LL.

B (HONS) 3 YDC – Semester- IV

IMP Questions and Answers for all Subjects

Paper- II: Law of Insurance

1. Contract of Indemnity

Contract of indemnity meaning is a special kind of contract. The term indemnity

literally means security or protection against a loss or compensation. According to
Section 124 of the Indian Contract Act, 1872:

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.

The objective of entering into a contract of indemnity is to protect the promise against
unanticipated losses.

Illustration
Shiva contracts to indemnify Vishal against the consequences of any proceedings
which Bharath may take against Vishal in respect of a certain sum of money.

Parties to the Contract of Indemnity

A contract of indemnity has two parties.
The Promisor or Indemnifier
The Promise or the indemnified or indemnity-holder
The Promisor or indemnifier: He is the person who promises to bear the loss.
The Promise or the indemnified or indemnity-holder: He is the person whose
loss is covered or who are compensated.

In the above-stated example,

Shiva is the indemnifier or promisor as he promises to bear the loss of Vishal. Vishal is
the promise or the indemnified or indemnity-holder as his loss is covered by Shiva.

Essentials to a contract of indemnity

For the purpose of a contract of indemnity, the following conditions must be satisfied:

 There must be two parties.

 One of the parties must promise the other to pay for the loss incurred.
 The contract may be expressed or implied.
 It must satisfy the essentials of a valid contract.
The purpose of entering into an indemnity contract is to protect the promise against
unplanned damages. The contract of indemnity is held to be valid on the fulfilment of
some essentials which are as follows:

1. There must be two parties to a contract of indemnity i.e., a promisor and a

promise.
I. The promisor or indemnifier: the one who promises to cover damages
instead of the other party.
II. The promise or indemnity holder or indemnified: the person whose
damage is paid or who is covered.
2. This contract is entered into to protect one party from the loss by the help of
another party who bears the damages.
3. The contract of indemnity can be in both forms express or implied.

The contract of indemnity should also be a valid contract according to the Indian
Contract Act 1872 and all the sections of ICA are applicable on it.

The promise or the indemnified holds certain rights against the indemnifier, when he
has acted in the scope of his authority.

These rights are defined in section 1 25 of ICA, which are:

1. Right to recover damages paid in a suit I Section 125(1) - This grants an
indemnity- holder the right to seek from the indemnifier any damages that he
might be obligated to pay in any proceeding relating to any case to which the
indemnity arrangement relates.

2. Right to recover costs incurred in defending a suit [Section 125(2)]- An

indemnity- holder has the ability to reclaim from the indemnifier any damages
that he would be obligated to incur under any other action if he did not breach
the promisor's instructions and behaved as it would have been fair for him to
act in the absence of any provision of indemnity, or if the promisor all owed
him to bring or fight the suit.

3. Right to recover sums paid under compromise [Section 125(34 j- Whether the
agreement was not against the promisor's orders and was one that the
promise might have made if there had been no contract of indemnity, or
whether the promisor allowed him to compromise the claim, an indemnity-
holder has the ability to recover from the indemnifier any sums charged in the
terms in every other arrangement.

The Indian law is silent on when the liability of the indemnifier starts and when he has
to pay. But the high courts of different states have given distinct judgements with
regard to the commencement of liability of the indemnified.
2. Subrogation

Subrogation can be understood as a fair practice of replacing the policyholder’s place

with the insurer. In short, by subrogation, you will offer all the legal rights to your
insurer to claim money from a third-party, if he/she is found to be guilty of an accident.
Subrogation comes under the indemnity clause. Indemnity clause is a contract
between a policyholder and an insurer which shows the respective procedures and
obligation to compensate the claim amount against damage or losses to your vehicle.

Types of Subrogation
Generally, there are three types of subrogation in Insurance:

1. Equitable Subrogation
Equitable subrogation is one of the most common elements in insurance
policies where an insurance company recovers the claim amount from the
third-party who caused the damage to the insured vehicle. Most of the cases
involve other parties; however, some exceptions exist such as damage due to
flood or earthquake. In those cases subrogation cannot be conducted.

