Paper 10.

1: LAW OF INSURANCE
Answer 4 c) Warranty is the term in the policy which can be either express or implied, which
has to be complied with, even though it is not material to the risk. The warranty discharges
the insurer from his liability, when it is not complied with, even though the reason of loss is
something which is not from the breach of the warranty but the insurer is not liable to pay
for the loss. It is very important to have warranty in the Insurance contract. But the term
warranty has been used loosely in many cases, therefore, it is important to distinguish
warranty in contract from other terms which, though resemble the word warranty but in
reality are not warranty.
It is important to distinguish the term delimiting the risk from the warranty. Term delimiting
the risk means that when during a particular time period the conditions in the cover are not
complied with the insurer would not be liable but once, those conditions are observed again
with then the risk will re-attach.
For example: In the case of fire Insurance, there is a condition to have a fire extinguisher, in
case of warranty, if there is no fire extinguisher even for a single day then the insurer is
discharged from his liability completely and future times. But in case of Delimiting the risk,
once the fire extinguished is put to work, from that time insurer’s liability attaches again. It’s
like condition which delimits.
Case laws
Farr v. Motor traders mutual society: The insurance cover was taken for two taxi. One of the
question in the proposal form was how many shifts will the taxi work for? To which assured
replied as one. Mostly, the cabs used to work for only one shift but in August it was used for
two shifts. The insurer sought to avoid the liability. The court held that the insurer will not
be discharged from his liability just because cab worked for 2 shifts for few days. The
requirement that can should be utilized only for one shift is like term delimiting the risk,
which means that insurer will be liable when the term is satisfied. But he will not be liable if
the term is not satisfied. Once the terms starts getting satisfied again, the insurer’s liability
attaches once again.
In Provincial Insurance v Morgan: The question in proposal form was that what will be the
use of the lorry? It would be used for coal. The issue was whether the insurer would be
discharged of his liability just because lorry was used to carry the woods. The court held that
the clauses are the terms delimiting the risk, therefore insurer will not be liable, when the
lorry was carrying woods but once it started carrying coal again, the insurer will be liable.
In the present case, the purpose of the banquet hall was stated as to host marriages and
parties in the proposal form. But due to Covid, it was used as a center for making food and
as a quarantine center. By applying the above stated principle of term delimiting the risk, it
can be said that though insurer would not have been liable if any loss would have occurred
at the time of Covid, but once the banquet has been resumed to be used for marriage
purposes, and thereafter, there is a loss, then the insurer’s liability will re-attach and he will
not be able to discharge himself from it. So, here, the insurer cannot avoid his liability on
the grounds of breach of warranty.

Answer 5 a) The liability of the insurer arises when there is the loss against insured peril.
Therefore, it is important to determine the cause of the loss to determine whether loss
occurred due to insured peril or not. Something is regarded as loss, when it affects the
settled state of affairs or disturbs the process which is under way. The proximate cause of
loss has been applied in Leyland Shipping Company V Norwich Union Fire Insurance.
There are many rules which determine the proximate cause of loss.
One rule states that if the subject matter for which insurance cover was taken, has
completely been destroyed/lost to the assured and thereafter, lost due to insured peril,
then the proximate cause of the loss is not insured peril. It is important to determine,
whether the subject matter has completely destroyed/lost to the assured.
For instance, an insurance cover is taken on ship for the perils of the sea. The enemy state
takes the ship into possession and condemned it. At the time when ship was in possession
by the enemy state, the assured did not have a claim over that ship. It has been lost to the
assured. And there is no expectation that ship would be returned back.
By applying the same to the present question, after the ship was seized by the opponent,
the assured has lost the right to the ship. Though, the loss occurred due to the perils of the
sea which was insured but it occurred at time when the ship was not with the assured and
no expectation to get it back. Hence, here the cause of the loss would not be insured peril.
The insurer would not be liable in the present case.
Answer 5 b) The right to reinstatement can be exercised at the time when the claim is made
by the assured upon the insurer, the insurer might reserve in the policy that instead of
paying the assured, he can reinstate the property. It is generally provided in the clauses in
the insurance cover. This right can be reserved by the insurer due to reasons like the cost of
reinstatement is low or there is suspicion of fraud on the part of the assured. And another
reason is that when the assured becomes indifferent to the loss and the assured wants to
destroy the property for the purpose of liquidity( he will get the insurance money) as the
insured property is not very liquid, at that time, reinstatement clause makes the assured
less indifferent to the loss.
At the time of claim, the insurer has an option of choosing reinstatement or the payment to
the assured. This is known as election. And it has been held that once the insurer has
elected to reinstate the property, then the insurer is bound to follow it. Once the election of
reinstatement has been done, it is not an insurance contract but build and repair contract.
The principle of election is that once the reinstatement has been agreed upon, he cannot go
against his duty to reinstate due to reason like the cost of reinstatement is higher than what
could have been paid to the assured. Hence, despite the high cost, reinstatement has to be
done. The objective of the reinstatement is to make the property same as much as possible
that was before the loss.
By applying the principle of election to the present case, it can be said that, here the insurer
has decided to reinstate the property, though the replacements are available only at an
exorbitant price, he cannot deviate from his duty to reinstate the property, even though
very high costs will have to be incurred. He cannot pay the demanded sum now.
His liability is to reinstate the property the same way it was before the loss after an
election has been done by him.

