Causa Proxima

It is a rule of law that in actions on fire policies, full regard must be had to the causa
proxima. If the proximate cause of the loss is fire, the loss is recoverable. If the cause is
not fire but some other cause remotely connected with fire, it is not recoverable, unless
specifically provided for. Fire risks do not cover damage by explosion, unless the
explosion causes actual ignition, which spreads into fire. The cause of the fire is
immaterial, unless it was the deliberate act of the insured.
Steps to be taken in fire insurance claims
i. It is the duty of the insured, or any other person on his behalf, to give
immediate notice of fire to the insurance company so that they can
safeguard their interest, such as, deal with the salvage, judge the cause
and nature of fire and assess the extent of loss caused by the fire.
ii. Failure to give notice may avoid the policy altogether.
iii. The insured is further required by the terms of the policy, to furnish within
the specified time, full particulars of the extent of loss or damage, proof of
the value of the property and if it is completely destroyed, proof of its
existence.
iv. Delivery of all these details to the company is a condition precedent to the
claim of the assured to recover the loss. If the assured prefers a fraudulent
claim, whether for whole or part of the policy, he would forfeit all benefits
under the policy, whether or not there is a condition to this effect in the
policy. Generally, the fraud consists in over -valuation, but over-valuation
due to mistake is not fraudulent. In a majority of fire insurance claims, the
expert assessors of the company are able to arrive at mutually acceptable
valuation.

Essentials of an Insurance Contract

Utmost Good Faith

An insurance contract is known as a contract of 'Uberrimate Fidel' or a contract based

on 'utmost good faith'. It means both the parties must disclose all material facts. Any
fact is material which goes to the root of the contract of insurance and has a bearing on
the risk involved. It is only when the insurer knows the whole truth that he is in a position
to judge:- (i) whether he should accept the risk, and (ii) what premium he should charge.
Concealment of any fact will entitle the insurer to deprive the assured of benefits of the
contract. Also,as insurance shifts risk from one party to another, it is essential that there
must be utmost good faith and mutual confidence between the insured and the insurer.
Indemnity

A contract of insurance is a contract of 'indemnity'. It means that the insured, in case of

loss against which the policy has been issued, shall be paid the actual amount of loss
not exceeding the amount of the policy, i.e. he shall be fully indemnified. The object of
every contract of insurance is to place the insured in the same financial position, as
nearly as possible, after the loss, as if the loss has not taken place at all. This is
applicable to all types of insurance except life, personal accident and sickness
insurance. A contract of insurance does not remain a contract of indemnity if a fixed
amount is paid by the insurer to the insured on the happening of the event against,
whether he suffers a loss or not. Like, in case of life insurance, the insurer is liable to
pay the sum mentioned in the policy on the death, or expiry of a certain period.

Insurable interest

It means that the insured must have an actual interest in the subject matter of
insurance. A contract of insurance effected without insurable interest is void. A person is
said to have an insurable interest in the subject matter if he is benefited by its existence
and is prejudiced by its destruction. For example:- a person has insurable interest in the
building he owns; employer can insure the lives of his employees because of his
pecuniary interest in them; a businessman has insurable interest in his stock, plant and
machinery, building, etc. So, all these people have something at stake and all of them
have insurable interest. It is the existence of insurable interest in a contract of insurance
which distinguishes it from a mere wagering agreement.

In case of life insurance,insurable interest must be present at the time when the
insurance is affected. It is not necessary that the assured should have insurable interest
at the time of maturity also. In case of fire insurance, insurable interest must be present
both at the time of insurance and at the time of loss. In case of marine insurance,
interest must be present at the time of loss. It may or may not be present at the time of
insurance.

Cause Proxima

The rule of 'causa proxima' means that the cause of the loss must be proximate or
immediate and not remote. If the proximate cause of the loss is a peril insured against,
the insured can recover. When a loss has been brought about by two or more causes,
the real or the nearest cause shall be the causa proxima, although the result could not
have happened without the remote cause. But, if the loss is brought about by any cause
attributable to the misconduct of the insured, the insurer is liable.