2. Contractual Subrogation
A Contractual subrogation is also known as conventional subrogation, where
an insurer gets to stand in the insured's shoes to sue third-party, after the
insured has forfeited his authority to the insurer. Sometimes insured may not
want to continue with subrogation for peace of mind, at that time as per
contractual subrogation, an insurer can file a lawsuit against the third-party for
the loss repaid.

3. Statutory Subrogation
Unlike the other two subrogation’s, a statutory subrogation does not involve
an insurance company to cover the losses to the insured vehicle caused by
third-party. In this case, both insured and the other party make a pact of
compensating the loss amount among themselves without involving the
insurance company. This procedure is more straightforward than the other
two subrogation’s.

3. Premium

Premium is a price that insurer charges from the insured, either lump sum of or in
instalments assured for covering some certain or ascertainable perils or risks. The
price varies from insurer to insurer, as with any product or service.

Different types of insurance cover require different premiums based on the degree of
risks.
Insurance premium refers to the amount which an individual or business entity has to
pay in order to be covered by an insurance policy. Insurance premiums are paid for
different insurance policies which typically cover things like healthcare, life,
automotive, home, etc. After the individual or business entity pays the premium, it
becomes income for the insurance firm. Insurance premiums can also be viewed as
liabilities and debt instruments, as the insurer (the company) is required to provide
coverage for the insured (the individual or business paying the premium) on any of
the areas which the policy covers (health, life, etc.). However, if the insured fails to
fulfil the premium as stated by the agreement between them and the firm, the policy
would be perceived as invalid, and will most likely result in the cancellation of the
insurance policy.

 Insurance premium refers to the amount of money that an individual or

business entity (referred to as the insured) is required to pay for acquiring an
insurance policy coverage.
 Insurance premiums are usually paid for policies that cover healthcare,
automotive, life, and various other areas.
 In some cases, insurance premiums increase after the first policy period ends

Illustration

Vishal policy insuring a house valued at Rs.5,000,000 for fire requires a higher
premium that one insuring a bike valued Rs250,000.

Although the degree of risk insured might be similar, the cost of repairing the house
is much higher than the bike and this difference is also seen in the premium paid by
the insured.

Definitions of Premium
Premium is an amount paid periodically to the insurer by the insured for covering his
risk.

According to the MacMillan Dictionary, "regular payment made to an insurance

company so that you are protected by the insurance."

National Insurance Company Limited defines premium as, "premium is fixed amount
of sum paid over the period by ensured to the insurer in order to secure an insurance
policy and to complete the contract of insurance

In Lucena Vs Crawford, Lawrence J defined premium as "a price paid adequate to the
risk".
4. Surrender value

A policyholder can terminate the life insurance before it reaches maturity by

surrendering the policy to the insurance company. Once this is done, the insurer pays
a cash value known as the policy's surrender value.

All types of life insurance policies do not acquire a surrender value. Life insurance
policies associated with an investment component such as ULIPs/ annuity/
endowment plans acquire a surrender value over time. Sometimes policyholders may
feel that the purchased plan does not fit their requirements or they are not able to get
benefitted from the features that were promised at the time of purchase. In such
cases, they tend to cancel the policy. Once the lock-in period of the policy is over, the
policyholder can surrender without paying any charges.

A mid-term surrender would fetch the policyholder a sum that has been allocated
towards savings. When the policyholder surrenders, a surrender charge is deducted
from the surrender cash value. But in recent times, IRDA has regulated that the
insurance companies will not impose any surrender charge if the policyholder
surrenders the policy after 5 years.

A policy gains a cash value only if the policyholder pays the premium regularly for 3
years. Once you surrender the insurance policy you own, all the benefits under the
policy are discontinued.

There are two types of surrender value in a life insurance policy:

Guaranteed Surrender Value: A fixed sum assured is given by the insurance company
when the policyholder surrenders the policy.

Special Surrender Value: Special surrender value is higher than the guaranteed¹
surrender value. The specific surrender value depends on the sum assured.

Illustration:
Sanvi purchased an endowment life insurance policy for a policy term of 20 years and
a sum assured of Rs.9 lakhs. She paid the premium of Rs.11,121/- for 10 years and
then wanted to surrender the policy. Sanvi placed a request to the insurance company
for surrender. The insurance policy gained a cash value as Sanvi had paid the premium
for 10 years. After the surrender, the insurance company paid a cash value of Rs.2.15
lakhs.

