Principle 1: Utmost Good Faith

The principle of utmost good faith requires the disclosure of all material facts honestly by both the
insured and the insurer.

Case Study 1: Non-disclosure of a Pre-existing Condition

The Story:
John was a middle-aged office worker with a family of four. Concerned about unexpected medical
expenses, he decided to purchase health insurance. However, when filling out the application form,
John hesitated when asked about his medical history. Aware that revealing his heart condition might
result in a higher premium or even a rejection, he chose to withhold this critical information.

A year later, John suffered a severe heart attack and needed surgery costing $50,000. Confident that
his insurance would cover the expenses, he filed a claim. To his surprise, the insurer rejected the
claim after discovering his undisclosed medical history during an investigation.

Key Questions:

1. Why was John’s claim denied?

2. What would have happened if John had disclosed his condition?

3. How can this case highlight the importance of transparency in insurance contracts?

Case Study 2: Incorrect Information on a Car Insurance Form

The Story:
Emma, a single mother, owned a car that was mostly driven by her 20-year-old son, Jake. When
applying for car insurance, Emma decided to list herself as the primary driver, knowing that adding
Jake might increase the premium. She assured herself it was a harmless omission.

Months later, Jake was involved in a minor accident, resulting in damages of $7,000. Emma promptly
filed a claim. However, during the insurer’s investigation, they discovered that Jake was the primary
driver. As a result, the claim was denied, and the policy was canceled.

Key Questions:

1. Why was Emma’s claim rejected?

2. What should Emma have done differently?

3. How can this case affect Emma’s ability to secure insurance in the future?
Principle of Proximate Cause

The principle of proximate cause determines the primary cause of loss and whether it is covered
under the policy.

Case Study 1: Storm Damage to a Home

The Story:
Sophia’s home was insured for damage caused by natural disasters like storms and floods. During a
severe storm, strong winds caused a tree to fall on her roof, creating a large hole. Heavy rain
followed, flooding the living room and damaging furniture.

Sophia filed a claim with her insurer, who investigated the incident. The insurer determined that the
storm (a covered peril) was the proximate cause of the damage and approved her claim.

Key Questions:

1. Why did the insurer approve Sophia’s claim?

2. What if the flooding occurred without the storm?

3. How does proximate cause simplify claim assessments?

Case Study 2: Fire Caused by a Gas Leak

The Story:
David owned a bakery insured against fire damage. A faulty gas line in the kitchen caused a fire,
which destroyed the premises and inventory. When David filed a claim, the insurer assessed the
situation and approved the payout because the proximate cause of the loss was fire, a covered peril
under the policy.

Key Questions:

1. Why did the insurer approve the claim?

2. What if the gas leak didn’t cause a fire but led to other damages?

3. Why is identifying the proximate cause important?

Insurable interest ensures that the insured has a financial or vested interest in the insured subject.

Case Study 1: Life Insurance for a Business Partner

The Story:
Alex and Brian co-owned a successful logistics business. Recognizing the importance of each other’s
contributions, they decided to take out life insurance policies on each other. Each policy was
intended to protect the business in case one of them passed away unexpectedly.

Tragically, Brian was involved in a car accident and died. The business faced immediate challenges,
including loan repayments and operational disruptions. Fortunately, Alex was able to claim the life
insurance payout, which he used to stabilize the business and hire a qualified manager.

Key Questions:

1. Why was Alex eligible to claim Brian’s life insurance?

2. How does this case illustrate the concept of insurable interest?

3. What might have happened if the policy was taken without a valid insurable interest?

Case Study 2: Home Insurance for a Rental Property

The Story:
Maria owned a two-bedroom apartment, which she rented to a young couple. To protect her
property, Maria took out a homeowner’s insurance policy. One fateful evening, an electrical fault
caused a fire in the apartment, resulting in significant damage. Maria promptly filed a claim, and the
insurer covered the repair costs.

Meanwhile, the tenants filed a separate claim under their renter’s insurance policy to recover the
value of their damaged belongings.