Risk

In a contract of insurance the insurer undertakes to protect the insured from a specified
loss and the insurer receives a premium for running the risk of such loss. Thus, risk
must attach to a policy.

Mitigation of loss

In the event of some mishap to the insured property, the insured must take all
necessary steps to mitigate or minimise the losses, just as any prudent person would do
in those of loss attributable to his negligence . But it must be remembered that though
the insured is bound to do his best for his insurer, he is, not bound to do so at the risk of
his life.

Subrogation

The doctrine of subrogation is a corollary to the principle of indemnity and applies only
to fire and marine insurances. According to it, when an insured has received full
indemnity in respect of his loss, all rights and remedies which he has against third
person, will pass on to the insurer and will be exercised for his benefit until he(The
insurer) recoups the amount he has paid under the policy. The insurer's right of
subrogation arises only when he has paid for the loss for which he is liable under the
policy and this right extends only to the rights and remedies available to the insured in
respect of the thing to which the contract of insurance relates.

Contribution

when there are two or more insurances on one risk, the principle of contribution comes
into play. The aim of contribution is to distribute the actual amount of loss among the
different insurers who are liable for the same risk under different policies in respect of
the same subject matter. Any one insurer may pay to the insured the full amount of the
loss covered by the policy and then become entitled to contribution from his co-insurers
in proportion to the amount which each has undertaken to pay in case of the loss of the
same subject matter. In other words, the right of contribution arises when:-

 There are different policies which relate to the same subject matter.

 The policies cover the same peril which caused the loss.

 All the policies are in force at the time of the loss.

 One of the insurers has paid to the insured more than his share of the loss.
MEANING OF INSURANCE;
“ Insurance is a contract in which one party , known as the insured or assured , insures
with another person, known as the insurer , assures or underwriter, his property of life or
the life of another person in whom he has a pecuniary interest, or property in which he
is interested , or against some risk or liability, by paying a sum of money as a premium.
Under the contract, the insurer agrees to indemnify the insured against a loss which
may accrue to the other on the happening of some event.
The instrument or the contract is called Policy of Insurance.
GENERAL PRINCIPLES OF INSURANCE; Some of the principles of insurance are;
INDEMNITY; A contract of insurance is a type of contract of indemnity ( except in the
case of life and personal accident insurance) in which an insurer contract with the
insured to mitigate any monitory loss held to the insured on happening of some event as
mentioned in the contract.
It is necessary that some monitory or pecuniary loss happen to the insured due to
happening of some event.
The insured is not permitted to make profit from the insurance. Suppose Mr. X taken a
policy to insure his car against theft and accident of Rs. 1, 00,000. He got the accident
and damage cost is of Rs. 10000. Then the insurance company will allow his claim up to
Rs. 10000 only. In case his car has been stolen then they may claim maximum claim of
Rs. 100000 in case of total loss.
GOOD FAITH; The contract of insurance must me on good faith. The insured is of the
obligation to declare full and true disclosure of facts to the insurer. The insurance
company on the facts declared by the insured will decide the type of insurance and the
liability and as well as the premium. So the true disclosure of all facts is necessary. The
insurance company may declare any contract as void, if later found that the facts
declared by the insured are not true.
So all contracts of insurance are the contracts “ Uberrimae fidei”, i.e., the contracts of
utmost good faith and therefore non disclosure of a material fact entitles other party to
avoid the contract.
Note: a new material fact , which is not material at the time of entering into the
contract but later it became material during the course of time on the basis of
which the insurer may declare the contract void or not ready to renew the
contract , should be declare by the insured to the insurer as soon as he came to
know the fact.
Any material facts comes in the knowledge of the insured subsequently need not to be
disclosed.
INSURABLE INTEREST; it is some monitory or pecuniary interest. A person is said to
have an insurable interest when he is so situated with regard to thing insured that he
would have benefit from its existence and loss from its destruction.
The insured must has insurable interest in every contract of insurance with respect of
any object or life.
A factory owner has insurable interest in the factory or if a person has a car has
insurable interest in the car. Suppose Mr. A has car and the car cannot insured by Mr.
B, since Mr. B has no insurable interest in Mr. A’s car.
The insurable interest of a husband will be in the life of his own and his wife or wife has
insurable interest in the life of her own or his husband in case of life insurance policies.
The insurable interest must be pecuniary interest.
CAUSA PROXIMA; i.e. the “proximate cause” this is applicable in case of marine and
fire insurance. In these cases when damage has resulted due to two or more causes,
we have to look to the proximate or the nearest cause of damage, although the damage
might have not been taken without remote cause. In the case of loss the proximate
cause should be considered not the remote cause. If the cause of the loss is the peril as
mentioned in the contract then the insured will get the claim otherwise not.
As held in case of Pink v. Fleming (1899) 25 QBD 396, lord Esher observed, “The
question, which is the cause proxima of a loss, can only arise where there has
been a succession of causes. When a result has been brought by two causes,
you must, in insurance law, look to the nearest cause; although the result would
no doubt not have happen without the remote cause. In the above case the ship
collided with another ship, resulting in delay and mishandling of cargo of oranges
which deterioted. It was held that the deteriotion of oranges was not due to
collision of ships (peril insured) but that was due to mishandling and improper
storage.
MITIGATION OF LOSS; it is an important principal of insurance, that in case of peril or
accident the insured must try his best to save insured interest in the property or life.
That he must take all measures to minimise the loss that he would have taken if the
property were uninsured.
RISK MUST ATTACH; the risk must attached i.e. the insurer receives the premium in a
contract of insurance for running a certain risk. If the risk is not run or not continuous on
the business or the property of the insured then the premium received by the insurer
should be returned.
SUBROGATION: it applies in case of fire and marine policies Subrogation is a right of
the insurers to enforce for their own benefit all the rights and remedies which the
insured posses against third parties in respect of subject matter. Subrogation is thus the
substitution of one person in place of another in relation to the claim, its rights, remedies
or securities.
Suppose two ships were insured and belong to Mr. X and Mr. Y, they have collided and
Mr. X received insurance claim from insurance company. Now in this case insurance
company may sue Mr. Y for negligence and claim for damages.
CONTRIBUTION: Where a particular property is insured with two or more insurers
against the same risk, it is called “double insurance”. In the event of loss, the insured
will get compensation only for the amount of actual loss. He will compensated by the
concerned companies on the basis of “principal of contribution”. The insurers must
share the claim to the extent sum insured with them. If in this case whole loss is paid by
one insurer then it is entitled to demand contribution from other insurers.
Note: in this case it is necessary that the different insurers insure the same
interest, in respect of the same property and the same peril.