5. Assignment and Nomination

Nomination and assignment are commonly heard terms associated with life insurance.
Both nomination and assignment relate to benefits a third person shall derive from
the insurance but are unique and distinct from one another.

Nomination signifies the appointment of a person known as the nominee, who is

designated to receive the proceeds from the insurance policy upon the policyholder’s
demise. Assignment on the other hand is the legal concept where the rights and
benefits of the policy are transferred to another person who is known as the assignee.

Nomination
Nomination is the act of designating the name of a person under a life insurance to
receive the benefits and/or proceeds of the insurance upon the demise of the
policyholder. It acts as a tool to enable the person chosen by the policyholder to
recover the proceeds of the insurance. The concept of nomination is closely associated
to the policy and a nominee is appointed at the time of acquiring the policy and can
be changed as many times as the policyholder wishes during its term. Nomination is
almost always done in favour of close relatives of the policyholder.

Types of Nominees
Here are some of the types of Nominees:

1. Beneficial Nominees:
The Insurance Regulatory and Development Authority of India has introduced
the new term 'beneficiary nominee' instead of 'nominee'. The policyholder has
a right to make any of his/her close relatives, i.e., parent, guardian, child, or
spouse, a nominee. Appointing the nominee eliminates the chances of any
disputes arising at the time of claim settlement. Bear in mind that only your
immediate family members can become beneficial nominees.

2. Minor Nominees:
Many policyholders prefer appointing their child/children as nominees for
their life insurance policies. However, if the child has not completed 18 years
and is still a minor, he/she does not meet the eligibility criteria to handle the
claim amount. So, in case of an unfortunate demise of the insured, the claim
amount is payable to the legal custodian or the child's appointee. The legal
custodian hands over the sum to the child when he/she turns 18 years old.

3. Non-family Nominees:
In certain exceptional situations, the nominee can choose a non-family
member as his/her nominee. However, you should check the terms pertaining
to the nomination with your insurer and know that appointing a non-family
nominee is generally not recommended.
 4. Changing Nominees:
The policyholder has the right to change the nominees as many times as
he/she wants. But bear in mind that the latest nominee will supersede all the
previous nominees.

5. Multiple Nominees:
The policyholder can choose to appoint more than one nominee to his/her life
insurance policy. In the case of multiple nominees, the policyholder divides the
share of the total amount between multiple nominees. If the policyholder has
not divided the share/percentage of the policy, the claim amount is equally
divided between nominees.

6. Successive Nominees:
The successive nomination allows the policyholder to choose more than one
nominee in a successive manner. So, in case of the demise of the policyholder,
the claim amount will go to the first nominee. In case of the demise of the first
nominee, the claim amount will go to the second nominee, and so on.

 In order to appoint a nominee, the policyholder and insured must be the same.
 If the policyholder and insured are different individuals, the claim benefits are
paid to the policyholder.
 Certain life insurance plans do not allow any change or modification in the
nominee unless the demise of the nominee.
 The policyholders are allowed to appoint more than one nominee.

Assignment

Assignment is a legal concept whereby all the rights, interests, title etc. are transferred
by the policyholder to another person who is legally entitled to then receive all
benefits associated with such policy. It is either carried out in favour of close relatives
or any other person against suitable consideration. Assignment can be done by way
of an endorsement on the policy itself or also by way of a separate legal document
recording the fact of such assignment under signature of the parties. Further, a
successful assignment also requires attestation by a competent witness and it also
grants a right to sue under the policy to the person in favour of whom assignment is
made out.

Types of Assignments?

1. Absolute Assignment
Under absolute assignment, the assignor transfers all the rights, titles, ownership,
and interest to another person or entity. The ownership of the policy is transferred
 to the other party without any terms and conditions. This type of assignment is
generally done for raising loans against life insurance policies.

2. Conditional Assignment:
As the name suggests, under conditional assignment, the assignor transfers the
rights to the assignee depending on the terms and conditions. So, the policy is
assigned only if the conditions are fulfilled.

