutory relationship

• Employer in the life of the employee (Herben vs West)

• Principal in the life of his agents
Duty of disclosure – Sec.45

All contracts of insurance being contracts of absolute good faith, a person effecting a life policy has
to keep faith with the insurer by disclosing to the insurer all facts which he ought to know and which
materially affect his health. If he conceals anything which may influence the grant of the insurance or
the rate of premium, although he does not know it, it is fraud and vitiates the policy.

A contract of insurance is contract uberrimae fidei and, therefore, there must be complete good faith
on the part of the assured. The assured is thus under a solemn obligation to make full disclosure of
material facts which may be relevant for the insurer to take into account while deciding whether the
proposal should be accepted or not. While making a disclosure of the relevant facts, the duty of the
insured to state them correctly cannot be diluted. Section 45 of the Insurance Act has made special
provisions for a life insurance policy; it cannot be called in question by the insurer after the expiry of
two years from the date on which it was effected. The only exception to this rule is where the insurer
shows that the statement made by the insured was either false or suppressed the facts which were
material to the policy.

LIC vs. G.M. Channabasamma, (AIR 1991 SC 392)

In this landmark judgment, the Apex Court held that the onus of proving that the policyholder has
failed to disclose material facts lies in the corporation. It is the fundamental principle of insurance
law that utmost good faith must be observed by the contracting parties and good faith forbids either
party from non-disclosure of the facts which the parties know. Case note: Insurance - repudiation -
appellant contended that respondent was guilty of fraudulent misrepresentations and suppression of
material facts with regard to his health - High Court held that defendant had failed to prove that
insured was suffering from diabetes or tuberculosis at time of filing of proposal forms or suppressed
any material facts - Supreme Court observed that it is well settled that contract of insurance is
contract uberrima fides must be complete good faith on part of assured - assured under obligation to
disclose all material facts which may be relevant to insurer - after issuing policy, burden of proving
that insured made false representations and suppressed material facts is undoubtedly on corporation -
physician's statement does not lead to conclusion that respondent was influenced by serious disease
for long time - held, corporation had failed to discharge burden of proving that respondent was
suffering from any serious illness or had suppressed any material fact.
Assignment

The transfer of the right to receive the payment under an insurance policy is known as an
"assignment".Assignment of a life insurance policy means transfer of rights from one person to
another. As between the assignor and assignee the assignment is complete and effectual upon the
execution and attestation of the endorsement or the instrument of transfer. But it shall not be
operative as against the insurer and also shall not confer any right upon the transferee until a notice in
writing of the assignment has been delivered to the insurer.

The person who assigns the insurance policy is called the Assignor (policyholder) and the one to
whom the policy has been assigned, i.e. the person to whom the policy rights have been transferred is
called the Assignee. Once the rights have been transferred from the Assignor to the Assignee, the
rights of the policyholder stands cancelled and the assignee becomes the owner of the insurance
policy.

Section 38 of the Insurance Act, 1938 deals with assignment of insurance policies.

Position prior to amendment by the Insurance Laws (Amendment) Act, 2015

• Sec 38 allowed only assignment of life insurance policies- did not allow the
transfer/assignment of non-life insurance policies
• Section 38 did not allow the partial assignment of an insurance policy.
• Section 38 contained no safeguards to prevent misuse of the assignment facility.

Section 38- (Position after Insurance Laws (Amendment) Act, 2015)

• Transfer or assignment facility extended to non-life policies as well (substitution of the word
life insurance with insurance Partial assignment of insurance policies allowed ( Sec 38(1)-
the words wholly or in part has been added)
• In case of partial assignment of policy- the original assignor is not allowed to further assign
his residual rights to third party- to prevent clash of interest – several assignees- at the time of
making claim ( section 38(11).

Mode of assignment /transfer of policy - Sec 38(1)

A transfer or assignment of a policy of insurance, wholly or in part, whether with or without

consideration, may be made only by an endorsement upon the policy itself or by a separate
instrument, signed in either case by the transferor or by the assignor or his duly authorized agent and
attested by at least one witness, specifically setting forth the fact of transfer or assignment and the
reasons thereof, the antecedents of the assignee and the terms on which the assignment is made

Power of the insurer to refuse to act on transfer/assignment - Sec 38(2)

Where it has sufficient reason to believe that such transfer or assignment is not bona fide or is not in
the interest of the policyholder or in public interest or is for the purpose of trading of insurance
policy.

Communication to the policy holder not later than 30 days from the date of giving notice of such
transfer- reasons for refusal to be recorded in writing- Sec 38(3)

Aggrieved person- prefer a claim to the authority Sec 38(4).

LIC of India [Link] Policy Plus services Pvt. Ltd 2016

In this case, LIC vs Insure Policy Plus Services Ltd, the latter firm is engaged, among other things, in
the business of accepting and dealing in assignment of LIC policies. It acquired policies from policy-
holders by paying them consideration. The assigned policy is registered with LIC, and is then further
assigned to third parties for consideration. LIC objected to this practice and issued circulars asking its
branches not to register such assignments. -Response by IRDA dated 3.3.3004, in which it opined
that the LIC should register the assignments. -High Court of Bombay-the Circulars were found to be
illegal and it was held that insurance policies are transferrable and assignable. It stated that business
of assignment of policies is prevalent over the world.

On appeal SC took the view that Rejecting LIC submission that legislation did not treat life insurance
as a security but as a form of investment. It was desirable to impart to it all common characteristics
of property. LIC was the only player which was refusing to accept submissions. In the absence of
contractual term, the LIC could not unilaterally vary the terms of the contract. It held that Sec 38
allowed transfers & it is not open to LIC to issue any policy decision that was contrary to the same.

The Supreme Court has ruled that Life Insurance Corporation cannot object to transfer or assignment
of policies, which is a global practice. It upheld the judgment of the Bombay High Court which had
stated that the insurance policies are “transferable and assignable in accordance with the provisions
of the Insurance Act and in terms of the contract of life insurance”.
Mithoolal Nayak v LIC

Where the insured himself is guilty of a fraudulent suppression of material facts on which the
insurance company is discharged from performing its part of the contract under Section 45 of the
Act, a person (the son of the insured in this case), who holds an assignment of the policy cannot stand
on a better footing. Therefore, there is no force in the contention that Section 38 provided a complete
code for assignment and transfer of insurance policy and the assignment made in favour of his son by
the insured in such a case was an assignment free from equities. Moreover, the appellant was not
entitled to a refund of the money paid as premium.

Types of assignment: absolute (sec 38(8) & conditional (sec38 (10)

Absolute Assignment

Under this process, the complete transfer of rights from the Assignor to the Assignee will happen.
There are no conditions applicable.

Example: Mr. PK Khan owns a life insurance policy of Rs 1 Crore. He would like to gift this policy
to his wife. He wants to make ‘absolute assignment’ of this policy in his wife’s name, so that the
death benefit (or) maturity proceeds can be directly paid to her. Once the absolute assignment is
made, Mrs. Khan will be the owner of the policy and she may again transfer this policy to someone
else.

Conditional Assignment

Under this type of assignment, the transfer of rights will happen from the Assignor to the Assignee
subject to certain conditions. If the conditions are fulfilled then only the Policy will get transferred
from the Assignor to the Assignee.

Example: Mr. Mallya owns a term insurance policy of Rs 50 Lakh. He wants to apply for a home
loan of Rs 50 Lakh. His banker has asked him to assign the term policy in their name to get the loan.
Mallya can conditionally assign the policy to the home loan provider to acquire a home loan. If
Mallya meets an untimely death (during the loan tenure), the banker can receive the death benefit
under this policy and get their money back from the insurance company. If Mallya repays the entire
home loan amount, he can get back his term insurance policy. The policy would be reassigned to
Mallya on the repayment of the loan.
Nomination (S. 39)

Nomination is dealt with in Section 39 of the Insurance Act. The holder of a policy of life insurance
on his own life may nominate the person or persons to whom he wants the policy money to be paid in
the event of his death. He may do so either at the time of effecting the policy or at any time before
the policy matures for payment. Where the nominee is a minor, the policy-holder may indicate in the
prescribed manner any person to receive the money during the minority of the nominee.

A nomination is to be communicated to insurer by the insured. A nomination is revocable. At any

time before the policy matures, the policy-holder can cancel or change the nomination. Such a
cancellation or change may be made either by an endorsement or further endorsement on the policy
or by a will. If before receiving such notice, the insurer pays in good faith to a nominee mentioned in
the text of the policy and registered in the records of the insurer, he will be discharged from his
liability.

A transfer or assignment of a policy made in accordance with Section 38 automatically cancels a

nomination. The proviso to sub-section (4) an assignment does not cancel a nomination. Where the
assignment is to the insurer who bears the risk on the policy at the time of the assignment, in
consideration of a loan granted by that insurer on the security of the policy within its surrender value,
or its reassignment on repayment of the loan, it shall not cancel a nomination. It shall only affect the
right of the nominee to the extent of the insurer's interest in the policy.

A beneficial nominee is a person who, when nominated, is entitled to receive the money as if he or
she is the undisputed legal heir and no further judicial proceedings are required to prove his right to
receive the money. A regular nominee can receive the money only as a trustee and other persons can
challenge his / her right to enjoy the benefits of the money so received.” So, a policy holder can now
choose between appointing a regular ‘nominee’ or a ‘beneficial nominee’. While the earlier category
of regular ‘nominee’ still exists, once you specify a beneficial nominee, a regular nominee becomes
redundant.
Assignment and nomination distinguished

The main points of difference between an assignment and a nomination are:

(1) An assignment passes to the assignee the right to the insurance money. The nominee on the
other hand, gets no rights and holds the money for the benefit of the estate of the deceased
assured.
(2) Once an assignment is made it cannot be cancelled at the option of the assignor. It creates a
vested right in the assignee, subject only to the equities between the assignor and the insurer.
On the other hand, a nomination, unless there is a special clause inserted to make it
irrevocable, does not deprive the policy-holder of his rights, etc. under the policy including
the right to alter the nominee.
(3) An assignee gets the right to further deal with the policy, for he becomes a policy-holder, but
nominee gets no such rights.
(4) An assignee is entitled to the money even if the assured survives the policy, but in the case
of nomination if the assured is alive at the time of maturity, nominee gets no rights.

Difference between assignment & nomination in detail.

