1. Principles of Insurance ContractBy
Waseem I. Khan
Assistant Professor
Shri Shivaji Law College, Parbhani (Maharashtra)

2. Essentials of Insurance contract
(i) Offer and acceptance (ii) Legal consideration (iii) Competent to make contract (iv) Free consent (v) Legal object

3. Utmost good Faith
The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance.
If the assured fails to make such disclosure, the insurer may avoid the contract.
The reason being that important facts having or bearing on the contract are known only to the insured.
E.g. how many time he claimed under fire or burglary policy, how many time he fallen ill etc.
If he conceal anything which he knows to be material it is fraud.

4. Utmost good Faith Following need not be disclosed.
Any circumstances which diminishes the risk.
Any circumstances which is known a presumed to be known to the insurer.
Any circumstances as to which information is waived by the insurer.
Any circumstances which is superfluous to disclose by reason of any express or implied warranty.
Alteration in disclosed facts before acceptance.

5. Utmost good Faith Examples of material facts. Life Insurance.
Insurance companies fix the premium on the basis of the average rates of mortality.
Every facts which shorten the life of the insured is material.
Information relating to age, health and disease, habits, family history, nature of business or profession.
Fire Insurance.
Information relating to structure of assets, nature of goods, condition of godown, activities of the firm etc.
C. Marine Insurance.
Information relating to size of the ship, nature of cargo, packaging of cargo etc.

6. Utmost good Faith Examples of material facts. Motor Insurance.
Age & profession of the driver, previous conviction, refusal of other companies to insure.
Case Law (Dent v. Blackmore)
what accident have occurred in connection with your car during past two years including cost?
Duration of Duty to disclose.
Till the contract is concluded.
Effect of non-disclosure.
Contract is voidable at the option of the insurer.

7. Utmost good Faith Burden of Proof. Facts to be Proved.
The burden of proving that insured has failed to perform his duty is on the insurer.
Facts to be Proved.
That the fact alleged to be concealed did exist.
That it was material.
That it was within the knowledge of the insured.
That it was not disclosed to it.

8. Insurable Interest
According to Patterson insurable interest is a relation between the insured and the event insured against so that occurrence of the event would result in substantial loss or injury of some kind to the insured.
Rodda interpreted it as an interest of such nature that the occurrence of the event insured against would cause financial loss to the insured.

9. Characteristics of Insurable Interest
There must be some subject-matter to insure, namely, the life of a person, property like house, vehicle etc.;
The insured must have some legally recognised relationship with the subject matter of the insurance;
The insured must be benefited by the safety of the subject – matter and suffers loss if the subject – matter is lost, damaged or destroyed;
The subject-matter should be definite and it should be capable of being valued in terms of money.

10. Insurable Interest in Life Insurance
Ones own life.
Husband or Wife.
This is an exception to the general rule that insurable interest means pecuniary interest or an interest which is capable of being expressed in terms of money.
Policy take during marriage, it continues after dissolution also.
Policy on the life of fiancée, on the life of divorced wife.
C. Parent or Child.
D. Other Relative.
A creditor or debtor

11. Insurable Interest in Fire Insurance
The person must have an insurable interest at the time of making the contract.
Following persons are having an insurable interest in the property insured against fire.
Bailee.
Agent
Vendor and vendee.
Mortgagor & mortgagee.
Landlord and Tenant.
Lessor and Lessee.
Insurable Interest in Marine Insurance.

12. Principle of Indemnity
All insurance policies, except the life policies and personal accident policies are contract of indemnity.
This principle may be defined as “under the indemnity contract the insurer undertakes to indemnify the insured against the loss suffered by the insured peril.”
Literally, indemnity means “make good the loss.”
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.
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 the principle

13. Principle of Subrogation
Subrogation is the substitution of one person in place of another in relation to a claim, its rights, remedies or securities.
Having satisfied the claim of the assured, the insurer stands in the place, and subrogated to all the rights of the insured.
In other words the subroggee steps into the shoes of the person whose rights are subrogated to him.
“Subrogation is the transfer of rights and remedies of the insured to the insurer who has indemnified the insured in respect of the loss.”

14. Principle of Causa Proxima (Nearest Cause)
When a loss is caused by more than one causes, the proximate or the nearest or the closest cause should be taken into consideration to decide the liability of the insurer.
The principle states that to find out whether the insurer is liable for the loss or not, the proximate (closest) and not the remote (farest) must be looked into.
For example: - A cargo ship's base was punctured due to rats and so sea water entered and cargo was damaged. Here there are two causes for the damage of the cargo ship –
(i) The cargo ship getting punctured because of rats, and (ii) The sea water entering ship through puncture. The risk of sea water is insured but the first cause is not. The nearest cause of damage is sea water which is insured and therefore the insurer must pay the compensation.

15. Principle of Contribution
Principle of Contribution is a corollary of the principle of indemnity.
According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer.
If one insurer pays full compensation then that insurer can claim proportionate claim from the other insurers.
Essential conditions of Contribution –
i. All the insurance must relate to the same subject-matter.
ii. The policies concerned must all cover the same interest of the same insured.
iii. The policies concerned must all cover the same peril which caused the loss.

16. Principle of Loss Minimization
Insured must always try his level best to minimize the loss of his insured property.
The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario.
The insured must not neglect and behave irresponsibly during such events just because the property is insured.
Hence it is a responsibility of the insured to protect his insured property and avoid further losses.