What is Insurable Interest?

You have an insurable interest in something if you would suffer some kind of loss if that
person or property were to be lost or damaged. Furthermore, you would benefit
financially from that person or property's continued existence. For this reason, it would
make sense for you to purchase insurance on it so you can continue to receive those
benefits.

What is Insurable Interest in Life Insurance?

You can't take a life insurance policy out on just anyone. In order to purchase a policy,
“insurable interest” must exist. In the case of a life insurance policy, the owner of the
policy must always have an insurable interest in the life of the insured. Also, if the owner
of the policy is not the beneficiary then the beneficiary named in the contract would also
need an insurable interest in the insured person.
Insurable interest is present in life insurance when an individual receives a financial or
another type of benefit from the continued existence of the person insured. Thus, if the
person insured were to pass away, the surviving person would experience a financial
loss or other hardship.
For example, say you wanted to buy a life insurance policy on person A (Bob) and
name the beneficiary person B (Sam). In this example, both you and Sam would need
to have an insurable interest in the life of Bob to purchase the policy.

How to Prove Insurable Interest

In life insurance, proof of insurable interest is required during the application and
purchase of a policy. Life insurance is a tool used to make you whole again following
 the financial loss of someone. In theory, some people would be tempted to purchase a
life insurance policy on a random person to receive profits if that person were to die.
This is why the principle of insurable interest was created to ensure that life insurance
was used properly.
Insurable interest is a nonnegotiable aspect of life insurance policies and without an
insurable interest, the policy can be void or denied. It is also the duty of the policy owner
to prove that they have an insurable interest in the insured party. Proof must be
presented at application along with at the end of the policy when the insured has
passed away.
To confirm that an insurable interest is present, a life insurance company will usually
talk to the policy owner, beneficiary and insured. They will investigate the relationship to
the proposed insured and evaluate if there is an insurable interest. If an insurable
interest is not found, the policy would be denied at the application or the death benefit
would not be paid out.

