MoDULE I-INDEMNT

frnat b un
dem nu
124

ne pa
t.DomusRs
Pomiu.

tD Aaue he
dahinad: A cmnadt
by whick
the
t h e conducl obthe pLomiaD PLOTn koas
hun by the Caa Ld bd
a n othr
bthut hinalb o bu tha
ndu h any A pa on Callu d a tnrat o
indumny

Tndemnuu the p wwho

Hotden
Aius the un dem nuby
Tpemniy the poADn tv whom undimn
PHLOMuAR
demnuuH
An und Sonuad- may ithr be
epW m pAisd
Panies m pussly Cwale Auch a Contiact aa pen thein
twums and Conditons the natwu n
0Lw'n nmatana
may cuale un dem nty
vbligationA

Righta v Lndemniuy Holdar

The igha o an indumntj hatdv au dopendent upn
h twma and onditi br the contat o un dam nty
owewn , 0A a eneal Hule the indemnuby hlden us

ntitlrd td e.couen al damag es that h

may haua pàud
et any s u u n tuape ct ant mate to uhich the
phomiae2 indamnihin applis

Lduon 25 Rig da i n dumnu holdr uhun sud Th

PADTnAr in a Connact bindumhuy actng wi thin tha ACope
hus ouuthoiuty s encitud to ucouenAm the phsmw
1) adamages which he
may be cwmpolld to pa
A u in hs pect b any m a l to which the

t n daumniby applis
COAt which he may be Cwmpelld to pay un
At in bringing daben ding a , he did not
mnaene the d o s othepuwnup and acid aa ut
uuld ha bLAn phudert er hum to act in abaanee o
Widomnu4 C ad u he pomiA DL aulh bLLA LCd hum to
 bing hend the suut
3) umA Luhuch he may
haue paid un de
the
the t
p Lompomiae CompD pb any such auuf,
aA Conbiayy to the bmde othe phomis6 and
and phmi
uwo
which ut uuld hau ben psudent otho D
to make in
authoisRd him
undomrut
un abaen ce eh any conbta ct ob undimnuty
tv COm phomise th
u the pUT
ht to LLcouer damages paid un a Aut
Aec 125 Un
[4ec 125/nm

when third party laya douun a lam gainat h

a

un demniby hrder, it A e l l etabliahed that the

duty topay
the
indemnily hol dur arizes fer the indamnih wr at fiut
place The damagu would dainitely be the erd Auult
othu ttal liabiliy that the indusmmity holder had to ta

Parnker v LeuisA
The
The pinciple eb pHouidin8 indem niy to a peuon whe
had actud on the baith o another peraam uaa
up hild T
(ount huld that it wuld be ob wigus hor the un demniby
h der , who has altvud his poáLtuin and facud a umucauara.
e
be that acturn, to be indemnihiud by the wndemnihwr
Once a Aut A dacidad against the indemruhud and he
pay damag s to the other pariy, tha ndamnibur boemu
Li oble to n demri the indemnity helden, whther pt net
the 4ut owld hau been appealed against

a Venkatanamanna Palalchula
Manaamama
A dudgemant vbtain ed af twi boma fidecontest apainst
the undemniby hrdden un huspect ob a mátten to uhich a
cwnlna d o indamnity appliuo s conduaiue againat tthe
i ndemni i euen tha undemnihwr is n i t a pary to
to éonbr
*
s uit ob acion
 ,iiss m
mee
ene 6 an aclom
It neal
3eneak aA
and
and
CompaLed tv
nderur whw Liabiliy
whew labg
is namouL
ony om a aele ct cauAe. a ona
Adama0n V 3aruis
1he
he plainil a n auctioner Atd cntan catil on
tha
e
nu
sn o the
s u n cuon
daßendart Laten, it was PLRalied that tha
etile d
cattle dd
i l not
belong to the delendant and the md tha
plairut The
The
plainti bB wn twun Aued the
indemrut
dahand art e
AuBed by acing on depandant's dirnuon
Hud The plaintibb was eritled to recouo the mon
had paidto the bwner ohthe Cattl and anH 2paA2s
in cuted by him to get a legal couvel
 v Culab Rao
okuld
a
V
Cowt huld thal indsmni
The hw Cannt pls ad that h

pary to d
u to iput
daApua and hun u the u ult shuld n
ta
atas mentcd up on him
e Ae
imp.keN

