INSURANCE LAW

Unit III
 Nature and Scope of Life Insurance
◦ Contract in which the insurer, in consideration of a certain premium, either in
lump sum or other periodical payments, in return agrees to pay the assured, or to
the person for whose benefit the policy is taken, a stated sum of money on the
happening of a particular event contingent on human life
◦ Contract relating to human life
◦ Need not be express provision that payment is due on the death of the person
◦ Contract provides for payment of lump sum money
◦ Amount is paid at expiration of certain period or on death of person
◦ Promotes economic wellbeing, promotion of industry, social security-Forms
capital, saves from worry, encourages medical examination, care of dependents,
own maintenance if survives, security for loan
 Life insurance Compared with Other
Classes of Insurance
◦ Subject matter is human life which is invaluable in terms of money
◦ Event insured against, i.e. death, certain event-in fire and marine insurance, event may not
happen at all
◦ Sum assured payable in full without proof of loss, not a contract of indemnity in the strict
sense-in fire and marine insurance can’t recover more than loss suffered subject to
maximum of insured amount
◦ Insurable interest only at time of contract-in fire and marine insurance at time of loss
◦ Policy can’t be avoided on grounds of over valuation since insurable interest can’t be
measured valued in terms of money-in fire and marine insurance insurable interest can be
valued monetarily so policy can become void as a wager when there is gross over-valuation
◦ Life insurance contract is for whole life or sufficiently long duration with provision if
premium is not paid timely it will lapse-fire and marine insurance are short term contracts ,
which can be renewed for an extended period
 Types of Life Insurance
◦ Whole Life-Fixed premium throughout life, policy payable on death, for benefit of family
◦ Endowment-Fixed premium till particular age, amount payable to assured at end of
stipulated time, but if dies before payable to legal representative, assignee or nominee so
for own benefit in old age or for family’s benefit
Child’s endowment-proposer holding policy in trust for the child
◦ Annuity-Insurer pays fixed sum as annuity by monthly payment either on expiry of a
specified period or earlier if assured dies, resembles pension/family pension
◦ Term-Amount payable only if assured dies before certain period or age, right to continue
from term to term, ascending scale premium, can be converted to whole life, usually for
collateral security for loan
◦ Joint-Life-Husband and wife, money under policy payable on death of either or last
survival/contingent survivorship
◦ Advance-Payment of lump sum to assured in consideration of his agreeing to pay
premiums for a specified period/life, resembles loan
◦ Group-Insurance of life of group pf persons , e.g employees under same employer
 The Policy
◦ Schedule contains:
1. Date-When executed/becomes operative
2. Parties-Names
3. Preamble/Recitals-Circumstances under which executed, object, e.g. wheraes proposal for
assurance has been made
4. Operative Clause or Consideration- if premium mentioned in schedule is paid, company will pay
sum assured within one month of receiving satisfactory evidence as to the happening of event
5. Covenants of Title/Conditions-right to convey, proof of age etc.
6. Schedule/Parcels: Benefits(Sum insured)/Payables(dates, renewal premium etc.)
7. Execution: Company to affix seal and execute as per procedure
8. Attestation of Signatures
◦ Delivery-Must be delivered to be operative
◦ Simple and ordinary wording
◦ Standard form, no alterations by insured-policy document prepared to express the terms of the
contract
Formation of the Contract
◦ S. 10 of Indian Contract Act, 1872- All agreements are contracts if they are made by
the free consent of parties competent to contract, for a lawful consideration and
with a lawful object, and are not hereby expressly declared to be void.
◦ Agreement –proposal made by assured, accepted by insurer
◦ Competence of Parties-Minor can enter through guardian
◦ Free consent-no coercion, undue influence, fraud , misrepresentation, mistake
◦ Benarasi Devi v. New India Assurance Co.
