KSN Murthy & DR KVS Sarma, Modern Law of Insurance, 6th Ed

1.
1 Nature of Insurance
KSN Murthy & Dr KVS Sarma, Modern Law of Insurance, 6th ed
KSN Murthy and Dr Kvs Sarma
KSN Murthy & Dr KVS Sarma, Modern Law of Insurance, 6th ed > KSN Murthy & Dr KVS Sarma,
Modern Law of Insurance, 6th ed > PART I General Principles of the Law of Insurance >
CHAPTER 1 INTRODUCTION
PART I General Principles of the Law of Insurance
1.1 Nature of Insurance

Hindu philosophy gives the axiomatic truth of the nature of insurance “Yat bhavathi tat nasyathi” which means
whatever is created will be destroyed. The universe as a whole is created; as a thing created it is but natural that it
will be destroyed. Creation is inevitably followed by destruction. Destruction is an optimum change to the worse; in
that sense change is a natural course and its occurrence involves risk. Risk is therefore inevitable in life. Business
is a course of life; so in life and business, there lie a variety of risks. Risk is closely connected with ownership. The
owners want to save themselves from risk and out of this desire, the business of insurance born.
The aim of all insurance is to protect the owner from a variety of risks which he anticipates. He who seeks this
protection is called the assured or insured and the other person who takes the risk by undertaking to protect that
other from loss is called the underwriter or insurer and he does this for a small consideration called the premium. So
a contract of insurance may be defined as a contract whereby one person, called the “insurer”, undertakes, in return
for the agreed consideration, called the “premium”, to pay to another person, called “assured”, a sum of money or
its equivalent on the happening of a specified event. The happening of the specified event must involve some loss
to the assured or at least should expose him to adversity which is in the law of insurance commonly called the
“risk”. The nature of insurance depends on the nature of the risk sought to be protected. The chief and classical
varieties of insurance contracts are: (i) life, (ii) fire, (iii) marine and in the modern times new varieties have been
added from time to time like liability insurance and third party risk. The categories of insurance form a list which is
not closed. In fact, in modern times, the happening of any event may be insured against at a premium directly
proportional to the risk involved on its happening. An element of uncertainty must be present in the course of the
happening of the event insured against; in some cases, in almost all non-life insurance contracts, the happening of
the event itself is uncertain while in life insurance the event insured, that is the death of an individual is a certain
event, but the uncertainty lies in the time when it happens.
The fundamental function of insurance is to shift the loss suffered by a sole individual to a willing and capable
professional risk-bearer in consideration of a comparatively small contribution called the premium. From the
viewpoint of an economist, insurance is a process whereby the risk of financial loss arising from death or disability
of a person or damage, deterioration, destruction or loss of property owing to perils to which they are exposed, is
assumed by another. In this process, the professional risk-bearer collects some small rate of contribution from a
large number of people and if there is any unfortunate person amongst them, the risk-bearer i.e. the insurer,
relieves the sufferer from the effects of the loss by paying the insurance money. According to Maclean:
Insurance is a method of spreading over a large number of persons a possible financial loss too serious to be conveniently
borne by an individual.1.
Thus it serves the social purpose; it is a social device whereby uncertain risks of individuals may be combined in a group
and thus made more certain; small periodic contribution by the individuals providing a fund out of which those who suffer
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1.1 Nature of Insurance
losses may be reimbursed.2.
Thus, the institution of insurance serves a two-fold purpose, the immediate, short-range and proximate purpose and
the far-sighted long-range and remote purpose. The immediate and direct object is to protect the individual assured
from any loss or damage to his life or property by distributing the loss among a large number of persons through the
media of the professional risk-bearers, the insurers, thus serving also the sociological purpose. The far-sighted and
long-range purpose is to accelerate the economic growth of the nation. The insurers collect the savings of
numerous policy-holders and these funds are invested in organised commerce and industry. They help the running
of giant industries and mobilise capital formation. By insuring the lives of the workmen, they are relieved of their
anxiety and worry and put their heart and soul in their work. The employer too by insuring the lives of workmen, his
machinery, building etc, will have peace of mind and can become carefree. So it has been rightly said: Life
insurance is one of those agencies which improves the mental, moral and national circumstances and raises the
condition of the community of which they are members.3. These observations apply equally to all branches of
insurance. The insurance company will have large funds available with them, which they may utilise in helping the
formation of big industries directly or by underwriting securities of those companies which tend to help in the growth
of the commercial prosperity of the nation.
There is no denying the fact that growth of industrialisation is an adventure in which the triumvirate namely,
industry, credit and cover of insurance make a sojourn in each other’s companionship.4.
Insurance thus reduces the fears of future risk to the individual insured and by capital formation it helps the growth
of industry, accelerates production, lubricates the machinery of production and distribution and improves the
economy of the nation. It mobilises the resources, accelerates and stabilises growth and helps in the establishment
of a welfare state.
1. JB Maclean, Life Insurance, p 1.

2. Riegel and Miller, Insurance Principles and Practice, p 10.
3. RM Ray, Principles of Life Insurance.
4. Commerce, 28 July 1950.
End of Document
1.2 History of Insurance

1.2.1 Marine Insurance
Marine insurance was the oldest type of insurance in England and it was imported from the cities of Northern Italy
where it probably began at about the end of the 12th century. On the passing of the Bubble Act, 1720, two
companies, London Assurance and Royal Exchange Assurance obtained charters in the same year. The Act
created a monopoly in marine insurance to these corporations by prohibiting other corporations, partnerships and
societies from engaging in marine insurance as a business. Even before these corporations were granted the
charters, individual merchants used to meet in Lambard Street and effect contracts of marine insurance and they
continued as competitors to the chartered companies. It was only during the 18th century that marine insurance
was started as a specialised business. Coffee-houses were the common meeting places for businessmen and
business transactions of importance were negotiated there during the latter half of the 17th century and the early
18th century. Of such coffee-houses, Lloyd’s coffee-house named after its proprietor Edward Lloyd, who opened
the coffee-house in Tower Street, London, became a rendezvous for the ship owners, seamen and merchants.
Sometime later, the proprietor of Lloyd’s started a business newspaper called Lloyd’s List (1734) which is published
even today. Slowly it gained influence and found place in the premises of the Royal Exchange and sometime later
moved to its own building adjacent to that and became a worldwide organisation.
The Royal Exchange Assurance and the London Exchange from the corporate side, and Lloyd’s, being a common
meeting place for individual underwriters started and developed marine insurance in England. The corporation’s
monopoly was repealed after a little over a century, in 1824, when a few joint stock companies entered the field.
Many companies were formed after the passing of the Joint Stock Companies Act, 1862. By about this time the
steamship was invented and foreign trade improved. As a result marine insurance also expanded and provided
sufficient business to both the joint stock companies and the individual underwriters, who created a world market for
marine insurance. The marine insurance business today is regulated by the provisions of the English Marine
Insurance Act, 1906.
In India even during Aryan period, there was evidence of the existence of something like marine insurance. But
marine insurance, as known in the civilised world today, had its origin only in England. Seven marine insurance
companies, of which none is in existence today, were started between 1797 and 1810, in Calcutta. Later, mostly
composite offices were started. Most of the British offices had branches in India and they acted as world offices.
Early monopoly and later increased rates of duties charged on British offices tempted them to form independent
offices in the colonies of the Commonwealth including India and thus the British offices exercised tremendous
influence in the Indian insurance market. The rules in English law were applied in India with little variation to adapt
them to Indian circumstances. After Independence and with the abolition of the Privy Council, the Indian Superior
courts including the Supreme Court started drawing authority from the other foreign sources, like the American
cases. But today marine insurance is regulated by the Indian Marine Insurance Act, 1963, which is but a replica of
the English Marine Insurance Act, 1906.
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1.2.2 Fire Insurance
After marine insurance, fire insurance was the next to be organised in England. The great fire of London 1666, was
mainly responsible for the establishment of this branch of insurance. Added to this the effects of the Industrial
Revolution in England enormously exposed the properties to the risk of fire and the need for fire insurance
increased. Again, impetus for organised action was given by the disaster of the Tooley Street Fire in 1861. If the
first great fire originated this branch of insurance, the second became responsible for streamlining the organisation
and blended the two paradoxical principles of competition and collaboration. The fire officer’s committee consisting
of representatives of all insurers was formed. It established, for public benefit, a fire testing station with the
collaboration of government departments and ultimately established the joint fire research association (1946). The
fire offices had enough business both at home and abroad.
In India, most of the successful fire insurance business was only through brokers and branches of foreign
companies of Britain, America and even Japan. The Alliance British and Foreign Fire Insurance Co first established
an agency office in Madras and probably this agency office was the first to issue a fire policy in India. Soon, other
offices like the Royal Insurance Co, the Liverpool and London and Globe, North British and Commercial Union
started many branch offices in Bombay, Calcutta and other presidency towns. Slowly, the business spread to the
mofussil areas. During the last century, many fire offices were started but were closed down shortly.
1.2.3 Life Insurance
In England, even before the mortality tables were available, mutual life assurance was prevalent in the 17th century
commencing with short-term insurances and all these mutual offices disappeared with the passing of the Bubble
Act, 1720. Only the Amicable Society survived. It was started in 1705 and its business increased by 1757. In 1807,
a fresh charter was obtained and the Amicable Society thereafter transacted life insurance according to modern
methods. For a number of decades, it was the only society which offered whole life assurance. In the meanwhile,
mortality tables were prepared which made it possible to do profitable and scientific life insurance business.
Towards the end of the 17th century the requirement of insurable interest was done away with when the life
insurance business became a way for gambling. To check this evil, the Life Assurance Act, 1774 was passed. Then
came big joint stock companies which started business on sound and scientific principles. Protective legislations
like the Policies of Assurance Act, 1867 and the Life Assurance Companies Act, 1870 were passed. The Act of
1867, which regulated the life insurance business was repealed and replaced by the Assurance Companies Act,
1909 and the legislation now in force is in the Insurance Companies Acts, 1958–67. In the later years, ordinary life
business was extended to accident insurance and further by industrial and technological advancements to industrial
insurance. Instances of this branch can be found in liability insurance such as engineering, motor vehicles and
aviation insurances.
In India, the known history of life insurance commenced in 1871 with the starting of the Bombay Mutual followed in
1874 by the Oriental, both in Bombay. There was a steady growth from 1870 to the beginning of this century as
many other life offices were established in India. The history during the first half of this century may, for purpose of
convenience be divided into the following periods:
1.2.3.1 Period of Mushroom Growth (1900–1912)
During this period there was a mushroom growth of Indian companies and this was mainly due to the Swadeshi
movement which promoted the boycott of British goods, British institutions and everything British. This gave
encouragement to the erstwhile and shyful indigenous talent and capital. Many life offices were established with
complete Indian capital. This indiscriminate mushroom growth, led to the appearance of some evil which had to be
checked for which the Indian Life Assurance Act (Act 6) of 1912 was passed on the lines of the English Assurance
Companies Act of 1909. It may be said that the authoritative history of Indian insurance began to be recorded for
the first time when, the Government of India under this Act started publishing returns of life insurance companies in
India in the year 1914.
1.2.3.2 Period of Struggle and Steady Growth (1913–1938)
This is the period between the two world wars. During this period, indigenous life offices had to pass through a
critical period. The sudden growth of business due to the impetus given by the national movement brought with it
evils of its own due to accumulation of wealth and inexperience in business. When this was checked by the Life
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Assurance Act (Act 6) of 1912, followed by the first world war and the consequent economic slump, business had to
struggle for its steady growth. Many small offices had to be wound up and the few that survived had to face the
competition of many flourishing foreign offices.
After the First World War, when the Britishers refused to grant even the promised dominion status, there was again
a united national movement demanding complete independence and to denounce and once again to pledge to
boycott British institutions. This anti-British national spirit again gave life to the Indian life offices and their business.
The government was compelled to protect the Indian insurance business and in 1934, Sri SC Sen was appointed as
special officer to investigate and report on reform of insurance law. In 1936, a committee under the chairmanship of
Sri NN Sircar was appointed to examine the report of the special officer. In 1937, a draft bill was introduced and in
1938 the Insurance Act was passed. The Act provided for a uniform control by government over all insurers, Indian
as well as foreign, as a result of which several foreign offices discontinued their business in India.
1.2.3.3 Period of Stability and Consolidation (1938–1950)
Being free from the competition of the foreign offices, the Indian offices gained stability and they brought about the
necessary changes in their office organisation, terms and conditions in their policies etc, to conform to the
provisions of the 1938 Act. After the Second World War, the Swadeshi movement gained strength and national
spirit increased. By this time, the Indian industries also started developing. The business of insurance assumed
significant size and importance as large amounts of capital were available with them for investment in the
developing industries. There was sometimes malinvestment of insurance funds for the selfish purposes of the
people in charge of these offices. In 1945, the government appointed a committee under the chairmanship of
Cowasji Jehangir, which condemned the malpractices in the matter of investing the funds available with the
insurers. This led to the regulation of investments and the Insurance Act has been so amended several times.
The partition of the country, made a good number of policy-holders leave their policies. The non-devaluation of the
Pakistan currency in September 1949, created a number of problems. An informal committee was again appointed
under Sri SR Ranganathan and this reviewed the entire insurance law and submitted its report on the basis of
which the Insurance Amendment Act, 1950 was passed. The Act made far reaching changes to make insurance
institutions more useful for the country’s economic growth. It provided for amongst other things, appointment of a
controller of insurance, constitution of a life insurance council and a general insurance council and also made
provisions for the appointment of investigators and administrators for ill-managed and sick companies. Provisions
regarding investments are also made. To reduce drain of foreign exchange, compulsory reinsurance with Indian
insurers was insisted upon.
1.2.3.4 Period of Boom and Nationalisation (1950 up to date)
Political independence under the stewardship of our first Prime Minister Jawaharlal Nehru, the people of India
moved to achieve their economic independence by the Five-Year Plans. The agrarian society was to be
industrialised by governmental activity and planning. The level of education was also rising as a consequence of
which the insurance consciousness in the people of the country increased. There was increased confidence in
domestic companies. The leading insurers also indulged in vigorous developmental programmes. All these
contributed to a boom in the insurance business and in particular in life business. Huge amount of capital were
available with the insurers and the government found it handy to utilise these funds for its developmental plans and
also to ensure the investing public, a better security. The life insurance business was first nationalised in 1956 by
the passing of the Life Insurance Corporation Act, 1956. The Life Insurance Corporation was created on 1
September 1956 conferring on it the exclusive privilege of carrying on life insurance business in India except to the
extent otherwise expressly provided in the Act.
The controlled business of all insurers whose business was nationalised was taken over by the Corporation along
with their assets and liabilities. The original capital of the Corporation was Rs 5 crores which was provided by the
Central Government under the Act. The creation, control and extension of the Corporation is in the hands of the
Central Government.
Along with the life, fire and marine, other insurance like motor vehicles, aviation, burglary and other liability
insurances also developed. In the beginning, this business was monopolised by British firms. The Indian insurer got
into this business during the present century. All reinsurance business was in the hands of the foreign firms and the
first Indian reinsurance concern, namely, the Reinsurance Corporation of India was formed in 1957 with a view to
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stop the heavy drain on our foreign exchange. After the nationalisation of the life business, the Insurance Act, 1938
applied mainly to the general insurance. By a drastic amendment in 1968 to the Act, more effective control and
supervision was provided over the general insurance companies requiring increased deposits from them, giving the
controller of insurance more powers to inspect and issue directions to the insurers in all matters including the
appointment and removal of their directors, constituting a tariff advisory committee to fix, control and regulate the
rates of premiums, conditions of policies etc. The function of the tariff advisory committee in fixing and revising the
rates of tariff was held as a legislative power and not an administrative one and so binding on the insured in the
same manner as any other provisions of the Insurance Act.5. In spite of such control there was a persistent public
demand for the nationalisation of the general insurance business, on which, an ordinance was promulgated by the
President of India on 13 May 1971, which was replaced by the General Insurance (Emergency Provisions) Act,
1971. Finally, in 1972, the general insurance business was also nationalised by setting up a government
corporation called the General Insurance Corporation with four subsidiary companies for carrying on the general
insurance business. The nationalised insurance companies were expected not to confine themselves to the present
activities but would cover new fields in due course.
Also, new standards of behaviour in their dealing with their customers, the policy holders and developing a new
insurance jurisprudence have been set up by the judiciary in India. Courts in India imposed on the two corporations
as part of their duties to act in consonance with the principles laid down in the directive principles in the
Constitution. They have been equated to sovereign instrumentalities. In Asha Goel v LIC, Kantharia J rightly
observed:
The business activities of the LIC are not of a purely commercial nature. LIC is a statutory corporation being an ‘Authority’
or an ‘Instrumentality’ of the State within Article 12 of the Constitution, the contract of the life insurance entered into by the
Life Insurance Corporation are for the welfare and benefit of the society as it is the primary goal of the LIC to promote the
welfare of the people.
Hence a writ under Article 226 can lie against the LIC for enforcement of its liability though contractual.6.
Even in conducting litigation the judiciary kept the state and its instrumentalities on a higher pedestal than a
common litigant. It has been said that the obligation on the part of the state or its instrumentality like the LIC or GIC
to act fairly can never be over emphasised.7. They should not behave like cantankerous litigants. In Assam and
Meghalaya SRTC v Abdul Razak, AIR 1988 Gau 57 (DB), the State Road Transport Corporation without extending
a helping hand on humanitarian grounds to the victim aged 28 years who, due to rash and negligent driving,
suffered multiple injuries including a leg injury resulting in amputation of the leg from the thigh, hotly contested an
award of compensation of Rs 60,000 as high. The court observed, “Public policy should resist the temptation to
litigation like cantankerous litigants for insignificant amounts, raising technical pleas.”
This is precisely what the Supreme Court has said in Trustees, Bombay Port Trust v Premier Automobiles Ltd, AIR
1954 SC 923. In National Insurance Co v Jugal Kishore, AIR 1988 SC 789, the insurer, an instrumentality of the
state, while defending the claim for compensation on the ground that its liability was not in excess of the statutory
liability, did not file a copy of the policy before the tribunal or the High Court. Had they produced the policy there
would have been no need to come to the Supreme Court. Ojah J, therefore remarked:
This court has consistently emphasised that it is the duty of the party in possession of document which would be helpful in
doing justice in the cause to produce it and such party should not be permitted to take shelter behind the abstract doctrine
of burden of proof. This duty is greater in the case of instrumentalities of the state. The obligation on the part of the state or
the instrumentalities to act fairly can never be over emphasised.8.
In a series of cases the judges reiterated their strong disapproval of state undertakings like the ESIC, LIC, GIC,
STRC etc raising technical pleas to defeat honest claims of victims of accidents by legally permissible but
marginally unjust contentions including narrow limitation.9.
5. KMD Association v UOI, AIR 1983 J & K 100.

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6. AIR 1986 Bom 412.