When Does Insurable Interest Exist in a Life Insurance Policy?

You are always considered to have an insurable interest in your own life and, therefore,
you can purchase life insurance on yourself. In this case, you would be the policyholder
and the insured. Furthermore, the beneficiaries of the policy would not need to prove an
insurable interest in you, as it is presumed that you would name beneficiaries who want
you to live a long and healthy life.
Insurable interest also extends to your direct dependents and relationships of blood and
marriage. This can include:

 Husbands and wives

 Children (including adoption)
 Grandparents and grandchildren
 Brothers and sisters
Above are all examples of direct blood relationships where insurable interest is always
present. Insurable interest can also exist in business and creditor-debtor relationships.
Business relationships create an insurable interest if you have a financial dependency
on the existence of the insured. For example, say you start a business and hire Alex to
run it. In this case, you would have an insurable interest in the life of Alex, because if he
were to pass away you would experience a loss of profits for your business. This is
known as business life insurance and is a common practice. Often, corporations take
out key man life insurance on their officers, while business partners can purchase life
insurance contracts on each other.
Creditors and credit companies are allowed to take out life insurance policies on their
debtors. In this case, with consent from the debtor, the company could take out a life
insurance policy equal to the amount owed.
 When Does Insurable Interest Not Exist?
Insurable interest generally is present in blood relationship but would not exist in the
following scenarios unless there is proof of financial dependence:

 Aunts and uncles

 Cousins
 Nieces and nephews
 Stepchildren and stepparents
Say, for example, you have an elderly neighbor who is 90 years old. You consider
taking out a life insurance policy on your neighbor as she does not have many more
years to live. This would not be a situation where an insurable interest would be
present, as you would not suffer a financial loss from the death of your neighbor.

Can I buy Life Insurance on my Parents without their Consent?

You may decide to buy life insurance for an aging parent, as there can be many costs if
that parent were to pass away. It is possible to purchase life insurance on a parent, but
the parent must consent to sign off on the purchase of the policy in writing.
For example, funeral services cost approximately $8,000, on average. If you do not
have this much money in savings, you could use life insurance as a way to fund an
expensive but necessary cost like this.

Can I buy Life Insurance on my Child's Mother or Father?

As long as you can demonstrate and prove that you have an insurable interest in the
other person, such as an ex-spouse or co-parent, then you would be able to purchase a
life insurance policy on them. This would require that you demonstrate that the loss of
that person would impose financial hardships on you or your child. For instance, if your
child's father, whom you're divorced from, died, you might experience a lack of future
child-support or alimony payments. This could constitute an insurable interest, so you
could purchase a life insurance policy, in which you are the beneficiary and your ex-
husband is the insured.

1. Benefits of Life Insurance

1. Risk Coverage: Insurance provides risk coverage to the insured family in form of
monetary compensation in lieu of premium paid.
2. Difference plans for different uses: Insurance companies offer a different type of
plan to the insured depending on his need for insurance. More benefits come with the
more premium.
3. Cover for Health Expenses: These policies also cover hospitalization expenses and
critical illness treatment.
4. Promotes Savings/ Helps in Wealth creation: Insurance policies also come with
the saving plan i.e. they invest your money in profitable ventures.
5. Guaranteed Income: Insurance policies come with the guaranteed sum assured
amount which is payable on happening of the event.
6. Loan Facility: Insurance companies provide the option to the insured that they can
borrow a certain sum of amount. This option is available on selected policies only.
7. Tax Benefits: Insurance premium is tax deductible under section 80C of the income
tax Act, 1961.