Answer 3 d): life insurance has to be distinguished from other forms of insurances on the
basis that when there is revival of the policy, there has to be representation of the good
health conditions by the assured which means that requirement of duty of disclosure has to
be fulfilled. Due to insurer’s financial problems, when the revival is done, the insurer
generally looks at the assured in a suspicious manner. The important point to be considered
is that the risk attaches only after the payment of the premium by the assured and its
issuance and acceptance, then the policy revives.
One of the case law with regard to this issue is Canning V Farquhar, the person sought to
seek the life insurance and it was accepted by the insurer and policy will be issued after the
payment of premium. But before he could make the premium, he fell off a cliff. His
representative made the payment but company refused to give the policy. The assured died
after some days. The contention was that the proposal was already accepted. But the court
held that the policy did not start working. They held that when proposal of accepted, it was
of a healthy man. It was a counter proposal and it was still upon the assured whether to
accept it or not. All the relevant and material facts need to be disclosed on the basis of
which insurer can decide whether to accept the proposal or not.
Further in Harrington v Pearl Life, the court held that at the time when proposal of
accepted, there was no material change in the health conditions of the assured but at the
time of premium, he fell ill. Therefore, there was alteration of risk between the proposal
acceptance and premium payment. It was not the same risk on which the insurer sought to
accept the proposal.
Lastly, in the case of Looker V law Union Rock Insurance Company, the acceptance was there
and payment was made and after that person got pneumonia. The court elaborated that at
time of acceptance of proposal, it is done for a person who has good health, but once there
is change in circumstances, that alters the risk. Therefore there is duty to disclosure at the
time when there is alteration of the risk by the assured. After that insurer decides whether
to give insurance policy or not to give.
in the present case, there was acceptance of the revival of the policy, but before making the
payment of premium, the assured suffered a heart attack. So, even though, the insurer
communicated that he will revive the proposal, but before payment of premium, there was
a change in the health of the assured, this is alteration of the risk. Therefore, there was a
duty to disclose the change in health conditions to the insurer. Here, it is not effective to
bind the insurer because circumstances at the time of proposal are different from the
circumstances at the time when assured receive the letter of acceptance of the revival.
There is requirement of duty of disclosure not only before the revival but also during the
acceptance of policy and the payment of premium, if there is any alteration to the risk
which changes the basis of the contract. During the running of the policy, there can be any
change but before the risks starts running, there should not be any material change and if
there is any material change it has to be communicated to the insurer.
In the present case, the proposal was made at time when the assured was in a good health
conditions. But now there was change in the circumstances and he got the heart attack and
it was a material fact. Now it is altogether a different risk the insurer is dealing with and he
would have charged a different premium, if he knew of the changes. The duty was on the
assured to disclose this material fact before the policy starts running as it goes straight to
the roots of the contract and substantially changes. Hence, the insurer can be discharged
from his liability on the basis of the non-disclosure by the assured of the material fact.
Therefore, harsh’s wife is not entitled to make the claim due to this non-disclosure.

Answer 4 a) The terms of the insurance cover are there so that the insurer could decrease
his liability at time when the claim is made. Warranty is when the insurer is trying to sought
discharge from the liability. It is the terms of the policy and when it is breached, it allows the
insurer to avoid his liability, even though the loss occurred not due to breach or the loss was
rectified before the breach. The warranty has to be literally followed. The statements of
facts made at the time of taking the policy is considered to be accurate and true to the best
knowledge of the assured and it forms the basis of the contract. Here the assured is
promising the accuracy of the facts at time of entering into the contract. Once, these are
formed the basis of the contract, it means that if it is not correct then insurer is never going
to be liable. Because it would be considered as contract never came into existence. It is void
ab initio. Once it is determined that the term is the warranty, it has to be strictly complied
with.
Once, the statements of facts are made the basis of the contract then, it does not matter if it
is material or immaterial as per the prudent insurer.
In the case of Pawson V Watson, the assured represented that 12 carriage guns and 20 men
will be on the ship but it was later changed to 10 carriage guns and 4 guns. Though by
changing the numbers, it was better equipped to fight. Even though it was well equipped to
fight piracy, there was breach of warranty because representation was made of 12 carriage
and 20 men. The requirement was to have 20 men, it is immaterial whether they were
capable to fight the piracy or not.
Lord Mansfield held that once warranty is identified and it is agreed to be warranty then
strict interpretation of the term has to be done.
Further in Hyde V. Bruce, it was held that when clause qualifies for 20 guns, then there
should be 20 guns. It is not relevant that he did not meant to handle those 20 guns. So the
condition precedent is to have literal compliance.
Another example is if the assured represents that the date of birth is 1 jan 1975 but it is 1
jan 1976, though he is one year younger and reduces the risk to the profile, but, once the
facts are made the basis of the contract, this mistake of age goes to the root of the contract.
here, there is alteration of the risk, it is a different thing on which you have taken the
insurance. The contract would be void ab initio.
In the present case, the representation was made that restaurant will be run by natural pipe
line gas. It is the accurate statement of the fact, hence it is a warranty and it forms the basis
of the contract. Using piped natural gas for cooking purposes, has an element in it which
relates to risk profile, but now changing to electricity use, there is an alteration of the risk.
Even though the use of electricity is less risky, but the parties have agreed beforehand that
this fact would be the basis of the contract. sometimes by alteration, the loss might be the
same but the source of loss has a different origin now. Moreover, in the proposal form it
was declared that facts disclosed would be the basis of the contract. After the contract has
got basis of the contract, it means that disclosure which the assured is making is the truth.
And on these disclosures, contract was entered into. But if the nature of that disclosure
changes, now the materiality does not matter, assumption is that contract was never
entered into.
There was a breach of warranty by the assured, therefore, it discharges him of his liability
because it is considered as a contract never came into being. It is void ab initio. The strict
duty is imposed by the warranty on the assured.