The following are the major differences between nomination and assignment:

1. How made: Nomination can be made either by mentioning the name of the nominees in the
policy or by an endorsement thereon. Separate instrument is not required. On the contrary,
assignment may be made either by an endorsement on the policy itself or by the execution of
separate instrument in writing.

2. Purpose: A nomination is made to provide facility to the beneficiary so that he can recover the
money when the policy matures for payment after the death of the assured but the assignment is
meant for transferring all the rights and interests under the policy in favor of the assignee.

3. Effect: In nomination, the property in the policy remains at the disposal of the assured during
his life time. A nominee only has a beneficial interest in the policy, whereas in the case of
assignment, the property in the policy passes to the assignee, which gets the rights of the owner
of the policy.
4. Right of disposal: In nomination, the nominee gets the right of disposal only on the death of
the assured, whereas in assignment, the assignee can dispose of the policy in any way he likes.

5. Revocability: Nomination can be revoked anytime before the maturity of the policy but
assignment is irrevocable and shall amount to the cancellation of nomination except when it is
made in respect of a loan granted on the security of the policy by the insurer. However, there can
be re-assignment in favour of the policyholder.

6. Consideration: Nomination need not be supported by a consideration but assignment must be

supported by a consideration.

7. Witness: Witness is not required for nomination but assignment must be witnessed otherwise
it will be invalidated.

8. Right to sue: Nominee has no right to sue under the policy, but the assignee has right to sue
under the policy.

9. Minor: In nomination, where nominee is a minor, appointment of an appointee by the life

assured only is required, whereas in assignment, where assignee is a minor, guardian is to be
appointed by the father of the assignee.

10. Creditors: In nomination, creditors of the life assured can attach the policy moneys, whereas
in assignment, creditors cannot attach the property unless the assignment was made to defraud
the creditors.

11. Execution: Nomination is effected where Insurance Act 1938 applies i.e., India or similar
enactment apply viz in Pakistan and Ceylon but assignment can be executed anywhere in the
world according to the law of the country.

12. Vested interest: No vested interest in favour of nominee is created but vested interest is
created in favour of assignee.

13. Policy amount: In case of nomination, money is to be paid to the nominee only when he
survives the assured, whereas in case of assignment, the policy money is to be paid to the
assignee.
 14. Death: Nomination becomes ineffective at the death of the nominee. If a conditional
assignee dies, the right under the policy reverts to the life assured depending upon the terms of
assignment. If an absolute assignee dies, the right devolves upon his / her heirs.

SETTLEMENT OF CLAIMS:

Persons entitled to receive sum insured: assured, nominee, legal heirs, coparceners, assignee

Sarojini Amma v Neelakantha Pillai AIR 1969 Ker 126 FB; Parbati Kuer v Sarangdhar AIR
1960 SC 403 Death claim settlement process

Step One: Intimation to the insurance company about the Claim

The nominee should inform the insurance company as soon as possible to enable the insurance
company to start with the claim process. The details required for intimation are policy number, name
of the insured, date of death, cause of death, place of death, name of the nominee etc. The claim
intimation form can be obtained from the nearest insurance company branch or even by downloading
it from the insurance company website. Alternatively, many insurance companies also have online
forms these days on their website for claim intimation.

Step Two: Documents required the nominee will be asked to furnish the following documents:

Death certificate

• Age of the life insured (if not already given)

• Original Policy document

• Any other document as per requirement of the particular insurer or case related

• For early death claims i.e the claim that has arisen within three years of the policy being in force
the company will do extra investigation to ensure it is a genuine claim.

They might do the following:

Check with the hospital if the deceased was admitted to hospital.

• In case of an air crash confirmation from the airline authorities check if the policy
• holder was a passenger on the plane. In case of death from medical causes, the insurance company
will ask the hospital to

• provide doctor’s certificate, treatment records etc If the policy holder dies due to murder, suicide,
accident then police FIR report, panchanama, post mortem report etc shall be required.

Step Three: Submission of required Documents for Claim Processing

For quicker claim processing, it is essential that the nominee submits complete documentation as
early as possible and any other documents that the company needs to pass the claim.

Step Four:

Settlement of Claim As per the regulation 8 of the IRDAI (Policy holder's Interest) Regulations,
2002, the insurer is obligated to settle a claim within 30 days of receipt of all necessary documents
including extra documents sought by the insurer. If the claim requires further investigation, the
insurer needs to complete its procedures within 6 months from receiving the written intimation of
claim.

Marine insurance

Definition of marine insurance [S. 3]

Section 3 defines marine insurance in these words:

"A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the
assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the
losses incidental to marine adventure."

Marine Adventure - Section 2(d) as any adventure where:

(1) Any insurable property is exposed to maritime perils;

(2) the earnings or acquisition of any freight, passage money, commission, profit or other pecuniary
benefit, or the security for any advances, loans or disbursements is endangered by the exposure of
insurable property to maritime perils;

(3) any liability to a third party may be incurred by the owner, or other person interested in or
responsible for, insurable property by reason of maritime perils.
Perils of the sea

Sec.2(e) defines maritime perils as perils consequent on, or incidental to, the navigation of the sea,
that is to say, perils of the sea, fire, war perils, pirates, rovers, thieves, captures, seizures,
restraints and detainments of princes and peoples jettisons, barratry and any other perils
which are either of the like kind or may be designated by the policy.

Barratry

Intentional wrongful act committed by the master/crew of the ship without connivance on the part of
owners ‘negligence’ does not constitute barratry.

Eg- intentional scuttling, smuggling, deviation by the person in charge of the ship for his own
purpose (Marstrand Fishing co. v. Beer (1937) 1 All ER 158

JETTISON

Throwing overboard certain parts of the vessel’s cargo or the cutting away and casting away of
masts, or other furniture for the purpose of relieving the vessel in an emergency situation in order to
save the adventure.

War perils

Free of Capture & Seizure Clause to exclude war risk coverage and all consequences of hostilities or
warlike operations -Additional premium to cover war perils.

Yorkshire Dale S S Co. v. Minister of War Transport (1942) 2 All ER 6 (Coxwold case )

The vessel was carrying petrol for the use of forces between war bases & thus was engaged in
warlike operation. While following a zig-zag course to avoid submarines, she lost touch with the rest
of the convoy, stranded on the rocks. Contention of the ship-owner-loss was not proximately caused
by the warlike operation, but by the negligent navigation of the crew. Held – the dominant cause of
stranding was war like operation.

Cory v. Burr (1833) 8 App Cas 393

• Master guilty of smuggling & so the ship was seized – Revenue authorities
• There was F C & S warranty clause
 • Insurer not liable as the actual loss of the ship wade to capture by the authorities & that there
was FC & S warranty in the policy.

Thames & Mersey Marine Ins. Co v. Hamilton Frazer & Co. (1887) All ER 241

The insured vessel named Inchmaree – valve of the donkey pump/engine was damaged on account of
the negligence of the crew Held loss not by peril of the sea/ all other perils. After that a special clause
known as Inchmaree clause was framed to cover such cases.

‘Running down’ Clause

• Running down clause or 3/4th collusion liability clause in marine insurance ( when liability is
not provided for in the policy nor proximate effect of the perils of the sea).
• 3/4th of a proportionate amount of the damage which is to be borne by the insured, that
amount would depend on the degree of blame which is attached to the policyholder’s vessel.

‘Sister Ship’ Clause

In the event of collusion between two vessels owned by the same assured, the sister ship clause
confers on the assured the same rights as if the two vessels were separately owned and separately
insured.

Montaya v. London Assurance, (1851) 6 Exch Rep451

• A cargo of hide & tobacco was insured. During storm, infiltration of water rendered hide
to become putrid, imparted nauseous flavour to the tobacco.
• Held damage to the tobacco was caused by the perils of the sea

Hamilton Frazor & Co. v. Pandorf ( 1887) 16 QBD 629

• Rats gnawed a hole in a pipe & sea water entered damaging the cargo of rice.
• It was held to be a loss by accidents of the sea recoverable as the loss by the perils of the sea

Canada Rice Mills Ltd. v. Union Marine & General Ins. Co. (1941) AC 55

• Cargo of rice insured during the voyage the ship’s ventilators closed to prevent incursion of
sea water due to weather conditions. The rice became overheated and damaged.
• Held – the action to prevent the incursion of water is
Insurable interest - A contract of marine insurance made without insurable interest has been
expressly declared by Section 6 to be by way of wagering and void.

The definition of the term insurable interest is given in Section 7 of the Act. The section says that
every person who is interested in a marine adventure is deemed to have insurable interest in it. In
particular a person is interested in a marine adventure where he stands in any legal or equitable
relation to the adventure or to any insurable property at risk in consequence of which he may be
benefited by the safety or due arrival of insurable property or may be prejudiced by its loss, damage
or detention or may incur liability in respect thereof.

Time and duration when insurable interest must exist - Marine Insurance- must exist at the time of
loss.

Types of Marine policies.

Voyage and time policies [S. 27]

A voyage policy means a policy which covers the subject matter at or from some place or from one
place to another or other places. A time policy means a policy which insures the subject matter for a
definite period of time. A time policy issued for a term exceeding 12 months shall be invalid. A
policy may be issued in terms of voyage and time.

From a port- risk starts when the ship sails from a particular port

At and from a port- Protects the subject matter at the port of departure and also at the time of
sailing of the ship

Generally, the time policy contains continuation clause at the end of the period, the ship is yet at sea,
the policy will continue for a reasonable time thereafter at a pro rata monthly premium till the ship
arrives safely at the port of destination. Notice to Insurer

Mixed Policies

Combination of time and voyage policies for certain time and specified voyage suitable for ships
operating over particular routes. E.g. From Mumbai to Chennai, 25 May 7pm to 24 August 3pm
Valued policy (S. 29]

A policy may be either valued or unvalued. A valued policy means a policy which specifies the
agreed value of the subject matter insured. The value thus agreed is conclusive of the insurable value
of the subject matter intended to be insured as between the insurer and insured. This will be so
subject to the provisions of the Act and also that there was no fraud committed on the insurer. The
value fixed in the policy is also not conclusive for the purpose of determining whether there has been
a constructive total loss.