◦ Omission/misrepresentation by agent
◦ Consideration-premium
◦ Lawful object
 Event insured against
◦ Death of life insured-accident/disease/act of third party
Manager, United India Assurance Co. Ltd. v. Ummadi Shakunthala
◦ Ex turpi causa non oritur action-no cause of action arises from a wrong
◦ Therefore two exceptions:
1. Death caused due to violation of criminal law by assured himself
Amicable Insurance Society v. Bolland-assured sentenced to death for murder-claim debarred
2. Death due to suicide(felo de se)
Where person is insane-no culpability
England: insurer is absolved of liability
Beresford v. Royal Insurance Co.(1935)-Insured in 1935-void on death by own hand whether sane or insane
within one year-died in 1934 by suicide hopelessly indebted-trial court allowed claim based on policy terms,
court of appeal set aside on public policy grounds
Exception on bonafide assignment for consideration-City Bank v. Sovereign Assurance Co.
Not followed in Northern India Assurance Co. v. Kanhaya Lal-policy unenforceable if own death caused
before one year-after one year assigned in favour of son-10 months later committed suicide in possession of
senses-insurers held liable per policy since suicide is not a crime
IRDAI notification in 2019 applies to policies on or after January 1, 2024
Circumstances Affecting Risk
◦ Facts that tend to shorten lifespan of assured-also regarded as material facts for the
purposes of duty of disclosure
◦ Age-usually proved when policy issued, insurer would endorse based on documents
submitted by assured
If not proved-Section 45 of Insurance Act, 1938-can be called to prove anytime-sum
assured adjusted or premium increased
◦ Family History
Asia Assurance Company v. Kartiya Devi-No.. of brothers and sisters and how many alive-
second left blank-policy set aside for misrepresentation
Personal Health-alcohol, tobacco etc-earlier illness
◦ Geographical position-Huguenin v. Riley-wrong residential address so insurer not liable
◦ Occupation-Some are high risk, increased premium
Amounts Recoverable Under
Policy
◦ Amount insured
◦ Bonus, if declared by the company
◦ Surrender value, where policy lapses: Annapurnabai v. Hindustan Cooperative
Insurance Co.-automatic extension-surrender value adjusted towards premium-suit
for recovery of surrender value allowed-amount can be recovered as loan
 Persons entitled to payment
◦ Payee-Person whose name is in benefits schedule
◦ Assured himself-In case of insurance on own life
◦ Executors and administrators-Broad term, even legal heir
◦ Joint family members?-Modern notion that policy amount is sperate policy and coparceners have right to account
for premiums paid by joint family funds: Subbarao v. Lakshminarasamma
◦ Assignee-If assignment is valid under Section 38 of Insurance Act: Must be present transfer, no condition
precedent: Dinabhai v. Bomanshaji: I assign the policy to my wife provided that she survives me
◦ Nominee- Person who is named in proposal form as person for whose benefit policy is effected-third party
◦ S. 39 of Insurance Act, 1938
Only has power to collect, no title,holds in trust for legal heirs
Nominee only receiver and discharges insurer’s liability, to hold funds in trust: Challama v. Tillaga
LIC v. Niramala Adi Reddy-nominee mother, wife and children claimed, LIC refused, SC ordered LIC to pay share and
costs
Sabita Devi v. Usha Devi-nominee wife claimed absolute right to sum assured, to exclusion of son and mother of
deceased insured-SC dismissed claim and held S. 39 can’t alter succession law
Nomination in favour of wife-S. 6 Married Women’s Property Act,1874-has to be made at time of policy, can’t go to
relatives, creditors
Krishnanchettiyar v. Velayu Ammal-Policy, proposal, entire transaction
Krishnamurthy v. Anjayya- ‘for mainetnace of family’, attached for debt
Settlement of Claims and Payment of Money
◦ Insured entitled to enforce policy and insurer becomes liable to pay amount secured by policy when the event
insured against happens i.e. death of assured or maturity of the policy
◦ Claim by maturity -Well in advance of maturity, insurer sends intimation along with requirements to be