Answer 4 b) Seaworthiness is the implied warranty under the Marine Insurance law.
seaworthiness means that the ship is reasonably fit to face the ordinary perils of the sea of
the adventure planned. Seaworthiness is dependent on the type of adventure it is taking,
what sea, purpose of sailing and at what time of the year the ship is making an adventure.
Whatever can be reasonably be anticipated, the ship should be fit to face what can be
reasonably occur. For example if storm is expected then it should be able to encounter it.
But in the case of Time Policy, the requirement of sea worthiness is struck off. The reason is
that in time period policy, the ship would be taking n number of voyages, therefore it
becomes difficult to determine the sea worthiness all the time.
There are two conditions with regard to time policy, where the insurer can be discharged
from his liability:
First is, ship is lost due its unworthy conditions and it is under the privity of the assured.
Second is, the ship is lost due to unseaworthiness.
Therefore, both the conditions have to be fulfilled that is under the privity of the assured
the ship sets the sail in bad conditions and it is vanished in unseaworthiness.

Further, the factual matrix of Miss Jay Jay case is applicable to the present case. the Yacht
was insured as a time policy. The Yacht made a round trip and realized that the hull was
broken. The court held that the damage happened due to both perils of the sea as well as
bad design. Both were considered to be the effective and proximate cause of the loss. The
insurers were held liable in the present case. Lawton Lj expressed that in case of time policy,
when there are two dominant causes of loss: bad weather and unseaworthiness which was
not excluded by the insurance cover. Also, the warranty of unseaworthiness was not applied
to the present case. if there would have been an exception cause, then loss would have
been due to defective design. But when there is no exception clause then, the loss is to be
considered due to turbulent sea.
Applying this to the present case, it can be said that, warranty of seaworthiness is not a
condition precedent for time policy. Moreover, assured was not privity to the defective
condition of the Yacht. The assured can claim in this case because there is no requirement
of sea worthiness as per time policy and there was no exception clause which excluded the
unseaworthiness (defective yacht) of the ship. Therefore, assured can make a claim with
insurer. There has been no breach of warranty by the assured as he was not privy to the
defective conditions of the Yacht.

Answer 5 c) The claim of the assured cannot be on illegal basis. Mostly illegalities occur in
insurance contracts and are governed under section 23 of Indian Contracts Act. One of the
the principle is that the assured cannot benefit from his own wrongs. One of the aspect of
the illegality is that, “where the nominal assured is accused of illegality with law intending
that unknown potential with him to be beneficiary of the policy”. here, the nominal assured
is committing an illegal act and the court wants him not to be beneficiary but the third party
should be considered as intended beneficiary. The assured may not be able to make
payment for the liability if permitted to make a claim for his wrongdoings. This means that
the person should be paid from the wrongful acts of the assured. The unknown third party is
the intended beneficiary and there will not be applicability of rules of illegality here.
In the case of Hardy V. Motor Insurance Bureua, it was related to third party insurance
under Motor Vehicle insurance policy. The facts of the case were that the an individual was
stopped by the officer and he put his head on the window to talk to driver but the driver
started the car and caused injuries to the officer. The issue was whether the insurance
company was liable. The court opined that the legislature’s intention was to form
compulsory insurance as well as third party insurances. Hence, it was held that the illegal act
of the assured will not discharge the insurer from his liability to pay for the policy. The law
intends that the victim should be paid. In the cases of third party insurance, the primary
liability is with the insurer.
Applying the above principle to the present case, the assured was doing the illegal act by
carrying explosives in the truck. Here the family are intended beneficiaries and they can
claim the compensation from the insurance company. And the illegality won’t apply here for
third party payment. Hence, the injured can make a claim as a beneficiary against the
insurance company as well as deceased assured’s estate.
But with respect to family of the assured, they cannot claim from the insurer because he
was indulged in the illegal act and one cannot benefit from their own illegal acts. Hence,
here the insurer would not have liability to pay.