Unvalued policy [S. 30]

An unvalued policy means a policy which does not specify the value of the subject matter insured.
Under such a policy the value of the subject matter has to be subsequently ascertained, which will be
subject to the limit of the sum assured

Floating policy [S. 31]

A floating policy is a policy which describes the insurance in general terms. It leaves the name of the
ship or names of ships and other particulars to be defined by subsequent declaration. Such a
subsequent declaration should be made by endorsement in the policy or in any other customary
manner. Declarations should be made in the order of despatch or shipment. They must, in the case of
goods, comprise all consignments within the terms of the policy and the value of the goods or other
property must be honestly stated. An omission or erroneous declaration may be rectified even after
loss or arrival, provided the omission or declaration was made in good faith. Where a declaration of
value is made only after notice of loss or arrival, the policy is to be treated as an unvalued policy as
regards the subject matter of that declaration.

United India Insurance Co. Ltd. v. Great Eastern Shipping Co. Ltd. (2007)

The claimant-respondent is engaged in import of sugar and other items and in connection with import
of 12,000 metric tons of sugar from China to Calcutta, the respondent had taken an insurance policy
for which cover note dated 9.6.1994 and policy was valid from 23.9.1994. It was alleged that after
taking delivery of sugar, the bags could not be transported from the dock area because of Durga Puja
celebrations and as a result of which all activities including transportation facilities virtually came to
a standstill from 10.10.1994. Therefore, the bags of sugar were temporarily stored in T-sheds at
Calcutta Port area. On 21.10.1994, fire broke out in the godown and destroyed the entire stock of
sugar bags. Hence, a FIR was lodged and the appellant- Insurance Company was informed by the
respondent. Since the claim was not settled by the appellant- Insurance Company, the respondent
filed a complaint before the Commission on 21.3.1996.

Holding - In the present case, the goods reached the Calcutta Port and they were taken to different
sheds. But unfortunately, the goods were destroyed by fire at Calcutta port itself. Therefore, since the
goods were covered from Calcutta port till the same reach its destination and they were lying on
storage, that would cover the goods by the extended policy and the insurer cannot defeat the claim of
the claimant that the goods once reached the destination at Calcutta the policy stood discharged. The
contention that the extended coverage does not cover the goods in transit till they reach any part of
the country is not correct because the transit infers storage also till it reaches its destination. If this
interpretation is not given then the extended coverage would be of no use. Looking to the expression
used in the background of the intention of the parties, it clearly transpires that once the goods were
insured, then till they reach any part of the country shall be covered by the extended coverage.

Nature of warranty (S. 35)

A warranty, as defined in the Act, means a promissory warranty. It means an undertaking by the
assured that some particular thing shall or shall not be done, or that some condition shall be fulfilled,
or he affirms or negatives the existence of a particular state of facts. A warranty may be expressed or
implied. The effect of a warranty is that it becomes a condition of the contract and, therefore, must be
exactly complied with, whether the fact warranted is material or not. If it is not complied with, the
insurer is discharged as from the date of breach, though he will remain liable for a liability, if any,
incurred before the breach.

Breach of warranty when excused- Sec 36

• When compliance with a warranty is rendered unlawful by any subsequent law.

• when the insurer has waived the breach of warranty.

P. Samuel & Co. ltd v. Dumas (1924) AC 431

A time policy was taken out on a ship. Warranted that the owner would be entitled to insure freight
but not exceeding a certain limit -The owner affected a separate policy against loss of freight
exceeding the limit allowed by the warranty -The insurers underwrote both policies -The ship was
lost. The insurer repudiated the claim for breach of warranty.

New India Assurance Co. Ltd. v Syed Mohammed [AIR 1991 Ker 368 DB]

A fishing boat was missing in heavy rains Warranty clause - when boat is not in use, the vessel
should be safely anchored, moored & secured with proper watch and ward. There was no watch and
ward at the crucial time on the vessel. Held breach of warranty

John Pratt v Aigaion Insurance Company [2009] 1 Lloyd's Rep. 225

Mr Pratt took out a policy of marine insurance with Aigaion, for his fishing trawler The hull and
machinery policy contained a warranty which stated "warranted Owner and /or Owner's experienced
Skipper on board and in charge at all times and one experienced crew member".

On 11 December 2006, Mr Pratt and his crew of three took the vessel to fish for a day and returned.
They returned & readied the vessel for fishing for the next day. Then Mr Pratt and the crew left the
vessel to go home. After some hours, the vessel was found to be on fire, and later investigation
showed that the cause was the operation or malfunction of the deep fat fryer or the fridge. There was
no crew onboard when the fire occurred and the generator was left running while the crew was
ashore. Insurer declined Mr Pratt's claim and submitted that there was no owner or experienced
skipper on board and in charge "at all times"; or specifically at the time of the fire by which there was
a breach of the warranty Mr Pratt submitted that the clause was obviously directed to situations when
the vessel was navigating or working and, if applied literally, would lead to absurd results. By
reading the warranty clause as a whole, with reference to "and one experienced crew member" in
particular, the court held that the primary/underlying purpose of the warranty was to protect the
vessel against navigational hazards in circumstances in which at least two members of the crew, i.e.
the skipper and a crew member, could be expected to be on board.

Sec.37 – Express warranty.

An express warranty may be in any form of words from which an intention to warrant may be
inferred. All that the Act requires is that an express warranty must be written upon the policy or upon
some document incorporated by reference into the policy. The Act also says that an express warranty
will not exclude an implied warranty unless it is inconsistent there with.
Implied warranty Sec.41 & Sec.43.

Warranty of seaworthiness [S. 41]

In a voyage policy there is an implied warranty that at the commencement of the voyage the ship
shall be seaworthy for the purpose of the particular venture insured. There is also the implied
warranty that, at the commencement of the risk, the ship shall be reasonably fit to encounter the
ordinary perils of the sea. Where the voyage is spread into several stages, and at each stage the ship
requires new or different kind of equipment, an implied warranty will be that at the commencement
of each stage the ship is seaworthy in respect of such preparation or equipment for the purposes of
that stage.

But In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the
adventure. Where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the
insurer shall not be liable for any loss attributable to unseaworthyiness. With the Privity of the
insured – the ship is sent to sea in an unseaworthy state- insurer not liable. Burden is on the insurer to
show that the loss was due to unseaworthiness to which the assured was privy

Quebec Marine Ins. v. Commercial Bank of Canada ( 1870) LR 3 PC 234

Ship insured for voyage partly on inland waters & partly on sea Commenced voyage from Montreal
with defective boiler which made her unfit for voyage in salt water. This was discovered only when
she got into the sea at the end of river. She returned to Montreal for repair & sailed again, but was
lost in hurricane, the insurers were not held liable as the ship was not seaworthy at the
commencement of voyage even though the breach was remedied before loss

Where a warranty is broken, the assured cannot avail himself of the defence that the breach has been
remedied & the warranty complied with before loss (Sec 36(2))

Thomas v. Tyne & Wear Steamship (1917) 1 KB938

A ship insured under time policy was unseaworthy in two respects-

• Insufficiency of crew
• Damaged hull in previous voyage
The insured was privy only as to the insufficiency of crew. But the ship was lost on account of
damaged hull - Held insurer was liable to indemnify the insured.

Seaworthiness includes cargo worthiness (S. 42(2)

The ship must be reasonably fit to carry the kind of goods insured to the destination Sea worthiness
admitted clause in all cargo policies

Warranty of legality [S. 43]

There is an implied warranty that the adventure insured is a lawful one, and that, so far as the assured
can control the matter, the adventure shall be carried out in a lawful manner.

S Kamal v. New India Assurance Co. Ltd 2006 CPJ 284

• smuggling , violating custom regulations, conformity with local laws.

Aggarwal Granite Exports v. New India Assurance Co. Ltd 2006 CPJ 150

• If the vessel had been inspected by the insurer’s agent before issuing of policy, the pleas of
want of seaworthiness shall not be accepted

The voyage Implied condition as to commencement of risk [S. 44]

In a voyage policy it is not necessary that the ship shall be at the place mentioned in the contract as
the place of sailing, but there is an implied condition that the adventure shall be commenced within a
reasonable time. When the destination is stated in the policy, and the ship instead of sailing for that
destination, sails for any other destination the risk does not attach

Sea lark fisheries v. United India Insurance 2008 4 SCC 131

The terms of the contract of insurance, thus, being governed by the provisions of a statute, non
disclosure of such material facts would render the policy reputable. In the present case, several
columns which were material for the purpose of entering into a contract of insurance LD were left
blank. The Division Bench of the High Court, having regard to the statutory provision, rightly held
that the plaintiff suppressed the material fact. Moreover, in view of the statutory rules, the court
would have no other option but to hold that the vessel was not seaworthy. The policy was obtained
through a bank. The court said that the bank having acted as an agent was under responsibility to
disclose all the material facts.

Change of voyage [S. 47]

When the destination of the ship is voluntarily changed, that is known as the change of voyage. The
result is that the insurer is discharged from liability unless the policy provides otherwise. The policy
is avoided as from the time when the determination to change the voyage is manifested and it is
immaterial that the ship may not in fact have left the original voyage when the loss occurs.

Deviation (S. 48)

The effect of deviation is also the same. If the ship, without lawful excuse, deviates from the voyage
contemplated by the policy the insurer is discharged from liability as from the date of deviation and it
is immaterial that the ship may have regained its course before any loss occurs. It is not necessary
that the deviation should be intentional. Where the course of the voyage is specifically designated by
the policy, and that course is departed from; or

(2) Where the course of the voyage is not specifically designated by the policy, but the usual and
customary course departed from a deviation, in fact, is sufficient to discharge the policy. Where the
course of the voyage is specifically designated by the policy and that course is departed from.

Several ports of discharge are mentioned & not mentioned (sec 49).

Several ports of discharge mentioned in the policy she must proceed to them, or such of them as she
goes to, in the order designated by the policy. If she does not, there is a deviation. Where the "ports
of discharge", which are not named, the ship must, proceed to them, or such of them as she goes to,
in their geographical order. If she does not, there is a deviation.

Reardon Smith Lives limited v. Baltic General Insurance Company limited (1939)

A vessel to sail from a port in the black sea to sparrows point in the USA sailed to Constanza which
is not on her direct geographical route to take oil & was stranded there The evidence showed that a
quarter of the oil burning vessels proceeded from the black sea to Constanza Held that there was no
deviation.
Held covered clause

If there is change of voyage or deviation, the underwriter continues to be liable if the policy contains
held covered clause ‘… the insured will be held covered in the event of the voyage being changed or
of any deviation at a premium to be arranged’.