Nallappa Ruddi v Vridha

achala Riddi
as abDLe CaAes NDthung n
Same

Khan v Gulam Kasam Ld

un dary
A n u u a n t

D be extant
damages uuld dapend up on the
#
he
measune ob
tuhich the the perAOn has been undmnibud 1 dama4 o
undenm ru,ud amount, the un demni, wn ca
me han the
tha

in delending bingkng
)Right D LecuL CosLA uncuved
aAuut s e c 125t2)J
bh o m the
A i t

ai ght to re irmun
hoddn has the
An indem nuy
all inci denta coat uhich he has un cuned n

indemri the &t

in uhich pwrp04
bungu a A t
atendurg
inuolned
aum h indimnuy is being

Chundth Seckwt Mookuy

v
#'epin ausL mhile neducung
ecperbeA do
The Cowt held hat
the clauin Hence, cost dh sch
ussinA
aACAlaunung
nalwie Can b econered

PhAaad
Bhawani
*opal Sngh v
thoae costs uould
uuwmld be neco
Þe uerabe
He CO uerabHe
twAs huld that onlH man
incwud by a phudent
which oUe tv be
AuPpoA ed

unden Comp
paid
3Right
atc
to ucouer A umAa

125 l3) J
 H o u e w e

FAUa Venkat a n a m a n n a
v Pala cherla
Manaarmma
he owrt laid d oun cwntain ondiloA a the wn

td ba uupu
Laum to
andd the

b the PAomisre ob ceomphonmise un Ca

ne Comphomis Ahoulod hawe been put to t c

wAL

the

un a
buna ide mann
olued withbrut any At ob colluu
m
o a

ii)
i ) Tt has been LeA

not been um peach2al as an ummeua barga is

aii) t haa I
iAnaA

Dieence betuen Conbuact oIndamnu and Corrad

op Inawance

case ob an ndemaiby conllac, bne pay pamias

In
to AanL other AOm LoAA uhih may be caused ithar

Conduct t h e pomuo by the comdut o a

by the
Sec 124 does nit cou LoAA Caused by
thind paly
and eventa nat dapendert upn oh. athe
the conduct
accidrta
othe: P A m ' T h v e h o e , Contadd vna
anu
phomisb t any
nst a pau op ndemni coniat
au
wmbuact Auch a s u unsuanta
are onluigent
Iawmance
Conbmact

13" Lawu Conmmuain Repet

m
On wnthay, the the
commendedd, tha the undos Tanding
th I CA 1812 s heurom
its
within i hiom,
uincude
indamniby muAt be . epanolsd ito 2AARn Ce lmaking
ce makina
Conbhacta as both ha the Aame eaAen
unA an ce
It uas
necomman ded to in udL
un c ud
loss o othor)
aoDd the
gDd which happenad not only
hose CaAls also uithin indemniy
natmal Cause
ther hatuma
rther
hwman condudT but alao
due bo
the
the pkomise
shall onH indamniy
n dur 124, prmi
to the pamis
sec
oC
O cC
cWwA
s due
loss that
indem nwy
helden o anyH uwl delind
a r e uul
lams ave
laus dala
ppasible
The po
The AAible
e thind pay 's act this puLew
puuue
act ithiin
does n t a l l
act which
and
a nd any i able
li abe
make the undmnißwr
Can
nolt
 Houe , un *i4ALNAldidd
CaAR
wnawaa
uhauaa inauance the pu holden
i n sw r e

Duhat n b
the
phopety Thw poaatble
A a dam
damaag ean
can orw
otcu
wwde
and the
abaenR ob ary l nange o poasibitiian
dahin ed sutuaiora
inswn Com pa Ahould p0y uhwu tha
he
InAWanc
TnAwance
me Aecwed. peiiuH
s o awwd anga b CauAR whouiabili ty
b ationa ebor an action
an action
m e e aRneal
I t

