Roll No.

__________ 1021

MAY 2020
B.B.A. LL.B. (Hons.) - Examination
X Semester
Insurance Law
Time: 3 Hours] [Max Marks: 60

Note: Attempt any four questions from Section A. Section B is Compulsory.

Each question carries 12 marks.

Section - A

1. Today it stands as a business growing at the rate of 15-20 per cent annually. Together
with banking services, it adds about 7 per cent to the country's GDP .In spite of all this
growth the statistics of the penetration of the insurance in the country is very poor.
Nearly 80% of Indian populations are without Life insurance cover and the Health
insurance. This is an indicator that growth potential for the insurance sector is immense
in India. Describe with the Nature, purpose and scope Insurance Industry in India.

If one goes by the word meaning insurance is a contract between two parties whereby the
insurer agrees to indemnify the insured upon the happening of a stipulated contingency, in
consideration of the payment of an agreed sum, whether periodical or fixed (the premium).
Insurance falls into the main groups of life, property, marine, aviation, health, transport,
motor vehicle – third party liability, and personal accident and sickness. The meaning of
insurance in context of insurance business is not easy to define. There are hundreds of
definitions of insurance by hundreds of persons. In fact the insurance is the subject matter
relating from man to man and a person to person.

Nature of insurance industry

1. The insurance industry provides protection against financial losses resulting from a
variety of perils. By purchasing insurance policies, individuals and businesses can receive
reimbursement for losses due to car accidents, theft of property, and fire and storm
damage; medical expenses; and loss of income due to disability or death.
2. The insurance industry consists mainly of insurance carriers (or insurers) and insurance
agencies and brokerages. In general, insurance carriers are large companies that provide
insurance and assume the risks covered by the policy. Insurance agencies and brokerages
sell insurance policies for the carriers. While some of these establishments are directly
affiliated with a particular insurer and sell only that carrier’s policies, many are
independent and are thus free to market the policies of a variety of insurance carriers.
3. In addition to supporting these two primary components, the insurance industry includes
establishments that provide other insurance-related services, such as claims adjustment or
third-party administration of insurance and pension funds.

Purpose
The purpose of insurance is to reduce the business' exposure to the effects of particular risks.
These could include:
a. damage to, or the loss of, physical assets such as the premises or equipment
b. illness or death of key members of staff
c. compensation claims against the business or its directors by employees or customers
d. business interruption caused by external events such as terrorism
e. volatility and cash flow pressures following an incident

Almost all businesses buy insurance, but the type and amount of cover purchased will vary
according to the particular risks the business is exposed to and how much risk you are willing
to personally bear.

Scope
The insurance industry in India has seen a strong growth cycle post the year 2000 and
reaping the benefits of the tailwind of strong economic growth environment in the country.
 The industry has seen a large expansion in the total number of policies in both, the life and
general insurance segments.
However, the industry has been grappling with a weak trend in the insurance penetration of
the country post the year 2008. This is primarily due to the weakening sales of market return
linked insurance products in the aftermath of the global financial crisis that occurred during
2008. Although the total policy premiums in the industry have grown at a strong CAGR of
13.2% during the period 2015-19, the overall insurance industry is still significantly smaller
than advanced economies such as USA, Germany and Japan. The insurance penetration in
India stands at ~3.7% which is amongst the lowest in the G20 countries. This provides a huge
scope for future growth in the industry in line with the medium-term economic growth
prospects of the country and the large base of non-insured citizens.

Conclusion
After a thorough analysis of the insurance industry in India we can say that despite the
industry grappling to stay, the scope has been widely enlarged. This combined with the
advent of the COVID 19 pandemic the economic structures of the country have to bear a lot
and have borne the brutal brunt of the successive lockdowns with frailing businesses. The
pandemic also exposed the weak healthcare system which has led to many dying of the
pandemic without getting the right treatment. This has led people to now realize the
importance of the insurance cover. This will be a huge boost for the industry. So we can say
that the industry following the pandemic will prosper more and we will see the insurance
cover increasing among the public.

2. Plaintiff truck driver was injured and sued his trucking company. The Court of
Appeals upheld the trial court’s granting of summary judgment to the Defendant
Company based on an unambiguous release and indemnity agreement between the
company and the injured driver, which absolved it from any liability and made it
impossible for the injured driver to obtain a judgment against the transfer company.
Decide it with the Indemnity and Subrogation.
 To understand this case we need to briefly understand the 2 words; Indemnity and
Subrogation.
Indemnity: Sec 124 of the Indian Contract Act 1872 defines indemnity as:
“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.”

Subrogation: Sec140 and 141 of the Indian Contract Act 1872 deals with the concept of
subrogation. Sec 140 states that:
"140. Rights of surety on payment or performance : Where a guaranteed debt has become
due, or default of the principal - debtor to perform a guaranteed duty has been taken place,
the surety, upon payment or performance of all that is liable for, is invested with all the
rights which the creditor had against the principal - debtor."