Delay in voyage [S. 50]

In the case of a voyage policy, the adventure must be prosecuted throughout its course with
reasonable dispatch. If, without lawful excuse, it is not so prosecuted the insurer is discharged from
liability as from the time when the delay became unreasonable.

Excuse for deviation and delay [S. 51]

Deviation or delay in prosecuting the voyage is excusable in the following cases:

(1) When it is authorised by the terms of the policy:

(2) Where caused by circumstances beyond the control of the master, and his employer;

(3) Where reasonably necessary in order to comply with an express or implied warranty:

(4) Where reasonably necessary for the safety of the ship or subject matter insured;

(5) For the purpose of saving human life or aiding a ship in distress where human life may be in
danger;

(6) Where reasonably necessary for the purpose of obtaining medical or surgical aid for any person
on board the ship;

(7) Where caused by the barratrous conduct of the master or crew, if barratry be one of the perils
insured against.

Company of African Merchants v. British & foreign Marine Ins. Co.

A ship is insured from UK to West Coast , Africa including stay & trade & return to UK. When she
was ready to sail back, master delayed the vessel to assist in salvaging the cargo of another ship
which was wrecked. On her return she was lost. Section 51(e) - Purpose of saving human life/aiding
a ship in distress where human life may be endangered The insurer was held discharged from liability
from the time of going to salve the wreck.

National Insurance [Link] vs. A.D. Jeyaveerapandia Nadar & Bros,

Insurer issued open policy for 2000 bags or baskets of onion. Warehouse to warehouse
(Nagapattinam to Malaysia) -2000 baskets of onion loaded into boats to be put on board the ship
Boats left dock area. At 3 pm (when they were waiting for their turn to unload into the steamer) sea
became rough with high waves. Sea water entered into boats. Decided to return to shore along with
cargo. 1200 baskets onion had to be jettisoned to save the boat, lives of the crew etc-The information
of jettisoning was given to the Insurer. The insured claimed indemnity for the jettisoned goods. The
insurance company repudiated the claim. Return to the shore with the cargo was not covered under
the policy and there was change of voyage or deviation & so the risk terminated - Held- insurer
liable- deviation excused under Sec 51 (d) and (e).

Included and excluded losses: Proximate cause [S. 55]

Unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril
insured against and is not liable for a loss not proximately caused. This statement has been further
particularised in terms of the following principles:

(1) The insurer is not liable for any loss attributable to the wilful misconduct of the assured. But he is
liable for a loss proximately 316 caused by a peril insured against, even though the loss would not
have happened but for the misconduct or negligence of the master or crew.

(2) Unless the policy otherwise provides the insurer is not liable for the consequences of delay even
if the delay is caused by a peril insured against.

(3) Unless the policy otherwise provides the insurer is not liable for ordinary wear and tear, ordinary
leakage and breakage, inherent vice or nature of the subject matter insured, for any loss proximately
caused by rats or vermin or for any injury to machinery not proximately caused by maritime perils.

Canada Rice Mills Ltd. v. Union Marine & General Ins. Co. (1941) AC 55

Cargo of rice insured - During the voyage the ship's ventilators closed to prevent incursion of sea
water due to weather conditions - the rice became overheated and damaged - Held - the action to
prevent the incursion of water is recoverable as the loss by the perils of the sea
Wadsworth Lighterage and Coaling Co Ltd v Sea Insurance Co Ltd.

Here a 50 year-old steam barge was insured under a policy which covered total and constructive loss
caused by fire, lightning, stranding or sinking. The vessel sank during a night at a port and of its own.
There was no sign of any peril of the sea or accident causing her to sink. The sinking was thus the
effect of her age or of natural wear and tear. The insurer was not liable. There would have been
liability if the vessel had sunk due to a peril of the sea.

Partial and total loss [S. 56]

A loss may be either total or partial. While there is no definition given of partial loss", the section
defines total loss and then says that any loss which is not total as thus defined is a partial loss. Total
loss may be actual or constructive.

Actual total loss

(1) Where the subject matter insured is destroyed, or so damaged as to cease to be a thing of the kind
insured, or where the assured is irretrievably deprived of the subject matter, there is an actual total
loss. [S. 57]

(2) Where the ship concerned in the adventure is missing, and after the lapse of a reasonable time no
news of her has been received, an actual total loss may be presumed. [S. 58]

Thus there is actual total loss in three cases:

(1) where the subject matter is totally destroyed or annihilated;

(2) where the subject matter ceases to remain in its original condition;

(3) though the thing is not destroyed, but the assured cannot get it, it being irretrievably lost to him.

Francis v. Boullon (1895) 65 LJQB 153

A cargo of rice valued at £ 450 was sent in a barge. The barge sank and the rice remained in water for
some hours. The consignee refused to accept it. The rice was dried in a kiln at a cost of £60 and sold
at £110. As rice remained in specie, it was partial loss only.
Afsar v. Beundell (1896) 1 QB 123

Where a cargo of dates on account of being under water for sometime was so damaged that the goods
could no longer be described as dates for commercial purposes and, therefore, the freight in respect
of them could not be demanded, there was total loss of freight

When goods reach the destination in specie, but, are incapable of identification for any reason
whatsoever, for instance obliteration of marks, the loss is partial and not totals (Sec 56)

If the goods recovered are merchandisable and capable of being used for the purpose for which goods
of their species are ordinarily used, it has to be taken that the goods have been recovered in specie &
that there has been no total loss or even constructive total loss.

Akooji Jadwat Pvt. Ltd v. Oriental Fire and General Insurance Co. Ltd

Pakistan captured Indian vessel M V Shakeela belonging to the plaintiff- Sept 5, 1965-Valued policy
Rs. 10 lakhs - Insured against the perils of "Capture, seizure, arrest, restraint or detainment and the
consequences thereof or any attempt thereat; and from the consequences of hostilities of warlike
operations, whether there be a declaration of war or not"

Sept 23, 1965 hostilities came to an end.

October 12, 1965 – Insured claimed the value from insurers.

Oct 18, 196 it was declared as lawful prize-Prize Court at Dacca – directed for sale

Nov 17, 1965- Order for sale revoked- possession was made over to Government of Pakistan

January 4, 1966- the plaintiff sent copies of the proceedings of the Prize Court with a request to
settle the claim

Jan 10, 1966 Historic declaration- Tashkent -to return all properties

May 9, 1966 – Insured claimed payment as there was no hope of recovery

August 6, 1966 an agreement was entered into by & b/w Governments for her exchange with the
Elahi Bux a Pakistani ship captured by Indian Navy but these two vessels were not ultimately
exchanged.
The insured brought an action in 1967 against insurer- Actual total loss & loss was proximately
caused by the perils insured against.

Contention of insurers -She was available for release

Held that -Her possession was forcibly taken away from the plaintiffs on September 5, and this
dispossession was permanently confirmed on October 18, when her title was also taken away from
the plaintiffs……. and this dispossession continued uninterrupted right up to this day i.e. date of
filing of the suit. Insured had no control whatsoever over her. They had no means of procuring her
arrival.

She was not actually sold and the Order for her sale was revoked but that does not mean that she
ceased to be an actual total loss because once there is an actual total loss it is an actual total loss for
all time. Even the exchange between 2 governments did not take place. -The plaintiffs were
irretrievably deprived / suffered actual loss of her on October 18.

Sec 60(1) lays down general rule as to Constructive Total Loss

• The subject matter is abandoned as Actual loss appearing to be unavoidable/

• Subject matter cannot be preserved from actual total loss w/o an expenditure which exceed its
value

Sub-section (2) says that in particular there is constructive total loss in the following cases:

(1) Where the assured is deprived of the possession of his ship or goods by a peril insured against

• it is unlikely that he can recover the ship or the goods;

• the cost of recovering the ship or goods would exceed their value;

(2) in the case of damage to a ship, where she is so damaged by a peril insured against that the cost
of repairing the damage would exceed the value of the ship.

In case of damage to goods- the cost of repair and forwarding goods to destination would exceed
their value on arrival.

Abandonment is the foundation of constructive total loss and without abandonment there can be no
question of constructive total loss.
Option of the assured [S. 61]

Section 61 which deals with the effect of constructive total loss gives this option to the assured that
he may treat the constructive total loss as a partial loss or abandon the subject matter insured to the
insurer and treat the loss as if it were an actual total loss.

Notice of abandonment [S. 62]

If he elects to treat the loss as an actual total loss he must give notice of abandonment to the insurer.
If he fails to do so the loss can only be treated as a partial loss. Notice may be in any form, viz.
written, oral or partly written and partly oral. All that is necessary is that it should indicate to the
insurer the intention to surrender unconditionally the subject matter of insurance.

If the information as to loss is of doubtful nature, he is entitled to reasonable time to make an inquiry.
Where proper notice has been given but the insurer refuses to accept it that will not prejudice the
rights of the assured. The acceptance of abandonment on the part of the insurer may be express or
implied, but mere silence of the insurer after notice is not an acceptance.

An unaccepted notice of abandonment can be withdrawn by the assured

Once the notice is accepted, the abandonment becomes irrevocable. The acceptance of the notice is a
conclusive admission of the liability for the loss and of the sufficiency of the notice,

SS Balmore v. Macredie, (1898) AC 593)

A ship is sunk in deep water in harbour. Notice of abandonment is given but not accepted. The
underwriter on his own initiative and at great expense recovers the ship before action is brought. The
notice is valid & the assured can recover total loss.