 The assignment of the life insurance policy transfers only the ownership and
not the risk associated with it.
 The assignment may lead to cancellation of the nomination only when it is done
in favour of the insurance company due to the policy loan.
 The policyholder can assign any policy except a pension plan and a Married
Women's Property Act (MWP).
 In order to effect the assignment, a policy contract endorsement is required.

Difference between Nomination and Assignment

Nomination and assignment are distinct from one another and the following are the
differences between the two concepts:

# Nomination Assignment
1 Nomination relates to the designation Assignment on the other hand signifies the
of a person by the policy holder who is legal transfer of all the benefits and title of
to receive the benefits of the policy on the policy to another person
the demise of the policyholder
2 Designating a nominee by way of assignment requires attestation to attain
nomination does not require attestation recognition under law
3 Nomination is a natural consequence of Assignment on the other hand may involve
a life insurance which does not involve a consideration against designating an
any consideration assignee to whom the title and consequent
benefits of the insurance are transferred
4 It does not entitle the nominee to the Assignment grants the assignee a right to
right to sue under the property. sue under the policy
5 Nomination serves the purpose of Assignment enables the policyholder to
enabling the beneficiary of the policy to transfer title and all associated interests in
receive the benefits of such policy upon favour of a person either for a
the policyholder’s demise consideration or for any other reason.
6 the nomination can be amended or Assignment on the other hand can only be
even revoked multiple times without revoked once or twice during the term of
any restriction the policy
7 Nominees are often the close relatives Assignees are not just close relatives but
of the policyholder nominated to are also often parties outside the family for
receive the benefits. any number of reasons.
6. Average clause

A condition by which an insurer determines that the payment for any damage or any
loss will be in proportion to the value insured.

In other words, a part of an insurance policy that states that if the insurance value of
a property at the time of loss or damage is less than its real value, payment by the
insurance company will be reduced according to the difference.

Illustration:
A building worth 1000,000 but insured for 500,000 is totally destroyed,

The insurer will only pay 250,000, which represents 50% of the insurance value, but
25% of the full value.

Of course, the insured has insured his or her building for only 50% of its real value. The
insured having taken a risk, he or she has not only lost the full value of the property,
but will only be compensated for the proportion of the gambit he or she took when
he or she was insured for half of it.

According to the average clause in the insurance policy,

If the actual cost of the goods/property is higher than the sum insured for such
goods/property, then the insured has to bear the difference.
The insured must bear the cost arising due to the difference between the
actual value of goods/property and the amount for which it is insured.
The insurer will only pay for the proportion of the loss which relates to the sum
insured divided by actual value.
The average clause only applies when the sum insured is less than the actual
value of the goods or the property.

The amount of claim that the insured gets is calculated as follows:

Claim amount = (Actual loss × Insured amount) / Value of goods or property at the
date of loss.

7. Insurable interest

Insurable interest refers to an investment that protects anything subject to a financial

loss. A person or entity may have an insurable interest in an event, item, or, action
when the loss or damage of the insured object or person can cause a financial loss.
 An individual or an entity would purchase an insurance policy to have an insurable
interest to protect the person, item, or event. The risk of loss to the person or an
object is mitigated with the insurance policy.

Types of Insurable Interest

Insurance interest applies to all insurance policies. Anyone purchasing insurance on
any asset or person must prove their insurable interest in the wellbeing of the insured
asset or person. Without such insurable interest, the insurance contract will not be
legally enforceable by either insurer or the policyholder.

In the world of insurance, the following two types of insurable are at play:
1. Contractual interest
2. Statutory interest

Contractual interest
Contractual interest would be those insurable interests where the interest exists due
to an existing relationship between the proposer and the insurable asset or person.
For example, you are buying insurance for the expensive home theatre system at
home.

Statutory interest
In the case of statutory interest, the insurable interest may not exist before the
contract. So, the contract covers those insurable interest relationships that may arise
in the future. Liability insurance policies are an example of such insurance. These
policies cover the unexpected and unintended damages caused to unknown persons
due to your product or conduct.

Thus, with contractual interest, the insurance contract will occur due to the clear
insurable interest. Whereas statutory interest defines your public and third-party
liabilities.