satisfied to receive payment under the policy
Following documents are usually required-
1. Discharge form, signed, attested by two witnesses and revenue stamp affixed
2. Original policy document
3. Proof of age, if not endorsed on the policy
4. Proof of assignment/ reassignment
5. ID and address proof
6. Bank details e.g. cancelled cheque
◦ Claim on death-
1. Claim form – Claimant’s Statement giving details of the deceased and the claimant.
2. Certified extract from Death Register
3. Documentary proof of age, if age is not admitted
4. Evidence of title to the deceased’s estate if the policy is not nominated, assigned or issued under M.W.P.
Act.
5. Original Policy Document
 Cont.
◦ Additional documents:
1. Medical Attendant’s Certificate.
2. Certificate of Identity and burial or cremation to be completed and signed by a person of
known character and responsibility
3. Certified copies of the First Information Report, the Post-mortem report and Police
Investigation Report if death was due to accident or unnatural cause
4. Certificate by Employer if the assured was employed person.

◦ History of the policy seen

◦ Payment into court- S. 47 of the Insurance Act-insufficient proof or conflicting claims or

any other sufficient reason (only applicable to life insurance)

◦ On unreasonable delay in payment of claim, claimant can demand interest from

insurer(Oriental Got Security Life Asurance Co. Ltd. v. Vanteddu Ammiraju-if payment not
made on submission of succession certificate, company is guilty of wrongful detention, liable
to pay interest for failure of prompt payment
 Life Insurance Corporation Act,1956
◦ LIC is statutory corporation owned by the Government of India, instrumentality of the state
under Art. 12
◦ To be operated for benefit and welfare of society
◦ S. 3- Establishment
◦ S. 5- Capital
◦ S. 30- Corporation to have the exclusive privilege of carrying on life insurance business
◦ S. 7- Transfer of assets and liabilities of existing insurers carrying on controlled business
◦ S. 2(3)-Definition of controlled business
◦ S. 9. General effect of vesting of controlled business.
◦ S. 15. Right of Corporation to seek relief in respect of certain transactions of the insurer
◦ S. 16. Compensation for acquisition of controlled business
◦ S. 30A-Exlusive privilege of LIC to cease(inserted by IRDA Act, Schedule 2)
General Insurance Business (Nationalisation) Act, 1972
◦ The entire general insurance business in India was nationalized by General Insurance Business (Nationalisation) Act, 1972
◦ The Government of India took over the shares of 55 Indian insurance companies and the undertakings of 52 foreign insurers
carrying on general insurance business.
◦ General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of the Act. It was incorporated on 22
November 1972 under the Companies Act, 1956 as a private company limited by shares.
◦ GIC was formed for the purpose of superintending, controlling and carrying on the business of general insurance. As
soon as GIC was formed, GOI transferred all the shares it held of the general insurance companies to GIC.
Simultaneously, the nationalized undertakings were transferred to Indian insurance companies.
◦ After a process of mergers among Indian insurance companies, four companies were left as fully owned subsidiary companies of
GIC
1. National Insurance Company Limited.
2. The New India Assurance Company Limited.
3. The Oriental Insurance Company Limited.
4. United India Insurance Company Limited.
◦ On 19th April 2000, when the Insurance Regulatory and Development Authority Act, 1999 (IRDAA) came into force, it
amended the Act and removed the exclusive privilege of GIC and its subsidiaries carrying on general insurance in
India.
◦ In November 2000, GIC was renotified as the Indian Reinsurer and through administrative instruction, its
supervisory role over the four subsidiaries was ended.
◦ With the General Insurance Business (Nationalisation) Amendment Act 2002 (40 of 2002) coming into force from March 21, 2003;
GIC ceased to be a holding company of its subsidiaries.
◦ The ownership of the four erstwhile subsidiary companies and also of the General Insurance Corporation of India
was vested with Government of India.