Answer 3 b) The importance of Duty of Disclosure was regarded in Carter V. Boehm by Lord
Mansfield on the ground that it is assured who knows all the facts relevant to the risk. And
insurer will decide and calculate on those facts disclosed whether to take the risk or how
much premium to charge. This duty arises due to the fact that insurance contract is based
principle of utmost good faith. Therefore, both the parties should be forthcoming to each
and dispose all the relevant facts. This duty starts at the beginning of the contract and
subsists even after entering into the contract.
The requirement is to disclose all the material facts known and deemed to be known to the
assured. The materiality of the facts is determined by the hypothetical prudent insurer test.
If the Prudent insurer believes that a particular facts is material, then it does not matter that
that assured regards it as immaterial, as court will think that fact is material because
prudent insurer would have thought so.
In the present case, the it was material fact that Munir Chand who has been previously
accused of money laundering and had a majority share in the company of the assured which
needed to be disclosed.
The facts related to moral hazard need to be disclosed. Moral hazard means something
which increases the probability of the risk. Therefore, prior claim history has to be disclosed
which gives an indication to the insurer the way assured behaves in a particular subject
matter. He was previously accused of money laundering, it could give an indication to the
insurer that there might be probability of cheating or dishonest conduct. It was a serious
allegation which needed to be disclosed. It does not matter that the accusations made
before are not relevant to the present scenario of fire insurance. Here Munir Chand due to
accusation of money laundering has a high risk profile. Therefore, insurer is exposed to
more risk due to this.
At the time of renewal of the policy, there should be duty of disclosure. It is considered to
be a different policy now. Insurer at the time of renewal has an option whether to renew or
not to renew. The insurer can change the terms of the policy at the time of renewal,
therefore, there is duty of disclosure at that time so that insurer can decide how much
premium to charge. As it was held in Mukan Lal case, at time of renew, the insurer is
contemplating on the risk factor of the assured, therefore, all the relevant facts need to be
disclosed due to which there is increase in the risk factor. Generally, in the case of fire
insurance - any change in status between the old policy and new policy is to be disclosed.
The majority share in the assured company was also a material fact which had to be
disclosed. Material fact needs to be disclosed by the person who is dealing with the affairs
of the company. It is not that only board of directors are dealing with the affairs and are the
directing mind and will of the company. Even though he was not allotted a seat in the board,
but he had a major chunk of share in the company. The change in the management of the
company is a very important aspect and it is a material fact which had to be disclosed.
Therefore due to non-disclosure of these two material facts, the insurer can be discharged
from his liability.

Answer 6 a) Subrogation refers to “step into the shoes of the policyholder”. When the third
party causes any damages to the assured, then the assured retains certain rights over that
third party. The claim can be made by the assured from the insurer for that loss. Now, for
the purpose of reduction of loss, the insurer can claim right over the third party. Here you
step into the shoes of the assured. The assured surrenders his rights to the insurer over the
third party. This transfer of rights is known as subrogation. The insurer is entitled to all the
rights that assured had to reduce the loss. Behind all this is the basis of the contract of
indemnity.
The insurer cannot get the compensation from the wrongdoer more than what was paid to
the insured.
The first time the concept of subrogation was elaborated in Mason V. Sansbury where the
court held that insurer has to pay the claim even though the remedy lies against the third
part. And secondly, the third party will not be discharged from the liability just because
insurer has paid the claim to the assured. The right of subrogation is, though, originated
from the law but it has its basis in equity also. For example: insurer has equitable lien over
the assured.
There are two conditions with regard to subrogation:
- Insurer has covered the claim of the assured for the loss
- If assured goes after the third party then he would be overdemnified which provides
an assured an incentive to suffer the loss.
Further, the insurer cannot make any profits from this right as he is not the owner and
therefore, if the insurer receives anything more from the third party, then that will be
provided to assured unless assignment has been exercised.
Statutory recognition of right to subrogation is given under section 79 of the Marine
Insurance Act 1963. Where it states that the insurer after paying the total loss, becomes
subrogated to all the remedies available to the assured against the third part.
In the case of Oberoi Forwarding Agency v. New India Assurance co ltd, the issue was with
regard to the difference between assignment and subrogation. The case created a lot of
havoc due to the fact that it held that subrogation cum assignment is a contract of
assignment.
The Supreme court held that the insurer is entitled to exercise the right which assured has
to cover for his losses which he paid to the insurer, but it has to be done in the name of the
assured. Any plaint or petition has to be filed in the name of the assured or the insurer and
assured can be co-plaintiff and co complainants. The insurer in case of mere subrogation can
approach the consumer forum only through the assured. This was the case of assignment
therefore, the court held that the word subrogation was assignment of rights by the assured
and hence, insurer is not “consumer” under the meaning of section 2(d) of Consumer
Protection Act, 1986. And therefore, it’s not a consumer, it cannot approach the consumer
court.
In the case of Economic Transport Organization V. Charan Spinning Mills overruled the
above case and the court held that there are three types of subrogation under Indian law:
- Subrogation simpliciter: Here, the insurer can act only under the name of the
assured like they can become joint parties to the suit or there can be power of
attorney of the assured.
- Subrogation via letter of subrogation: in this case, the letter of subrogation is made
the basis of the contract, and the right to subrogation commences when the
payment has been made to the assured. They can be joint parties to the suit against
the third party.
- Subrogation cum assignment: here, insurer can make a claim against third party on
his own discretion in its own name. here, the insurer is entitled to get the whole
amount from the third part, which is not only the amount indemnified to the assured
but also any amount which is more than what is paid to the assured.
In all these cases, the insurer can make a claim against third party only under the name of
the assured by becoming joint parties to the suit or obtain power of attorney. The court held
that in all these cases, then insurer can claim in the Consumer Forum in the name of the
assured. But when there is an assignment of rights, then insurer would not be considered as
“consumer” under the Act.
Therefore, the conclusion is that, subrogation is the like substitution of one person to
another. It gives the right to the insurer to get the rights and benefits which assured has
against the wrongdoer to the extent the claim has been paid by the insurer. But the right
can be exercised only in the name of the assured. And difference has to be made between
subrogation and assignment as in the case of assignment, the insurer’s claim would not be
maintainable under consumer court as insurer is left with no right. Under The Consumer
Protection Act, insurer is considered to be a consumer only when it is the case of mere right
of subrogation or it is subrogation cum assignment.