7. National Insurance Co v Jugal Kishore, AIR 1988 SC 789.
8. National Insurance Co v Jugal Kishore, AIR 1988 SC 789.
9. Rajasthan State v Jhansi Bhai, 1987 ACJ 496; Bhuvaneswari Devi v Murarilal, AIR 1986 HP 44; ESIC v Dhannibai,
1986 ACJ 429 (MP); Assam Wool Exports Ltd v Export Credit Guarantee Corporation of India Ltd, AIR 1998 Cal 1.
End of Document
1.3 Era of Privatisation
1.3 Era of Privatisation

The insurance sector is open to participation by private insurance entities on the recommendation of the Malhotra
Committee. This does not mean that the public sector entities do not continue their activities in the insurance sector.
After this privatisation, both public and private sector entities play their roles simultaneously. In this context,
financial institutions play a key role in the growth process of insurance. More competitive environment and rapid
expansion in insurance sector is expected to emerge with new private participants. The nature and scope of the
insurance sector is fast changing with the passing of the IRDA Act, 1999, the details of which are discussed in the
next chapter.
End of Document
2.1 Introduction
CHAPTER 2 THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
2.1 Introduction
In the last decade of the last century, there was a wave of liberalisation in all economic sectors of the country
including the insurance sector. By that time, insurance was in the public sector and for recommending changes in
the insurance sector, the government appointed a committee in April 1993 under the chairmanship of Sri RN
Malhotra, ex-governor of the Reserve Bank of India. This committee on reforms of the insurance sector submitted
its report on 7 January 1994 to the then Union Finance Minister recommending many changes including its
privatisation. The terms of reference of the committee included a requisition of recommendation, for creating a more
efficient and competitive financial system suitable for the requirements of the changing scenario of the economy of
the country and in particular the examination of the structure of the insurance industry. Recommendations were
also sought from the committee for strengthening and modernisation of the insurance regulatory system for smooth
development of the insurance sector. Far-reaching and virulent changes were recommended to supplement the
hitherto monopolistic insurers in the arena of the insurance industry.
It recommended far-reaching amendments to regulate the insurance sector to adjust with the economic policies of
privatisation. The most important recommendations are listed below:
1. Recommendation of the entry of private entities into the insurance sector to introduce healthy competition
between the new private insurers and the existing monopolistic entities including limited participation of
foreign equity, banking and cooperative sector.
2. Recommendation of gradual withdrawal of government capital in the existing public sector monopolistic
entities, the Life Insurance Corporation and the General Insurance Corporation and its subsidiaries and
also de-linking of the subsidiaries making them independent entities.
3. Recommendation that the General Insurance Corporation would exclusively deal with the reinsurance
business.
4. Recommendation to spread the insurance sector to rural areas by taking assistance of institutions like
panchayats, selected voluntary organisations, mahila mandals and cooperatives.
5. Recommendation to delink the tariff advisory committee from the General Insurance Corporation and the
committee should act as an independent statutory authority.
6. In pursuance of the last but most important recommendation of the Malhotra Committee the government
had taken a decision in 1996 to establish a Provisional Insurance Regulatory and Development Authority to
replace the erstwhile authority called the Controller of Insurance, constituted under the Insurance Act,
1938, which first worked under the Ministry of Commerce and was later transferred to the Ministry of
Finance.
The decision for establishment of the Insurance Regulatory and Development Authority was implemented by the
passing of the Insurance Regulatory and Development Authority Act, 1999 (Act 4 of 1999). The Preamble of the Act
reads:
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2.1 Introduction
An Act to provide for the establishment of an authority to protect the interests of holders of insurance policies, to regulate,
promote and ensure orderly growth of the Insurance industry and for matters connected therewith or incidental thereto and
further to amend the Insurance Act 1938, the Life Insurance Corporation Act 1956 and the General Insurance Business
(Nationalisation) Act 1972.
As can be seen from the above the first and the most important object of the Act is to establish a regulatory
authority as recommended by the Malhotra Committee. Every institution, more so a financial institution where the
ownership is divested from its management and the right of the management is vested in a body other than the
owners, an impartial independent and potent regulatory authority is inevitable. When the insurance industry was a
part of the public sector with a monopoly, the owner was a single entity, the government, and in such a case it was
sufficient if it is regulated by a governmental body like the Controller of Insurance; but when insurance is to be
privatised, there is a greater need of a regulatory authority since the smooth functioning of business depends upon
the trust and confidence reposed by customers in the solvency of the entity now permitted to enter the scene of the
insurance market. If the customers cannot repose trust in the company to keep the promises it makes, the
insurance products pale into insignificance in their value of the customer-consumers. The regulatory framework in
relation to insurance is desired to take care of three major concerns, viz:
(a) the protection of the interest of the consumers;

(b) to ensure the financial soundness of the insurance industry and
(c) to pave the way to help a healthy growth of the insurance market, where both the government and private
parties play simultaneously.
The need for a strong regulatory authority was not felt so long as insurance remained a monopoly of the
government. With the granting of the permission for the private entities to play along with the instrumentalities of the
government the need for an independent regulatory authority became paramount. With the passing of the Insurance
Regulatory and Development Authority Act, 1999 (hereinafter referred as the Authority) this has become a reality.
The Act is a small enactment containing 32 sections divided into six chapters. There are schedules attached to it of
which the second and third schedules merely declare that the principle of the exclusive dealings of the Life
Insurance Corporation and General Insurance Corporation be withdrawn by introducing amendments to section 30
of the Life Insurance Corporation Act, 1956 and section 24 of the General Insurance Business (Nationalisation) Act,
1972 and they read:
After s 30 insert the following:
30A. Exclusive privilege of corporation to cease:
Notwithstanding anything contained in this Act, the exclusive privilege of carrying on the life insurance business in India by
the Corporation shall cease on and from commencement of the Insurance Regulatory and Development Authority Act 1999
(41 of 1999) and the corporation shall, thereafter carry on life insurance business in India in accordance with the provisions
of the Insurance Act 1938 (Act 4 of 1938).
After s 24, insert the following:
Exclusive privilege of corporation and acquiring companies to cease:
Notwithstanding anything contained in this Act, the exclusive privilege of the corporation and the accruing companies of the
carrying on of general insurance business in India shall cease on and from the commencement of the Insurance Regulatory
and Development Authority Act 1999 and the corporation and the acquiring companies shall, thereafter, carry on general
insurance business in India in accordance with the provisions of the Insurance Act 1938 (4 of 1938).
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2.1 Introduction
Further, the subsidiaries of the General Insurance Corporation were delinked and made independent entities. All
these companies have to do insurance business along with the new entrants, the private entities. The Insurance
Act, 1938 as amended by the Act applies alike to all companies, old and new as amended by the first schedule of
the 1999 Act. Section 30 of the Act says that The Insurance Act, 1938 shall be amended in the manner specified in
the first schedule.
End of Document
2.2 The Insurance Regulatory and Development Authority Act, 1999

2.2.1 Establishment of IRDA
Chapter 2 of the Act 2 provides for the establishment of the Insurance Regulatory and Development Authority. It
declares the Authority to be a body corporate with perpetual succession and common seal. It can hold property,
enter into contracts and is entitled to sue and is liable to be sued by its name. The Authority shall have its head
office at such a place as the Central Government notifies and it may establish its branches at other places in India.
Section 13 provides for the transfer of all properties rights and liabilities of the Provisional Insurance Regulatory and
Development Authority to the present authority.
2.2.2 Composition
The Act states that the Authority should consist of a chairperson, not more than five full-time and not more than four
part-time members to be appointed by the Central Government.1. The chairperson and other members shall hold
office for five years and are eligible for reappointment. The chairperson shall not be above 65 years and other
persons above 62 years. The members are permitted to relinquish their offices and are also liable to be removed
from office in accordance with the provisions of section 6. The Central Government may remove a member from
office if he has or at any time has been adjudged as:
(i) an insolvent or (b) has become mentally or physically incapable of acting as a member or (c) has been
convicted of any offence involving moral turpitude or (d) has acquired financial interest as is likely to effect
prejudicially his functions as a member or (e) has abused his position as to render his continuation
detrimental to the public interest. He can be removed only after giving him a reasonable opportunity of
being heard in the matter.2.
(ii) their salaries and allowances are to be prescribed by rules (section 7). The chairperson and the whole-time
members cannot accept for a period of two years from the time they cease to hold office any government
appointment, central or state, or in a company in the insurance sector without previous approval of the
Central Government.3. The chairperson should have the power of general superintendence and direction in
respect of all administrative matters of the Authority.4.
2.2.3 Meetings
The Authority shall hold its meetings at such times and places and shall observe such rules and procedures
including quorum as determined by the regulations made by itself.5. If the chairperson is absent, a member present
may be elected to preside over that meeting and the decision of the Authority is by majority and if they are divided
equally the president has a second casting vote.6. Any vacancy or defect of appointment or mere irregularity in
proceeding does not invalidate the proceeding.7. The Authority can recruit necessary staff and their terms and
conditions of service shall be according to the regulations under Chapter 13. All the assets and liabilities of the
Interim Insurance Regulatory and Development Authority are transferred to the Authority under the Act.8.
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2.2.4 Duties, Powers and Functions of the Authority
The lone section 14 in Chapter 4 provides for the duties, powers and functions of the Authority.
2.2.5 Duties
The only duty of the Authority is to regulate, promote and ensure orderly growth of the insurance and the
reinsurance business. This is subject to the provision of the Act and any other law for the time being in force.9.
2.2.6 Powers and Functions
Section 14(2) describes and delineates the powers and functions of the Authority and it contains clauses (a) to (q).
The last sub-clause (q) suggests that the powers and the functions mentioned therein are not exhaustive and the
Authority reserves its powers to add to the list section 14(2) which reads as:
Without prejudice to the generality of the provisions contained in sub-s (1), the powers and functions of the authority shall
include:
(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
(b) protection of the interests of the policy-holders in matters concerning assigning of policy, nomination by policy-
holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions
of contracts of insurance;
(c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance
intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;
(e) promoting efficiency in the conduct of insurance business;
(f) promoting and regulating professional organisations connected with the insurance and re-insurance business;
(g) levying fees and other charges for carrying out the purposes of this Act;
(h) calling for information from, undertaking inspection of, conducting inquiries and investigations including audit of
the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance
business;
(i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of
general insurance business not so controlled and regulated by the Tariff Advisory Committee under s 64U of the
Insurance Act, 1938 (4 of 1938);
(j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be
rendered by insurers and other insurance intermediaries;
(k) regulating investment of funds by insurance companies;
(l) regulating maintenance of margin of solvency;
(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;
(n) supervising the functioning of the Tariff Advisory Committee;
(o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating
professional organisations referred to in clause (f);
(p) specifying the percentage of life insurance business and general insurance business to be undertaken by the
insurer in the rural or social sector; and
(q) exercising such other powers as may be prescribed.
The Act by amending the Insurance Act in effect transfers all the powers and duties hitherto enjoyed and
discharged by the Controller to the Authority.
2.2.7 Finance and Accounts

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Chapter 5 deals with finance, accounts and audit of the Authority. Section 15 provides that the Central Government
may grant such sums of money as the government may think necessary. Further, section 16 provides that a fund
maybe created and called “The Insurance Regulatory and Development Authority Fund” and consists of:
(a) the government grants, fees and charges received by the Authority;
(b) all sums received by the authority from such other sources as may be decided upon by the Central
Government and
(c) the percentage of prescribed premium income received from the insurer.
The funds shall be utilised for the payment of the salaries, allowances, etc of the members and other employees of
the Authority and other expenses of the Authority incurred in discharging its functions.10. The Authority shall
maintain proper accounts and accounts of the Authority shall be audited by the Comptroller and Auditor-General of
India or his nominee.
2.2.8 Power of the Central Government
Chapter 6, though captioned as miscellaneous, still contains very important provisions. Sections 18–20 preserves
the control of the Central Government over the Authority which intends to control the insurance sector. By section
18 the Central Government is secured of the power to give direction to the Authority on the question of policy, other
than those relating to technical and administrative matters and clause 2 provides that the decision of the Central
Government is final on the question as to whether a particular matter is one of policy or not.
Supercession The Central Government is also invested with the power to supercede the Authority by notification in
the official gazette when the Authority does not discharge its duties properly or defies the directions of the Central
Government.11. On the notification of the supercession of the chairman, the members should vacate their offices
and a new Authority may be constituted. There is no prohibition for nominating the vacating members as the
chairperson of the newly appointed authority.
Parliamentary Control The ultimate control is vested with Parliament by requiring the notification of supercession
and the full report of the action is therefore, to be laid before each House of Parliament at the earliest. A duty is cast
under section 20 on the Authority to furnish an annual report of its activities including the activities for promotion of
the development of the insurance business during the previous financial years and copies of these reports shall be
laid before each house of Parliament.
2.2.9 Interim Arrangements
If at any time, the Authority is superseded under sub-section (1) of section 19 of the Insurance Regulatory and
Development Authority Act, 1999, the Central Government may, by notification in the official gazette, appoint a
person to be the Controller of Insurance till as such time the Authority is reconstituted under sub-section 3 of
section 19 of the Act.
In making any appointment under this section, the Central Government shall have due regard to the following
considerations, namely, whether the person to be appointed has had experience in industrial, commercial or
insurance matters and whether such person has actuarial qualifications.
2.2.10 Insurance Advisory Committee
The Act in section 25 also provides for establishment of an Insurance Advisory Committee. The chairperson and
members of the Authority shall be ex-officio members of the advisory committee. The advisory committee shall
consist of not more than 20 members to represent the interests of commerce, industry, transport, agriculture,
consumer fora, surveyors, agents, intermediaries and research bodies engaged in the study of safety and loss. It
shall advise the Authority in making regulations and on such other prescribed matters.
2.2.11 Rule-Making Power
Section 24 empowers the state and Central Governments to make rules and section 26 empowers the Insurance
Regulatory Authority to make regulations on the subjects mentioned in the respective sections. The rules and
regulations so made shall be laid before each House of Parliament. Section 28 makes it clear that the provisions of
Page 4 of 4
the Act shall be in addition to and not in derogation of any law for the time being in force.12. Three schedules are
attached to the Act making amendments in the Insurance Act, 1938 in Sch 1, the Life Insurance Corporation Act,
1956 in Sch 2 and the General Insurance Business (Nationalisation) Act, 1972 in Sch 3. The second and third
schedules contain only one section each, which abolish the exclusive privilege of the Corporations—of conducting
life insurance business by LIC (section 30) and general insurance business by the GIC and its subsidiaries (section
24A) and directing them to conduct their respective business in India. In accordance with the provisions of the
Insurance Act, 1938, they are not abolished but their sole privilege to run the business is withdrawn. These entities
have to carry on the business side-by-side with the newly permitted private entities. It is made possible for the
private entities even to collaborate with foreign investors within certain limits and subject to certain conditions. In the
emerging scene of the gradual privatisation it is rightly felt that there should be government regulation through an
independent authority and so the Insurance Regulatory Authority originally set up provisionally, is no permanently
constituted under the Act. It is but proper in view of the change that there should be greater control to safe-guard
interests of the policy holders and to improve the methods of conducting the insurance business in India. The first
schedule introduces a good number of amendments to the Insurance Act, 1938. Particularly to shift all the powers
and the duties of the Central Government, the Controller of Insurance and to a limited extent the Insurance Tariff
Commissioner to the chairperson of the Insurance Regulatory Authority. The Insurance Regulatory Authority is
empowered to make Regulations under section 32, and section 114A of the Insurance Act, 1938 and under section
26 of the Insurance Regulatory and Development Authority Act, 1999 on matters specified in the respective
sections. Under section 26, the IRDA can make regulations on the advice of the Insurance Advisory Committee.
The Insurance Regulatory and Development Authority is to insurance law what SEBI is to company law. Both make
regulations which by the doctrine of delegated legislation have the same force as law made by the Parliament itself.
Both the Central Government and Parliament exercise control over this part of the law. Whenever the insurance
company wants to take approval from IRDA, it has to follow Regulations, Guidelines and Circulars of IRDA and all
those are binding on the insurance companies.13.
1. Section 4.
2. Section 6.
3. Section 8.
4. Section 9.
5. Section 10, IRDA (Meetings) Regulations 2000.
6. Section 10.
7. Section 11.
8. Section 13.
9. Section 14(1).
10. Section 16.
11. Section 19, IRDA Act, 1999.
12. Section 28, IRDA Act, 1999.
13. United India Insurance Co Ltd v Manubhai Dharamsinghbai Gajera, (2008) 10 SCC 404 : AIR 2009 SC 446.
End of Document
3.1 Introduction
CHAPTER 3 REGISTRATION OF INSURANCE COMPANIES
3.1 Introduction
The insurance sector is now open for private companies and control over them has become all the more necessary.
For this purpose, the Insurance Regulatory and Development Authority Act by amending the Insurance Act, 1938,
prescribes that no person shall start a new business on any branch of the insurance business, after the
commencement of the Insurance Regulatory and Development Authority Act, 1999, unless he has obtained a
certificate of registration for the particular class of insurance business he proposes to carry out and that existing
insurers are given breathing space of three months.1. The Indian insurance market is protected from invasion by
foreign capital by prohibiting the issuance of a certificate of registration to foreign insurance companies. A foreign
company however, is permitted to play in the Indian insurance market only through an Indian insurance company.
The Indian company is not permitted to allot more than 26 per cent of its equity capital.
1. Section 3, Insurance Act, 1938.
End of Document
3.2 Procedure of Registration

An insurance company must be first incorporated under the Companies Act, 1956 and must also be registered with
the Insurance Regulatory and Development Authority which is governed by both the Companies Act, 1956 and the
Insurance Regulatory and Development Authority Act, 1999.
Section 3 of the Insurance Act provides that every application for registration shall be made in such a manner as
may be determined by the Insurance Regulatory and Development Authority and shall be accompanied by the
documents mentioned therein. Separate Regulations are passed by IRDA called the IRDA Registration of Indian
Insurance Companies Regulations 2000.2. As per that a new entrant Indian insurance company desiring to carry on
insurance business in India shall make an application for registration in form IRDA/R1. This form requires the
applicant to give his details prescribed therein with which the Insurance Regulatory and Development Authority will
screen his status and if it is satisfied that he can carry on all functions in respect of the insurance business including
management of investments within his own organisation and is a bona fide applicant, and that his previous
application has not been rejected in the previous five financial years, and his previous certificate has not been
withdrawn or cancelled and his name contains the words insurance company or assurance company, the Authority
gives him an application for registration in form IRDA/R2; otherwise it will reject his application after giving him a
reasonable opportunity for hearing as to why his application shall not be rejected. The order rejecting the
application must be communicated to him by the Authority within 30 days of such rejection.
The applicant on receipt of the rejection order may apply to the Authority within 30 days for reconsideration of its
decision. An applicant whose application has been finally rejected may make a fresh application after a period of
two years with a new set of promoters or for a new type of insurance business.
If his application in form IRDA/R1 is accepted, the Authority will furnish him with an application in form IRDA/R2.
Generally a filled in application in form IRDA/R2 must be accompanied with the documents mentioned in Reg 10(2)
including evidence that he has paid the requisite Rs 50,000 thousand rupees for each kind of insurance business
applied for, and made the deposit required under section 7 of the Insurance Act, 1938. The Authority gives
preference in granting of the “certificate of registration” to those applicants who propose to carry on the business of
providing health covers to individuals or groups of individuals. On receipt of application in form IRDA/R2, the
Authority makes an inquiry as it deems fit and if it is satisfied in that inquiry that:
1. the applicant is eligible, and in its opinion, is likely to meet effectively its obligations imposed under the Act;
2. the financial condition and the general character of management of the applicant is sound;
3. the volume of business likely to be available to, and the capital structure and earning prospects of the
applicant will be adequate;
4. the interests of the general public will be served if the certificate is granted to the applicant in respect of the
class of insurance business specified in the applications; and
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5. the applicant has complied with the provisions of sections 2(c), 5, 31(a), 32 and 32(a) has fulfilled all the
requirements of these sections applicable to him, may register the applicant as an insurer for the class of
business for which the applicant is found suitable and grant him a certificate in form IRDA/R3. The
certificate issued in the beginning will be valid for a year. Thereafter, there shall be an annual renewal.
2. For full text see Appendix III.
End of Document
3.3 Renewal of Registration