 Relevant Sections
◦ Section 2. Declaration as to the policy of the State.—Art. 39 (c)
◦ Section 9. Formation of General Insurance Corporation of India-Central Government shall form a Government company
in accordance with the Companies Act for the purpose of superintending, controlling and carrying on the business of general
insurance:
Provided from the commencement of the General Insurance Business (Nationalisation)Amendment Act, 2002, words
“superintending, controlling and carrying on the business of general insurance”, the words “carrying on re-insurance business”
Section 4. Transfer of shares of Indian insurance companies.—January 1, 1973, capital of every Indian insurance
company transferred to and vested in the Central Government free of all trusts, liabilities and encumbrances
◦ Section 5-Transfer of undertaking of foreign insurers to Central Govt.
◦ Section 6- Effect of transfer-all rights, contracts legal proceedings transferred to Indian insurance companies
◦ Section 10. Transfer to Corporation of shares vested in Central Government.—All the shares in the capital of every
Indian insurance company which stand transferred to and vested in the Central Government by Section 4, transferred to and
vested in the Corporation
◦ Section 10A. Transfer to Central Government of shares vested in Corporation.—All the shares in the capital of the
acquiring companies, being—
(a) the National Insurance Company Limited;
(b) the New India Assurance Company Limited;
(c) the Oriental Insurance Company Limited;
(d) the United India Insurance Company Limited,
vested in the Corporation before the commencement of the General Insurance Business (Nationalisation) Amendment Act,
2002 shall stand transferred to the Central Government.
 Relevant Provisions(Cont.)

◦ Section 11. Amounts to be paid for transfer and vesting of shares or undertakings.— For the
transfer of the shares of each Indian insurance company to, and vesting in, the Central Government,
under section 4, there shall be paid by the Central Government to the Corporation, for distribution to
the shareholders of each such company an amount specified
◦ Section18. Functions of Corporation.-Carrying out general insurance business, issuing directions to
acquiring companies, aiding and advising them on standards, expenses and investments
Provided that all the functions of the Corporation specified from the commencement of the General
Insurance Business (Nationalisation) Amendment Act, 2002, shall be performed by the Central
Government.
◦ Section 19. Functions of acquiring companies-to carry on general insurance business, to
advantage of community, follow directions, enter into reinsurance treaties for protection of interests
◦ Section 24. Acquiring companies to have the exclusive privilege of carrying on general
insurance Business, any certificate of registration granted under the Insurance Act to any insurer
other than an insurer referred to in sub-section (1) shall, on and from the appointed day, cease to have
effect:
◦ Section 24A- Exclusive privilege of Corporation and acquiring companies to cease from the
commencement of the Insurance Regulatory and Development Authority Act, 1999 and the
Corporation and the acquiring companies shall, thereafter, carry on general insurance business in India
in accordance with the provisions of the Insurance Act, 1938 (4 of 1938):]
Health Insurance
◦ Section 2 (6C) of Insurance Act, 1938 defines Health Insurance Business as under: "health
insurance business" means the effecting of contracts which provide for sickness benefits or
medical, surgical or hospital expense benefits, whether in-patient or out-patient travel cover and
personal accident cover “
◦ What a Health Insurance policy would normally cover
a) Room, Boarding expenses
b) Nursing expenses
c) Fees of surgeon, anesthetist, physician, consultants, specialists
d) Anesthesia, blood, oxygen, operation theatre charges, surgical appliances, medicines, drugs,
diagnostic materials, X-ray, Dialysis, chemotherapy, Radio therapy, cost of pace maker, Artificial
limbs, cost or organs and similar expenses.
◦ Sum Insured
The Sum Insured offered may be on an individual basis or on floater basis for the family as a whole.
• Cumulative Bonus ( CB) policies may offer Cumulative Bonus wherein for every claim free year,
the Sum Insured is increased by a certain percentage at the time of renewal subject to a maximum
percentage (generally 50%). In case of a claim, CB will be reduced by 10% at the next renewal.