Answer 3 a) The purpose of the duty of disclosure is that the assured makes a fair
representation of his risk to the insurer before the contract is entered into. One of the
material fact which needs to be disclosed is the fact which increases or affects the right of
the insurer. First it has to be determined what affects the rights of the assured. Once the
insurance has been done and loss occurs, then the insurer has to make the payment, but
there are some rights which allows the insurer to reduce the loss. And one of the right is
right to subrogation. If the insurer’s right of subrogation is affected then that fact needs to
be disclosed.
The relevant case law with regard to it is Tate v. Hyslop, where the contract was of
unloading of goods from the ship and there was a clause that lighters would not be made
responsible for any damage to the goods. And when the damage occurs, the insurer after
paying the claim of the assured would not have any rights and remedy against the lighter.
This was a deviation from the normal circumstances of the contract. here, the right of
subrogation was affected of the insurer and this reduced the insurer’s right to reduce his
loss. This arrangement between the lighters and assured ought to have been disclosed to
the insurer.
By applying the above case to the present facts, it can be said that the assured did not
disclose the clause which stated that architect firm will not be liable for any design flaws
after a period of 5 years. Here it was a material fact which is connected to the risk factor.
Now, the insurer’s rights have been affected and he would not be able to go against the
architect company for recovery of money paid. This is something which ought to be
disclosed to the insurer.
Here, the insurer is discharged from the liability on the basis of non-disclosure of the
material fact which was affecting the rights of the insurer.
Answer 3 c) Life insurance contracts are based on the principle of utmost good faith,
therefore, the assured is supposed to disclose all material facts which honesty. On the basis
of the disclosure made, the insurer decided whether to provide for cover or not.
After a long battle between insurer and assured, section 45 of Insurance Act 1938 was
amended in 2015, where the insurer can reject the claim within three years of policy and
not thereafter. Section 45 states that no policy shall be rejected on any basis after the term
of three years is over from the date of policy, that is, from the date of issuance or running of
risk or revival or rider, whatever is later. Now, law made a demarcation between fraud and
incorrect statement. If within 3 years, mere incorrect statement is made, then assured is
entitled to get the return of the premium but if it’s the case of fraud then, then premium as
a matter of right would not be received. In Mithulal case, the court held that when the
assured has committed the fraud then he is not entitled to premium as he cannot get
benefits from his own wrongs. The premium is forfeited. This is provided under section
45(4): refund of premiums since it is not intentional non-disclosure.
Further section 45 states that the insurer can reject the claim on the basis of fraud. Fraud is
defined as in Contract Act. The intention to deceive or induce the insurer to issue the policy.
provided the insurer has to communicate the grounds and material on the basis of which
fraud is committed. Therefore it becomes pertinent for the insurer to prove that the ground
on basis of which he is rejecting the claim, is a material fact. The suppression which was
done was a material fact. It would be material fact if, firstly, it has a direct connection to the
risk and secondly, if the insurer knew of this averment then he would never had accepted
the policy.
Further, the assured can avoid the repudiation on the basis of fraud if he can prove that:
- Suppression of material fact was in his best knowledge
- No intention to suppress the material fact
- Insurer had the knowledge of such suppression of material fact
Further, keyman insurance is the way of compensating the employee. The employer would
normally pay the premium for that policy and over time transfer it to the employee. The
employee is considered to be key employee and at the time of claim, the employer will be
entitled to the benefits.
By the applying section 45 to the case, the insurer cannot contest after 3 years from the
date of the rider. Here it has been four years from the date of the exercise of the rider
option. A strict interpretation has been provided in the section, even if intentional non-
disclosure is made, the right to repudiate the contract is not available after the 3 years’ time
period.
Further, the assured did not hide the material fact that Harsh was suffering from the
diabetes. This shows that there was no intention to conceal the material facts and what he
stated was best to this knowledge. Also section 45 provides that mere silence does not
mean that it is fraud. Moreover, the happening of the air crash was an independent act and
had no connection to the risk bearing. Hence, the insurer will not be able to avoid his
liability on the grounds of non-disclosure. The insurer is liable as he cannot contest after
the expiry of three years and there was no concealment of material facts by the assured.