8. Duty to disclosure

Duty of disclosure is to continue throughout the contract. The situations in which the
insured owes a post-contractual duty of utmost good faith may well be confined to
some categories. These categories at least include that the insured should avoid
making any fraudulent claim or any other fraudulent acts and that the insured owes a
duty of disclosure in any situation in which the insured is required to give information
to the insurer under the terms of the policy (e.g., where there is an increase of risk).
This duty can also be extended in reference to the terms of the policy.

9. Contract of Insurance
An insurance contract is essentially a contract between two parties, where one of
them is called an “insurer” and the other party is “insured”. In this type of contract,
the insurer promises the insured party that he will save or indemnify him from losses
caused by a particular contingent event, on the payment of an amount called
“premium”. Insurer usually refers to the insurance company that sells the insurance
and the insured or policyholder is the person who buys it by paying the premium. In a
contract of insurance, the insurer or insurance company advertises the insurance
policy, which is an invitation to offer. Then, on seeing the invitation to offer, the
insured makes an offer to the insurer. When the insurer accepts, it becomes an
insurance contract.

Insurance is itself defined as a contract between two parties whereby one party called
insurer undertakes, in exchange for a fixed sum called premiums, to pay the other
party called insured a fixed amount of money on the happening of a certain event. It
means protection against loss. It is the process of safeguarding the interest of people
from loss and uncertainty. It is based on the contract. It is a valid agreement that
incorporates certain terms and conditions.

It may be describes as a Social device to reduce or eliminate a risk of loss to life and
property. Insurance business and the need for the insurance cover are growing with
the growing complexity of life, trade and commerce, and consequently, there is now
bewildering variety of insurance covers.

But marine, fire, and life are the most common varieties of insurance. Whatever be
the kind of the insurance or the risk insured against there are certain principles of
insurance law so fundamental that they impinge upon every variety. Every contract of
insurance, except life insurance is a contract of indemnity, every contract of insurance
is a contract of absolute good faith and requires some insurable interest to support it,
without which it will be a mere wager.

In order for an insurance contract to be legally binding, certain essential requisites

must be stipulated in the contract. These elements are classified into two broad
categories:

The elements of a general contract:

offer and acceptance

consideration
legal capacity
legal purpose.
Free Consent

The elements of a special contract in relation to insurance:

indemnity
 insurable interest
utmost good faith
subrogation
assignment and nomination
warranties
proximate cause
return of premium.

10. Assignment of Marine Policy / Marine Insurance

Marine insurance, therefore, is a type of insurance that covers the losses or the
damages caused to the cargo of any ship, or the ships, cargo vessels, terminals, or any
marine transport in which goods are carried from the point of origin to the final
destination. It also covers the risks faced by various intermediaries. It provides
comprehensive coverage for all the probable risks faced by a vessel at the sea.

Marine transport faces a relatively higher degree of threat as compared to the other
modes of transport, such as road, rail, and air.

The range of perils offered by the sea is very wide, ranging from weather or natural
hazards to cross-border conflicts to pirate attacks. It not only becomes essential for all
the people associated with a particular ship (the shipowner, the cargo owners, the
intermediaries, etc.) to avail a marine insurance policy, the law mandates all the
vessels engaged in commercial transport to have a suitable marine insurance policy to
mitigate the potential risks.

The Marine Insurance Act, 1963, which is on the lines of its predecessor, The English
Marine Insurance Act, 1906, regulates the principles and law of marine insurance in
India.

Types of Marine Insurance in India

Due to a very wide ambit of marine insurance, different categories of it are classified
based on different factors. Broadly, the classification of marine insurance in India
depends on two factors
1. the coverage area of the insurance policy, and
2. the structure of the insurance contract.

Each of the two categories is further sub-categorized, based on the different needs
and suitability of the person entering into the insurance contract.