An insurer who has been granted a certificate under section 3 of the Act, shall make an application in form IRDA/R5
for the renewal of the certificate, to the Authority before 31 December each year, and such an application shall be
accompanied by evidence of the payment of the fee which shall be the higher of:
(i) fifty thousand rupees for each class of insurance business, and
(ii) one-fifth of one per cent of total gross premium written direct by an insurer in India during the financial year
preceding the year in which the application for renewal of certificate is required to be made, or Rs 5 crores,
whichever is less; and in the case of an insurer solely carrying on reinsurance business, instead of the total
gross premium written direct in India, the total premium in respect of facultative reinsurance accepted by
him in India shall be taken into account.
If the insurer fails to apply for the renewal of registration before the date specified in sub-reg (1) the Authority may
accept an application for renewal of registration on receipt of the fee payable with the application along with an
additional fee by way of penalty of 10 per cent of the fee payable with the application.
3.3.1 Manner of Payment of Fee for Renewal of Certificate
The fee for renewal of certificate shall be paid to the account of the Insurance Regulatory and Development
Authority with the Reserve Bank of India.
Earlier, section 3A of the Insurance Act, 1938 required for annual renewal of the registration of insurance company.
The amended section mandates just for annual fee and no annual renewal is required. Therefore, it provides for
permanent registration of the companies. IRDA has the power to suspend or cancel such registration under certain
stipulated condition. Section 3(2) of the Insurance Act, 1938 has been amended and the requirement of depositing
a certain amount with the Reserve Bank of India for the purpose of the registration of the company has been
removed. Now, they will just have to fulfill whatever will be prescribed by the Regulations. Though this requirement
has been removed, the company will have to maintain a solvency margin as provided by the IRDA. The amended
Act has added section 32D which states that “Every insurer carrying on general insurance business shall, after the
commencement of the Insurance (Amendment) Act, 2015, underwrite such minimum percentage of insurance
business in third party risks of motor vehicles as may be specified by the Regulations”. The Act has given the power
to IRDA to exempt any insurer who is primarily gaged in the “Business of Health, Re-insurance, agriculture or
export credit guarantee.” The Amendment Act has substituted section 40B and section 40C of the Insurance Act,
1938 and the new sections provide that management expenses of any insurance company should not exceed the
limits which would be prescribed by IRDA and the details of the management expenses will be provided to IRDA as
per the Regulations promulgated.
3.3.2 Issue of Duplicate Certificate
The Authority may, on receipt of a fee of Rs 5,000, issue a duplicate certificate to the insurer, if the insurer makes
Page 2 of 3
an application to the Authority in form IRDA/R4.
3.3.3 Cancellation or Suspension of Certificate
Without prejudice to any penalty which may be imposed or any action taken under the provisions of the Act, the
registration of an Indian insurance company or insurer who;
1. conducts its business in a manner prejudicial to the interests of the policy holders;
2. fails to furnish any information as required by the Authority relating to its insurance business;
3. does not submit periodical returns as required under the Act or by the Authority;
4. does not cooperate in any inquiry conducted by the Authority;
5. indulges in manipulating the insurances business;
6. indulges in unfair trade practices;
7. fails to make investment in the infrastructure or social sector specified under sub-section 1(a) of section
27(d) of the Act;
may be suspended for a class or classes of insurance business for such period as may be specified by the
Authority by an order.
It is also provided that the Authority for reasons to be recorded in writing may, in case of repeated defaults of the
type mentioned above, impose a penalty of cancellation of Certificate.
3.3.3.1 Manner of Making Order of Suspension or Cancellation of Certificate
No order of suspension or cancellation shall be imposed except after holding an inquiry in accordance with the
procedure specified in the above regulation.
3.3.3.2 Manner of Holding Inquiry Before Suspension or Cancellation
For the purpose of holding an inquiry regarding the malpractices of insurance, the Authority may appoint an inquiry
officer. The inquiry officer shall issue to the insurer a notice at the registered office or the principal place of business
of the insurer. The insurer may, within 30 days from the date of receipt of such notice, furnish to the inquiry officer a
reply, together with copies of documentary or other evidence relied on by it or sought by the Authority from the
insurer. The inquiry officer shall give a reasonable opportunity of hearing to the insurer to enable it to make
submissions in support of its reply made under the sub-regulation. The insurer may either appear in person or
through any person duly authorised by the insurer before the inquiry officer. An advocate shall be permitted to
represent the insurer at the inquiry if it is considered necessary, the inquiry officer may ask the Authority to appoint
a presenting officer to present its case.
The inquiry officer shall, after taking into account all relevant facts and submissions made by the insurer, submit a
report to the Authority and recommend the penalty to be awarded as also the justification of the penalty proposed.
3.3.3.3 Show-cause Notice and Order
On receipt of the report from the inquiry officer, the Authority shall consider the same and if considered necessary
by it, issue a show-cause notice as to why a penalty as it considers appropriate should not be imposed. The insurer
shall, within 21 days of the date of receipt of the show-cause notice, send a reply to the Authority. The Authority
after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than 30 days
from the receipt of the reply, if any, pass such orders as it deems fit. If no reply is furnished to the Authority by the
insurer within 90 days of the service of the notice, the Authority can proceed to decide the issue ex parte. The order
passed shall give reasons therefore including justification of the penalty imposed by that order. The Authority shall
send a copy of the order to the insurer.
3.3.3.4 Publication of Order
The order of the Authority passed shall be published in at least two daily newspapers in the area where the insurer
Page 3 of 3
has his principal place of business.
3.3.3.5 Effect of Suspension or Cancellation of Certificate
From the date of suspension or cancellation of the certificate, the insurer shall cease to transact new insurance
business.
3.3.3.6 Existing Insurers
The existing insurers are regulated by a separate set of guidelines for registration. They are required to make an
application in form IRDA/R2 (the same form as in the case of new insurers) for grant of certificate of registration
within three months from the commencement of the IRDA Act, 1999.
Every application shall be accompanied by:
a) original certificate of registration;

b) confirmation that the requirements of section 7 of the Act have been met;
c) evidence of having paid Rs 100 crores or more paid up share capital, in case of an application for grant of
certificate of registration for reinsurance business;
d) an affidavit by the principal officer of the applicant certifying that the requirements of section 6 of the Act
have been compiled with;
e) a certified copy of the standard forms of the insurer and statements of the assured rates, advantages,
terms and conditions to be offered in connection with insurance policies together with a certificate in case
of life insurance business by an actuary that such rates, advantages, terms and conditions are workable
and sound;
f) the original receipt showing payment of fee of Rs 50,00 for each class of business and;
g) any other information required by the authority during the processing of the application for registration.
The authority shall register every applicant, who submits an application in accordance with the sub-regulation, and
grant a certificate in form IRDA/R3. This brings the existing insurer on par with new insurers in respect of paid up
capital requirements. The existing insurers are also required under the transitory provisions to comply with all the
regulations, as in case of new insurers. However, of the compliance of the regulations relating to accounts, assets,
liabilities, solvency margins and reinsurance a 12 months period is given and on an application the Authority may
grant a further period of not more than 12 months if it is satisfied that there are valid reasons for such an extension.
The existing insurers need not requisition an application for obtaining a form for registration in form IRDA/R1 and
the first screening is done at this stage. From the contents of form R1 which contains the complete biography of the
applicant the IRDA decides whether the applicant can run the proposed business or not.
End of Document
4.1 Introduction
CHAPTER 4 OTHER REGULATIONS
4.1 Introduction
The regulation dealing with registration of insurers is discussed in the previous chapter and the other regulations
made by the Authority are discussed in this chapter.
End of Document
4.2 Registration of Meetings
4.2 Registration of Meetings

The Authority in consultation with the Insurance Advisory Committee passed a separate regulation prescribing
procedure for conducting its own meetings called IRDA (Meetings) Regulations 2000 and the meetings of the
Insurance Advisory Committee called Insurance Advisory Committee (Meetings) Regulations 2000.
End of Document
4.3 Appointed Actuaries and Actuarial Report
4.3 Appointed Actuaries and Actuarial Report

Every insurer doing the life insurance business must appoint a qualified actuary exclusively for himself to advise
him on matters relating to tariff, investments and manner of maintaining accounts. The actuary plays an important
role in the life insurance business, particularly in product development, determination of premium rates, study of
mortality rates and construction of mortality tables, laying down standards for underwriting, valuation of assets and
liabilities and method of distributing surplus. In general insurance also actuaries are consulted in matters relating to
rating and technical matters. The Malhotra committee report says that there were only 67 actuaries (Fellows of the
Institute of Actuaries, London) in the service of the LIC. The Actuarial Society of India has been conducting
examinations for qualifying as actuaries only since 1989. A person qualifying as a Fellow of the Actuarial Society of
India is a qualified actuary and can be appointed as actuary by an insurer with the approval of the IRDA.
The IRDA made two regulations called IRDA (Appointed Actuary) Regulations 2000 and IRDA (Actuarial Report
and Abstract) Regulations 2000,1. The first deals with qualifications for appointment, his powers and duties and the
second with the details to be given and the format for the actuarial report and duties and the second with the details
to be given and the format for the actuarial report.
It is especially provided that abstracts and statements shall be prepared separately in respect of:
(i) linked insurers;

(ii) non-linked insurers and
(iii) health insurance business.
Separate general forms are prescribed for the above three types of insurers.
Statements of solvency and margin details must also be appended in form K.
1. For full text see Appendix VIII.
End of Document
4.4 Assets and Liabilities

The assets and liabilities of any person show his financial status and his solvency. The authority requires that every
insurer shall prepare a statement of the value of assets in a prescribed form [IRDA assets form AA.] It also requires
that every insurer shall prepare a statement of the amount of liabilities in accordance with Sch 2A, in respect of life
insurance business and in Form HG in accordance with Sch 2B, in respect of general insurance business as the
case may be. It shall also prepare a statement of solvency margin in accordance with Sch 3A in respect of life
insurance business and in Form KG in accordance with Sch 2B in respect of general insurance business, as the
case may be. If it has business outside India the above forms must be separately furnished for business in India
and the total business transacted by the insurer.
On scrutiny of the above forms and returns if the IRDA still has doubts and if it covers that it is necessary and
expedient, it may ask the appointed actuary of the company to make a personal visit to its office to elicit from him
any clarification or further information.
4.4.1 Method of Valuation
The method of valuation of the assets is prescribed so that the insurer may not boost their values and create a false
credit; for that purpose the following provisions are made. The following assets should be placed with value zero:
(i) agent’s balances and outstanding premiums in India, to the extent they are not realised within a period of
30 days;
(ii) agent’s balances and outstanding premiums outside India, to the extent they are not realisable;
(iii) sundry debts to the extent they are not realisable;
(iv) advances of an unrealisable character;
(v) furniture, fixtures, dead stock and stationary;
(vi) deferred expenses;
(vii) profit and loss appropriation account balance and any fictitious assets other than pre-paid expenses;
(viii) reinsurer’s balances outstanding for more than three months;
(ix) preliminary expenses in the formation of2. the company.
(2) The value of computer equipment including software shall be computed as under:
(i) seventy-five percent of its cost in the year of purchase;

(ii) fifty percent of its cost in the second year;
(iii) twenty-five percent of its cost in the third year and
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(iv) zero percent thereafter.
(3) All other assets of an insurer have to be valued in accordance with the regulation called The Insurance
Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance
Companies) Regulations 2000.3.
4.4.2 Statement of Assets
Every insurer shall prepare a statement of assets in form IRDA-Assets-AA
4.4.3 Valuation of Liabilities
Separate and detailed rules have been made for valuation of liabilities regarding life insurance insurers and general
insurance insurers.
2. Sch 1, Regulation 2 in Appendix X.

3. Appendix XI.
End of Document
4.5 Solvency Margin
4.5 Solvency Margin

Every insurer shall determine the required solvency margin, the available solvency margin, and the solvency ratio in
form K as a specified under the Insurance Regulatory and Development Authority (Actuarial Report and Abstract)
Regulations 2000.4.
Separate forms are prescribed for showing solvency margins of life and general Insurance business. A Separate
regulation called IRDA (Assets, Liabilities and Solvency Margin) Regulation 2000 has been passed.5.
The requirement of registration of insurance companies with the IRDA gives information only of the existence of the
companies but not of their status. It was long back recognised even in the Insurance Act, 1938 that for the
successful running of insurance companies they must maintain the solvency margin. To protect the interests of the
policy holders the IRDA must know the financial balance sheet, that is, assets and liabilities of the company and so
a separate regulation was issued by the IRDA called the IRDA Assets, Liabilities and Solvency Margins (both
available and expected must be stated in the forms prescribed by the schedules). Power is also reserved by the
IRDA to call the actuary to attempt to seek clarification and further information on the insurers and if it is not
satisfied it may refuse to grant renewal of the registration of the insurer. The disclosure of details in the accounts,
and returns and reports, create a transparency in the financial status of the company.
4. For full text see Appendix VIII.

5. For full text see Appendix X.
End of Document
4.6 Preparation of financial statements
4.6 Preparation of financial statements

The IRDA is constituted under the IRDA Act, 1999 to protect the interests of the shareholders and policy holders by
controlling the activities of the insurance companies. It is to act not only as a watchdog but also as an advisor and
with reference particularly to the erring companies by constantly committing acts of malfeasance and misfeasance
to act as a bloodhound. It is also to act as an advisory body to develop healthy and prosperous trends in the
insurance market. To reign and control the insurance sector it is given the power to grant a “Certificate of
Registration” without which no company can commence and continue to carry on insurance business. To have a
constant vigil over their activities, registration is made renewable every year. The registration of an insurer only
serves as its visiting card and makes the Insurance Regulatory and Development Authority only to know about its
existence and the fact that it is doing insurance. To keep a constant and effective vigil over its activities and
continued financial status the Authority must know the details of its activities.
The activities of a financial institution can be known from its Balance Sheet which in turn is based on the record of
daily transactions. The account books reveal the nature and conduct of the nature of its business. But an intelligent
person can, by manipulating his accounts, create an image favourable to him because accounts can reveal as
effectively as they can hide. Therefore, to give transparency to the real nature of the financial institutions, detailed
and minute directions are given by promulgating a regulation called IRDA (Preparation of Financial Statements and
Auditor’s Report of Insurance Companies) Regulations 2000.6.
The Regulation provides for details of accounting principles for preparation of financial statements applicable
separately to the life insurance business and the general insurance business in its Sch A and B. Every Balance
Sheet Revenue Account, Policy-holders Account Receipts and Payments Account (Cash Flow Statement) and
Profit & Loss Account (Share Holders Account) of an insurer shall be in conformity with the Accounting Standards
(AS) issued by the ICAS, to the extent applicable to insurers carrying on Life Insurance business except that:
i) Accounting Standard–3 (AS-3)—Cash Flow Statements—Cash Flow Statement shall be prepared only
under the Direct Method.
ii) Accounting Standards–17 (AS–17)—Segment Reporting shall apply irrespective of whether the securities
of the Insurer are traded publicly or not.
A similar provision is made with reference to the general insurance business. Certain items are prescribed to be
disclosed by way of notes to the Balance Sheet. The prescribed financial statements must be accompanied by a
management report in the form of verification to the filed financial statements.
6. For full text see Appendix XI.
End of Document
4.7 Audit Report
4.7 Audit Report

Schedule C of the above Regulation deals with the auditor’s report that the report of the auditor on the Financial
Statements of every insurer shall deal with the matters specified namely:
1. (a) that they have obtained all the information and explanations, which to the best of their knowledge
and belief were necessary for the purposes of their audit and whether they have found them satisfactory;
(b) whether proper books of account have been maintained by the insurer so far as appears from an
examination of those books;
(c) whether proper returns, audited or unaudited from branches and other offices have been received and
whether they were adequate for the purpose of audit;
(d) whether the actuarial evaluation of liabilities is duly certified by the appointed actuary including to the
effect that the assumptions for such valuation are in accordance with the guidelines and norms, if any,
issued by the authority, and/or the actuarial society of India in concurrence with the authority.
2. The auditors shall express their opinion on:
(a) whether the balance sheet gives a true and fair view of the insurer’s affairs as at the end of the
financial year/period;
(b) whether the revenue account gives a true and fair view of the surplus or the deficit for the financial
year/period;
(c) whether the profit and loss account gives a true and fair view of the profit or loss for the financial
year/period; the financial statements stated at (a) above are prepared in accordance with the
requirements of The Insurance Act, 1938 (4 of 1938), The Insurance Regulatory and Development Act,
1999 (41 of 1999) and the Companies Act, 1956 (1 of 1956), to the extent applicable and in the
manner so required.
3. Investments have been valued in accordance with the provisions of the Act and these Regulations.
4. The accounting policies selected by the insurer are appropriate and are in compliance with the applicable
accounting standards and with the accounting principles, as prescribed in these Regulations of any order
or direction issued by the authority in this behalf.
5. The auditors shall further certify that:
(a) they have reviewed the management report and there is no apparent mistake or material
inconsistencies with the financial statements;
(b) the insurer has complied with the terms and conditions of the registration stipulated by the authority.
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4.7 Audit Report
(c) a certificate signed by the auditors which shall be in addition to any other certificate or report which is
required by law to be given with respect to the balance sheet certifying that:
(i) they have verified the cash balances and the securities relating to the insurer’s loans reversions
and life interests (in the case of life insurers) and investments;
(ii) to what extent, if any, they have verified the investments and transactions relating to any trusts
undertaken by the insurer as trustee and
(iii) no part of the assets of the policy holders’ funds has been directly or indirectly applied in
contravention of the provisions of The Insurance Act, 1938 (4 of 1938) relating to the application
and investment of the policy holders’ funds.
In company jurisprudence an auditor is said to be a watchdog but not a bloodhound; he is not expected to be a
“Sherlock Homes”, but the Regulations require him to act with higher circumspection and vigilance than that of a
mere watchdog.
End of Document
4.8 Investment
4.8 Investment
A commercial company can make its investments of the available assets in secured methods. But the insurance
sector owes an obligation to national interest, a new phase developed due to nationalisation of the insurance
market. As noted earlier, the two corporations, i.e., the Life Insurance Corporation and the General Insurance
Corporation discharged their duties of acting in consonance with the principles laid down in the directive principles
in the Constitution. They helped the country in financing five year plans and fostered their might to develop the
economy of the country in the process of industrialisation of the country. The investments of these instrumentalities
of the state were utilised for the welfare and benefit of the society and helped in establishing a new insurance
business. Even after privatisation they continue to work and the investment regulation is the same for all insurers.
From that point of view the IRDA passed a Regulation called IRDA (Investment) Regulations 2000.7.
Every insurer shall submit to the Authority certain prescribed verified returns at such intervals, say yearly or
quarterly. The Authority is empowered to call for additional information.
It is also provided that every insurer shall constitute an investment committee which shall consist of a minimum of
two non-executive directors of the insurer, the principal officer, chiefs of finance and investment divisions, and
wherever an appointed actuary is present, the appointed actuary. The decisions taken by the Investment
Committee shall be properly recorded and be open to inspection by the Authority.
7. For full text see Appendix XII.
End of Document
4.9 Rural Insurance
4.9 Rural Insurance