Fleming v Smith (1848) 1 HL Cas 513

A ship is damaged due to sea perils. The master of the ship after communicating with the owners has
repaired the ship at a cost exceeding her value when repaired. After her arrival in London, the owners
give notice of abandonment. This is ineffectual. There is only a partial loss

Peacock Plywood Pvt. Ltd v. The Oriental Insurance Co. Ltd 2006
In the current case, appellant agreed to purchase 4000 cu. mt. of logs at a total price of US $6,
00,000/- from a Malaysian firm. 474 pieces of logs were loaded on a vessel known as 'Indera
Pertama' at the port of Western Sabah, Malaysia for their delivery at Calcutta. The ship left the
Malaysian Port with cargo on 16th February, 1988. The logs were insured by Appellant with
Respondent - Insurance Company for a sum of Rs. 39, 90,122/- against the peril and/ or risk of non
delivery of said goods. On reaching Singapore, the ship developed engine problems and was stranded
and later sent back to Malaysia after a failed voyage. After being arrested in Malaysia and being left,
the ship was again stranded in Singapore and couldn’t go further and thus the cargo was off-loaded.
The Appellant with aim of minimizing loss took steps to recover the cargo or its value by filing an
application at the High Court, to which the sale of cargo was allowed. Appellant received a sum of
Rs. 20, 01,743.53 out of the sale proceeds. The Single Judge of the High Court awarded a sum of Rs.
8, 48,259.47 with simple interest at the rate of 18% per annum. To which an appeal was filed before
the Division bench of the High Court, where the order of the Single judge was quashed. On appeal to
the Supreme Court by the Insured, the court looked at various aspects of the facts to come to its
decision.
Under Section 60 of the Marine Insurance Act, Constructive total loss occurs when the insured is not
able to get possession of his goods due to a peril insured against because the cost of recovering the
goods exceeds their value when recovered. In the current case, the Insured tried to minimize their
loss due to non-delivery by selling the goods in Singapore at lower price. The loss is incurred and the
reason is the unseaworthiness of the ship due to perils insured against. Thus, the Insured has a claim
in the current case as allowed by the Supreme Court. The amount that was paid to the Insured
through the sale in Singapore was less than the actual value and thus the Insurance Company was
liable to pay for the remaining amount. The Supreme Court upheld the judgment of the Single judge
and allowed for the claim to be awarded.

In the current case, the liability arises due to two reasons

1. There is no actual possession of goods by the insured as no delivery happened due to

unseaworthiness of vessel which led to it becoming stranded and sale of goods in Singapore was just
an attempt of the insured to minimize his losses.
2. Section 60 of the Marine Insurance Act says that Constructive total loss occurs when the recovery
is not possible and costs are more than the value of goods. In the current case, the recovery of goods
was not viable and the appellant had no other option rather than to sell it in Singapore at a lower
price. The loss incurred has to be covered under this provision because if the vessel had not become
unseaworthy then the appellant would be able to sell the goods in India at the market price. Thus,
here there is an actual claim for the insured as the loss is of the nature as defined under section 60
and further laid down under Clause 13 of Insurance Policy and the Supreme Court is correct in
upholding the Single Judge’s order.
When notice not necessary No notice is necessary in the following cases:

(1) Where at the time when the assured receives information of the loss, there would be no possibility
of benefit to the insurer if notice were given to him.

(2) Notice of abandonment may be waived by the insurer.

(3) Where an insurer has re-insured his risk. No notice of abandonment need be given by him.

Effect of Abandonment S.63

Where a ship is abandoned, the insurer will be entitled to freight.

Particular average loss (S. 64)

A particular average loss is a partial loss of the subject matter insured, and which is not a general
average loss.

Expenses incurred by the assured for the safety or preservation of the subject matter insured, other
than general average and salvage charges, are called particular charges. Particular charges are not
included in particular average.

Essentials of particular average loss.

• A partial loss of subject matter insured, caused by a peril insured against, and which is not
general average loss.
• Not caused Voluntarily,
• The insured subject matter should be damaged and this damage should be caused by marine
peril which is insured.
General average loss [S. 66]

All person interested in the marine adventure are liable to contribute rateably ( in proportion to their
net values) to make good any loss which arises in consequence of Sacrifices/expenditure reasonably
and voluntarily made in the time of peril for the preservation of the ship/cargo Sec 66(2).

Subject to the conditions imposed by maritime law, the party who incurs the general average loss is
entitled a rateable proportion from other parties interested (General Average Contribution Section
66(3))

A general average loss is a loss caused by or directly consequential on a general average act. It
includes a general average expenditure as well as a general average sacrifice. S.66(2) says that there
is a general average act where any extraordinary sacrifice or expenditure is voluntarily and
reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in
the common adventure.

Where there is a general average loss, the party on whom it falls is entitled to a rateable contribution
from the other parties interested in the adventure, and such contribution is called a general average
contribution.

Essential ingredients of general average act-

• Sacrifice/expenditure voluntarily incurred, and not accidental loss

• Reasonably and prudently incurred
• The loss must be for preserving the common adventure & not of any individual interest only

Any cost incurred in order to save the cargo or ship or both is known as General Average
Expenditure. E.g. Monet paid to pirates to save the vessel, warehouse rent , port refuge cost &
remuneration to salvors.

Any sacrifice made in order to save the cargo or ship or both is known as General Average Sacrifice.
E.g. cutting away bulk heads of ship to extinguish fire, Jettison, Cargo or ship parts sold for the
repairs & Damage to cargo while extinguishing fire.
Suing and labouring clause- Sec 78

• Duty to minimise/avert loss

• Expenses incurred by insured/servants may be recovered from the insurer under this clause
Sue & labour charges for the benefit of subject matter insured
• Sue & labour charges must be reasonably or properly incurred
• Different from general average loss/ salvage charges

Lee v. Southern Ins. Co (1870) LR 5 CP 397

A ship was carrying cargo with freight insured by policy. The ship stranded midway. In order to earn
the freight, the owner sent the cargo by rail at a cost of £200 whereas it could have been sent by
another ship for £70 only. The expenditure was unreasonable, insurer liable only to pay £70 under
the sue and labour clause.

Salvage charges Sec.65

• Means the cost of saving the property exposed to peril

• When property /life at sea are in danger, another ship or person may help to save them
• Such person is salvor- reward/remuneration payable to him is salvage
• The salvor must be third party and not in any way interested in the property
• Entitled to reward for the services irrespective of the fact whether he acted with/without the
consent of the owner of the property
 Fire Insurance

It is defined under Section 2(6A) of the Insurance Act 1938 as Fire insurance Business contracts of
insurance against loss of property by or incidental to fire or other occurrence customarily included
among the risks insured against in fire insurance policies. Fire insurance means a contract by which
an insurer undertakes to indemnify the insured against loss by fire to the property insured against.

Its chief characteristic is that it is a contract of indemnity and indemnity only and the insured is not
entitled to recover more than such amount as will indemnify him against the actual loss or damage
sustained according to the real quantity and value of the goods at the time of the fire.

Essentials of Fire insurance claim.

1. There must be actual fire or ignition

2. It must be accidental i.e. property not intended to be ignited

1) There must be actual fire or ignition

• Fire means production of light & heat by combustion (burning)
• Ignition is the acid test of fire & there can be no claim without flame.
• In certain American cases a distinction is drawn between hostile & friendly fire

Harris v. Poland (1941) All ER 204

• Insured concealed valuables in her fire-grate by placing wood & coal (to misguide the
burglars) she unintentionally lighted it. Insurer refuted the claim- friendly fire.
• It was held that the fire had burnt something which was not intended to be burnt- loss fell
within the policy.
• If instead negligently but knowingly the notes and jewellery were thrown into fire by the
insured, the insurer would not be liable

2) Actual fire (ignition) must be accidental Cause of fire is immaterial unless it was the deliberate act
of the insured. Even a fire caused by the negligence of the insured is within the policy.

Insurable interest

Time and duration when insurable interest must exist -Fire Insurance & motor insurance – must exist
at the commencement of the policy & at the time of loss.
It is necessary to the validity of a fire policy, like all other insurance, that the insured should have
interest in the subject-matter of insurance. A person is said to have interest in a property if he is liable
to suffer a direct loss upon its destruction.

Perils of Fire insurance

Fire policy covers risk

Fire, Lightning, Explosion, Riots, Spontaneous combustion, Malicious Act Earthquake etc

Perils insured against and proximate cause

In a fire policy it is necessary that fire must be the proximate cause of the loss.

Incidental to fire natural consequences of the following fire / in the normal course of events
following the outbreak of fire.

The act of putting out fire with water or some furniture thrown out to prevent the spread of life, to
control the damage & to reduce the damage from smoke / heat from the fire.

Stanley v Western Insurance Co

whether it be by spoiling the goods by water, or throwing the articles of furniture out of a window, or
even the destroying of a neighbouring house by an explosion for the purpose of checking the
progress of the flames, in a word, every loss that clearly and proximately results, whether directly or
indirectly from the fire, is within the policy.

Consequential Losses

Any loss to which is not incidental to fire. A consequential loss is an indirect adverse impact caused
by damage to business property or equipment. Insurance to cover any damage to property and
equipment, and may also obtain coverage for secondary losses. Those Secondary loses are known as
consequential losses.

Marsden v City and County Assurance Co

A shop was insured against loss from any cause whatsoever except fire. A fire broke out on the
adjoining premises and spread to the rear of the plaintiff's shop but no further. While the plaintiff was
shifting his stock to safety, a mob attracted by the fire, tore down the shop shutters and broke the
windows for the purpose of plunder. It was held that the proximate cause of the damage was not fire,
but the lawless act of the mob.

Everett v London Assurance

Fire means actual ignition and not merely generation of heat. Certain property was insured against
fire. A quantity of gunpowder belonging to a person at some distance from the plaintiff's property
exploded, the shock of which shattered the windows and damaged the plaintiff's property. It was held
that as the proximate cause of the damage was a concussion of air, and not fire, the plaintiff could not
recover.

Types of Fire Insurance Policies.

Valued policy

Fixed amount to be paid by the insurer irrespective the actual amount of loss-Value is fixed at the
time of entering into insurance contract. Departure from contract of indemnity

Specific policy

Insurer will pay the loss to the insured not exceeding the specified sum mentioned in the policy (the
specified sum is less than the real value of the property).The value of the property is not taken into
account while determining the amount of indemnity. Not subject to average clause

Average policy

This policy contains ‘Average clause’ Insurance taken for lesser amt. than the actual value of
property, the assured is compensated the loss in that proportion i.e. the insured is called upon to bear
a portion of loss himself The average clause is operative only in case of under-insurance.

Amt. of claim = Insured amt.( divided by ) Market value X Actual loss

Floating policy

Covers different kinds of goods lying in different localities under one sum & one premium.

Comprehensive policy

Covers many perils like fire, explosion, earthquake, flood, riots etc. Contains many exclusions.
Reinstatement policy

Insurer undertakes to re-instate/ replace the property instead of paying cash.