Types of Marine Insurance (Based on coverage area)

The coverage area of an insurance policy is the geographical area or the protected
area in which the benefits of an insurance policy apply. The following types of marine
insurance are classified, based on the coverage area of the insurance policy

Hull & machinery insurance: Hull is the most noticeable part of any ship. It is the
watertight body of a ship or a boat that protects the cargo inside the ship from being
damaged. Hull and Machinery Insurance, therefore, covers the loss or the damage
caused to the body of the ship or any machinery or equipment in it, used for the
functioning of the ship. It mostly covers accidents caused due to collisions, or the
damages caused by earthquakes and explosions. This type of insurance is generally
taken by the owners of the ship.

Marine cargo insurance: Marine cargo insurance is a type of property insurance that
covers the cargo owners against any loss or damage caused to their cargo during its
transit. It has extensive coverage, but also has certain limitations, for instance, the
cargo owners lose their claims if the packaging of the cargo was defective. It also
comes with a third-party liability, which covers the damages caused to the port, or a
ship, or a railway track due to the presence of defective cargo.

Liability insurance: Liability insurance covers the financial liability of the person who
is insured. It covers primarily the liabilities which arise due to the damages or injuries
caused to the third party, for instance, the death or personal injury caused to any third
party traveling in the ship.

Freight insurance: Freight insurance covers the liability of the shipping company or
the logistics provider for the damage or loss caused to the shipment during transit due
to events outside the control of the company.

Types of Marine Insurance policies (Based on the structure of the contract)

A ‘policy is a document that embodies the terms and conditions of the contract of
insurance. It essentially is a written form of agreement between the insurance
company and the person insured. It generally contains the provisions regarding the
coverage area, the limitations of insurance policies, etc. Thus the different types of
policies available under marine insurance are

Open policy: An open policy, also called a floating policy, provides coverage for an
indefinite number of transit journeys during the subsistence of the policy. This is
especially beneficial for the companies which are involved in high-volume trade, as
they are saved from taking an insurance policy on each transit journey. It covers all
the transit journeys of the insured until the policy is canceled or until the last of the
payment is realized, whichever is earlier.
Voyage policy: A voyage policy works on the same lines as the marine cargo insurance.
Under this policy, the insurance company agrees to cover the losses or damages
caused to the cargo during a specific voyage. It expires when the vessel reaches its
destination, irrespective of the time it takes to reach there. Usually, it is bought by
small exporters who ship their goods by sea only on some occasions.

Time policy: A time policy, as the name suggests, is issued for a fixed period of time.
The vessel may make any number of voyages during this period. Generally, the
insurance company issues this policy for one year, however, the period may vary
depending on the agreement between both parties.

Mixed policy: A mixed policy is a combination or a mix of voyage and time policies.
The insurance company, while issuing this policy, agrees to cover the loss or damage
to the ship for a particular voyage till a particular period of time.

Single vessel policy: A single vessel policy insures only a single ship of the insured.

Fleet policy: The person insured has an option of either insuring a single ship by a
policy, or of insuring several ships under one policy. If he chooses the latter option, he
undertakes a ‘Fleet Policy’, under which a fleet of ships is insured under a single policy.

Unvalued policy: Every insurance policy is either an unvalued or a valued policy. Under
an unvalued policy, the insurance company does not assign a value to the thing
insured (the vessel or the cargo), at the time of underwriting the policy. The valuation
of the property is done only after the claim of insurance has been filed. However, for
a successful claim, the true value of the property has to be proved by the insured by
way of invoices or estimates, before the valuation.

Valued policy: In a valued policy, the insured property is given a specific value when
the policy is issued, and before any claims are made. When the claim is made by the
insured, a pre-estimated or the specified amount is given, which does not depend on
the amount of loss incurred by the insured. The depreciation of the property also does
not affect the amount of claim, under a valued policy.

Block policy: A block policy is an all risks policy. Unless a contrary intention is
expressed by the insurer, it essentially covers all the risks to which the goods are
exposed when they are in transit, bailment, and on the premises of the third party.
There are two popular types of block policy – furrier’s block policy, and jeweler’s block
policy since fur and jewelry are two high-value commodities that are exposed to a
greater threat of theft.

Port-risk policy: A port-risk policy covers ships that are either docked or are
undergoing repair works at the port. It is an all-risk policy that covers all the risks
unless otherwise agreed between the parties. It provides coverage for physical
 damages to the vessel as well as protection and indemnity but excludes any liability
arising on account of the crew and cargo.