When insurance was nationalised the insurance business was confined only to cities and better-off segments of
society. In pursuance of the recommendations of the Administrative Reforms Commission in 1974, Life Insurance
Corporation formulated its objectives, amongst others, to spread the life insurance business much more widely and
in particular to the rural areas and to the socially and economically backward classes with a view to reaching all
insurable persons in the country and providing them, at a reasonable cost, adequate financial cover against death.
Over the years LIC has acquired a significant presence in the rural sector. According to the Malhotra Committee
report nearly 45 per cent of its new business was gained from this sector during 1992–93. It has also introduced
various group insurance schemes for the weaker sections of society. The General Insurance Corporation and its
subsidiaries also tapped well the rural sector. The Malhotra Committee observed that premium income from “Rural
Non-Traditional Insurance Business” (RNTB) increased from Rs 25 lakhs in 1974 to Rs 111.24 crores in 1992–93.
A good part of this business comes from the insurance of livestock, major part of which comes from “Integrated
Rural Development Programme” (IRDP) and bank credit linkages where insurance is mandatory. But still there is
need for more intensive work in rural areas for spreading RNTB.
It is hoped that in case private players enter the insurance market there is every likelihood that they would prefer to
concentrate their activity in the lucrative urban business and neglect the less profitable rural market. One of the
important objectives of establishing Insurance Regulatory and Development Authority is to see that the new
entrants may also be compelled to penetrate into rural areas to do a reasonable proportion of their total business.
For this purpose the IRDA made a regulation called IRDA (Obligations of Insurers to Rural or Social Sectors)
Regulation 2000.8.
8. For full text see Appendix IX.
End of Document
4.10 Re-insurance
4.10 Re-insurance
When an insurer issues a policy to the insured he is said to have entered into a contract of insurance. In doing
insurance business it may issue a number of policies. At a particular stage it may feel that the risk undertaken by it,
is beyond its capacity, then it may retain the risk which it can bear and the balance may be transferred to another
insurer called the reinsurer under a contract of reinsurance. Though the original insurer has no interest in the
subject-matter of insurance he is said to have acquired an insurable interest under its contract of insurance. It
cannot insure for more than the original insurance. Thus, a contract of insurance creates in the insurers an
insurable interest sufficient to support a reinsurance to the full amount of their liability on the original policy.9.
The Malhotra Committee observed that reinsurance relating to the life insurance business is relatively less when
compared to the general insurance business. When the Life Insurance Corporation took over the business of two
hundred and forty-five insurers in 1956, it might have resorted to reinsurance but now it does not require any such
arrangements because of its financial strength and capacity to bear all its risks fully. But in the matter of general
insurance due to rapid progress and acceleration of development and large-scale industrialisation in the post-
independence period there was an increase in business, including assumption of even larger and more complex
risk by the general insurance companies. This increase in business enhanced the need for reinsurance protection
which necessitated the Indian general insurers to go to the foreign market. In order to reduce the foreign
intervention and increase domestic retention, in 1956, the Indian Reinsurance Corporation was formed by the
Central Government. To minimise the drain of foreign exchange, several measures like obligatory non-reciprocal
cession by the subsidiaries of GIC, market pools for fire and marine hull business, inter-company cessions were
adopted. The government started regulation in the reinsurance market by introducing sections 101A, 101B and
101C in the Insurance Act, 1938, which was further streamlined by the Insurance Regulatory and Development
Authority by issuing two regulations, one for general insurance and another for life insurance.10. These provisions
are intended to regulate and maximize retention of reinsurance within the domestic market.
9. Mackenzie v Wristworth, (1875) 45 WQB 233.

10. For full text see Appendices XIII and XIV.
End of Document
4.11 Advertisement and Disclosures
4.11 Advertisement and Disclosures

With the privatisation of insurance, private players jump into the field and where there was monopoly there was no
competition and so there was no necessity for the Life Insurance Corporation and General Insurance Corporation to
issue advertisements. Now that there is competition, advertisement becomes necessary and the insurers make
some material disclosures. To see that innocent shareholders and policy holders are not deceived, the Insurance
Regulatory and Development Authority promulgated a regulation called the Insurance Regulatory and Development
Authority (Insurance Advertisements and Disclosure) Regulation 2000.11. The other Regulations relating to licensing
of Insurance Agents and Loss Assessors appointment of ombudsman, registration of insurers are discussed at the
relevant places.
11. For full text see Appendix IV.
End of Document
5.1 Definition
CHAPTER 5 CONTRACT OF INSURANCE
5.1 Definition
A contract of insurance is a contract either to indemnify a person against a loss which may arise on the happening
of an event or to pay a sum of money on the happening of some or any event for an agreed consideration. To put it
in other words it is a contract under which one party undertakes to pay to another person a sum of money or its
equivalent on the happening of a specified event. Under such a contract one party agrees to take the risk of another
person’s life, property or liability in consideration of certain comparatively small periodic payments. The person to
be paid or indemnified is called the “insurer” or “assured”, the person who undertakes to indemnify or pay money is
called the “insurer” or “assurer” or “underwriter”, the last word being generally used in marine insurance; the
consideration received in the form of periodic payments is called the “premium” or “premia”; and the document
containing the contract is called the “insurance policy”.
It follows that every contract of insurance must have the following essential elements:
(a) There must be a contract between parties who are called the “insurer” and the “insured”.
(b) The contract must be that the insurer undertakes to protect the insured from any loss or damage to be
insured on the happening of the event.
(c) In consideration for the above, the assured undertakes to make the insurer a periodical payment of a sum
of money called premium.
(d) The contract must be in writing and the document is called the insurance policy.
In Medical Defence Union Ltd v Department of Trade, [1979] 2 Ch D 421 , some medical and dental practitioners
formed the “Medical Defence Union” which was to conduct legal proceedings on behalf of its members,
indemnifying members against claims for damages and costs and giving advice to members on various matters and
providing educational guidance. Members had the right to request for the Union’s help. The members in return had
to pay an appropriate annual subscription for their class of membership. The Department of Trade sought a
declaration that the Union was doing insurance business under the general law and therefore within the 1974 Act.
The Union sought a declaration that they did not carry on any class of insurance business. The Court held that on
the occurrence of some event, there had to be a right to receive money or money’s worth, and where the
entitlement was merely to some benefit other than money or money’s worth, the contract was not one of insurance,
and so the Union was not an insurance company.
The learned judge said:
I do not know whether a satisfactory definition of ‘contract of insurance’ will ever be evolved. Plainly it is a matter of
considerable difficulty. It may be that it is a concept which is better to describe than to attempt to define... Plainly a provision
for the payment of money is one of the usual elements in a contract of insurance; the main difficulty lies in formulating what
extension of this concept there should be—plainly there must be some... In view of the St Christopher’s case it may be that
the term ‘money or money’s worth’ will not suffice by itself. A possible addition would be ‘or the provision of services to be
Page 2 of 2
5.1 Definition
paid for by the insured’. As at present advised I would hesitate to omit the last seven words.
In Department of Trade v Chrispheres, [1974] 1 Ch D 395 . the defendant company formed an association for
providing facilities for motorists and owners of motor vehicles. In the event of a member becoming unable to drive
his own car because of an accident he would be entitled to a “chauffeur service” where the association would
provide him with a driver for his car or if necessary a car and a driver. All fully licensed drivers above 25 years of
age were eligible for membership of the association. The Department of Trade and Industry sought a declaration
that the association was carrying on insurance business within the Insurance Companies Act, 1958. It was held that
the arrangement made by the defendant amounted to an insurance business as contracts of insurance are not
confined to contracts for the payment of money but may provide for some corresponding benefit.
It was observed that there are several considerable doubts as to whether a revised “grill” consisting of insurance
and non-insurance benefits is a contract of insurance within the Insurance Companies Act, 1982 or a contract for
insurance outside the statute.1. A contract of insurance which is not statutory in nature should be construed like any
other contract.2.
Thus, it can be seen that a contract of insurance is a species of a contract of indemnity and hence the specified
event must be such that on the happening of it the insured must suffer some loss or at least the happening of the
event must adversely affect the interest of the assured resulting in some loss to him.3. Speaking about the nature of
the contract and the event involved, Channel J observed:
It must be a contract whereby, from some consideration, usually, but not necessarily, for periodical payments called a
premium, you secure to yourself some benefit, usually, but not necessarily the payment of a sum of money upon the
happening of some event... Then the next thing that is necessary is that the event should be one which involves some
element of uncertainty. There must be either some uncertainty whether the event will ever happen or not, or if the event is
one which must happen at some time or another there must be uncertainty as to the time at which it will happen.4.
To illustrate the statement, in the case of life insurance, if a life policy is taken, the event insured is the death of a
human being, and death of a mortal is certain; but then the uncertainty lies not in the happening or non-happening
of the event, but in the point of time when the death occurs. On the other hand the happening of the event insured,
itself, may or may not happen. For example, in the case of fire insurance or marine insurance, the accident of fire or
the loss of the ship or other property insured may itself not happen. Either type of uncertainty is sufficient; but there
must be some element of uncertainty about the event insured.
1. Attorney General, Imperial Tobacco v Imperial Insurance, [1980] 1 All ER 866.

2. Oriental Insurance Co Ltd v Sudhakaran KV, (2008) 7 SCC 428 : AIR 2008 SC 2729.
3. Prudential Insurance Co v Inland Revenue Commissioner, [1904] 2 KB 658, 663.
4. Ibid.
End of Document
5.2 Classification of Contracts of Insurance

Contracts of insurance have been classified into various categories by different writers and with the progress and
development of civilisation and economic growth new varieties of insurance are emerging. Some writers classify the
contracts according to the nature of the interest affected while some others according to the nature of the event.
5.2.1 According to the Nature of the Interest Affected
This classification is from the nature of the interest of the insured sought to be protected by the insurer. A person
may take out a policy protecting himself from loss likely to be caused by loss of life, that is death, or from any injury
to his body, loss of property, or involvement in liability to others. From this point of view the categorisation may be:
(i) Personal, (b) Property, and (c) Liability insurances.
5.2.1.1 Personal Insurance
When a person takes a life insurance, either on his own life or on another’s life about his health or personal
accident, the nature of the interest affected is the life, health and body and so these are said to be personal
insurance contracts.
5.2.1.2 Property Insurance
When the interest affected by the happening of the event insured against is the proprietary interest of the insured
the contracts are called proprietary insurance contracts. Under this category come fire insurance, marine insurance
etc.
5.2.1.3 Liability Insurance
In this type, when the event insured against happens, the insured would be exposed to some liability to third parties
and this is called a ‘Liability Insurance Contract”. More common examples of this type of insurance are motor
vehicles insurance, aviation insurance, industrial insurance etc.
5.2.2 According to the Nature of the Event
In another perspective, all insurance contracts may be classified according to the event on the happening of which
the insurer would be liable to pay the agreed money to the insured. From this angle, they may be classified as:
5.2.2.1 Life Insurance

Page 2 of 2
The sum insured becomes payable on the death of the insured or on the attainment of a particular age.
5.2.2.2 Fire Insurance
In this class of contracts, the sum is payable on the accident of fire by which the insured property is destroyed or
damaged. Here the loss insured is the damage caused by fire.
5.2.2.3 Marine Insurance
Here the sum becomes payable on the happening of a perilous event at sea.
5.2.2.4 Miscellaneous Insurance
This includes a variety of new insurances which go in the modern times under the terms ‘Social Insurance or
Liability Insurance, Industrial Insurance, Motor Vehicles Insurance, Aviation Insurance”, etc. Comparatively, these
types are rather new as the first three types i.e., life, fire and marine have been recognised since long.
In England the classification made by the Insurance Companies Act is industrial insurance, liability insurance,
marine, aviation and transport insurance, motor vehicles insurance, ordinary long term insurance, pecuniary loss
insurance, personal accident insurance and property insurance.5.
There is no hard and fast rule for the classification. They depend on the author’s view. Some writers classified
broadly all insurance contracts as property and non-property insurances, the first dealing with proprietary losses
while the latter dealing with loss of personal life and safety. Common examples of the property insurance are fire
and marine insurances, while the latter include life, accident, liability etc, insurances. None of these is a water-tight
compartment and the categories of insurance are not a closed list. However, in India, the Controller of Insurance
publishes insurance data according to the classification depending upon the nature of the event, and thus, this may
be called the official classification, namely (a) life, (b) fire, (c) marine and (d) general or miscellaneous insurance
and this classification has been followed in this book.
5. Insurance Companies Act, 1958, section 59(1).
End of Document
5.3 Nature of the Insurance Contract

As we have noted, a contract of insurance is one in which one person agrees to take risk of another person’s life,
limb or property. In this sense, about the nature of the insurance contract, there are many different views of which
the following are predominant: (a) that it is an “aleatory contract”, (b) that it is a contract of “utmost good faith”, (c)
that it is a contract of “indemnity” and (d) that it is a contract of “wager”.
5.3.1 Contract is “Aleatory”
It is commonly said that an insurance contract is an “aleatory contract”. Lord Mansfield said that there is no doubt,
and in reality, the insurance contract, whatever may be the type is a “contract of speculation”. Webster’s New
International Dictionary says that contracts of insurance are aleatory contracts “depending on an uncertain event or
contingency as to both profit and loss”. If we take an example of a person taking a fire insurance policy on his
house, he pays a little and if the house is not burnt, he loses that small amount, but if the house is destroyed by fire
he is entitled to recover a huge amount, the value of the house. Thus it is apparently a gamble in which if the event
happens in a certain way, the insured will have a small loss, the loss of premium and if the event happens in
another way the insurer loses heavily in that, he has to pay the huge sum, the value of the house. Thus, there is
speculation and so it is called an “Aleatory Contract”.
5.3.2 Contract of Utmost Good Faith
In England till the passing of the Misrepresentation Act, 1967, it is a cardinal principle of commercial law that he
who buys should beware, caveat emptor, and thereof in business transactions each party must take care of his
interest when he buys the promise of the other and the other party is not bound to disclose any defect which an
ordinary inquisition would reveal. But even before 1967, contracts of insurance stood and now also they stand on a
different footing and form an exception to this rule because the parties do not stand on equal footing either with
regard to the knowledge of the subject matter or with regard to the economic aspect of the obligation. It has been
noted while explaining the aleatory nature of the contract that the parties do not stand on equal footing with regard
to the economic aspect of the obligation created by the contract. With regard to the knowledge about the subject
matter of insurance the one party, say the insured, has better or all the means of knowledge than the other party,
the insurer. Scrutton L J observed:
As the underwriter knows nothing and the man who comes to him to ask him to insure knows everything it is the duty of the
assured, the man who desires to have a policy, to make a full disclosure to the underwriters without being asked of all the
material circumstances, because the underwriters know nothing and the assured knows everything. This is expressed by
saying that it is a contract of utmost good faith—uberrima fides.6.
For these reasons of economic inequality in the status of the contracting parties and of the superior knowledge of
one party about the subject matter of the insurance, a contract of insurance, is justly made an uberrima fides
transaction and an exception to the commonly accepted commercial rule of caveat emptor.
Page 2 of 11
The law relating to good faith requirement is contained in the Marine Insurance Act and these rules mutatis
mutandis apply to all classes of insurance. The relevant provisions are:
Insurance is uberrimae fidei: A contract of marine insurance is a contract based upon the utmost good faith, and, if
the utmost good faith be not observed by either party, the contract may be avoided by the other party.7.
Disclosure by Assured: (i) Subject to the provisions of this section, the assured must disclose to the insurer, before
the contract is concluded, every material circumstances which is known to the assured; and the assured is deemed
to know every circumstance which, in the ordinary course of business, ought to be known by him. If the insured fails
to make such disclosure, the insurer may avoid the contract.
(ii) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the
premium, or determining whether he will take the risk.
(iii) In the absence of inquiry the following circumstances need not be disclosed, namely:
(a) Any circumstance which diminishes the risk.