Cont.
◦ Cashless facility- Insurance companies have tie-up arrangements with a network of hospitals in the
country. If policyholder takes treatment in any of the net work hospitals, there is no need for the
insured person to pay hospital bills. The Insurance Company, through its Third Party Administrator
(TPA) will arrange direct payment to the Hospital. Expenses beyond sub limits prescribed by the
policy or items not covered under the policy have to be settled by the insured direct to the Hospital.
◦ Additional Benefits and other stand alone policies- Insurance companies offer various other benefits
as “Add-ons” or riders. There are also stand alone policies that are designed to give benefits like
“Critical Illness Benefits”, “Surgical Expense Benefits” etc. These policies can either be taken
separately or in addition to the hospitalization policy. There are Top Up policies to meet the actual
expenses over and above the limit available in the basic health policy
◦ Exclusions- The following are generally excluded under health policies:
a) All pre-existing diseases (the pre-existing disease exclusion is uniformly defined by all non- life
and health insurance companies)
b) Under first year policy, any claim during the first 30 days from date of cover, for sickness /
disease. This is not applicable for accidental injury claims.
Cont.
◦ As part of Guidelines on Standardization, IRDAI has defined Pre-Existing Diseases at Clause
33 of Chapter I of Guidelines on Standardization in Health Insurance under Sec 1 of IRDAI
Master Circular ref IRDAI/HLT/REG/CIR/193/07/2020 dated 22.07.2020:
Pre-existing Disease means any condition, ailment, injury or disease:
a) That is/are diagnosed by a physician within 48 months prior to the effective date of the
policy issued by the insurer or its reinstatement or
b) For which medical advice or treatment was recommended by, or received from, a
physician within 48 months prior to the effective date of the policy issued by the insurer or
its reinstatement.
◦ Where a pre-existing disease(s) is disclosed and a health insurance policy is granted, such
pre-existing disease(s) shall be covered after a waiting period as specified in the policy,
which at the maximum shall not be exceeding 48 months.
◦ Certain existing diseases disclosed by the prospect are allowed to be permanently excluded.
◦ Age limit removed w.e.f. April 1, 2024
Motor Vehicle Insurance
◦ Coverage: Own damage, personal accident, third party liability-comprehensive
cover
◦ General conditions: maintenance of vehicle, reasonable precautions to avoid
accident/ protect from damages, adherence to law
◦ No fault liability-Sections (140-144) of Motor Vehicles Act,1988
◦ S. 140-extent of liability
◦ S. 141-additional remedies
◦ S. 142-meaning of permanent disablement
 Compulsory insurance
◦ Section 146 -Necessity for insurance against third party risks, penalty under Section 196
◦ Pandurang v. New India Assurance Co.-Tata Electric Locomotive Factory-private place to which public
have permissive access
◦ 147. Requirements of policies and limits of liability.
◦ 149. Duty of insurers to satisfy judgments and awards against persons insured in respect of third party
◦ risks.
◦ 150. Rights of third parties against insurers on insolvency of the insured.
◦ 151. Duty to give information as to insurance.
◦ 154. Insolvency of insured persons not to affect liability of insured or claims by third parties.
◦ 155. Effect of death on certain causes of action.
◦ 156. Effect of certificate of insurance.
◦ 157. Transfer of certificate of insurance.
◦ 160. Duty to furnish particulars of vehicle involved in accident.
◦ Hit and run accident-S. 161-163

.
Motor Accident Claims Tribunal
◦ Sections 166-176
◦ 165. Claims Tribunals.
◦ 166. Application for compensation.
◦ 168. Award of the Claims Tribunal.
◦ 169. Procedure and powers of Claims Tribunals.
◦ 173. Appeals.
◦ 174. Recovery of money from insurer as arrear of land revenue. 175. Bar on
jurisdiction of Civil Court