2. Types of Life Insurance Policies

1. Term insurance plan
As the name says Term insurance plan are those plan that is purchased for a fixed
period of time, say 10, 20 or 30 years. As these policies don’t carry any cash value their
policies do not carry any maturity benefits, hence their policies are cheaper as
compared to other policies. This policy turns beneficial only on the occurrence of the
event.
2. Endowment policy
The only difference between the term insurance plan and the endowment policy is that
endowment policy comes with the extra benefit that the policyholder will receive a lump
sum amount in case if he survives until the date of maturity. Rest details of term policy
are same and also applicable to an endowment policy.
3. Unit Linked Insurance Plan
These plans offer policyholder to build wealth in addition to life security. Premium paid
into this policy is bifurcated into two parts, one for the purpose of Life insurance and
another for the purpose of building wealth. This plan offers to partially withdraw the
amount.
4. Money Back Policy
This policy is similar to endowment policy, the only difference is that this policy provides
many survival benefits which are allotted proportionately over the period of the policy
term.
5. Whole Life Policy
Unlike other policies which expire at the end of a specified period of time, this policy
extends up to the whole life of the insured. This policy also provides the survival benefit
to the insured. In this type of policy, the policyholder has an option to partially withdraw
the sum insured. Policyholder also has the option to borrow sum against the policy.
6. Annuity/ Pension Plan
Under this policy, the amount collected in the form of a premium is accumulated as
assets and distributed to the policyholder in form of income by way of annuity or lump
sum depending on the instruction of insured.

3. Claim Settlement Process

On the happening of the event, the beneficiary is required to send claim intimation form
to the insurance company as soon as possible. Claim intimation should contain details
such as Date, Place, and Cause of Death. On successful submission of claim intimation
form, an insurance company can ask for additional information about
1. Certificate of Death
2. Copy of Insurance Policy
3. Legal Evidence of title in case insured has not appointed a beneficiary
4. Deeds of assignment
On successful submission of all the document, the insurance company shall verify the
claim and settle the same.

4. Principles of Life Insurance?

Life insurance is based on a number of principles that are tailored to meet market
conditions and ensure insurance companies make profits, while offering security
policies to insured individuals.
There are broadly four major insurance principles applied in India, these being:

 Insurable Interest – This principle pertains to the level of interest an individual is

expected to have in a particular policy. The interest could be a family bond, a
personal relationship and so on. Based on the interest level, an insurance
company can choose to accept or reject an application in order to protect the
misuse of a policy.

 Law of large numbers – This is a theory that ensures long-term stability and
minimises losses in the long run when experiments are done with large numbers.

 Good faith – Purchasing an insurance is entering into a contract between

company and individual. This should be done in good faith by providing all
relevant details with honesty. Covering any information from the insurance
company may result in serious consequences for the individual in the future. This
being said, the insurer must explain all aspects of a policy and ensure that there
are no unexplained or hidden clauses and that the applicant is made aware of all
terms and conditions.

 Risk & Minimal loss – Insurance is a risky and companies have to do business
and make profits keeping in mind the risk factor. The principle of minimal risk
states that the insured individual is expected to take necessary action to limit
 him/her self from any hazards. This includes following a healthy lifestyle, getting
a regular health check-up and more.

5. Points to Consider for Life Insurance

 Research: As an applicant for life insurance, there are numerous policy options
at your fingertips to choose from. It is essential that you do your research before
making an informed decision on purchasing a life insurance policy, as it can help
you save money and receive maximum benefits.

 Read terms and conditions: The terms and conditions of an insurance plan
contain all relevant information regarding the particular policy. Make sure that
you read the fine print in detail and completely understand it before purchasing
an insurance policy of your choice.

 Remember lock-in period: There are instances when individuals purchase

insurance policies without making an informed decision and later realise that they
are unhappy with the insurance policy. In such scenarios, some insurance
companies offer a lock-in time frame, which is a short time usually 15 days where
a policyholder can return the policy to the insurer and purchase another in case
they were unsatisfied with the initial purchase.

 Consider premium payment options: Almost all insurance providers offer

premium payment options consisting of annual, semi-annual, quarterly or on
monthly basis. It is essential that you opt for Electronic Check System (ECS)
payment that will periodically debit your bank account with the required insurance
amount. Also, you can choose from a schedule that will allow you to make a
premium payment with the convenience of interval payments.