Answer 2 a) One of the requirement of the insurance contract is that the amount should be
payable on the occurrence of an event as per Prudential Insurance v. Inland Revenue
commissioners. The event should be occurred in an uncertain manner. The event should
not be in the control of the assured.
Therefore, the element of uncertainty plays a very important role in the insurance contract.
In life Insurance contracts, there is always an uncertainty when it would be paid and how
much will be paid, this makes it an insurance policy.
Sometimes what happens is that there are mixed grain contracts. Here the primary purpose
of the contract needs to be seen. Contracts can be both insurance contract and for some
other objective, but contract has to be seen in the essence and not form.
The Fuji Finance Ltd V. Aetna is applicable to the present case. Here the company created
capital investment bond for the advantage of the employees which they would receive
when the employee would retire, terminated from the company or leaves the company.
here the uncertainty was with regard to when would the employee die/resign/removed
from the company. The amount payable is based upon the uncertainty of happening of the
events. This uncertainty is enough to constitute it as insurance contract. Gratuity and
provident fund are paid on the uncertain event occurring and it would still be an insurance
contract.
Applying this to the present case, the life insurance company is paying gratuity amount,
provident fund dues to an employee. The amount will be paid on the happening of the
event such as retirement, death or resignation. Life insurances do the business of payment
of gratuity. The uncertainty is with regard to how long the insured would pay and how long
will he live, or retires or resigns, hence there is an element of risk inbuilt. There is
uncertainty as to when any of the events would happen.
Moreover there is a valid contract between Life insurance and Kota company because there
are some benefits which can be derived on the payment and on the occurrence of some
event to the workers. It is not always that money can be paid on occurrence of certain event
but there can be some benefits also. Like here it was gratuity, provident amount etc.
Hence, it can be concluded that it’s an insurance business as there is sufficient uncertainty
to the happening of the event that fulfils one of the requirement of the insurance
contract. hence, it’s a valid contract.

Answer 2 c) Insurable interest is very essential condition for the purpose of the insurance
policy. Insurable Interest means, that when loss occurs the person will be affected by that
loss. A person can have insurable interest in his life, business or family and therefore, avails
the benefits of the insurance.
In the case of Deepak Fertilizer and Petro Chemicals ltd v. ICI chemicals, the methanol plant
was constructed by ICI. Design was provided by Davy. The project was completed. Deepak
fertilizer took the all-risk policy which covered them as well as sub-contractors. Due to the
flaw in the design, the insurer had to pay. The insurer sued the ICI. The issue was whether
davy and ICI had insurable interest? The court opined that just because they have
constructed the plant does not mean that they have insurable interest in the plant. The
distinction has to be made between having insurable interest and liability insurance. At the
time when plant was built, there was an insurable interest as it was within their control but
when the plant was delivered then they have no insurable interest. There is no right present
once it is delivered. For the purpose of insurable interest, there has to be existing right. Just
because they can be made liable for the plan, does not make them have insurable interest.
A potential liability with regard to negligence does not make you have insurable interest.
Once, the plant has been given to DF, ICI and davy have no interest and they can only get
liability insurance.
Hence, the court concluded that on giving back the property, the insurable interest of the
contractor comes to an end and would not continue just because they could come under
potential liability in future.
By applying this case to the present situation, it can be said that Dakshin designed and built
the airport for Pune Airport. After handing over the building, he took an insurance policy on
the terminal building. Instead, the potential liability insurance should have been taken to
cover the liability. But the insurance was taken on the building itself.
Once the building has been handed over, the contractors loses his right and hence he does
not have the insurable interest. And hence, he cannot take the present insurance on the
value of the property. Hence, it not a valid policy. They should have gone for potential
liability insurance. Their insurable interest was limited to the execution of the project, the
moment the project was executed and delivered that was the extent of the insurable
interest.

Answer 1 a) There is a difference between critical illness policy by life insurer and medical
insurance. A medical insurance plan is an indemnity contract which covers the actual
expenditures(medical expenses) incurred by the assured. It generally covers hospitalization
expenditures. Nothing extra would be paid here. But in the case of Critical illness insurance
the lump sum payment will be made regardless of what was the actual expenses (could be
more or less) spent on the critical illness defined in the insurance. Here, you will be paid
even if you have not incurred that expense. Hence this is not indemnification. But in medical
insurance, you will be paid the exact amount you spend on the treatment. This is
indemnification. The second difference could be on the basis of the policy period. In case of
medical insurance, cover is given for one year and renewed every year. But in the case of
Critical illness policy, generally, taken for a long time like 10-15 years.