8Rna
us mee
as
compaued to
is
sHoul
narou
and bn indami whe liabag
a
Aelet cauae
actiona
 companies. Such investment helps to boost the
industrial growth of the country.
(i1) Employment generation Insurance companies
employ lakhs of people. Insurance also provides
Self-employment opportunities to millions of
people who act as agents.
iv) Rural development: Life Insurance Corporation
of India provides insurance
facility to landless
agricultural labourers and Group Insurance
Scheme under Integrated Rural
Development
Programme (IRDP). It has also introduced
insuranceschemes for weaker sections of society.
Thus, insurance serves as a means of social
welfare.
4. Benefits to Government
(i)Investment in priority sector: Insurance
companies invest huge amounts of money in
transport, mining and other priority sector. Such
investment helps in creating infrastructure for
rapid development. It assists the Government in
development planning.
(i1) Investment in Government securities :
Insurance companies invest a
part of their funds
in Government securities and bonds.
(1i) Foreign exchange earnings : Insurance
companies can earn
foreign exchange by setting
up their branches in foreign countries.
(iv) Tax revenue : Insurance companies pay taxes to
the Government on their income. contribute
They
to publie exchequer by earning profits.
13.12. PRINCIPLES OF INSURANCE
Alltypes of insurance contracts are based on
fundamental principles which are given below.
1. Utmost Good Faith (Uberrima
Fides): An
insurance contract is based on utmost
good faith on the
part of both the parties. It is the legal duty of the proposer
(one who wants to get an insurance policy) to disclose
all the material facts about the
subject to be insured. A
material fact is one which would affect the judgement of
the insurer in assessing the
degree of risk. It includes any
communication made to or any information received
by
the proposer.
The insurer has no access to the information which
is in the possession of the insured. Therefore, the insurer
relies on the information provided by the
proposer. The
amount of premium is fixed on the basis of the information
supplied by the proposer. If the proposer conceals or
withhelds any material facts, the insurer can repudiate
the contract of insurance. Thus, good faith
requires each
192
party to disclose all the information at his commar
nand
the other party.
One party cannot induce the other party, by hiclin
material facts, to enter into a contract of insurance ul iding
which
is disadvantageous to the other party. If a party tails
to disclose any material fact within his knowledoe
he
other party can avoid the contract on grounds of materisi
misrepresentation.
2. Insurable Interest: Insurable interest i
An
essential element in every insurance contract. In thhe
absence of insurable interest, a contract of insuranca
becomes a wagering contract which 1s null and void
nd
unenforceable at law. Insurable interest means that the
the
insured must be in such a position that he will suffer
primary loss by the happening of the event insured against
A person is said to have an insurable interest in the subies
matter insured, if he is benetitted by its existence and
suffers a loss by its destruction. For example, a trader has
insurable interest in his goods and creditor has insurable
interest in the life of the debtor till the loan is repaid. Thus
insurable interest is the financial interest of the insured in
the subject matter of insurance.
In case of life insurance of insured must have insurable
interest in the life of the insured person at the time of
taking up the policy. It is not essential that he has insurable
interest at the time of death. In marine insurance, insurable
interest must exist at the time of loss. It may or
may not
exist at the time of contract. In fire insurance, insurable
interest must exist both at the time of contract and at the
time of loss.
3. Indemnity :
Indemnity means
a
promise to
compensate in case of loss. The object of every insurance
certain contract is
place the insured as nearly as possible in the
to
same financial position after the loss as he was before the
loss. The insured is entitled to recover from the insurer
only the amount of loss actually suffered. The maximum
amount of compensation will be
upto the sum insured or
the value of the policy. The insured will not be
allowed to
make any profit out of the
happening any
of loss covered
by insurance contact.
Suppose A has insured his house for 10,00,000. Due
to a fire As house is destroyed but A has been able to
salvage household goods worth 50,000.
A will be compensated upto 9,50,000 (10,00,000
50,000).
All nsurance contracts except those of life insurance
are contracts of indemnity. The principle of indemnity s
not applicable in case of life insurance
because no amount
of money can compensate for the loss of life. In case o
 life insurance, the sum insured is fixed and it is
expiry of the policy or on the death of payable
himself could recover. Subrogation
on the
the life applies only after the
insured, whichever is earlier. A contract of life insurer has paid the claim to the insured. Doctrine of
insurance subrogation is a corollary of indemnity.
is, therefore, a contingent contract and not a contract
of
indemnity. 5. Contribution : It means the right of an insurer who
4. Doctrine of has paid claim under an insurance policy to call upon other
Subrogation : It implies that after
indemnifying the insured for his loss, the insurer becomes to contribute to the payment. When
insurersmore insured has
an