Named policy: A named policy is one in which the name or names of the ships is
mentioned in the contract of insurance.

Wager policy: A wager policy protects from loss of the property of which the insured
does not have legal proof of possession. This means, when the insured is not able to
prove an insurable interest in the property, the insurance company may issue a wager
policy to him. Under it, the whole claim of the insured is subject to the discretion of
the insurer and the merits of the claim made. It is not a written policy as it is issued in
contravention of the law.

11. Principal of Utmost good faith

The doctrine of disclosing all material facts is embodied in the important

principle utmost good faith which applies to all forms of insurance.
Both parties to the insurance contract must agree (ad idem) at the time of the
contract. There should not be any misrepresentation, non-disclosure or fraud
concerning the material.
In case of insurance contract the legal maxim Caveat Emptor (let the buyer
beware) docs not prevail, where it is the regard of the buyer to satisfy himself
of the genuineness of the subject-matter and the seller is under no obligation
to supply information about it.
But in the insurance contract, the seller, i.e., the insurer will also have to
disclose all the material facts.
An insurance contract is a contract of uberrimae fidei, i.e., of absolute good
faith both parties to the contract must disclose all the material facts and fully.

12. Proximity Clause

The rule; is that immediate and not the remote cause is to be regarded. The maxim is
sed causa proximo non-remold-spectator; see the proximate cause and not, the
distant cause. The real cause must be seen while payment of the loss. If the real cause
of loss is insured, the insurer is liable to compensate for the loss; otherwise, the
insurer may not be responsible for a loss.

Proximate cause is not a device to avoid the trouble of discovering the real ease or the
common sense cause.

Proximate cause means the actual efficient cause that sets in motion a train of events
which brings about result, without the intervention of any force started and worked
actively from a new and independent source.
The determination of real cause depends upon the working and practice of insurance
and circumstances to losses. A loss may not be occasioned merely by one event.

There may be concurrent causes or chain of causes. They may occur in a sequence or
broken chain. Sometimes, certain causes arc excepted by (the insurance contract and
the insurer is not liable for the accepted peril.

The efficient cause of a loss is called the proximate cause of the loss.

For the policy to cover the loss must have an insured peril as the proximate cause of
the loss or also the insured peril must occur in the chain of causation that links the
proximate cause with the loss.

The proximate cause is not necessarily, the cause that was nearest to the damage
either in time or place but is rather the cause that was responsible for the loss.

Determination of Proximate Cause

If there is a single cause of the loss, the cause will be the proximate cause, and further,
if the peril (cause of loss) was insured, the insurer will have to repay the loss.If there
are concurrent causes, the insured perils and excepted perils have to be segregated.
The concurrent causes may be first, separable and second, inseparable. Separable
causes are those which can be separated from each other. The loss occurred due to a
particular cause may be distinguishing known. In such a case if any cause, is excepted
peril, the insurer will have to pay up to the extent of loss which occurred due to
insured perils. If the circumstances are such that the perils are inseparable, then the
insurers are not liable at all when there exists any excepted peril.

If the causes occurred in the form of the chain, they have to be observed seriously.

If there is an unbroken chain, the excepted and insured peril has to be separated. If an
excepted peril precedes the operation of the insured peril so that the loss caused by
the latter is the direct and natural consequence of the excepted peril, there is no
liability. If the insured peril is followed by an excepted peril, there is a valid liability.

If there is a broken chain of events with no excepted peril involved, it is possible to

separate the losses. The insurer is liable only for that loss caused by an insured peril;
where there is an excepted peril, the subsequent loss caused by an insured peril will
be a new and indirect cause because of the interruption in the chain of events. The
insurer will be liable for the loss caused by insured peril which can be easily
segregated. Similarly, if the loss occurs by an insured peril and there is, subsequently
loss by an excepted peril, the insurer will be liable for loss occurred due to the insured
peril.
In brief, if the happening of an excepted peril is followed by the occurrence of an
insured peril, as a new and independent cause there is a valid claim. If an insured peril
is followed by the happening of an excepted peril, as a new and independent cause,
there is a claim excluding loss or damage; caused by the excepted peril.