(b) Any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to
know the matters of common notoriety or knowledge, and matters which an insurer in the ordinary
course of his business, as such, ought to know.
(c) Any circumstances as to which information is waived by the insurer.
(d) Any circumstance which is superfluous to disclose by reason of any express or implied warranty.
(iv) Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question
of fact.
(v) The term “circumstance” includes any communication made to, or information received by, the assured.8.
Disclosure by Agent Effecting Insurance: Subject to the provisions of the preceding section as to circumstances
which need not be disclosed, where an insurance is affected for the assured by an agent, the agent must disclose
to the insurer:
(a) Every material circumstance which is known to himself, and an agent to insure is deemed to know every
circumstance which in the ordinary course of business ought to be known by, or to have been
communicated to, him; and
(b) Every material circumstance which the assured is bound to disclose, unless it comes to his knowledge too
late to communicate it to the agent.9.
It is now well settled that an insurance contract is a contract of utmost good faith and therefore, the contracting
parties are placed under a special duty towards each other, not merely to refrain from active misrepresentation but
to make full disclosure of all material facts within their knowledge.10. It has been said that “there is no class of
documents to which the strictest good faith is more rightly required in courts of law than policies of insurance.”11.
5.3.2.1 Scope of Duty of Disclosure
The rule of good faith imposes the duty to make disclosure of all material facts, known or imputed, but it must be
noted that a non-disclosure is not the same thing as concealment. Concealment involves a positive breach of a
negative duty while non-disclosure is a negative omission of a positive duty. In considering the scope of this duty of
disclosure the following points may be noted:
1. The duty to disclose extends only to material facts. So every material fact must be disclosed which he
knows or ought to know. Failure to disclose may be willful or inadvertent or even may be due to the party’s
erroneous belief that the fact not disclosed is not material. Whether or not a fact is material, is a question of
fact. This question does not depend upon what the particular insured thinks nor even what the insurers
think but whether a prudent and experienced insurer would be influenced in his judgment if he knew it.12.
The final judgment therefore, does not lie with either party but with the court. In LIC v Sakunthalabai the
assured did not disclose that he had suffered from indigestion for a few days; the court held that it is not a
Page 3 of 11
material fact and non-disclosure did not affect the validity of the policy.13. Non-disclosure of a conviction in
a criminal case of the assured was held to be a ground for invalidating the policy.14. The test generally
applied by the court is whether it is a fact which increases the risk or whether the insurer would have
rejected to give a policy on those terms if the fact had been disclosed.15. In Rohini Nandan v Ocean
Accident and Guarantee Corp, AIR 1960 Cal 696, the plaintiff insured against fire and burglary in respect of
furniture, house-hold goods, personal effects and jewels on his house in the first floor of a building from 1
July 1954. On 5 August 1974 there was a burglary and he claimed indemnity. The insurer refused the claim
on the ground that he suppressed the fact that there was a burglary in the ground floor of the premises in
1949 in his brother’s house. The court held that the earlier burglary in the ground floor of the premises was
not a material fact as it has no bearing on the risk undertaken by the insurer. The Marine Insurance Act,
both in England and in India, applies this objective test of the judgment of an ordinary prudent insurer.16.
Since marine and non-marine insurance law is identical in this respect, that is the proper test. The Privy
Council also applied the same test.17. The insured had taken a life insurance policy through his brother,
who was an authorised agent of the Insurer. Before taking the policy the insured had undergone an
operation for adenoma thyroid but he did not disclose the same in the application form at the time of taking
the policy. The insurer repudiated the claim when the insured made a claim on the ground of non-
disclosure of material fact and it was held that the insurer was right in doing so.18.
2. The duty extends only to those material facts about which he knows or ought to know. It may be noted here
that ignorance of the fact is an excuse but ignorance of the materiality of the fact is not. There is no breach
of good faith, if the party to the contract is not aware of the fact.19. Suppression of illness not affecting the
expectation of life cannot be a ground to repudiate the policy.20. In case of life insurance policy, the
misstatement alleged must be one of material facts as regards health. It was held that the misstatement of
the insured that she is a government servant is not a ground to repudiate the policy.21.
3. The duty to disclose extends to the authorised agents of the insured; but this duty of the agent is limited to
facts within the knowledge of the principal which are presumed to have been communicated in due course
to the agent or to facts which the agent must have come to know during the course of his agency.
4. As utmost good faith is required not only from the insured but also from the insurer,22. the duty to disclose
all relevant facts is a mutual duty of the insured as well as the insurer. The policy holder insured the
spinning mill together with its blow-room and at the same time the insured had not suppressed any material
facts. The insurance company also did not inform the insured that the insured should install a TAC-
approved Automatic Diversion System or Co-2 Flooding System in the chute-feeding arrangement between
blow room and carding section. Subsequently, the insurance company demanded additional premium from
the insured on account of non-installation of such device and it was held that the insurance company was
not entitled to claim additional premium on account of its failure to inform the insured about the installation
of such device.23. This rule applies equally to all types of insurance.24. For example, the assured must
declare the state of his health in a life insurance or the present condition of a building or ship in the case of
fire or marine insurance as the case may be. Similarly, the insurer may be called upon to produce the last
audited balance sheet for the satisfaction of the assured.
This duty does not extend to the assignee of the proceeds of the policy, as such assignee owes no
duties of this nature to the insured.25.
The assured however cannot recover damages for his breach but can only rescind the contract.26.
5. The duty of disclosure applies only to negotiations preceding the formation of the contract. When a relevant
fact comes to the knowledge of either party after the completion of the contract, there is no duty to disclose
and as such non-disclosure of such facts does not again offend the rule of good faith, e.g., the assured
finds on a subsequent medical check-up after the policy is issued, that he is suffering from a serious
complaint. The policy in such circumstances is not affected due to the non-disclosure of a fact, though
material as it came to his notice after the policy is issued. Thus, in Ratanlal v Metropolitan Insurance Co,
AIR 1959 Pat 413, the insured Pyarelal made a proposal on 23 January 1946 along with the first premium
for the insurance. After consideration of the medical report etc, the insurer accepted the proposal on 26
March and communicated the acceptance to the insured on 27 March. As money was in deposit the insurer
took the risk on 28 March and informed the insured about it. On the 27th evening the insured complained
of exhaustion to his doctor which was a simple ordinary disorder and the doctor came on 28 March but did
not prescribe any medicine. However, the insured died a few weeks later on 19 April. The insurer
repudiated his liability on the ground of non-disclosure. The court rejected the contention on the ground
Page 4 of 11
that the complaint was subsequent to acceptance on 26 March.27. To put it in short, the duty to disclose is
not a continuing duty; it must be observed throughout the negotiations and continues only until they are
completed and the contract is concluded.28. Insured found suffering from T.B meningitis after
commencement of the policy but before revival of lapsed policy. It would amount to fraud and the insurer
was entitled to avoid the policy for non-disclosure of the same.29.
6. The duty of disclosure is deemed to have been cast on the insured when the insurer specifically asks a
question. Generally, the negotiations for insurance an contract commence with a printed proposal form
supplied by the insurer to the insured. The proposal form contains questions seeking answers from the
insured. Whether the question asked therein is logically relevant or not, it will be deemed to be a material
fact and so either a false answer or a dubious answer to such a question may amount to a breach of duty
of disclosure. For example in Anglo African Merchants Ltd v Bayley, [1969] 1 Lloyd’s Rep 268 : [1969] 2 All
ER 421, the subject matter insured was the army surplus leather jerkins not used for 20 years. They were
described as “new men’s clothes in bales for export”. Megaw J, held that since the underwriters were not
told that the goods were government surplus and were 20 years old amount to non-disclosure. If the half-
truth is such that it does not invoke an inquiry, the disclosure of it is no disclosure.
7. The duty does not extend to certain types of facts though they are material. In other words, the assured is
not bound to disclose the following facts unless the insurer expressly questions him about them. The facts
that need not be disclosed may be noted as:
(a) Facts which he is not aware of:30. A person is said to know or be aware of a fact when he actually
knows or but for his wilful abstention from making an inquiry by which he could have known it. In spite
of his due diligence, if he does not know, there can be no breach of duty of disclosure as he can
disclose only what he knows. The insured died of aids and he had no knowledge that he was having
aids on the date of signing the declaration. It was held that the insurer was not entitled to avoid the
payment particularly after two years from the date of taking the policy.31. When once he knows the fact,
the fact that he did not know about its materiality does not absolve him from his duty of disclosure.
(b) Facts within the knowledge of the insurers: The Marine Insurance Act in this regard says that an
assured need not disclose “any circumstance which is known or presumed to be known to the insurer.
The insurer is presumed to know matters of common, notoriety of knowledge and matters which an
insurer in the ordinary course of business, as such ought to know.”32. This principle is not confined to
the branch of marine insurance alone. Thus in Woodcott v Excess Insurance, the assured, whose
criminal record had been disclosed to the agent, though neither the assured nor the agent
communicated the information to the insurer, could recover under his fire policy.33. In BAS Chopra v
New Zealand Insurance, where the assured insured his car giving higher value on the advice of an
Officer of the insurance, as it was held that insurer cannot plead misrepresentation by the insured as
knowledge of the Officer is imputed to the insurer.34.
(c) Facts of which information is waived by the insurer: Where the insured communicates certain facts to
the insurers and the facts are such that they are put on inquiry which they fail to make, the insurer is
deemed to have notice of all the facts which such inquiry would have revealed. Thus, constructive
knowledge applies both to the insurer and the insured.35.
(d) Facts which tend to diminish the risk: The Marine Insurance Act also says that “in the absence of
inquiry any circumstance which diminishes the risk need not be disclosed.”36.
(e) Any circumstance, which it is superfluous to disclose by reason of any express or implied warranty.37.
Declaration was given by the insured that after the date of submission of the proposal but before the
issue of the premium receipt, in case there is any change in his general health, the same would be
informed to the insurer. It was held that the contract stood vitiated as information about accident was
not given to the insurer before receipt of the first premium receipt.38.
The duty of disclosure is on both sides39. though it is more onerous on the insured because most of the facts
relating to the subject matter of the contract are within his exclusive knowledge and they may be such that an
insurer cannot find them out on reasonable inquiry. Further, though theoretically the onus of good faith lies equally
on both parties, it is the insured that has to be very particular about the observance of the rules for it is the facts
relating to the insured that vary in each case while the disclosures of the insurer being made through their published
prospectus do not vary much with each individual insured. In Srinivas Pillai v LIC, AIR 1977 Mad 381, Srinivas Pillai
and his wife Ranganayagi took out a joint life endowment policy for Rs 25,000—commencing on 31 December 1959
at Pondicherry. They gave the usual statements and joint declarations. In answer to the question in column 12(8)
Page 5 of 11
relating to the date of last delivery Ranganayagi stated that she had delivered a female child on 18 May 1959 when
in fact she delivered on 31 August 1959. It is the declared policy of the LIC not to issue a policy on a female when
she is pregnant or within six months after delivery. After taking the policy the wife fell ill and was admitted in a
hospital on 10 January 1960 and died on 17 January 1960. The husband preferred to claim. The LIC repudiated the
claim as it was found that she delivered her last child within 6 months before the policy and that she was also
suffering from tuberculosis. In the suit filed by the claimant, the LIC failed to prove that she had TB, but the other
ground was established which meant that the insured had knowingly falsely stated the date of her last delivery in
order to obtain the policy and therefore upheld the repudiation and dismissed the claim. The court also observed:
Contracts of insurance are based on the rocky foundation of utmost good faith. Such good faith is not a matter of art but
has to be really and sincerely appreciated by the insured who proposes their lives for insurance with the Corporation.40.
The rules of utmost good faith have been relaxed to some extent by the Insurance Act, 1938 and now with
reference to “Life Insurance Contracts” on the expiry of two years if the premium has been paid regularly, the
insurance policy cannot be set aside on the ground that a fact has not been disclosed, unless there is a deliberate
concealment, amounting to fraud on the insurance company. When the insured died after two years from the date
of taking the policy, it was held that the insurer cannot repudiate the policy on the ground that there was any
inaccurate or false statement made at the time of taking the policy.41. It is the duty of the insurance company to
verify correctness of information furnished by the insured and the insurer cannot avoid the payment by taking plea
that the insured had not supplied correct information with reference to his health at the time of taking the policy.42.
For example in Glickman v Lancashire and General Assurance Co Ltd,43. one Mr Glickman made a proposal for the
insurance of his house against fire. One of the questions in the proposal form was whether the house had been
previously offered for insurance to any other insurance company, and if so with what results. Glickman left this
question without any answer. The policy was issued and the insurance company, subsequently found that on two
previous occasions proposals for insuring the house had been rejected. It was held that the insurance company
could avoid the contract under the rule of utmost good faith.
In East and West Insurance Co v Venkayya, AIR 1945 Mad 150, one Venkayya had a policy of insurance. He failed
to pay the premium and the policy lapsed. He applied for the renewal of the policy. In the application form for
renewal, one of the questions was whether between the date of lapse of the policy and the application for the
renewal of the policy, he suffered from any illness.
Venkayya answered “no”. The renewal was granted, but subsequently the company came to know that during that
period Venkayya underwent treatment for some skin trouble. It was held that under the rule of utmost good faith, the
insurance company was not liable under the contract. The approach of LIC in the matter of repudiation of a policy
admittedly issued by it should be one of the extreme care and caution. It should not be dealt with in a mechanical
and routine manner.44.
It was held that the insurer was not liable when the insured suppressed the information in the proposal form that he
was suffering from a particular ailment and as a result of that ailment when insured died.45.
The insured fraudulently suppressed the material fact that he was having stomach ailment at the time of taking the
policy as well as revival of the policy. On the death of the insured, when the claim for the policy money was made
by the widow of the insured and the insurer repudiated the policy on ground of fraud even though the insured paid
premiums for more than two years. It was held that the insurer was entitled to avoid the policy.46.
The insurer alleged that deceased-insured had obtained life insurance policy by suppressing material information
about ailments in proposal form. However, there was a gap of six years between date of discharge of deceased and
obtaining policy. It was held that even though there was suppression of material facts by the insured because of
large gap, the dependents were entitled to claim the policy.47. The insured gave wrong answers willfully while taking
the policy and at the same time he took sick leave. It was held that the insurer was entitled to repudiate the policy.48.
The petitioner insurer repudiated the life insurance policy in the name of the respondent’s late husband (insured) on
the ground of deliberate misstatements and withholding of correct facts regarding the health of the insured. The
lower Fora rejected the various contentions of the insurer and allowed the complaint. Before the National
Commission, the insurer relied upon the Commission’s decision in LIC of India v Parveen Dhingra, II (2003) CPJ 70
NC and contended that revival of the policy constituted a new contract between the parties and the limitation period
of two years under section 45 of the Insurance Act, 1938 had to be counted from the date of revival of the policy.
Therefore, the misstatements and concealment of facts could be made a ground for repudiation even though same
Page 6 of 11
were not made a ground at the time of initial policy. The Commission referred to the Supreme Court decision in
Mithoolal Nayak v LIC of India, AIR 1962 SC 814 : [1962] Supp 2 SCR 571, where the court rejected a similar
contention that the revival of the policy constituted a new contract between the parties and held that section 45 was
clear that the period of two years was to be reckoned from the date on which the policy was originally effected. The
Commission observed that the decision of Supreme Court had to be preferred and followed.49.
5.3.2.2 Effect of Non-Disclosure
A contract of insurance is made a contract of utmost good faith for the reasons stated supra. The insurer believes
all that is stated by the insured and the insured, being in a better position to know about the subject matter of the
contract is cast with a duty to disclose all material facts. If he fails to disclose all material facts the question is—what
is its effect on the validity of the contract of insurance? In the explanation to section 17 of the Indian Contract Act it
has been said that mere silence does not amount to fraud unless there is a duty to speak or silence amounts to
speech. So, where he knows a material fact and suppresses it knowing that it is material to the contract it amounts
to fraud; but where he does not know about the materiality of the fact, it may have the same effect as
misrepresentation. Therefore, the effect of mere non-disclosure does not amount to fraud. In case of fraud, the
party defrauded can not only avoid the contract but can also claim damages. In the case of all non-disclosures the
insurer can avoid the contract50. and whether he would be entitled to damages is a different question depending
upon his knowledge of materiality.
In Lambert v Cooperative Insurance Society, a lady renewed a policy of insurance on jewelry owned partly by her
and partly by her husband who had been convicted twice for two crimes involving dishonesty in the year before.
She did not disclose these convictions of her husband while seeking renewal. It was held that she had a duty to
disclose this though her husband was not an insured.51. Again the non-disclosure of the conviction of one of the
directors of the insured company of handling stolen property was held to be a non-disclosure and would entitle the
insurer to repudiate the policy.52.
The provisions under section 45 of the Insurance Act, 1938 provided that facts submitted in support of a policy
cannot be questioned after the expiry of 2 years from the commencement of the policy. However, it empowered
insurers with a right to repudiate the claim, in case they had evidences that policy was taken by misrepresenting or
suppression of facts. However, the Amendment Act, 2015 lays downs that facts or documents may be questioned
by the insurer within 3 years from the date of commencement of risk or date of issue, or date of rider of the policy or
date of revival of the policy, whichever is later. Provision to repudiate the claim even after completion of two years
on account of misrepresentation has been dropped. This means that from now on a policy cannot be questioned or
repudiated after completion of 3 years even if some facts were suppressed or provided incorrectly. A policy can be
called in question within 3 years even if no claim has arisen during that period. Once this period of 3 years is over,
the policy cannot be called in question.
The revival of a policy is treated as a fresh contract and if the policy is called into question within 3 years of such
revival, the premium collected from the date of revival of the policy to the date of repudiation is to be refunded along
all the admissible benefits accrued as on the preceding day to the date of such revival. Reinstatement of
surrendered policy can be treated at par with revival of policy.
5.3.3 Contract of Indemnity
According to Porter, indemnity is the controlling principle of insurance law and it is by reference to this principle that
all problems in insurance can be solved. This statement of Porter is generally true except with some supposed
qualifications. It is well settled that a contract of insurance is a contract of indemnity, but in some cases this
indemnity is not complete. All contracts of insurance cannot be strictly called contracts of indemnity. The principle of
indemnity is an important element in non-life insurance policies. The word “indemnity” means a promise to save
another person from harm or from the loss caused as a result of a transaction entered into at the instance of the
promisor. Therefore, the liability of the promisor in a contract of insurance is the contingency itself. The Indian
Contract Act 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 another person.”53. This principle of indemnity is
associated in contract law with the principle of guarantee where there are three parties, the creditor, the principal
debtor and the surety or the favoured debtor. Insurance law does not have the element of guarantee. This is clear
from the fact that there are only two parties to the insurance contract. On the other hand, indemnity is coupled with
the principle of subrogation or substitution of the rights of the assured by those of the insurer. Further, indemnity is
based upon the occurrence of the contingency which itself is really the risk insured against. In short, the risk is the
contingency. Thus, a contract of insurance is, like a contract of indemnity, a contract of contingency. It therefore
Page 7 of 11
follows that any variation of the risk must be on mutual consent and if it is not so, the contract becomes voidable at
the hands of the rightful party.
Some writers and judges even classify the contracts of insurance as indemnity contracts and non-indemnity
contracts and place in the latter category life insurance,54. personal accident insurance55. and sickness insurance.
It is well settled that contracts of fire and marine insurance are contracts of indemnity. In Castellain v Preston, 1883)
11 QBD 380, Cotton LJ, observed that a marine policy is usually a contract to indemnify the person for the loss
which he has sustained in consequence of the peril insured against. In the same case Brett LJ observed:
The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract
of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract
means that the insured, in case of a loss against which the policy has been made, shall be fully indemnified; but shall never
be more than fully indemnified. That is a fundamental principle of insurance and if ever a proposition is brought forward
which is at variance with it that is to say, which either will prevent the insured from obtaining a full indemnity, or which will
give the assured more than a full indemnity, that proposition must certainly be wrong.
Again, it was observed in Dalby v India and London Life Assurance Company, (1854) 15 CB 365, that policies of
insurance against fire and marine insurance risks, are contracts of indemnity and the insurer agrees to compensate
the loss sustained by the insured. If we analyse the principles applicable to marine and fire insurance we come to
the conclusion that they are strictly contracts of indemnity.
To illustrate a few:
(i) the insured will not be permitted to make a profit in the transaction. For example, if he recovers anything by
selling the damaged goods, he has to account for it to the insurance company;
(ii) in marine and fire insurance the insurer will pay only compensation, that is the actual loss or damage;
(iii) the principle of subrogation is applied, for example, if the insured suffers damage by the negligence of a third
party, the insured may have two claims, one against the insurance company under the policy and the second,
against the third party who caused by his negligence, the damage. In such a case the insurance company, after
payment of the claim is entitled to be subrogated to all the rights of the insured against the third party and can
proceed against such party. As observed in Castellain v Preston:
As between the underwriter and the assured, the underwriter is entitled to the advantage of every right of the assured
whether such right consists in contract, fulfilled or unfulfilled, or in a remedy for tort capable of being insisted on or already
insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable which can be or has been
exercised or has accrued and whether such right could or could not be enforced by the insurer in the name of the assured,
by the exercising or acquiring of which right or condition the loss against which the assured is insured, can be, or has been
diminished.
Where insurer pays to insured value of goods lost due to negligence of a third party, held, rights and remedies of
insured against such third party stand transferred to and vested in the insurer. Such equitable assignment of rights
and remedies of insured in favour of insurer, implied in contract of indemnity is known as “subrogation”.56.
(iv) The principle of contribution is applied to marine and fire insurance contracts. If the insured takes out a number
of policies from different companies and if the loss occurs, the insurer who so pays can call upon the other insurers
to contribute equally or rateably the payment made by him and they will be liable to contribute according to their
respective assurances.
(v) Again, in fire insurance the principle of reinstatement is applied and the insurance company has an option to
reinstate the building or repair the damaged property.
Though a contract of insurance is said to be a contract of indemnity, this is not completely true for the following
reasons:
Page 8 of 11
(a) The principle that the assured should not recover more than the loss suffered by him, may be modified by
the express terms of the policy. The insured, a co-sharer of a building, insured the whole building by paying
the premium for the whole building. When the building was damaged completely, the insured’s claim for
loss for the whole building was repudiated by the insurer. It was held that, having accepted the premium for
the whole building, the insurer was liable to pay the loss for the whole building.57.
(b) The parties may estimate the loss and value the policy. If there is no gross over valuation, the contract is
enforceable though the amount recovered is slightly more than the actual loss suffered by him. Valued
policies are common in the case of insurances on ships and profits.
(c) Again, in every contract of insurance there will be a “sum insured” and though the contract of insurance is
described as a contract of indemnity, on the happening of the event the insured can recover no more than
the sum insured though it does not completely indemnify the assured. It is only upon the proof of the actual
loss, that the assured can claim reimbursement of loss to the extent it is established, not exceeding the
amount stipulated in the contract of insurance which signifies the outer limit of the insurance company’s
liability.58.
Though prima facie the insurer indemnifies the assured, as his liability may be limited in several respects, a contract
of insurance cannot be said to be a contract of perfect indemnity.59.
Divergent opinions are expressed on the applicability of the principle of indemnity to contracts of life insurance. Lord
Mansfield observed that a life insurance contract is a contract of indemnity. This principle was recognised in Godsall
v Boldero, (1807) 9 East 72.
But this dictum was criticised in subsequent cases and it was laid down in Dalby v The Indian and London
Assurance Co,60. that a life insurance contract is not a contract of indemnity. If we analyse a life insurance contract
we find that the amount mentioned in the policy is not the estimation of the value of life because human life cannot
be estimated in value correctly, that is, the loss or damage that may be caused by the death of a human being is
incapable of exact estimation. A person takes out a life insurance policy for a value usually based upon his capacity
to pay premium. Therefore, a life insurance contract is not a contract of indemnity. It has been pointed out in some
cases that a life insurance contract with reference to one’s own life is not a contract of indemnity; but a life
insurance contract with reference to the life of another person may be regarded as a contract of indemnity and to
that extent Lord Mansfield’s dictum may be justified and the statement made by Porter may apply. For example, if a
creditor takes out a policy of insurance on the life of the debtor, the creditor will be paid only the compensation with
reference to the damage he may suffer due to the death of the debtor.
In conclusion, it may be said that though there is a doubt whether a contract of life insurance is a contract of
indemnity or not, it is well settled and without doubt it may be said that contracts of fire and marine insurance are all
contracts of indemnity.
5.3.4 Contract of Wager
There are two competing views about the question whether a contract of insurance is a contract of wager. In 1892
Lord Bramwell observed:
All life insurance is a sort of wager. I stake £20 a year as long as I live, against £1000 to be paid to my executors when I
die. If I die early I win, if I live long I lose.
This observation applies equally to all forms of insurance.61. According to Sir William Anson all insurance contracts
are wagering contracts. He points out that there is not much distinction between the insurance on cargo and the
wager in a horse race. Commenting on Wilson v Jones, (1867) LR 2 Exch 139, Anson says that all contracts of
insurance are wagering contracts even though there is an insurable interest; but they are permissible under law.
According to him “a wager is a promise to give money or money’s worth upon the determination or ascertainment of
an uncertain event, the consideration being either something given or promised to be given by the other party in the
event determining in a particular way”. Anson pointed out further that though insurance is a wagering contract it is
permitted by law and therefore enforced by law. On the other hand wager has been defined by J Hawkins in Carlill v
Carbolic Smoke Ball Company, [1893] 1 QB 256 (CA):
A contract by which two persons professing to hold opposite views touching the issue of a future uncertain event mutually
agreed dependent upon the determining of the event that one shall win from the other a sum of money neither of the
Page 9 of 11
contracting parties having any other interest.
If we apply this definition to an insurance contract we find that it is not a contract of wager for the following reasons:
(i) In the case of an insurance contract, the risk of loss or damage is existing whether there is insurance or
not; while in the case of wager the risk is created by the agreement between the parties.
(ii) In a contract of insurance there is an insurable interest, that is, the insured has some interest in the subject
matter but in the case of a wager parties have no interest whatever.
(iii) A fine distinction is drawn between a contract of insurance and one of wager. It is essential in a wagering
contract that one party must win and the other party must lose; but in the case of an insurance contract the
insurance company only may lose. It can never win because if the loss takes place it has to pay and
premium cannot be called a profit. The insured neither wins nor loses because if the loss happens he is
paid only the compensation.
In Tyrie v Fletcher, it was observed that a contract of insurance is not a wagering contract although the risk is the
essence of the contract.62. The assured is moved to effect the insurance by the risk of loss and does not create the
risk of loss by the contract itself as in the case of pure wager. In a pure wager the interest of the contracting parties
in the event wagered on is created by the fact that they have contracted to pay each other certain sums on a certain
event, neither sum being due until the event has been decided in one way or the other; whereas in insurance the
motive for the contract springs from the existence of something which may be lost and the danger of the loss
thereby to the person who seeks insurance. Such a person pays, but not merely risks money, to obtain security
against possible loss.
In Wilson v Jones Willis J observed:
A policy is properly speaking a contract to indemnify the insured in respect of some interest which he has against the perils
which he contemplates it will be liable to. The distinction between a wagering contract and one which is not depends upon
whether a person making it has or has not an interest in the subject matter of the contract.63.
Otherwise if involvement of an element of chance to gain or lose is an indicia of wager, every business is a wager.
A trader purchases goods hoping that their market value rises; if it rises as he expects he gets a good profit and if it
falls contrary to his expectations he has to suffer a loss. Consequently, in the law of insurance both under the
common law and the statutes, it has been maintained that a contract of insurance without insurable interest is a
wager and hence void.64. In Lucena v Craufurd it was observed that:
There is a material distinction between a contract of wager and a contract of insurance. The wager may have any
speculative chance or expectation as the subject matter; but in an insurance contract a chance or expectation cannot be
subject matter as it definitely pre-supposes loss of some right of property either in possession or ownership.65.
The difficulty arises because of the semblance of the two contracts as both depend upon speculation. A wager is an
aleatory contract; and sometime an insurance contract is also called an aleatory contract or a contract involving risk
or speculation. Porter says that the term is well applied to insurance contracts since it is certainly a contract of
mutual risk wherein the premium is risked against a chance of loss. Aleatory is a French word which means one in
which the equivalent consists in chances of gain or loss, that is, the parties take chances as they do in throwing a
dice. If this is the sense in which we take it, it is somewhat similar to a wagering contract and the insurance contract
is not an aleatory contract. Lord Simmons in Macaura v Northern Assurance Co Ltd laid down that a fire insurance
policy is not an aleatory contract but it is a contract of indemnity; because he must prove interest at the time of
loss.66.
6. Rozanes v Bowen, (1928) 32 LL LR 98, 102(CA).