Surveyor and Loss Assessor

• Licensed by Insurance Regulatory and Development Authority (IRDA).

• Member of IIISLA (Indian Institute of Insurance Surveyor and Loss Assessor)
• Appointed by the insurance company to assess the quantum of loss and submit survey report
i.e. recommendation of settlement of claim

Shri Venkateshwara Syndicate v. Oriental Insurance Co. Ltd (2009)

• The leased property (Jai Bharat Traders CottonGinning Mill) was insured Loss due to
Accidental fire. The loss estimation of loss Rs. 1.90 crores.
• Sum insured was Rs. 1.98 crores. Insurance Company appointed. Sri K. Siva Prasad, a
licensed surveyor- Rs.1,73,92,310/- ( preliminary report)
• Joint Surveyors M/s Mehta and Padamsey- Rs.1,67,80,925/ ( insurer sought some
clarification)
• Surveyor viz. Dinesh Gopal and Co. – confirmed the quantification of joint surveyors
• R. Srinivasan and Co., CharteredAccountant-Rs.1, 05,00,817/-.
• The joint surveyors in their clarificatory report did not agree with the findings of the
chartered accountant.
• Delay in settling claim/ deficiency of service- filed complaint before the National
Commission- entitled to sum of Rs.1,67,80,925 ( joint surveyors) along with interest

Rejection of claim on surveyor's report

A claim was rejected only on the basis of the surveyor's report. That was held to be improper. The
insurance company should take assistance from the surveyor. It should not be under his dictation. It
has to apply its independent mind. Anything adverse to the beneficiary of the policy in the surveyor's
report should be disclosed to him before repudiating his claim.
Appointment of second surveyor

The insurance company appointed a second surveyor without any direction by the Controller or
Authority. It was held that this violated Section 64-UM of the Insurance Act. No cogent evidence
was produced justifying the appointment of second surveyor. The company was directed to pay the
amount recommended by the first surveyor.

New India Insurance Co. Ltd v. Protection Manufacturers Pvt limited 2010.

Joint surveyors were appointed by the insurer. They submitted their report as to the cause of fire and
extent of loss. Thereafter, the insurer appointed a third surveyor who submitted a divergent report. It
was held that such appointment of a subsequent surveyor was against Section 64-UM(3), Insurance
Act, 1938. Hence, his report was of no evidentiary value. The court also considered Sections 3, 14,
30 and Schedule 1, clauses 1 and 35 of the Insurance Regulatory and Development Authority Act,
1999.

Rights of the Insurer

1. Right of control over the damaged property

• Reasonable measures to extinguish the fire, minimise the loss ( implied rights)
2. Right of Disclosure
• Disclosure of material facts/changes in risk up to the time of formation of contract.
Subsequent change in risk intimated in case of express condition in the policy
3. Right of subrogation
• Unit 2
4. Right for contribution
• Unit 2
5. Right of salvage
• Property /things that saved after fire Absolute right that flows from the contract of indemnity

6. Right of reinstatement (Doctrine of Re – instatement)

The reinstatement value clause, the damaged property is replaced by a new property of the
same type. This clause is also called the ‘New for old’ clause as the insurance company is
liable to pay for reinstating the damaged asset with a new asset. Though the reinstatement
 value clause pays for a new asset or property, the principle of indemnity is followed. The
asset or property replaced would be of the same specifications as the one which is damaged.
In case of plant and machinery, if the new asset is technologically better than the older one,
the insured would have to bear a portion of the cost of reinstating the damaged asset with the
new asset because the old asset did not possess the same advanced technology as the new
asset. Thus, the insured is liable to cover the cost of the new technology which comes in the
new machine or equipment.

• Reinstatement clause is for the benefit of insurer Repair/replace the property instead of
paying cash.
• Exaggerated claim, insurers elect to reinstate Effect of election of reinstatement option
• The insurer must put premises substantially as it was before loss

Brown v. Royal Assurance Company Ltd. (1858)

• Party making the election is in the same position as if he had originally contracted to do the
act which he has elected to do. i.e. option to reinstate is expressly/by implication exercised, it
amounts to new contract- they cannot go back and say that they would pay money.

The value of the insured property is measured based upon during the settlement of claims are-

Its value at the time of loss, At the place of loss, and Sentimental value not considered.

Procedure of claim settlement

1) Notice of loss to the Insurance Company

2) Evidence of loss

Invoices, documents, particulars of all other insurance if any on the property, origin and
cause of fire. The burden is on the insured to prove that the loss was caused by an
insured peril The onus to establish that the fire was not accidental/ loss not caused by an
insured peril is on the insurer

3) Police Report in case of Arson

4) Formal claim form
5) Inspection of loss
6) Ascertainment of loss
 • R.12 of IRDAI ( Insurance Surveyors and Loss Assessors Regulations, 2015)
• Surveyors and Loss Assessors shall be appointed either by insurers or insured to
assess loss under a policy of insurance in respect of

Motor insurance – above Rupees fifty thousand

Other than motor insurance – above Rupees one lakh

• Surveyors/loss assessors advise as to how the claim should be settled

• If insurer accepts the advice, the assessor is instructed to write to the insured- if
insured is also agreeable to the proposed settlement – terms of settlement are
embodied in an agreement & amount paid in full settlement
7. Payment of claim
8. Rejection of claim
• No insurable interest at the time of loss
• Non disclosure of material facts
• Loss is due to an excluded peril

No steps taken to mitigate the loss Conditions not complied More than one fire/ Successive losses
Insurance policy of Rs. 1,00,000, Loss due to fire is Rs. 80,000. If there is a second fire & entire
property is burnt- the insured can claim only Rs.20, 000. If the insured wants to cover entire risk, he
can reinstate the insured sum to Rs. 1, 00,000 by paying fresh premium on a pro-rata basis until date
of expiry.

Motor vehicle Insurance

In India, as per the Motor Vehicles Act, it is mandatory that all vehicles that operate in any public
space must have a motor vehicle insurance cover. Policyholders must have at least ‘third party
liability’ motor insurance cover even when opting for the basic insurance plans.

The third-party cover is essential in the event of an accident caused by the vehicle owner or another
person driving the other vehicle. It is important to note that vehicle insurance coverage may or may
not cover damages caused by the owner. All vehicle owners are urged to carry their motor vehicle
insurance documents with them at all times.
Claim arises when-

• There is loss/damage to insured vehicle

• Legal liability towards third parties
• Personal accident to the insured resulting in death/injury

Motor vehicle owners in India can select between different types of motor vehicle insurance
available here. The foremost objective is to protect vehicle owners against damage and accidents.
Motor insurance policies online are based on coverage refer to the type of insurance plan selected,
which can be categorized into the following:

Comprehensive Insurance

A comprehensive vehicle insurance plan includes third-party liability as well as any expense incurred
by the policyholder due to theft or accident of the vehicle. In case the policyholder is injured, the
personal accident cover entitles the policyholder to claim compensation due to death or injury due to
an accident. The benefit of taking on a comprehensive motor insurance policy is that the add-on plans
or riders extend added benefits to the policyholder without taking out multiple policies. Therefore,
this type of insurance plan extends security and protection to the policyholder for almost any
situation that they might encounter.

Third-Party Liability Insurance

Third-party liability insurance is mandatory for every vehicle owner in India, by law. Essentially,
these insurance plans protect the policyholder’s interests from damages caused to a property or an
individual by the policyholder. It can be said that a third-party cover helps lower the risk and liability
of the policyholder in a number of situations. Also, this cover is recommended for inexpensive and
old vehicles that are cheaper to repair.

Sec.146 of the MV act makes it mandatory to have Third Party Liability Insurance.

Sec.147 of the MV act states out the requirements to avail Third Party Liability Insurance.

• Issued by an Authorized insurer

• Insure against any third party liability (death/bodily injury/damage to property of TP)
including owner of the goods or his authorized representative carried in the motor vehicle
 • Death/bodily injury to any passenger of transport vehicles except gratuitous passengers in
goods vehicle
• Limits of liability (Section 147(2) (the Central Government shall prescribe a base premium
and the liability of an insurer in relation to such premium for an insurance policy in
consultation with the Insurance Regulatory and Development Authority.
• Certificate of Insurance
• Cover note

Settlement of claims

• Sec 149 & 150: Offer to claimant by insurer before MV Claims Tribunal – 30 days & if
accepted, payment by insurer in 30 days
• Sec.149 Imposes a duty on the Insurance companies to satisfy the awards & judgment give
the court or tribunal.
• MV Claims Tribunal determine claim amount – not limited to policy terms only

Permissible defenses available to insurer in case of third party insurance (s. 149(2)) MV Act
1988/ 150(2) MV Amendment Act 2019

• Breach of conditions
• Excluding the use of vehicle for hire/reward
• Excluding the use of vehicle for organized racing & speed testing
• For purpose not allowed by permit ( transport vehicle)
• Licensing requirements
• Excluding liability caused/contributed to by conditions of war, civil war, riot/civil
commotion
• Policy is void on the ground of Non-disclosure of material facts ( Sec 149(2)(b))

New India Insurance Co. Ltd v. Kamla (2001)

When a valid insurance policy has been issued in respect of a vehicle as evidenced by a certificate of
insurance the burden is on the insurer to pay to third parties, whether or not there has been any
breach or violation of the policy conditions. But the amount so paid by the insurer to third parties can
be allowed to be recovered from the insured if as per the policy conditions the insurer had no liability
to pay such sum to the insured.
License requirements of Driver

Sec.2(6) of the MV act define the term driving licenses

“driving licence” means the licence issued by a competent authority under Chapter II authorising the
person specified therein to drive, otherwise than as a learner, a motor vehicle or a motor vehicle of
any specified class or description

Sec.3 deals with Necessity of Driving [Link].14 deals with issuing of licenses & Sec. 15 deals
with renewal of licenses.

The burden is on insurer & to avoid liability, insurer has to prove insured was guilty of negligence in
the matter of fulfilling of condition of policy regarding driving of vehicle by duly licensed driver.