The facts of the case given in the case are in pari materia to the facts of the case of Coleman
v. B-H Transfer Co.
In this case also the Plaintiff truck driver was injured and sued his trucking company. The
Court of Appeals upheld the trial court’s granting of summary judgment to the Defendant
Company based on an unambiguous release and indemnity agreement between the company
and the injured driver, which absolved it from any liability and made it impossible for the
injured driver to obtain a judgment against the transfer company.
The Court of Appeals also found that the trial court had erred by not granting summary
judgment to the company’s insurer on the same grounds.

On the basis of the mentioned case we can conclude that the truck driver will not able to take
the defence of indemnity and subrogation and would not succeed in getting a judgment
against the company.

3. The purpose of General insurance is to compensate you for the loss that you suffer in a
contingency. However, at the time of compensation of the loss, if the insurance company
takes too much time or does not settle your claims satisfactorily, the purpose of
insurance would be defeated. So, when comparing general insurers, compare the ease
with which they settle claims and their historical claim settlement record. A company
which settles its claims easily and has a good track record of settling its claims would be
the best. Discuss with provisions of General Insurance.

To answer the above question we need to first understand what ‘General Insurance’ is?
A general insurance is policy or agreement between the policyholder and the insurer which is
considered only after realization of the premium. The premium is paid by the insurer who has
a financial interest in the asset covered. The insurer will protect the insured from the financial
liability in case of loss.
General insurance can be categorized into categories such as Motor Insurance, Health
insurance, Travel insurance, etc.
The general insurance business was also nationalised with effect from January 1, 1973,
through the introduction of the General Insurance Business (Nationalisation) Act, 1972
(GIC Act).
It is true that if the insurance company takes too much time or does not settle
your claims satisfactorily, the purpose of insurance would be defeated. If we examine sec
64VA of the Insurance act we would find that the act mandates the corporations dealing in
with general insurance business to keep a minimum balance.
The section states that:
In the case of an insurer carrying on general insurance business, the required solvency
margin shall be the highest of the following amounts: -
(i) Rs. 500 million (Rs.1 billion in case of a re-insurer); or
(ii) A sum equivalent to twenty per cent of net premium income; or
(iii) A sum equivalent to thirty per cent of net incurred claims.
This shall be subject to credit for re-insurance in computing net premiums and net incurred
claims being actual but a percentage, determined by the regulations, not exceeding 50%

An insurer who fails to maintain the required solvency margin will be deemed to be insolvent
and may be wound up by the court. The regulation 2(f) of the IRDA states that the Indian re-
 insurer is required to organize domestic pools for reinsurance surpluses in fire, marine hull
and other classes in consultation with all insurers and should also assist in maintaining the
retention of business within India.
The purpose of insurance is to compensate you for the loss that you suffer in a contingency.
However, at the time of compensation of the loss, if the insurance company takes too much
time or does not settle your claims satisfactorily, the purpose of insurance would be defeated.
So, when comparing general insurers, compare the ease with which they settle claims and
their historical claim settlement record. A company which settles its claims easily and has a
good track record of settling its claims would be the best.

4. Risk management when conducted effectively, reduce sudden surprises. The advantage
with risk management is that the stakeholders are aware as to the risk that they have to
bear among all the risks that have been identified in a project and can prepare
themselves accordingly, should any eventuality occur. Elaborate it with element and
scope of Risk Management.

The general responsibilities of a risk manager include identifying and evaluating loss
exposures, developing risk control programs, and deciding how best to fund risks. Risk
management experts think of a full-scale risk management system as a system with four
elements:
a. Risk identification
b. Risk evaluation
c. Risk control
d. Risk financing

Using the four-element approach is a step-by-step process. The risk manager first must
identify a Potential Loss before it can be evaluated.
 Evaluation, the second step, is necessary to know how to control the expected loss. To
evaluate a potential loss, the risk manager must know what the loss is, determine its
severity, and calculate its probable frequency of occurrence.

The third element, Risk Control, is the one most often recognized by county officials. It is
subdivided into “loss prevention” and “loss reduction.” County officials will avoid much
disappointment by admitting in advance and declaring in the policy statement that a risk
manager rarely can completely prevent a loss in a given area. A sound risk management
program of loss prevention can, however, decrease the frequency of loss in that area. When
a loss does occur, the measures taken under the program will reduce the cost or severity of
the loss.

Finally, to finance the loss in the proper manner -- after identifying it, evaluating it, and
using such control measures as safety programs, inspections, and disaster training -- the risk
manager must cover the risk with insurance or with a combination of insurance and risk
retention methods.

5. It is well established in each jurisdiction that patentability of the product defined by a

process is determined by product alone irrespective of the novel process from which it is
obtained. The burden of proof lies on the Applicant to establish the non-obvious
difference of the product obtained by a process in view of the similar product disclosed
in the prior arts. But the infringement aspect of the product by process claims somehow
depends on the way the claims are drafted, need of drafting product by process claims,
prosecution history, and the prior arts. Discuss it with the process and part of claims.