entitled to all the rights and remedies taken than one policy on the same property, he shall
relating to the not be entitled to claim from each insurer more than the
property insured. The insurer shall step into the shoes of
the insured. For example, X insures his total loss from all insurers put together.
house against fire
for50,000. The house is put on fire by his neighbour Y. The principle of contribution is applicable when the
X gets a claim of R50,000 from the insurance following conditions are satisfied : (a) insured must be the
company.
Later on he also recovers K30,000 from Y. X will have same person (b) all the policies must cover the same risk
to return 30,000 to the insurance company. Doctrine of (c)all the must be in force at the time of loss.
polices
subrogation is applicable to all contracts of indemnity (d) the total amount of compensation under all policies
and it is not applicable to life insurance. Insurer's right must not exceed the amount of loss. The
contributions
of subrogation will extend only to the extent of the sum different insurers can be calculated with the
payable by
insured. The insurer can recover only what the insured formula:
help of the following
Sum insured with aninsurancecompany x Amount of loss
Total sum insured with all the insurance companies
and R20,000 from
For example, X gets an of 750,000 from A & Co. 730,000 from B & Co
insurance policy
from A & Co. R40,000 B & Co.
C & Co. He suffers a loss of R40,000 due to fire. X cannot claim more than 20,000 contribution.
called the principle of
will pay R12,000 and C & Co. will pay 78,000 to A & Co. This is
50,000
(a) Liability A & Co. of -x 40,000=T20,000
5.000+30,000+20,000
30,000 40,000 =712,000
(b) Liability of B & Co. 5,000+30,000+20,000

(c) Liability of C & Co. =

20,000
5,000 +30,000-+20,000
x 40,000 = T8,000

INSURANCE
In a contract 13.13. TYPES OF available
proxima (Proximate cause)
: are
insurance facilities
6. Causa for insured perils Several types of
insurer is liable only those who want
of insurance, the has and varied needs of
and the cause
to meet the many be
or uninsured perils of insurance can
and not for expected loss. Doctrine of proximate protection against risks. All types Life insurance,
to the broad categories (1)
been proximate (nearest) spectator'i.e., classified into two
non-remota
Fire insurance, marine
as 'causa proxima to be insurance.
cause r u n s remote cause is and (2) Non-life
and not the motor vehicle insurance
immediate c a u s e of the insurance,
only determining
the liability insurance, health insurance are the major types
while dominant and
taken notice of, direct, social insurance and fidelity
latest but the
insurers. It is
not the c o n s i d e r a t i o n . For of non-life insurance.
taken into
shall be against Importance
c a u s e that
operative are
insured Meaning and
in an air flight dies due 1. Life Insurance contract whereby
example, all be defined as 'a
p a s s e n g e r s
passenger
crash. One insurance may undertakes
event of a plane insurance company Life a premium,
death in the itself. The c o n s i d e r a t i o n of
either on
plane crash is not in
heart attack in the because plane the insurer, or an
annuity,
to certain sum
of money
a specified
the expiry of
compensation
liable to pay to pay or on
1S not death. the insured be paid
proximate
c a u s e of
principle, the death of earlier. The
premium may be
the to this whichever is but it must
According period, or monthly,
steps
ofloss: quarterly sum
possible The
take all half yearly, the policy.
7. Mitigation insured to mishap.
annually,
the period of of the
of the of a
regularly during the expiry
the duty in case
paid holder on
it is loss or
damage of any to the policy the s u m
is pad
the in the event assured is paid the expiry,
insured. He
minimise careless before
to be is of death
should not In c a s e
insured the property policy.
The because
reasonable
193
make to his nominees.

accidental
loss just person
and

like a prudent
behave
Should property.
insured
save
the
efforts to