Answer 1 b) in life insurance policy taken by the creditor on the life of the debtor, the
amount is payable to the creditor only at the time of the death of the debtor. The creditor
cannot claim at the time of the nonpayment by the debtor as the purpose of insurable
interest is to safeguard that there is no nonpayment of the debt due to demise of the
debtor. Moreover, at the time of repayment, only the loan amount will be paid without any
interest. Life insurances are not indemnity contracts, hence no right to subrogation exists.
Moreover by applying the principle stated in Godsall V. Boldero, where it was held that
once the debt has been paid, there would be no insurable interest at the time of death.
Here the insurable interest is on the life of the debtor.
But in the case of Credit insurance policy, it is a type of policy in which the debt of the
debtor will be paid off at time of loss of job, disability etc. here the creditor can make a
claim of the loan given as well subsequent amounts. This policy is taken for other causes like
loss of job, disability along with death. The creditor in case he cannot fully recover, can go
against insurer as well as heirs. Here the insurable interest is on the debt owed to the
creditor.

Answer 1 c) A nominee is considered to be a person who takes care of the property of the
dead person till the time the property Is distributed to the legal heirs. A person whom the
assured wants to provide for the accumulated financial benefits after death is said to be a
nominee. One of the nominee could be the minor child. But if the child is below 18 years
then he cannot claim but the custodian has to be appointed for that purpose. Here, the
nominee may not be beneficiary but he has full legal right to take the control of the
property of the policyholder. If the assured’s nominee is a child in the life insurance then
child can make a claim
Answer 1 d) Particular average loss and General average loss are the part of the marine
insurance law. In case of General Average loss, some costs are incurred for the purpose of
protection of the marine adventure. For example. There is a huge storm and the owner
throws some goods which are on the ship so that weight of the ship becomes less. Here it is
done for the benefits of all the parties. Now, all the parties who got benefitted have to
contribute proportionately to the individual who experienced the loss. In the case of
particular average loss, there is a partial loss, involuntary loss occurred due to the perils of
the sea. Here, no claim can be sought from others by contribution for the loss. generally,
only one party will have to suffer the loss. hence, Particular average loss can be said to be
involuntary and unforeseen but general average policy is voluntary act to reduce the loss.
The GAL affects the common interest of the parties. While PAL is related only to a particular
interest. In GAL the loss is contributed by all the interested parties but in case of PAL, only
the owner has the liability to incur.

Answer 1 e)

c) A nominee is a person who gets charge of the assets and holding of the deceased to
dispose off, he may not be a beneficiary, who has a direct financial interest in the life of the
Assured, but will have the legal wherewithal to manage to property of the deceased. In case
of Assured’s child being a nominee under a life insurance policy section 39 of the Insurance
Act would apply and they would be deemed to be a beneficial nominee. Whereas when the
child is a beneficiary under life insurance, section 6 of the Married Woman’s Property Act
applies and the policy is deemed to be in trust. In this case, in the former, the policy can still
be assigned and the nomination can be changed, however in the former, the property goes
out of control of the Assured and becomes a trust property.

Answer 1 e) The PPI means that the insurer is ready to waive the requirement of proving the
insurable interest. It was originated in marine insurance, due to the fact that it was difficult
to prove insurable interest, hence practice evolved that policy is itself a proof of insurable
interest. Here the insurer cannot content that there is not interest. But later, the courts
interpreted PPI clauses to be the wagering contract. therefore, under Marine insurance Act
1745, PPI clauses were held to be void. Further Indian Act in 1906, declared PPI
clauses(having no interest) to be void. The requirement is to have insurable interest at the
time of seeking the policy. Hence, under Marine Insurance, the PPI clauses have asserted to
be void.
In case of normal fire policy, the requirement of insurable interest is at the time of seeking
the policy as well as at the time of the loss. if insurable interest is not there, then there is
risk that the assured could become indifferent to the cover. Hence, both the policies are
invalid with PPI policies as in case of fire insurance, insurable interest is required at time of
seeking the policy as well as loss. and in case of marine insurance, the insurable interest is
required at the time of the seeking of policy.