 Don’t Mask Information: There are times where individuals try to hide
information when filling out the insurance application form. All
personal credentials and medical history must be accurately presented to the
insurance company. Misinformation can cause serious issues when trying to
make claims later on.

6. Life Insurance Companies in India

Some of the prominent life insurance companies in India are:
1. LIC – Life insurance corporation of India
2. SBI Life Insurance
3. ICICI Prudential Life Insurance
4. HDFC Standard Life Insurance
5. Bajaj Allianz Life Insurance
6. Max Life Insurance
7. Birla Sun Life Insurance
8. Kotak Life Insurance

3.0 INTRODUCTION This is the class of Insurance through which a majority of the
people recognize general Insurance and that too because it is compulsory for all
motorized vehicles to have an Insurance policy against third party liability before they
can come on road. Though this class of Insurance is the major source of premium
earnings for the Insurance companies it is also the class which is showing the biggest
losses. 3.1 OBJECTIVES At the end of this lesson, you will be able to: z Know the
meaning of Motor insurance z Buy the Motor insurance z Settle the claim under Motor
insurance/Third Party z Know what is not covered under Motor insurance For purpose
of insurance, motor vehicles are classified into three broad categories: (a) Private cars
(b) Motor cycles and motor scooters (c) Commercial vehicles, further classified into (I)
Goods carrying vehicles (II) Passenger carrying vehicles e.g. - Motorized rickshaws -
Taxis - Buses 3 M

Motor Vehicles Act, 1988 It is necessary to have knowledge of Motor Vehicles Act
passed in 1939 and amended in 1988. In the old days, many of the pedestrians who
were knocked down by motor vehicles and who were killed or injured, did not get any
compensation because the motorists did not have the resources to pay the
compensation and were also not insured. In order to safeguard the interests of
pedestrians, therefore, the Motor Vehicles Act, 1939, introduced compulsory insurance.
The insurance of motor vehicles against damage is not made compulsory, but the
insurance of third party liability arising out of the use of motor vehicles in public places is
made compulsory. No motor vehicle can ply in a public place without such insurance.
The liabilities which require compulsory insurance are as follows: (a) any liability
incurred by the insured in respect of death or bodily injury of any person including owner
of the goods or his authorised representative carried in the carriage. (b) liability incurred
in respect of damage to any property of a third party; (c) liability incurred in respect of
death or bodily injury of any passenger of a public service vehicle; (d) liability arising
under Workmen’s Compensation Act, 1923 in respect of death or bodily injury of: (i)
paid driver of the vehicle; (ii)conductor, or ticket examiner (Public service vehicles); (iii)
workers, carried in a goods vehicle; (e) liability in respect of death or bodily injury of
passengers who are carried for hire or reward or by reason of or in pursuance of
contract of employment. The policy of insurance should cover the liability incurred in
respect of any one accident as follows: (a) In respect of death of or bodily injury to any
person, the amount of liability incurred is without limit i.e. unlimited. DIPLOMA IN
INSURANCE SERVICES MODULE - 4 Notes Motor Insurance Practice of General
Insurance 44 (b) In respect of damage to any property of third party : A limit of
Rs.6,000/-. The liability in respect of death of or bodily injury to any passenger of a
public service vehicle in a public place, the amount of liability incurred is unlimited.
Section 140 of the Motor Vehicles Act 1988, provides for liability of the owner of the
Motor Vehicle to pay compensation in certain cases, on the principle of “no fault”. The
amount of compensation, so payable, is, Rs.50,000/- for death, and Rs.25,000/- for
permanent disablement of any person resulting from an accident arising out of the use
of the motor vehicle. (Note: The principle of “no fault” means the claimant need not
prove negligence on the part of the motorist. Liability is automatic.) Certificate of
Insurance The Motor Vehicles Act provides that the policy of insurance shall be of no
effect unless and until a certificate of insurance in the form prescribed under the Rules
of the Act is issued. The only evidence of the existence of a valid insurance as required
by the Motor Vehicles Act acceptable to the police authorities and R.T.O, is a certificate
of insurance issued by the insurers. The points covered under a certificate of insurance
differ according to the type of vehicle insured.