7. Marine Insurance Act, 1906, section 17; Marine Insurance Act, 1963, section 19.
Page 10 of 11
10. Lakshmi Insurance Co v Bibi Padmavathi, AIR 1961 Punj 253, 259.
11. Mackenzei v Coulson, (1869) LR 8 Eg 369.
12. Ionides v Pender, (1874) LR 9 QB 531; Pan Atlantic Insurance Co v Fine Top Insurance Co, [1995] 1 AC 701 :
[1994] 2 Lloyd’s Rep 427; affirming [1992] Llyod’s Rep 101; St Paul Fire & Marine Insurance Co (UK) v McDonnel
Dowel Constructors, [1995] 2 Lloyd’s Rep 116.
13. AIR 1975 AP 68.
14. March Carbaret Clum v London Assurance Co, [1975] 1 Lloyd Rep 169 (conviction for recovering stolen property);
Woolcott v Sam Alliance and London Insurance Co, [1978] 1 WLR 493 (conviction for 12 years for robbery).
15. Banarasi Devi v New India Assurance Co, AIR 1959 Pat 540.
16. Marine Insurance Act, 1906, section 18(2); Marine Insurance Act, 1963, section 20(2).
17. Mutual Life Insurance Co of New York v Ontario Metal Products, [1925] AC 344, 350–52; All authorities carefully
considered by McNair J in Roselodge v Castle, (1966) 2 Lloyd’s Rep 105, 129–31.
18. PC Chaco v LIC of India, (2008) 1 SCC 321 : AIR 2008 SC 424.
19. Satwant Kumar Sandhu v New India Assurance Co Ltd, (2009) 8 SCC 316.
20. Gouri Sethi v The Divisional Manager of LIC, AIR 2007 Ori 19 : 2006 (II) OLR 224 (DB).
21. Branch Manager, Life Insurance Corporation of India v Nilkanta Mondal, AIR 2007 Cal 74 : 2008 ACJ787 (DB).
22. Carter v Boehm, (1776) 3 Burr 1905; Provincial v Morgan, [1933] AC 240, 250.
23. Hanil Era Textiles Ltd v Oriental Insurance Co Ltd, (2001) 1 SCC 269 : 2000 (7) Scale 700; also see section 45 of
24. Goel v Law Union, [1908] 2 KB 863, 878.
25. Continental Illinois National Bank v Alliance Assurance, The Captain Barrages, [1986] 2 Lloyd’s Rep 470.
26. Bank of Nova Scotia v Millenic Mutual, The Good Luck, [1989] 2 Lloyd’s Rep 238.
27. AIR 1959 Pat 413.
28. Lim v Reid, (1843) 6 M&G 1; Kausar v Eagle Insurance Co, (1997) CLC 129.
29. Om Prakash Moda v Life Insurance Corporation of India, AIR 2006 Ori 167 : 2007 AIHC 365.
31. Sri Rao Saheb Mahadev Gayakwad v Life Insurance Corporation of India, AIR 2004 Kant 439 : 2004 (4) CivLJ 180.
32. Marine Insurance Act, 1906, section 18(3)(b); Marine Insurance Act, 1963, section 20(3)(b); Canadian Indemnity Co v
Canadian Johns Manville Co, (1990) 72 DLR (4th) 478 (Canadian Supreme Court).
33. [1979] 1] Lloyd’s Rep 231; Woodcott v Excess Insurance Co and Muler Smith Anderson and Game, [1979] 1 Lloyd’s
Rep 231; reversing, [1978] 1 Lloyd’s Rep 633.
34. AIR 1967 Cal 35.
35. Marine Insurance Act, section 18(3)(c); Marine Insurance Act, section 20(3)(c).
36. Marine Insurance Act, section 18(3)(a); Marine Insurance Act, section 20(3)(a); The assured need not disclose that the
insured yacht will spend much of the period of the insurance in the builder’s yard as it is more safe than on the open
sea; Inversioners Manria v Sphera Drake Insurance, The Dora, [1989] 1 Lloyd’s Rep 69.
37. Marine Insurance Act, section 18(3)(d); Marine Insurance Act, section 20(3)(d).
38. Abhimanyu Chaubey v Insurance Ombudsman, AIR 2009 All 171 : 2009 AIHC 3512.
39. Carter v Boehm, (1766) 3 Burr 1905; Re Bradley and Essex and Suffolk Accident Indemnity Society, [1912] 1 KB 415;
Banque Financiere de ra Cite SA v Westgate Insurance Co, [1990] 1 QB 665; Subnom Banque Keyser Ullmann SA v
Skandia (UK) Insurance Co, [1991] 2 AC 249 : [1990] 2 Lloyd’s Rep 377; affirming, [1990] 1 QB 665.
40. AIR 1977 Mad 381.
41. Vidya Singh v Life Insurance Corporation of India, AIR 2004 P&H 359 : 2004 (3) PunLR 700
42. Life Insurance Corporation of India v District Permanent Lok Adalat, AIR 2004 Raj 327 : RLW 2004 (4) Raj 2629 : 2004
(4) WLC 151 (DB).
Page 11 of 11
43. [1925] 2 KB 593; affirmed in [1927] AC 139; followed in Williams v Atlantic Ass Co Ltd, [1933] 1 KB 81; LIC of India v
Ajit Gangadhar Shanbhag, AIR 1997 Kant 157.
44. LIC v Asha Goel, (2001) 2 SCC 160 : AIR 2001 SC 549.
45. Life Insurance Corporation of India v State of Rajasthan, AIR 2005 Raj 65 : 2007 (1) ACC 899 2006 (3) ACJ 2119.
46. Sakhitombi Devi v Zonal Manager, Life Insurance Corporation of India, AIR 2009 Gau 90 : 2008 (3) GLT 782.
47. Krupa Vidhyavathi v Life Insurance Corporation of India, AIR 2012 (NOC) 325 (AP).
48. Prem Kumari v Life Insurance Corporation of India, AIR 2012 (NOC) 258 (CHH).
49. LIC of India v Gowramm, III (2009) CPJ 25 (NC).
50. Locker Woolf Ltd v Western Australian Insurance Co, [1936] 1 KB 408; Durgawati Devi v LIC of India AIR 1997 AP 257.
51. [1975] 1 Lloyd’s Rep 485.
52. March Cabarets Club v London Assoc, (1975) 1 Lloyd’s Rep 169.
53. Indian Contract Act, 1872, section 124.
54. Dalby v India and London Assurance Co, (1854) 15 CB 365.
55. Theobald v Rly Passengers Ass Co, (1854) 10 Ex 45 , 53.
56. Economic Transport Organisation v Charan Spg Mills (P) Ltd, (2010) 4 SCC 114 : (2010) 1 CPJ 4; Marine Insurance
Act, 1963 section 79.
57. National Insurance Co v Sushila Devi Mantoo, AIR 2005 J&K 42.
58. United India Insurance Co Ltd v Kantika Colour Lab, (2010) 6 SCC 449 : (2010) 3 CPJ 14.
59. Autchison v Lohre, [1879] 4 AC 785 .
60. Dalby’s case supra.
61. Salt v Northampton, [1892] AC 1, 21.
62. (1777) 2 Cowp 666, cited in 2 Doug KB at p 784.
63. Wilson v Jones, supra.
64. Marine Insurance (Gambling Policies) Act, 1909.
65. (1806) 2 Bos & PNR 269 (HL).
66. [1925] AC 619.
End of Document
6.1 Definition
CHAPTER 6 INSURABLE INTEREST
6.1 Definition
It has been said that it is a general principle of common law that every contract entered into by the parties is
enforceable at their instance irrespective of its subject matter provided it is not either illegal, immoral or contrary to
public policy.1. So in the beginning an insurable interest was not a requirement for the validity of a contract of
insurance and Roche J observed that there is nothing in the common law of England which prohibits insurance
even if no interest exists.2. It is in fact “a principle of public policy that persons who enter into contractual
engagements should be required to fulfil them,”3. and contracts of insurance are no exception to it. The concept of
“insurable interest” is a subsequent development of insurance practice and in this branch of law it has a double
meaning.
Insurable interest means an interest which can be or is protected by a contract of insurance. This interest is
considered as a form of property in the contemplation of law. It is assimilated to an actionable claim transferable to
the same extent and within the same limitations. The two meanings of the term insurable interest in insurance law
are, firstly in indemnity insurances, unless there is some proprietary interest which is sought to be covered by the
policy there is no loss suffered and in such types therefore the contract by its very nature requires some interest to
be involved in the subject matter and this is called “contractual insurable interest” and in other cases of insurance
where loss is not necessary to be proved this is not necessary. For example, a fire insurance contract is a contract
to indemnify the insured subject to the policy amount and if the assured has no interest in the property, by its
damage, he suffers no loss and so he cannot recover anything. The contract is perfectly valid though nothing is
recoverable under such a contract. In life insurance the contract is to pay a certain sum of money to the insured on
the happening of an event and so the contract does not require an insurable interest. So it led to the practice of
insuring the lives of public men in whose life the insured had no interest. To condemn this practice the Life
Assurance Act, 1774 was passed under which it is said that the insured must have an insurable interest in the life
insured. The Act did not define insurable interest. This Act mainly dealt with life and accident assurances. Then the
Gambling Act, 1845 was passed which applied to all insurances not covered by the Life Assurance Act, 1774 and
marine insurance. Marine insurance was regulated by the Marine Insurance Act, 1906 in England. So the interest
required by these Acts to support an insurance is called “statutory insurable interest” and this is the second
meaning.
A contract of insurance being primarily a contract of indemnity, insurable interest, contractual or statutory, is a
necessary element in every contract of insurance. It is only the presence of insurable interest that distinguishes a
contract of insurance from a wagering contract and hence it is a sine qua non for the validity of the contract of
insurance. All the statutes say that an insurance contract will become a wagering contract and hence void if it is
effected without an insurable interest. Every contract of insurance, to whichever class it belongs, shall show an
insurable interest and without it, it is illegal or void and hence unenforceable.
Then what is an insurable interest? None of the above statutes attempts a comprehensive definition of insurable
interest. Therefore, in this connection we may note with interest some of the definitions of the expression given by
authors and judges. According to Patterson, insurable interest is,
Page 2 of 3
6.1 Definition
A relation between the insured and the event insured against, such that the occurrence of the event will cause substantial
loss or injury of some kind to the insured.4.
Rodda says:
Insurable interest may be defined as an interest of such a nature that the occurrence of the event insured against would
cause financial loss to the insured.5.
It is also defined as,
When the assured is so situated that the happening of the event on which the insurance money is to be payable would as
an approximate result involve in the loss or diminution of any right recognised by law or in any legal liability there is an
insurable interest to the extent of the possible loss or liability.6.
Thus, it is any interest which the assured is deemed to have in the subject matter of insurance if in the event of its
loss, damage, or destruction that person will be subject to the risk of losing some economic benefit or advantage. It
is an interest or right which the law will recognise in the preservation of the thing or the continuance of the life which
has been insured. It need not be a legal interest. The test laid down by the courts is whether the insured stands in
such a relation to the subject matter that by happening of the event insured against he will sustain some pecuniary
loss.
In Lucena v Craufurd, (1806) 2 B&P 269, 301 (NR), Lawrence J defined insurable interest as:
The having some relation to, or concern in, the subject of the insurance, which relation or concern, by the happening of the
perils insured against may be so affected as to produce a damage, detriment or prejudice, to the person insuring and where
a man is so circumstanced with respect to matters exposed to certain risks or dangers, he may be said to be ‘interested in’
the safety of the thing with respect to it as to have benefit from its existence—prejudice from its destruction.
To put it in short, in his Lordship’s words in the same case: “interest” means “if the event happens, the party will
gain advantage, if it is frustrated, he will suffer a loss”. Lord Blackburn crisply remarked that he did not know a
better definition of the expression than that given by Lawrence J.7. The above decision emphasises the benefit and
detrimental aspects of the legal interests that the assured must necessarily possess to be a rightful party to take out
a valid policy of insurance. Insurable interest is property in the nature of an actionable claim.
Even in India it is strange that the Insurance Act, 1938 does not contain a definition of insurable interest. The only
section, namely section 68 which makes a passing reference to the words “insurable interest” stands repeated by
section 48 of the Insurance Amendment Act, 1950. Briefly stated, there is no legislative guidance in Indian Law on
the subject. The definition in section 7 of the Marine Insurance Act, 1963 is not exhaustive.
1. Fender v St John Mildmay, [1938] AC 1.

2. Williams v Baltic Ins Asson of London, [1924] 2 KB 282.
3. Beresford v Royal Insurance Co, [1938] AC 586.
4. EW Patterson, Elements of Insurance Law, p 109.
5. WH Rodda, Fire and Property Insurance, p 22.
6. RM Ray, Life Insurance in India, p 233.
7. Wilson v Jones, (1867) LR 2 Ex 150.
Page 3 of 3
6.1 Definition
End of Document
6.2 Nature of Insurable Interest

In Lucena v Craufurd it has been pointed out that the interest must be enforceable at law. Mere hope, however
strong it may be, is not sufficient. Lord Eldon observed that expectation though founded on highest probabilities is
not interest and it is equally not interest whatever might have been the chances in favour of expectation. If moral
certainty is a good ground of insurable interest there are hundreds, perhaps thousands, who would be entitled to
insure, for example, in the case of a ship, the dock company, the dock master, the warehouse keeper, the porter
and every person who has nothing to do with it.8.
Walton J observed that the definition of insurable interest has been continuously expanding, and dicta in some of
the older cases which would tend to narrow it, must be accepted with caution.9. A study of the modern cases
reveals that a vested or proprietary interest is not essential, but such interest may be merely possessory, inchoate,
contingent, defeasible, equitable or expectant. In respect of expectant interests, there must be a subsisting right or
title in the insured at the time of the loss with respect to the subject out of which the expectancy arises; but a mere
expectation of profit without any interest in the goods will not however be sufficient to constitute insurable interest.10.
If we study the modern cases on insurable interest we find that meaning of the term insurable interest is liberally
interpreted. It is not always the legal interest or a full interest that is required by the courts, but it should be such that
it would be sufficient if it is recognised by court of law or equity as such interest. The following points may be
gathered from these cases:
(i) The interest should not be a mere sentimental right or interest, for example, love and affection alone
cannot constitute insurable interest.
(ii) It should be a right in property or a right arising out of a contract in relation to the property.
(iii) The interest must be pecuniary, that is, capable of estimation in terms of money. In other words, the peril
must be such that its happening may bring upon the insured an actual or deemed pecuniary loss. Mere
disadvantage or inconvenience or mental distress cannot be regarded as an insurable interest. Claim for
damages for mental agony and inconvenience is not maintainable.11.
(iv) The interest must be lawful, that is, it should not be illegal, unlawful, immoral or opposed to public policy.
8. Lucena v Craufurd, supra.