The breach of policy condition, e.g., disqualification of driver or invalid driving licence of the driver,
as contained in sub-section (2) (a) (ii) of Section 149, have to be proved to have been committed by
the insured for avoiding liability by the insurer

Fake license--Insurer to prove breach of conditions of insurance by owner of vehicle

Motor Vehicles Act, 1988--Section 5--Owner of vehicle to see in terms of Section 5 that no vehicle
driven by person without licence--Where driver of vehicle having no licence consciously allowed by
owner to drive vehicle--Insurer entitled to succeed in its defense and award liability

Lal Chand v. Oriental Insurance Co. 2006 (3) SCC 266

Owner had examined the driving license, took driving test for driver, no breach,the insurance
company cannot absolve itself of its liability.

National Insurance Co. Ltd v. Swaran Singh 2004 3 SCC 297

Learners License is valid and effective. Insurer cannot avoid the claim Fake driving license

PEPSU RTC v. National Insurance Co. (2013) 10 SCC 217

If the owner did not know the license produced by the driver was fake, he is entitled to indemnity
though he didn’t cross verify with the license issuing authority
Beli Ram v Rajinder Kumar AIR 2020 SC 4453

The first Respondent (R1) met with an accident while driving a truck owned by the Appellant, under
whom he was gainfully employed. R1, who suffered 20% permanent disabilityfiled a petition under
the Workmen's Compensation Act, 1923 ('the Compensation Act') to claim compensationimpleading
the Appellant and the Insurance Company (R2) which had insured the vehicle. Award was granted
for the injuries suffered and towards medical expenses with interestfrom the date of filing till the date
of payment. The compensation amount was mulled on to the second Respondent as insurer, while the
interest was directed to be paid by the Appellant herein. All the parties went in appeal, where issue of
R1's license validity came up at the time of the accident. The licence was expired and there was no
endorsement for renewal thereafter. Thus, the R1 was driving the vehicle as the driver for almost
three years without the licence being renewed. High Court vide impugned judgment absolved the
insurance company of any liability and fastened the same upon the Appellant herein on account of
there being a material breach of the insurance [Link] appeals of Insurer and Claimant were
allowed. Hence, the present appeal by insured, the employer/ owner of vehicle.

Held, while dismissing the Appeals:

Once the basic care of verifying the driving licence has to be taken by the employer, though a
detailed enquiry may not be necessary, the owner of the vehicle would know the validity of the
driving licence as is set out in the licence itself. It cannot be said that thereafter he can wash his
hands off the responsibility of not checking up whether the driver has renewed the licence. It is not a
case where a licence has not been renewed for a short period of time. The licence in the instant case,
has not been renewed for a period of three years and that too in respect of commercial vehicle like a
truck. The Appellant showed gross negligence in verifying the same. In the present case the
beneficiary is the driver himself who was negligent but then this is not a claim under the MV Act but
under the Compensation Act, which provides for immediate succor, not really based on a fault theory
with a limited compensation as specified being paid. Present is clearly a case of lack of reasonable
care to see that the employee gets his licence renewed, further, if the original licence is verified,
certainly the employer would know when the licence expires. And here it was a commercial vehicle
being a truck. The Appellant has to, thus, bear responsibility and consequent liability of permitting
the driver to drive with an expired licence over a period of three (3) years. In view of the aforesaid,
the appeals were dismissed by settling the aforesaid question of law and leaving the parties to bear
their own costs.
Liability of Insurance Companies during Various Instances

Use of vehicle for hire or reward

National Insurance Co. Ltd. V. MeenaAggarwal (2009) 2 SCC 523

• Insured vehicle for personal use

• At the time of accident the vehicle was used for commercial use (used as a taxi for marriage
parties)
• Claim was related to damage of the vehicle, not a third party liability
• Insurer’s liability excluded

National Insurance company limited v. Nitin Khandelwal (2008) 11 SCC 259

• Comprehensive policy including theft

• Car stolen when put to use as taxi. Terms stipulated that vehicle put to private use only
• Insurer repudiated the claim
• SC- Held insurer liable
• Even assuming that there was breach of condition of the policy, the nature of user for
personal use /as a taxi could have hardly contributed to theft per se at the given time insurer
cannot repudiate the claim- bound to settle the claim on non-standard basis

Overloading of passenger- Liability of insurer & Terms of permit – specify no. of passengers

National Insurance Co. Ltd v. Anjana Shyam (2007) 7 SCC 455

• Bus capacity – 42 but overloaded with 90 passengers 26 dead and 63 persons injured
• SC- allowed compensation to be determined for all passengers who died and sustained
injuries by computing the highest of the claims among the number of authorized persons &
rateably distribute the sums to all the victims/their LRs from the insurer balance amount for
each claimant claimed recoverable by the owner

Exclusion of liability for use in organised racing and speed testing

An impromptu racing of the car on a public road is not contemplated in the section
Organised racing shall mean pre-arranged racing – exclude spontaneous, spur-of-the moment racing
activity.

Insured’s duty when a claim arises

• Notice of accident to the insurer as soon as possible after it comes to the knowledge
• FIR in case of theft
• Forward all notices of claim in respect of the accident/ prosecution/inquest to insurer
• Give necessary assistance to insurer for resisting /settlement of claim
• No admission of liability/promise of payment w/o the written consent of the insurer
• Steps to mitigate loss

The following documents required to be submitted

• Duly filled in claim form (Questions relating to use of vehicle at the time of accident, relating
to the driver, relating to the accident etc)
• RC copy of the vehicle
• Original estimate of loss
• Original repair invoice
• Payment receipt
• Theft claims would require the non-traceable certificate to be submitted

Rights of insurer when claim arises

• Entitled to take over & conduct in the name of insured the defence/settlement of claim
• The insurer may at his own option repair/replace/pay in cash
• Entitled to be subrogated to the rights of the insured Liable to rateable contribution in case of
double insurance

Health Insurance

Health Insurance/medic claim- Cover the risk of illness & the consequential cost of treatment.
The Main purpose of the insurance is to cover medical expenses.
 Key Features of Health Insurance

• The insurance provider covers certain medical costs of the insured based on the premium
paid. Hospitalization- The policy covers hospitalization charges.
• Lifetime renewal.
• Tax deductions under section 80D of the Income Tax act
• Covers surgery costs, room rent, physician’s fee and laboratory tests.
• The insured has to pay a predetermined amount for certain health care services. This is
called co-payment. Pre and post hospitalization expenses are covered under this plan.
• Provides coverage for critical illness

TPA:

A Third-Party Administrator is a body that processes insurance claims admissible under the medi-
claim policy. In general,these administrators are independent but can also act as an entity belonging
to the insurer/s. These bodies are licensed by Insurance Regulatory IRDAI.

Over the years, the number of insurers, health policies sold, types of health products and the buyers
increased in considerable proportion. Ultimately, it got difficult to keep track of work which did not
result in quality services. Hence, IRDA came up with the Third-Party Administrators. Since then, a
TPA is held responsible for:

1. High quality consistent services.

2. Processing voluminous health insurance claims.

Relevance of TPA:

A Third-Party Administrator will take care of the hospital bills and other expenses. Every insurance
company appoints a TPA for your service. A TPA can either approve of a cashless claim settlement
or reimburse it later. But in no case of complaint or query, will the health policyholder directly
connect with the TPA.

For an insured, the connection will always be between them and the insurer only. To summarise we
can put it across that TPA is relevant to:

1. Share immense knowledge of healthcare services.

2. Improvise the quality of services.
3. Manage and Investigate the claims.
4. Observe the Cashless and Reimbursement TAT.

What is the Role of TPA in Health Insurance?

A TPA plays a vital role in the total processing of health insurance claims. In the practical world of
insurance, some of the jobs of a TPA may refer to the following kind:

Issue the Health Cards to the insured:

For every policy issued to the policyholder, a validation procedure is carried. It is accomplished by
issuing an authorized health card. This card holds the detail of the policy number and the TPA which
is held responsible for claims processing.

At the time of admission to the hospital, the insured can produce this card and intimate the
occurrence of the claim either to the insurer or TPA. It is one of the essential documents needed for
claim processing.

Smooth Claim Processing and Settlement:

A TPA is responsible to expedite the claim as soon as it is intimated by the insured. Their job is to
check all the documents submitted in favor of the claim. It can ask for as much information as is
needed to cross verify the details. The settlement of the claim will either be on cashless or on a
reimbursement basis.

Whichever be the case, a TPA will be liable to check for all documents. In the case of Cashless, the
TPA can collect the documents from the hospital. In other cases, the TPA can ask for the supporting
papers and bills from the policyholder.

Arrange for Value-Added Services:

Other than the claim processing and card issuance, a TPA also arranges for other services like
ambulance, well-being programs, and others.

Strengthens the Hospital Networks:

A very essential element to take the benefit of the health insurance policy is to have a TPA. It further
builds a strong network of hospitals where the policyholders can take the treatment. The TPA tries to
enlist the best hospitals that can quickly arrange for cashless and allows the negotiation of the rates.

How TPA helps Policyholders?

A TPA is an intermediary between the insurance company and the policyholder. Their job is to
simplify the claim procedure under health insurance policies. As we know there can be two kinds or
types of claim: a) Cashless and b) Reimbursement.

As soon as there arises the need for a medical or emergency treatment, the policyholder visits a
hospital. If the individual is asked for hospitalization for a minimum of 24 hours (for unless
otherwise listed diseases like cataract) a claim becomes admissible.

The policyholder, in this case, will intimate the TPA or the insurer about the admission and the need
for the treatment. The TPA will then ask the hospital to arrange for cashless facility, if possible.
Otherwise, the claim will be processed for reimbursement. After the treatment gets over, the hospital
will send all the bills to the TPA if cashless is approved. If not, then the policyholder will have to
submit the documents later.

The authorities at the TPA will scrutinize the bills and other documents post which the settlement of
the claim will be allowed. In case of cashless, the payment will be made to the hospital. But for the
reimbursement, the expenses will be received by the policyholder via the insurance company

Areas of conflict

There are mainly 2 areas of Conflict.

• Exclusion liability to meet claims relating to certain types of illness/Refusal to undertake risk
for known illness
• Right of renewal of a policy

All pre-existing disease & injuries when the cover is initiated will usually be regarded as excepted
categories of illness.