6. Write Note on any two of the following:

a. Insurance Ombudsman
An ombudsman is an official, usually appointed by the government, who investigates
complaints (usually lodged by private citizens) against businesses, financial institutions,
or government departments or other public entities, and attempts to resolve the conflicts
or concerns raised, either by mediation or by making recommendations.
 Insurance Ombudsmen are appointed by the Governing Body and are empowered to
entertain complaints on the following aspects in respect of personal line insurances:
i) Any partial or total repudiation of claims by an insurer.
ii) Any dispute in regard to premium paid or payable in terms of the policy.
iii) Any dispute on the legal construction of the policies in so far as such disputes
relate to claims.
iv) Delay in settlement of claims.
v) Non-issue of any insurance document to customers after receipt of premium.

b. Claim Tribunal
Chapter XII from sec 165 to sec 176 of the Motor Vehicle act 1988 explains ‘Claims
Tribunal’s’ meaning, constitution and the procedures. Sec 165 of the act states:
(1) A State Government may, by notification in the Official Gazette, constitute one or
more Motor Accidents Claims Tribunals (hereafter in this Chapter referred to as Claims
Tribunal) for such area as may be specified in the notification for the purpose of
adjudicating upon claims for compensation in respect of accidents involving the death of,
or bodily injury to, persons arising out of the use of motor vehicles, or damages to any
property of a third party so arising, or both.

(2) A Claims Tribunal shall consist of such number of members as the State Government
may think fit to appoint and where it consists of two or more members, one of them shall
be appointed as the Chairman thereof.

The sec 166 lays down the eligibility of the claims tribunal whereas sec 169 lays down
the procedures and powers of the tribunal

c. Transfer of Risk
A transfer of risk is a business agreement in which one party pays another to take
responsibility for mitigating specific losses that may or may not occur. This is the
underlying tenet of the insurance industry. Risks may be transferred between individuals,
from individuals to insurance companies, or from insurers to reinsurers. When
 homeowners purchase property insurance, they are paying an insurance company to
assume various specific risks associated with homeownership.
When purchasing insurance, the insurer agrees to indemnify, or compensate, the
policyholder up to a certain amount for a specified loss or losses in exchange for
payment. Insurance companies collect premiums from thousands or millions of customers
every year. That provides a pool of cash that is available to cover the costs of damage or
destruction to the properties of some small percentage of its customers. The premiums
also cover administrative and operating expenses, and provide the company's profits.

Section - B

7. Even if the defense has been pleaded and proved by the Insurance Industry, they are
not absolve from liability to make payment to the third party but can receive such
amount from the owner insured. The courts one after one have held that the burden of
proving availability of defense is on Insurance Industry and Insurance Industry has
not only to lead evidence as to breach of condition of policy or violation of provisions of
Section 149(2) but has to prove also that such act happens with the connivance or
knowledge of the owner. If knowledge or connivance has not been proved, the
Insurance Industry shall remain liable even if defense is available. Decide with help of
case laws.

The Indian Insurance Industry cannot avoid the liability except on the grounds and not any
other ground, which have been provided in Section 149(2). In recent time, Supreme Court
while dealing with the provisions of third party motor has held that even if the defense has
been pleaded and proved by the Insurance Industry, they are not absolve from liability to
make payment to the third party but can receive such amount from the owner insured. The
courts one after one have held that the burden of proving availability of defense is on
Insurance Industry and Insurance Industry has not only to lead evidence as to breach of
condition of policy or violation of provisions of Section 149(2) but has to prove also that
such act happens with the connivance or knowledge of the owner. If knowledge or
connivance has not been proved, the Insurance Industry shall remain liable even if defense is
available.

In Sohan Lal Passi's v. P. Sesh Reddy it has been held for the first time by the Supreme
Court that the breach of condition should be with the knowledge of the owner. If owner's
knowledge with reference to fake driving licence held by driver is not proved by the
Insurance Company, such defence, which was otherwise available, can not absolve insurer
from the liability. Recently in a dynamic judgment in case of Swaran Singh, the Supreme
Court has almost taken away the said right by holding;
(i) Proving breach of condition or not holding driving licence or holding fake licence or
carrying gratuitous passenger would not absolve the Insurance Company until it is proved
that the said breach was with the knowledge of owner.
(ii) Learner's licence is a licence and will not absolve Insurance Company from liability.
(iii) The breach of the conditions of the policy even within the scope of Section 149(2)
should be material one which must have been effect cause of accident and thereby absolving
requirement of driving licence to those accidents with standing vehicle, fire or murder
during the course of use of vehicle.
This judgment has created a landmark history and is a message to the Government to
remove such defence from the legislation as the victim has to be given compensation.

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