9. Moran Galloway v Uzielli, [1905] 2 KB 555, 563.
10. Lucena v Craufurd, supra.
11. Mushtaq Ahmad Sumji v Divisional Manager, AIR 2005 J&K 66 : 2004 (3) JKJ 17.
Page 2 of 2
End of Document
6.3 Time or Duration of Interest
6.3 Time or Duration of Interest

The time when the insurable interest must be present varies with the nature of the insurance contracts. The
question is whether insurable interest should exist at the time when the contract is formed or should it also continue
to exist until it is discharged. In life insurance the presence of insurable interest is necessary at the commencement
of the policy although it is not necessary afterwards, not even at the time of occurrence of the risk. So it should be
there in life policies at the time of taking the policy. It need not exist at the time when the loss takes place or even
when the claim is made under the policy. Life insurance contracts, as we have noted, are not strictly speaking
contracts of indemnity. For example, when a creditor insured the life of the debtor, the policy continues even after
the debt is paid because the subject matter of insurance in that type of contract is the life of the debtor and not the
debt. Similarly, when a husband insures the life of the wife or vice versa, notwithstanding the dissolution of the
marriage the policy subsists, as here also the subject matter of insurance is the life of the other spouse and not the
marriage.
At one time it was thought, and the rule in the marine insurance was extended to life insurance also that the interest
must be shown to exist at the time of loss.12. But the decision was overruled in Dalby v India and London Life
Assurance Co where it was held that the insurable interest need be proved to have existed at the time of taking the
policy and at that date only.13. In fire insurance it is required both at the commencement of the policy and at the time
when the risk occurs. In a sense, therefore, it may be said that insurable interest is doubly insisted upon in fire
insurance law. The insurable interest is necessary at both the times because it is treated as a personal contract and
also a contract of indemnity; eg, if a house is to be insured against risk of fire, the person effecting a fire policy must
have an interest in the house as it is a personal contract. Again, if the owner of a house takes out a fire insurance
policy and later on sells the house, he loses the insurable interest and he cannot claim under the policy if a fire
takes place and damages the house as he has no insurable interest as fire insurance is also an indemnity contract.
In a marine insurance contract, the presence of insurable interest is necessary only at the time of the loss. It is
immaterial whether he has or has not an insurable interest at the time when the policy was taken.
12. Godsall v Baldero, (1807) 9 East 72.

13. Dalby v India and London Life Assurance Co, (1854) 15 CB 365.
End of Document
6.4 Insurable Interest and Life Insurance

It is always difficult to define with precision what constitutes insurable interest in life policies; but one thing is settled,
here as well as in England, that for the validity of a contract of life insurance, as in the case of other types of
insurances, there must be an insurable interest. The preamble to the English Life Assurance Act, 1774 reads:
Where it hath been found by experience, that the making of insurance on lives, or other events, wherein the assured shall
have no interest, has introduced a mischievous kind of gaming; for remedy whereof, be it enacted... that from and after the
passing of the Act, no insurance shall be made by any person or persons, bodies politic or corporate, on the life or lives of
any person or persons, or on any other event or events whatever, wherein the person or persons for whose use, benefit or
on whose account such policy or policies shall be made, shall have no interest, or by way of gaming and wagering and that
every insurance made contrary to the true intent and meaning thereof shall be null and void to all intents and purposes
whatsoever.
The doctrine of insurable interest was recognised in English law only in the latter half of the 18th century by this
statute requiring insurable interest as a condition for the validity of the policy. This Act laid down three rules:
(i) In every contract of insurance, the insured or the person for whose benefit the insurance was effected must
have an interest in the subject matter.
(ii) The person for whose benefit the policy was effected shall not recover more than the value of such
insurable interest.
(iii) Every policy shall have inserted in the policy, the name of the person interested or for whose benefit the
policy was taken.
In life policies, the following persons have been recognised as having insurable interest and they may conveniently
be considered under three main headings, namely: (a) by relationship by marriage, blood or adoption, (b) by
contractual relationship and (c) by statutory duty.
6.4.1 Blood Relationship
This may be discussed under the following heads:
6.4.1.1 On One’s Own Life
Every person is presumed to have insurable interest in his own life without any limitation. Every person is entitled to
recover the sum insured whether it is for full life or for any time short of it. If he dies, his nominee or dependents are
entitled to receive the amounts.
6.4.1.2 By Husband or Wife

Page 2 of 4
With the due development of the life insurance business, just as a person is presumed to have an insurable interest
in his own life, it is now well settled in England and America that a wife has an insurable interest in the life of the
husband and vice versa. It forms an exception to the general rule that interest necessary to support the insurance of
another person’s life must be capable of expression in terms of money or pecuniary interest.14. Dr SS Hubner
observes that “life insurance is a husband’s privilege, a wife’s right and a child’s claim”.15. The rule that a wife has
an insurable interest in the life of her husband was recognised earlier on the supposed reason that she depends on
him. There was a difference of opinion on the other question whether a husband has an insurable interest in the life
of his wife. After the passing of the English Married Women’s Property Act, it is settled by its section 2 that a
husband is presumed to have an insurable interest in the life of his wife. Therefore, at the present time the husband
and wife are presumed to have an insurable interest in the life of the other. This was laid down in Reed v Royal
Exchange Assurance Co, (1795) Peake 70 (Add Cases). In this case a policy was effected by the husband on the
life of his wife with the intention to defraud the creditors. The premium was paid by the husband. It was held that the
policy was valid and the creditors were entitled to receive from the policy amount a sum equal to the premium paid.
Before leaving this topic we may note that the presumption arises only during the period of coverture and the
policies taken during that period only will be valid and they will continue to be operative even after the dissolution of
the marriage. For example, A takes out a policy on the life of his wife B and subsequently even if they are divorced
still the policy continues to be valid. On the other hand, if A takes out a policy on the life of B whom he proposes to
marry, or who has been divorced by him, the policy is not valid for want of insurable interest at the commencement
of the risk, that is, at the time when the contract is made.
6.4.1.3 Parent and Child
In England it has been laid down that a parent has no insurable interest in the life of the child because mere love
and affection is not sufficient to constitute an insurable interest. If the person has any pecuniary interest in the life of
the child, whether natural or adopted, he can take out an insurance policy on the life of such child. A child, whether
natural or adopted, is presumed to have an insurable interest in the life of the parent because it depends on the life
of the parent for support. Even if such interest is proved, if a person affects a life insurance on a boy whom he
intends to adopt, the insurance is not valid.
In this respect, it may be submitted that the English Law is covered and restricted to the statutory insurable interest.
In England, the requirement of insurable interest is governed by the English Marine Insurance Act, 1745–1906, the
English Life Assurance Act, 1774 and English Gambling Act, 1845. But there is no statute in India corresponding to
the English Assurance Act and therefore the English decisions on this subject must be viewed with caution.
The English Act restricts the sentimental interest as being sufficient interest by express provision only to the
relationship of the husband and wife. In case of all other relationships courts in England require proof of pecuniary
interest. On the other hand, in USA in other close relationships also it has been held that sentimental interest is
sufficient. Thus, apart from the relationship of husband and wife, a few courts in America have held the relationship
of parent and child, grandparent and grandchild, brother and sister as sufficient to raise the presumption of the
existence of insurable interest. Even there they did not go beyond the above relationships and they also held that
such interest cannot be presumed in other cases like uncle and nephew, brother-in-law or mother-in-law and son-in-
law or daughter-in-law, step brothers and sisters,16. a foster child17. and an illegitimate child18. have been held to
have insurable interest without proof of any pecuniary interest. It has also been held that any relative may insure the
life of another where he is so related to the other to have a claim for maintenance enforceable at law.19.
There is no express statutory provision in India on insurable interest and therefore, it is submitted, that we may
draw on the decisions of foreign courts including those in England and America on the principles of justice, equity
and good conscience. So we have to follow those which are in conformity with our social, economic and religious
background. American decisions seem to be more adaptable to India as in both these countries the reason for the
requirement of insurable interest is public policy or contractual and not any enactment of legislature as in England.
Therefore, even in India, sentimental interest based on any close family relationship besides that of husband and
wife may be held to constitute sufficient insurable interest as in many states of USA, like New York and
Pennsylvania. Some American decisions are quoted with approval in an Indian case.20. So in India also it may be
concluded that apart from husband and wife and close relations any person legally entitled to claim maintenance
can take out insurance on such other person’s life without proof of insurable interest.
6.4.1.4 Other Relations

Page 3 of 4
The relationship by itself may not create an insurable interest. When one relation effects an insurance on the life of
the other, there must be actual dependence on the person whose life is assured, that is, there must be a
reasonable expectation of benefit from the continued existence of such person and in such a case, there will be an
insurable interest.
6.4.2 Contractual Relationship
A wide variety of relations may acquire insurable interest by reason of contractual relationship and some of the
common instances may be noted hereunder:
6.4.2.1 Debtor and Creditor
A creditor has an insurable interest in the life of the debtor.21. The creditor’s interest is limited to the extent of the
values of the debt. It is immaterial whether the debt is secured or unsecured. The creditor has insurable interest in
the life of the debtor because the chance of obtaining repayment materially depends upon the continuance of the
life of the debtor. The creditor has also an insurable interest in the life of the surety, as a surety is only a favoured
debtor. On the same principle the surety has an insurable interest in the life of the principal debtor. A policy on the
life of the debtor will not cease to be operative even though the debt has been satisfied or the debt becomes time
barred before the debtor dies.
Similarly, a surety can insure the life of a co-surety and a mortgagee, the life of his mortgagor. In these relations it
may be noted that the person who is in the position of a creditor only has an insurable interest in the life of the
person in the position of the debtor and not vice versa.
6.4.2.2 Partner and Co-partner
In Powell v Dewy, (1898) 123 Log NC, it has been held that one partner has no insurable interest in another save
where the latter is indebted to him personally or to the partnership, and to the extent only of such indebtedness.
Again, it has been held that a partner has an insurable interest in the life of his co-partner to the extent of the
amount of capital which the latter has contracted to bring in.22.
Similarly, the following are also said to have insurable interest:
(i) Principal and Agent

(ii) Master and Servant23.
(iii) Trustee and Co-trustee
Insurable interest is not limited to the absolute ownership of the property. Father was in lawful possession of the
son’s property. He was not in possession of the property as a lessee also. Father insured the property and the
insurer also was aware of fact that the property was in the name of the insured’s son. When loss incurred, it was
held that the father-insured was entitled to insure the property as a trustee of the property.24. It may be noted that
this is not an exhaustive list but only an illustrative one.
14. Griffiths v Fleming, [1909] 1 KB 805.

15. SS Hubner, Life Insurance, p 17.
16. Edwin W Patterson, Essentials of Insurance Law, second edn, p 181.
17. Carpentor v United States Life Insurance Co, (1894) 161 Pa St 9.
18. Overton v Colored Knights of Pythias, (1915) 173 SW 472.
19. Aetna Life Insurance Co v France, (1876) 94 US 561.
20. Manisankar v Allianz and Stuttgarter Life Ins Co, AIR 1941 Lah 33.
21. Godsall v Baldero, (1807) 9 East 72.
22. Connecticut Mutual Life Insurance Co v Luchs, (1883) 108 US 408.
Page 4 of 4
23. Hebdon v West, (1863) 3 B&S 579.

24. DM, United India Insurance Company Ltd v Amarjeet Singh, AIR 2011 J&K 148 : 2011 (2) JKJ 1.
End of Document
6.5 Insurable Interest and Fire Insurance

A fire insurance contract is considered as a personal contract. It is only an agreement with a particular person to
pay a certain sum of money if he suffers any loss or damage due to fire with reference to the property insured. In
Saldar’s case it was observed that what is insured in a fire policy is not the bricks and materials but the interest of
the assured in the subject matter of insurance. Therefore, it is not necessary that the assured must have full
ownership in the property and any special interest or entitlement to a particular property in the subject matter is
sufficient to enable a person to take out a fire policy. In England it has been held that an insurable interest is not
synonymous with a legal interest. A person is presumed to have an insurable interest in the property if he has a
pecuniary interest in the continued existence of the property. The interest of the following persons may be noted as
illustrations of the above proposition:
6.5.1 Interest of the Bailee
A bailee is a person to whom goods are delivered for some purpose under a contract that they shall be returned or
otherwise disposed of according to the directions of the person who delivered them. An ordinary bailee is in
possession of the goods, therefore he is entitled to insure them for full value because he will be liable for loss or
damage to the owner and also he has a lien over the goods.25. If the bailee insures for full value and if he receives
the same from the insurer, he must hold the excess amount in trust for the bailor.
6.5.2 Interest of an Agent
An agent is in possession of goods and to the outside world he is in the position of his principal and therefore he
has an insurable interest in the goods. He can take out a policy in his own name and for full value of the goods. An
agent without possession of the goods has no insurable interest. If the agent has a lien on the goods he has
insurable interest to the extent of his claim.
6.5.3 Purchaser and Seller
An interest under an agreement to purchase was held to be an insurable interest.26. In India section 54 of the
Transfer of Property Act, 1882 lays down that a contract for the sale of immovable property does not by itself create
an interest in the property, just because he is the legal owner of the property. This is followed in England too.
Likewise, a purchaser if he becomes a full owner can insure the property; but if it is merely a contract for sale and
not a contract of sale of immovable property, the purchaser in England has an insurable interest because he is an
equitable owner. While in India, he does not get any property and therefore has no insurable interest. If the property
is destroyed by fire before the completion of the sale and if the seller received the insurance amount the buyer has
no right against the seller. Therefore, a special provision has been made in section 49 of the Transfer of Property
Act which lays down that the purchaser has a right to demand the reinstatement of the property from out of the
insurance money received by the seller.
6.5.3.1 Mortgagor and Mortgagee

Page 2 of 3
A mortgagor as the owner of the property has an insurable interest and he can insure for the full value of the
property.27. The mortgagee also can insure for the full value of the property if it is intended for the benefit of the
mortgagor also.28. If the property is destroyed and if he receives an amount of full value, the excess must be paid
over to the mortgagor. Section 72 of the Transfer of Property Act lays down certain restrictions on this right of the
mortgagee. According to this section he is not entitled to insure the property to a greater amount than that specified
in the mortgage deed or if no amount is fixed he cannot insure for more than two-third of the value of the property,
that is two-third of the amount required to reinstate the property. The section prohibits an insurance by the
mortgagee if there is already an insurance by the mortgagor.
6.5.3.2 Lessor and Lessee
In the case of a lease, both the lessor and lessee are entitled to have the insurance effected as both have an
insurable interest. The lessor can insure for the full value of the property because generally he is the owner of the
property; but in certain cases, the lessee can insure for the full value, for example, if he is liable to keep the property
in repair or if he is liable to the owner for loss by fire. In Castellain v Preston it has been held that a tenant of
premises has an insurable interest founded upon the beneficial enjoyment of the premises, which he loses in the
event of its destruction.29. Again, a tenant who has taken on rent a furnished house has an insurable interest in the
furniture.30.
6.5.3.3 A Lien Holder
A person having a lien or charge on the property has an insurable interest to the extent of the value of the lien or
charge. Hire Purchase agreement: Vehicle finance under the hire purchase agreement. Insurance policy issued in
the name of the finance company and the loanee. Under the hire purchase agreement the finance company had a
right to take possession of the property in case loanee failed to pay installments property. When property lost, it was
held that the finance company had insurable interest and was entitled to claim the loss.31.
6.5.4 Insurable Interest and Marine Insurance
It is not possible to give a precise definition of “insurable interest” so as to cover all cases which constitute it. It has
been said that an insurable interest is in the nature of an inchoate right ever present for perfection in those who
possess the right, but never perfected until all legal requirements have been performed.32. An insurable interest is
sui juris and peculiar in its texture and its operation.33. A person can be said to have insurable interest in the subject
matter insured where he has such a relation or connection with or concern in, such subject matter that he (i) will
derive pecuniary benefit or advantage from its preservation or (ii) will suffer pecuniary loss or damage from its
destruction, termination or injury by the happening of the event insured against.
Under a marine policy, we have already noted that the assured must be interested in the subject matter at the time
of loss and it need not subsist at the time when the insurance is effected. The Marine Insurance Act, 1963 in India
deals with insurable interest in sections 7–17. The Indian Act of 1963 and English Marine Insurance Act, 1906
define insurable interest as follows:
In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure
or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable
property, or he may be prejudiced by its loss, or by damage thereto, or by detention thereof or may incur liability in respect
thereof.34.
In Tomlison (Haullers) Ltd v Haplurane, [1965] 1 CA 284, the plaintiffs who were road carriers insured tobacco and
cigarette consignments which they had contracted to carry to the customer’s depot by a Lloyd’s goods in transit,
policy, with the defendant insurer. This they did as they were required under one of the terms of carriage. Before
the goods could be unloaded at the owner’s depot, the lorries and the tobacco were stolen without the plaintiff’s
fault. The plaintiffs claimed the value of the goods. The insurer contended that the policy did not cover the owners’
interest but only the carrier’s interest in respect of their negligence. In appeal the House of Lords held that (i) this
was a policy on goods and not merely in respect of the carrier’s negligence; (ii) the carriers had an insurable
interest in the goods the value of which was recoverable under the policy but that; (iii) the carrier must account to
the owners for their share of the loss after deducting what was due to them as carriers.35.
Once the marine cargo which was insured and in transit handed to sea carrier by Indian seller, the unpaid seller
Page 3 of 3
ceased to have insurable interest in the marine cargo. In case of non-delivery of goods to foreign purchaser, the
insurer was not liable to indemnify the resultant loss to the unpaid seller.36. According to the terms of the policy it
was the duty of the appellant – consignor (claimant) to disclose the defects in each and every consignment at the
time of dispatch to the insurer. Every time instead of consignor, the consignee used to disclose the defects in the
goods to the insurer. It was held that it is a settled proposition of law that a stranger cannot alter the legal
obligations of the parties to the contract and hence the insurer was not liable for the loss.37.
This is a case which supports the principle that a person having a limited interest also can insure such interest with
other interest as well.
A person may be having the following types of interests:
(i) a defeasible interest;