Key Questions:

1. Why was Maria entitled to claim for the fire damage?

2. Could the tenants have insured the apartment structure?

3. How does this case demonstrate the principle of insurable interest?

The principle of indemnity ensures the insured is compensated only for the actual loss, preventing
profit from the insurance.

Case Study 1: Car Insurance and Total Loss

The Story:
Mike had a sleek sedan insured for $20,000. After a severe accident, the car was declared a total
loss. The insurer assessed the current market value of the car at $15,000 and offered this amount as
compensation.

Mike argued that he should receive the full insured value but was informed that indemnity only
covers the actual loss.

Key Questions:

1. Why was Mike’s payout limited to $15,000?

2. Could Mike have received $20,000 under any circumstances?

3. Why is the principle of indemnity important for insurers?

Case Study 2: Health Insurance Reimbursement

The Story:
Sara, a teacher, had health insurance with a maximum coverage limit of $50,000. Following an
unexpected surgery, her medical bills amounted to $30,000. Sara submitted her claim, and the
insurer reimbursed her for the exact amount of her expenses.

Sara was grateful for the support but wondered why she didn’t receive the full $50,000.

Key Questions:

1. Why did Sara receive only $30,000?

2. What happens if Sara incurs additional medical expenses later in the year?

3. How does indemnity prevent abuse of the insurance system?

The principle of subrogation allows the insurer to take legal action on behalf of the insured to
recover compensation from third parties responsible for the loss.

Case Study 1: Car Accident Caused by a Third Party

The Story:
Rachel’s car was hit by a truck whose driver was at fault. The accident caused damages amounting to
$10,000. Rachel’s car insurance company covered the repair costs and reimbursed her.

Later, the insurer pursued the trucking company to recover the $10,000. After a legal battle, the
trucking company agreed to pay the insurer.

Key Questions:

1. Why did the insurer pursue the trucking company?

2. Can Rachel claim directly from the trucking company?

3. How does subrogation benefit insurers?

Case Study 2: Fire Caused by a Neighboring Property

The Story:
Liam owned a small bookstore insured for fire damage. One evening, a fire originating from the
neighboring property spread and severely damaged Liam’s store, resulting in losses of $50,000.

Liam’s insurer promptly compensated him under the policy terms. Subsequently, the insurer sued
the neighboring property owner, whose negligence caused the fire, to recover the $50,000. The
court ruled in favor of the insurer, ordering the neighbor to pay.

Key Questions:

1. Why was the insurer entitled to sue the neighbor?

2. Can Liam sue the neighbor after being compensated?

3. How does subrogation protect the insured?

The principle of contribution ensures that if the insured has multiple policies covering the same
subject, all insurers share the liability proportionally.

Case Study 1: Dual Health Insurance Policies

The Story:
Jack, a marketing executive, was covered by two health insurance policies: one provided by his
employer and the other a personal policy he purchased. Both policies offered coverage of up to
$40,000 each.

One unfortunate winter, Jack slipped on icy stairs and required surgery, resulting in medical bills
totaling $60,000. He submitted claims to both insurers, expecting each to cover the entire amount.
However, the insurers coordinated based on the principle of contribution and split the liability. Each
insurer paid $30,000, their proportional share of the coverage.

Key Questions:

1. How much did each insurer pay, and why?

2. Could Jack have received $40,000 from one insurer?

3. Why is the principle of contribution important?

Case Study 2: Fire Insurance on a Factory

The Story:
A factory owned by Global Manufacturers Ltd. was insured with two companies. Insurer A provided
coverage of $600,000, while Insurer B covered $400,000. A devastating fire caused damages
amounting to $500,000.

Global Manufacturers filed claims with both insurers. The insurers reviewed the policies and,
following the principle of contribution, shared the liability. Insurer A paid $300,000, and Insurer B
paid $200,000, reflecting their respective shares of the total coverage.

Key Questions:

1. Why did Insurer A pay more than Insurer B?

2. What happens if one insurer refuses to pay?

3. Does contribution benefit the insured?