Some normal medical illnesses sometimes presumed as pre-existing

Satwant Kumar Sandhu v New India Assurance Company limited (2009) 8 SCC 316

• Appellant’s husband took a Mediclaim insurance policy

• Period of policy from 7th May, 1990 to 6th May, 1991
• Policyholder fell ill and hospitalized
• Admitted to hospital in September and Died on 26th December, 1990
• Appellant filed a claim for Rs.23,217.80 for reimbursement of the hospitalization expenses
• On 29th April, 1991, Insurance Company made inquiries from the hospital that treated the
policyholder
• Certificate, case of "Chronic Renal Failure/Diabetic Nephropathy“ also stated that the insured
was a known diabetic for the last 16 years.
• Insurer informed the appellant that her claim had been repudiated for non disclosure of
material facts on 30th August, 1993
• Arguments advanced against the Insurer-The policy was repudiated on 30th August, 1993 i.e.
almost 2 years and 8 months after the death of the deceased.
 • Held
• clear suppression of material facts by the insured- insurer repudiation of the claim upheld
• There is no dispute that Section 45 of the Insurance Act, 1938 (for short "the Act"), which
places restrictions on the right of the insurer to call in question a life insurance policy on the
ground of mis-statement after a particular period, has no application on facts at hand,
inasmuch as the said provision applies only in a case of life insurance policy.

Bijoy Kumar Chaturvedi v Insurance Company Ltd (2009) CPJ 316

Petitioner was the complainant before the District Forum. He had taken a medi-claim policy from the
respondent/opposite party which initially covered him and his father w.e.f. 12.11.1991. The policy
was renewed from time to time. On 10.11.1999, he further included the name of his mother and his
wife for insured sum of Rs. 50,000/- each. His mother,

However, fell ill on 13.12.1999 and he had to incur a huge expenditure on her treatment. He,
therefore, claimed the insured sum of Rs.50,000/- from the respondent/opposite party, which
however, was repudiated on the ground that the complainant had suppressed material fact with regard
to the existence of the disease prior to the inclusion of her name in the policy. The complaint,
therefore, was filed before the District Forum who vide order dated 14.6.2001 directed the
respondent/opposite party to pay Rs.51,659/- for the loss incurred by the petitioner/complainant for
the treatment of his mother and also to pay Rs.10,000/- by way of compensation for the mental agony
suffered by him.

Aggrieved upon the order passed by the District Forum, an appeal was filed by who vide their
detailed order dated 2.6.2005 have set aside the order passed by the District Forum and allowed the
appeal of the respondent/opposite party resulting in the dismissal of his complaint. Disappointed and
aggrieved by the dismissal of his complaint by the State Commission that the complainant has filed
this revision petition. So, the court held that Good faith is integral of a contract of insurance. The
State Commission, in our view has rightly concluded that it was a case of suppression of a pre-
existing disease.
Knowledge of illness

• Knowledge of illness is a question of fact & a matter of medical inference

• Deliberate suppression of illness -Nature of manifestation of illness- will give a clue eg.
• Kidney transplant was undergone in 28 days of the commencement of policy( Manju Bala v.
LIC of India 2008 CPJ 74)
• Strong ground to infer that there was material suppression of material facts
• Burden of proof of pre-existing illness is on the insurer
• Insurer has to prove that the pre-existing disease has a connection to the disease revealed
during the term of the policy for which the claim is sought

New India Assurance Co. Ltd v. Mary Jane Govias 2006 CPJ 228 (NC)

• assured suffered from dry cough

• treated for allergy- condition persisted- visited ENT- Laryngoscopy examination- which
showed nothing
• Referred to another – ENT surgeon- recommended biopsy
• Test was done on 1 Nov 1994- cancer diagnosed on 2 Nov 1994
• Test was done within 30 days from thecommencement of the policy
• Held- Assured did not know of cancer at the time of taking of the policy

Right of Renewal if illness contracted during previous period of policy

United Insurance Co. Ltd v. Manubhai Dharmasinhbhai Gajera 2008 10 SCC 404

• The insured approached the insurer (April 3, 2003) for renewal of the policy which was
refused on the ground of `high claim ratio’ in last three years
• Insured obtained the Mediclaim policy
• Renewed annually
• Underwent Angioplasty, claim paid by the appellant
• Underwent Angioplasty again, claim paid by the appellant
• Underwent a bye-pass surgery, claim not paid
• If renewal is based on mutual consent, there will be no automatic renewal. But they entitled
to be treated fairly
 • What was necessary is a pre-existing disease when the cover was inspected for the first time.
• Only because the insured had started suffering from a disease, the same would not mean that
the said disease shall be excluded.
• If the insured had made some claim in each year, the insurance company should not refuse to
renew insurance policies only for that reason
• If the assured had paid their premium- they were entitled to renewal the insurer could not
deny renewal only because a disease was contracted during the term of the policy and the
insured had availed its medical benefits

United India Insurance Company Ltd. V. Mohanlal Aggarwal, AIR (2004)

• The insurer cannot refuse to renew the policy on the ground that it has become onerous or
burdensome
• Refused only on grounds of misrepresentation, fraud/ non-disclosure of material facts that
existed at the inception of contract
• The Govt. insurance companies cannot arbitrarily cancel/refuse to renew

Health Insurance Plans

Individual health insurance plan

• Covers health expenses of an individual

• Surgical and hospitalization expenses
• Medical history, age etc. taken in to account in fixing the premium
• Indemnity based product

2. Family Floater health insurance plan

• Entire family covered

• Single Sum assured ( shared by all family members)
• Single premium payment on an annual basis
• Indemnity based product

3. Group Insurance

• Contract covering group of lives

 • Master policy issued- incorporating the contract between the insurance companies and a legal
entity i.e employer, association etc.
• Defining the group of lives to be covered, benefits, contributions & terms and conditions
• A minimum size of the group is generally imposed

[Link] Citizen Health Insurance

• age of 65 ( entry age limit) and above ( Life long renewability)

• premium is higher
• Cashless admission in hospitals, ambulance service, critical illness
• Pre-existing diseases likely to get covered after a fixed period of time

5. Critical illness cover

covers the expenses involved in treating the life- threatening diseases pay a lump sum amount to
insured person on the diagnosis of serious diseases covered in the policy document ( benefit based)
the diagnosis of the disease is enough to claim the benefits.

Insurance Ombudsman:

It is an is a Swedish word which literally means the right of individualsagainst public [Link]
India, a similar institution is created and called Lok Pal in theCenter and Lok Ayukta in theStates. An
ombudsman is defined as an office established bythe government to investigate andreport on
complaints made by citizens against publicauthorities.

In the context of insurance business, an Ombudsman will also take up matter relating toinsurance
companies, private or public companies that undertake insurance as their primebusiness. All
grievances relating to general and life insurance business, as complained bythe policyholders would
be subject matter of the ombudsman.

It is provided under Rule 5 that there should be a governing body of the Insurance Councilwhich
shall consist of one representative from each of the Insurance Companies and it shallappoint one or
more persons as Ombudsman who may be selected from a wider circleincluding those who have
experience or have been exposed to the industry, civil service,administration services etc, in addition
to those from the judicial service. Chairman of L.I.C of India shall act as the first chairman of the
governing body.

Appointment of insurance ombudsman:

Rule 6 provides that the governing body shall appoint one or more persons as Ombudsman,who shall
be appointed from a panel of experts nominated for that purpose by a committee.

The committee consists of:

(1) Chairman of Insurance Regulatory Authority-Chairman
(2) Two representatives of the Insurance council including one each from the Life Insurance
business and other from General Insurance business respectively- Member
(3) One representative of the Central Government- Member

Qualifications of Insurance Ombudsman:

(1) He should be of the rank of a High Court Judge, and/or

(2) He should have rich experience in the industry, civil service, administrative service,
(3) He should not be more than 65 years of age.

Term, Remuneration and Jurisdiction:

According to Rule 7 the term of office for an Ombudsman is 3 years, after which he is eligiblefor
reappointment. An Ombudsman can be removed from his office for gross misconduct.

The remuneration paid to an Ombudsman is at par with the remuneration payable to a HighCourt
Judge. In addition to the above salary, the other allowances and perquisites specifiedby the
Government of India from time to time are allowed.

The ombudsman appointed will have jurisdiction on both Life and General Insurance claims,and his
office shall be located at such place as may be specified by the Insurance Council fromtime to time
and the governing body shall specify his territorial jurisdiction and he may holdhis sittings in his area
for expeditious disposal of the cases.
An Ombudsman scheme has been set up in several centers in India, the centers having thescheme are
Delhi, Mumbai, Chennai, Calcutta, Lucknow, Hyderabad, Bhopal, Kanpur,Bhubaneswar, Bangalore
and Chandigarh.

Duties and Powers of Insurance Ombudsman:

(1) The ombudsman may ask the parties for necessary papers in support of the respectiveclaims of
the parties.
(2) He may also collect the factual information available with the insurer if necessary.
(3) He shall dispose of the complaint fast and equitably.
(4) He shall not pass an award giving any compensation in excess of the actual amount oflosses
suffered by the complainant by an insured peril subject to a limit of Rupees 20lakhs including ex-
gratia payments.
(5) The Ombudsman shall furnish a report every year to the Central Government containinga general
review of his activities.

The functions of the IRDAI are defined in Section 14 of the IRDAI Act, 1999:
• Issuing, renewing, modifying, withdrawing, suspending or cancelling registrations
• Protecting policyholder interests
• Specifying qualifications, the code of conduct and training for intermediaries and agents
• Specifying the code of conduct for surveyors and loss assessors
• Promoting efficiency in the conduct of insurance businesses
• Promoting and regulating professional organisations connected with the insurance and re-
insurance industry
• Levying fees and other charges
• Inspecting and investigating insurers, intermediaries and other relevant organisations
• Regulating rates, advantages, terms and conditions which may be offered by insurers not
covered by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4
of 1938)
• Specifying how books should be kept
• Regulating company investment of funds
• Regulating a margin of solvency
• Adjudicating disputes between insurers and intermediaries or insurance intermediaries
• Supervising the Tariff Advisory Committee
 • Specifying the percentage of premium income to finance schemes for promoting and
regulating professional organisations
• Specifying the percentage of life- and general-insurance business undertaken in the rural or
social sector
• Specifying the form and the manner in which books of accounts shall be maintained, and
statement of accounts shall be rendered by insurers and other insurer intermediaries.

Composition:
Section 4 of the IRDAI Act 1999 specifies the authority's composition. It is a ten-member body
consisting of a chairman, five full-time and four part-time members appointed by the government of
India.