e)In policy proof of interest, the insurer agrees to do away with the need for the proof of
insurable interest, by making it so that the policy itself is the proof of interest. In case of a
normal fire policy, there needs to be insurable interest otherwise the assured may become
indifferent to the asset insured and risk incurred, and thus may not take the required
amount of care to preserve and safeguard the asset. Under Marine Insurance, these sort of
agreements have been declared to be void. However, at times they are used and treated
rather as contracts of honor.
Answer 6 b) Double Insurance means taking insurance again on the same subject matter by
the same insured. The same insured peril is insured again but with different insurers. One of
the reason of taking up the double insurance is that where certain clauses limits the claim of
the assured or there is a possibility that insurer might not pay the assured.
The general principle is that at the time of the loss, the assured can claim from any insurer.
After the assured is paid by one of the insurer, that insurer gets the right to get the
contribution from the other insurer.
Sometimes, the insurer discharges the liability if there is another insurance on the same risk.
The insurance companies tries to shield themselves against the claims of from other
insurers. They are like protection clauses in the policies.
Type of clauses
- Roteable proportion clause
- Prohibition: first policy will not be liable if there is another policy. This is also known
as “escape clause”.
- Liability will start operating only when the second policy has paid the claim (specified
policy)
- Excess clause: the liability arises only when loss exceeds the threshold of the other
insurance.
The insurers do not want to contribute when one insurer is paying. Now the problem arises
as the other insurer would also provide for such clause in the policy to shield against the
other insurer. The issue is when both the co-insurers puts up the clauses of non-payment,
then what would be the recourse? These clauses have been dealt with under the following
cases.
In Gale v. Motor Insurance Co one of the insurer provided the clause that insurer will not be
liable in case of other insurance of the same insured peril. And another clause was there
which stated that insurer would provide payment in rateable proportion of the contribution.
Here the clauses were in contrast to each other. Here because there was contradiction, one
of the rule of statutory interpretation was applied and held that the later principle prevails
over the former principle. Therefore, clause of rateable proportion would be applicable and
the liability to pay would be in rateable proportion. If both of them say that they would not
be liable, then the third party will never be able to claim.
Further in the case of Wedell V. Road Transport General Insurance, the clause with respect
to rateable proportion was done away with. Here, the court held that if two insurer claim
that they would not be liable in case of other insurance, then both of them have to pay in
rateable proportion. As both the clauses are elimination each other’s existence. The clause
has no ground to cancel the other’s existence when its existence is itself cancelled. So they
both are not in existence. The exemption clauses are cancelling out each other. Hence, both
of them are liable in rateable proportion. Here the elimination of insurer liability can happen
only if the second insurer’s clause had some different clause.
Further in the case of State Fire Insurance vs Liverpool & London and Globe Insurance Co,
here the state policy had a clause that they will be liable only when the specific policy had
made the payment. And the other insurers said that they will be liable on rateable
proportion. Here, the state’s liability will not commence until the second insurers has made
the payment. So one the first policy pays off, then the liability of the second policy will start.
In National Farmers Union Mutual Insurance Society Ltd. vs HSBC Insurance (UK) Ltd., the
Farm Union had a clause that in case of second insurance then its liability would be paid in
rateable proportion. And HSBC had a clause of exemption from making any payment. Here,
the Farm Union has to pay the entire claim.
So these are the case laws with regard to different type of clauses for elimination of Liability
if covered by another or Liability starting after other’s Liability ends.

Answer 2 b) An individual has unlimited insurable interest in her own life. Under Life
Assurance Act, there has to be prove of insurable interest. There has to be some legal
relationship which shows that you will make the payment. There is no insurable interest in
case of grandchildren-grandparent relationship. They have no insurable interest in each
other’s lives. Here there is moral responsibility but no legal responsibility. Hence, if a child
gets maintenance under section 125 CrPC, only then there would be insurable interest.
If there is a contract under section 25 of ICA, providing for maintenance then there is
insurable interest.
The law of insurance in America is more adjusting in the way that insurance will be
enforceable even if there is only moral obligation and reasonable expectation that moral
obligation will be fulfilled.
The issue came up in the case of Mani Shanker Pandeya v. Alliance Garter life Insurance
Bank, here the life insurance was sought by M for his brother. The company did not accept
on the ground that there was no insurable interest. Later, he took insurance on his own life,
but later he made an assignment of policy to M. the brother expired next year. The
insurance company sought to discharge his liability on the ground that that insurance was in
essence taken by M on his brother life as he was making the payment of premiums.
Therefore void as per section 23 and section 30 of ICA.
Here the proposal form was filled by M and signed by brother and it was assigned to M.
hence, the assured is M and not brother. On the other hand, claim was made that M had
Insurable interest in the life of the brother.
Here, the Life Assurance Act was not applicable and the only law with respect to wagering of
contract is under section 30 ICA, it is better if American law is referred to. Here it is more
adjusting. McGilvery was cited and it was stated that there would be presence of insurable
interest if a person can show that there was:
- moral obligation
- dependence
- Reasonable expectation that morl obligation would be fulfilled.
For instance, there is close relationship between child and parents and there is moral
obligation to maintain. Here, at that time it is important the parent is dependent on the
child. And there is reasonable confidence it would be fulfilled.
Barness V. London case was cited where the stepbrother sought to take insurance on the life
of the stepsister. The court held that there was no obligation to maintain the sister. It was
more like the expectation that money would later be returned for maintaining her once she
grows up. Further in Shillong V. Accidental Death Insurance company, the court held that if X
takes insurance on its own life and then assigned to Y, it is same as seeking the insurance on
the life of other.
Here, brother took an insurance policy on his life, declaring that his income is from money
lending business. Further he gave his shares to M. also he worked as a compounder under
M. hence, M had no insurable interest in the life of the brother. Though on the face of it,
brother took the policy, but in the essence it was sought by M. the signature was made by
brother, but premiums were paid by M and it was assigned to him. Therefore no insurable
interest, hence the contract is void as per section 23 and 30 of ICA.
In the present case, both the policy was taken by the grandfather for the children. He is not
dependent on them but its vice versa.