(ii) a contingent interest;
(iii) a partial interest;
(iv) the risk undertaken by insurance;
(v) the creditor of money on bottomry or respondentia;
(vi) the master or any member of the crew of a ship in respect of their wages;
(vii) the person advancing money in respect of a freight which cannot be recovered.
25. Vijaya Kumar v New Zealand Insurance Co, AIR 1954 Bom 347.
26. Gnana Sundaram v Vulcan Insurance Co Ltd, AIR 1931 Rang 210.
27. North British & Mercantile Insurance Co v London, Liverpool and Globe Insurance Co, (1877) 5 Ch D 569, 583 (CA).
28. Westminster Fire Office v Glasgow Provident Investment Society, [1888] 13 AC 699.
29. Castellain v Preston supra.
30. Trotter v Watson, (1869) LR 4 CP 434, 444.
31. New India Assurance Company Ltd v TT Finance Ltd, AIR 2011 Del 121 : 2013 ACJ 997.
32. Moseley v American National Insurance Co, 167 SC 112.
33. Wamock v Davis, 104 US 775.
35. [1965] 1 CA 284 of an appeal to House of Lords, [1966] 1 AC 418 .
36. Contship Container Lines Ltd v DK Lal, (2010) 4 SCC 256 : AIR 2010 SC 1704; Marine Insurance Act, 1963: sections
2(d) & (e), 3, 4, 5 and 7.
37. Suraj Mal Ram Niwas (P) Ltd v United India Insurance Co Ltd, (2010) 10 SCC 567 : 2010 (11) JT 404 : 2011ACJ418.
End of Document
7.1 Definition
CHAPTER 7 PREMIUM
CHAPTER 7 PREMIUM
7.1 Definition
The premium is considered as the consideration for which the insurer undertakes to discharge the liability arising
under the contract. Lawrence J defined premium as “a price paid adequate to the risk”.1. It is thus the price for which
the insurer undertakes his liabilities under the contract. It is the insurer that bargains for its payment either in lump
sum or in installments. The adequacy of premium as that of consideration is purely a concern of the parties and
once it is agreed upon it is sufficient for the purpose of the law. Generally the premium is calculated according to
business principles and once it is settled the insurer cannot subsequently question the adequacy of the premium
because the agreement is conclusive. The only limitation by law on the freedom of the insurer in fixing the premium
is that the bases of the premium shall be communicated to the controller of insurance.2. They shall be certified by an
actuary. Insurer cannot increase the premium unilaterally without taking the consent from the insured by issuing an
advance notice.3.
In law, the payment of the premium is not a condition precedent to complete a contract of insurance. Actual
payment of the premium is not necessary to the creation of a valid contract of insurance.4. But in actual practice, the
payment of the premium is usually made a condition precedent only in the case of first premium but not in the case
of subsequent premiums. A stipulation that the insurance shall not attach until the premium is paid will not be
implied.5. If there is such a condition expressly provided in the policy the insurer will not be liable until the premium
has been paid. Generally the proposal form constitutes a proposal and the issuance of policy constitutes
acceptance; as we know that for an acceptance to be valid it should be unconditional, and a policy containing such
a stipulation constitutes a conditional acceptance or a counter offer and the payment of the first premium becomes
an acceptance that concludes the contract, until then it is open.6. The court will not also enforce a contract of
insurance where there is such a stipulation in the policy until the premium has been paid.7. In life insurance the
payment of the premium is a condition precedent. But payment of premium without acceptance or issuance of
policy may not always amount to acceptance. Cheque had been drawn and dispatched by bank on 2 March 1992
for payment of premium and was received by the Insurance Company on 4 March 1992 and thereafter the policy
was issued on that date. When an accident occurred on 3 March 1992, It was held that even if the policy had been
prepared after the accident it could be said that valid premium had been paid by the owner prior to the accident and
the insurer was liable.8. In LIC v Komalvalli, Raja Vasireddy sent a proposal for insurance of Rs 50,000 on his life on
27 December 1960 and the report of his medical examiner along with cheques towards the first premium. The
cheques were encashed by the LIC on 29 December 1960 and 11 January 1961. He died on 12 January 1961 and
his widow claimed the sum assured by the policy. The Divisional Manager, Masulipatnam said the proposal was yet
to be accepted as it was not considered and terms of acceptance fixed the premium amount calculated. According
to the Financial Powers Standing Order 1960, the Divisional Manager was the competent authority to underwrite
proposals for Rs 50,000 and above and he had not ordered the acceptance of the proposal. Reversing the High
Court decision the Supreme Court dismissed the claim holding that:
The mere receipt and retention of premium until after the death of the applicant or the mere preparation of the policy
document is not acceptance. It must be signified by some act or acts agreed on by the parties or from which the law
raises a presumption of acceptance...the general rule is that the contract of insurance will be concluded only when
Page 2 of 3
7.1 Definition
the party to whom an offer is made accepts it unconditionally and communicates his acceptance to the person
making the offer. The final acceptance that of the assured or the insurer however depends simply on the way in
which negotiations for an insurance have progressed.9.
Though the insurance companies are made liable to bear entire loss or damage to third parties on account of
statutory compulsions when there was a valid contract between the insurer and insured but making the insurance
company liable would be against principles of equity when no premium has been paid (as in case of dishonoured
cheque).10.
The insurer cannot assume risk unless and until premium is received or deposited and the policy issued can
assume the risk from a retrospective date provided such date is not earlier than the date on which the premium had
been paid in cash or cheque to the insurer.11.
The claimant requested the insurance company by writing a letter and sending a cheque along with the letter to
arrange for insurance against flood, inundation etc., however, the insurance company did not issue any
acknowledgement of receipt to the claimant. On the loss of the goods when claim was made by the claimant, it was
held that liability cannot be fastened on insurance company for damages claimed by claimant because there was no
concluded contract.12.
The policy holder made the payment on 17 March and died on 20 March. The insurer issued the policy later. It was
held that the contract was concluded on the payment of first premium by the insured and the fact that the policy was
issued later on is immaterial. In addition to that, the policy contained a clause that the policy was made effective
w.e.f. 20th March.13.
In case of marine insurance, payment of premium and issue of policy are concurrent conditions. Therefore, the
insurer is not bound to issue the policy unless the premium is paid. But, as a matter of practice, a marine policy is
issued without insisting upon payment of the premium. Once there is a condition as to the payment of the premium
the courts will enforce it strictly. For example in Handler v Mutual Reserve Fund Life Association, a policy of life
insurance contained the condition of punctual payment of the premium within 30 days of the due date. The policy
holder failed to pay the premium even within the extended time. It was held that his policy came to an end because
it subsisted only so long as the premiums were paid regularly.14. This case was followed in Sankuni Menon v
Empire of India Life Assurance Co, 61 MLJ 388. The condition as to the payment of the premium may be waived by
the insurer; but it cannot be waived by the agent. Provision may be made in the policy for increasing or reducing the
premium as the risk is increased or diminished.15. The insurer by mistake insured the property for higher claim by
accepting lesser premium. It was held that the insurer was entitled to fix higher premium at the time of renewing the
policy.16.
1. Lucena v Crawford, (1806) 2 B&P 269 (NR).

2. The Insurance Act, 1938, section 40B and Insurance Rules, 17(c); Form VH.
3. Allahabad Jal Sansthan v State of UP, AIR 2004 All 366 : 2004 3 AWC 2327 All.
5. Kelly v London and Staffordshire Fire, (1833) Cab & El 47, 48.
6. Canning v Farquar, [1866] QBD 727.
7. Banarasi Devi v New India Assurance Co Ltd, AIR 1959 Pat 540; Ocean Accident and Guarantee Corporation Co v DK
Parkar, AIR 1935 Bom 236.
8. National Insurance Co Ltd v Deivanai, AIR 2009 Mad 124 : 2010 ACJ 1841.
9. (1984) 2 SCC 719.
10. National Insurance Co Ltd v Seema Malhotra, (2001) 3 SCC 151 : AIR 2001 SC 1197.
11. Deokar Exports (P) Ltd v New India Assurance Co Ltd, (2008) 14 SCC 598 : (2009) 1 CPJ 6 (SC); also section 64-VB
of the Insurance Act, 1938;
12. Marthi Crystal Co Ltd v The Oriental Insurance Co Ltd, AIR 2001 Mad. 288.
Page 3 of 3
7.1 Definition
13. Life Insurance Corporation of India v Bindu Bal, AIR 2002 J&K 61.
14. (1904) 90 LT 192 (CA).
15. Hanuman Industries v New India Assurance Co Ltd, AIR 1997 Del 160.
16. The Regional Manager, United India Insurance Co Ltd v KO John, AIR 2005 Ker 22 : 2004 (3) KLT 334(DB).
End of Document
7.2 The Mode or Method of Payment
CHAPTER 7 PREMIUM
CHAPTER 7 PREMIUM

The payment of the premium is usually made in cash. If no other method is indicated, it should be paid in cash and
tender in any form other than cash can be refused. In London and Lancashire Life Insurance Co v Fleming it has
been held that the onus of proving that the premium has been paid in cash lies on the assured.17. The insurers may
accept any other method of payment, say by cheque, promissory note or any other thing of value. For example, the
insurer’s acknowledgement of receipt of premium by debiting against the coal supplied by the insured,18. or the
insurer’s receipt of premium partly in cash and partly by promissory note19. were held valid payments of premium.
The payment of premium could be by two modes and it may be by way of barter or by cash and payment of
premium in any one of the modes is valid when there is an agreement between the insurer and insured.20. The
insurer may agree to receive payment of a premium by cheque, a bill of exchange or a promissory note. Such an
agreement may be implied from a course of dealing between the parties. It may be even agreed to be adjusted by
settlement of accounts. In the case of payments by negotiable instrument, say by cheque, it must be handed over at
an anterior date providing sufficient time for encashing it. When once it is accepted and encashed, the date of
payment is the date on which the instrument is handed over and not the date when the money is received under the
instrument.21. The premium may be agreed to be received in installments and in such a case the payment of the
first installment is the satisfaction of the condition that the insurance does not attach until the premium is paid.22.
In Prince of Wales Life Insurance Co v Harding two companies in the habit of reinsuring each other, by the ordinary
course of business gave a receipt for each premium as it felt due, though no payment was made until the periodical
statements of account when the balance was struck and paid over by the company owing it, it was held that a
premium was paid on the day on which the receipt for it was given. Though the payment was not made in cash, but
receipts were given as if actual payments were made within the days of grace and the amounts were entered into
the mutual accounts of the parties, though the accounts were settled subsequently, it was held the dealings
between the parties amounted to payment of the premium within the days of grace.23. The premium may be agreed
to be received by post and in such a case, even if the money is stolen or lost in transmission the payment is
deemed to have been made. In the absence of such an agreement the insured sends the money by post at his own
risk.24. Payment to an agent is valid if he is authorised to receive the premium in that mode. The employer, by
entering into an agreement with the insurance company agreed to deduct the premium from the salary of the
insured-employee. The employer failed to pay the premium for two months even after deducting the premium from
the salary of the insured-employee and the insured-employee died thereafter. It was held that the employer acts as
an agent of the insurer and cannot repudiate the claim on the ground of non-payment of premium.25. The Insurer
cancelled the policy due to dishonour of the cheque and the accident occurred after cancellation of the policy. It was
held that the insurer was not liable.26. If he has no authority either to receive, or to receive it in the manner received
by him it will not bind the company unless by the course of dealings the agent has an implied authority. If the
cheque is not honoured, it will be deemed to have not been paid unless the insured himself preferred the cheque to
cash. The date on which risk is assumed by LIC is not the date on which it is posted, but the date on which the
company received the cheque.27.
Page 2 of 2
17. [1897] AC 499 (PC).

18. New Zealand Insurance Co v Tyneside Proprietory Ltd, (1917) NZLR 569.
19. The Manufacturers' Accident Ins Co v Pudsey, (1897) Can SCR 77.
20. ABL International Ltd v Export Credit Guarantee Corpn of India Ltd, (2004) 3 SCC 553 : (2004) 118 Comp Cas
213(SC).
21. Moroco v Richardson, [1908] 2 KB 584 (CA); Nicholls v Evans, [1914] 1 KB 118; Hedley (Felix) and Co v Hadley,
(1898) 2 Ch 680.
22. Stuart v Freeman, [1903] 1 KB 47 (CA).
23. (1858) EB & C 283.
24. Pennington v Crossley and Son, (1897) 77 LT 43.
25. Life Insurance Corporation of India v Mukesh Devi, AIR 2002 Raj 404 : 2001 (3) WLC 407 : 2001 (3) WLN 682.
26. New India Assurance Co Ltd v VK Serju, AIR 2002 NOC 49 (Ker).
27. LIC of India v Jaya Chandel, (2008) 3 SCC 382 : AIR 2008 SC 1310.
End of Document
7.3 Days of Grace
CHAPTER 7 PREMIUM
CHAPTER 7 PREMIUM
7.3 Days of Grace

There is no moral obligation on the part of the insurer to demand the payment of the premium; but as a matter of
practice, a notice demanding payment is sent to the insured. Even though the notice is not received, it is the duty of
the insured to pay the premium. If the notice is lost by an accident or by inadvertence and consequently not
received by the assured, the general rule is that it is not a defence for non-payment of the premium. There is
another view that if there is a course of dealing between two parties creating a right to believe that the assured will
get the notice, then the insurer will not be permitted to set up the failure of payment as a defence in an action on the
policy.
Section 50 requires the insurer to give a notice of the options available when a policy lapses, within three months
therefrom, if they are not set forth in the policy. The LIC has incorporated them in the policies and so need not give
any such notice.28.
Generally, most of the policies or renewal notices contain a stipulation enabling the assured to renew the policy
after the due date on payment of the premium during a further period and this further period is called “days of
grace”. For example, in Webb and Hughes v Bracey, 15 days further time was given and even in that period the
renewal premium was not paid and hence the policy was held to lapse.29. It is the privilege of the insurer to include
such days of grace. In the absence of such a stipulation in the policy, that is if such further period is not stipulated
either in the policy or in the renewal notice, the assured is not entitled to days of grace.
The scope and effect of stipulations granting a further time for payment vary according to the expressed intention of
the insurer in the stipulation. If loss occurs during the days of grace, it may be stipulated that either the insurer will
still be liable notwithstanding the non-payment of the premium before due date, provided it is paid before the lapse
of days of grace or the insurer will not be liable for such loss. Generally, when the insurer extends the original due
date by granting days of grace the insurer will be liable if the payment is made within the days of grace, though after
the loss occurred. In such cases, the notice demanding the payment of the premium states that the payment may
be made within 30 days from the due date or any other period of time may be given. They are intended to give an
opportunity to the assured to pay the premium after the due date and to prevent the lapsing of the policy. The
importance of the days of grace is that the payment of the premium within the days of grace will be deemed to be a
payment on the due date.
In Stuart v Freeman the policy was on the life of another person and the premium was payable quarterly. One of the
conditions in the policy was that it should have no effect if at the time of the death any premium remains unpaid for
more than 30 days. After the due date of the premium the assured died. The plaintiff paid the premium after the
death but within the days of grace. It was held that the payment was valid and the policy would not lapse even
though the death has occurred after the due date on the ground that payment within the days of grace is deemed to
be payment on the due date.30. The days of grace will be available even in such cases where the premium is not
paid in cash but adjusted in any other manner, eg, by the adjustment of surrender value. Payment of the premium
after the days of grace cannot revive the policy even though the company receives the premium by mistake or
Page 2 of 2
7.3 Days of Grace
otherwise. The advantage of days of grace can be taken not only by the assured but also by any person interested
in the policy, eg, a mortgagee may pay the premium within the days of grace though the policy was taken by the
mortgagor. Again, in the stipulation granting the advantage of days of grace the insurers may exclude their liability
for any loss arising before the renewal premium is paid. This arises when the stipulation gives the insurer an option,
exercisable at any time, to accept or decline the renewal.31. The insurance company refused to renew the
Mediclaim policy of the insured on the ground of his past conduct i.e., having gone into litigation for payment of his
claim against the insurance company. It was held that the act of the insurance company was arbitrary in refusing to
renew the policy, the policy is required to be renewed with effect from the date when it fell due for its renewal.32.
Renewal cannot be refused on the ground that the insured had contracted disease during the period of expiring
policy.33.
28. LIC v Omprakash Agarwala, AIR 1977 Gau 19; LIC v Bharati AIR 1989 AP 39; Hindustan Ideal Insurance Co v
Jayalakshmanna, AIR 1959 AP 562 (DB).
29. [1964] 1 Lloyd’s Rep 465 (QB).
30. [1903] 1 KB 47 (CA).
31. Tarleton v Stanoforth, (1794) 5 Term Rep 695; Phoenix Life Assurance Co v Sheridan, (1860) 8 ILL Cas 745.
32. Biman Krishna Bose v United India Insurance Co Ltd, (2001) 6 SCC 477 : 2001 (4) Scale 675.
33. United India Insurance Company Ltd v Mohanlal Aggarwal, AIR 2004 Guj 191 : 2004 ACJ 1657 (DB).
End of Document
7.4 Forfeiture
CHAPTER 7 PREMIUM
CHAPTER 7 PREMIUM
7.4 Forfeiture
7.4.1 Forfeiture of the Policy for Non-Payment
Usually the insurance contracts used to lay down conditions regarding the forfeiture of the policy, if the policy lapses
due to non-payment of the premium in due time. The deceased was insured by the Insurance Company and the
first premium was paid on 21 August 1995. At the request of the policy holder, the policy was backdated with effect
from 28 April 1995. The policy also contained a clause that the premium should be paid within a period of one
month, otherwise the policy would lapse. It was held that the Insurance Company was right in submitting that one
year came to an end on 28 April 1996 but not 21 August 1996 and the insured was liable to pay premium on that
date as it became due and payable.34. If the policy is forfeited the result is that the insurer will not be liable under the
policy and even the premiums already paid need not be refunded by the insurer to the insured. When premiums
paid for three years and thereafter subsisted only as a paid-up policy for reduced sum then the insurer was not
liable to pay interest under contract of insurance or under any statute or under Interest Act, 1978 from respective
dates of payment of premiums to date of settlement of claims.35. As equity leans against forfeiture, the courts while
interpreting these conditions providing forfeiture of the policy not only strictly interpreted them against the insurers
but even leaned against them. In Reserve Bank of India v Peerless General Finance and Invest Co, Chinnappa
Reddy J observed:
What is important is that if the policy holder commits default and does not pay any one of the first three premiums, the
premiums already paid automatically stand forfeited to the LIC entitling the policy holders to no benefits. Since it is the
poorer class of policy holders that may ordinarily be expected to commit default in payment of premiums, the forfeiture
clause in practice operates harshly, specially against that class, the very class which requires greater security and
protection—thus we notice that the incidence of lapsing or forfeiture of policies is highest and of a high order in the first
three years after a policy is issued...We cannot help but feel distressed that despite articles 38, 39, 41 and 43 of the
Constitution, the LIC of India, an instrumentality of the State which is given the monopoly of life insurance business in the
country has taken no steps to offer proper security and protection to the needy poor rural folk. If the LIC is really interested
in treating the poorer policy-holders less harshly and move liberally, the time has come for the LIC to revise its terms and
conditions and to think in the direction of deleting the forfeiture clause altogether as has now been done by the Peerless
Co, or to delete it at last for policies for small amounts.36.
The courts used to lean liberally in favour of the insured and the onus of proof was laid and laid heavily on the
insurer to establish the breach of the condition. This rule the insurers themselves to a practice of realising that
forfeiture is a serious matter and therefore, they themselves provided certain reliefs against forfeiture.
7.4.2 Relief Against Forfeiture
(i) For the payment of the premium, days of grace are generally given.
Page 2 of 3
7.4 Forfeiture
(ii) If the premium is not paid even during the days of grace the insurers were providing non-forfeiture clauses.
According to these non-forfeiture clauses, it is usually provided that if the premium is not paid the policy will
not be forfeited but it will be treated as a paid up policy, that is, the policy will be reduced to the total of the
premiums paid and in such a case the assured need not pay further premiums but the amount will be paid
as calculated according to the terms of the contract on the happening of the event. A paid up policy is
really a fully paid up policy for a reduced amount proportionate to the number of premiums actually paid.37.
The amount that is paid by LIC in regard to a lapsed policy, is not “refund of the premiums paid on various
dates”, but a reduced lump sum instead of the assured sum and therefore payment of interest thereon from
the respective dates of payment of premium does not arise.38.
(iii) The insurer may agree to pay in cash the surrender value of the policy, that is, a percentage like 33½ per
cent of the premiums paid. The value of a current policy depends upon the life insurer’s expectation of life;
and the value though nominal only at the commencement of the risk, usually increases according to the
length of the period during which the policy remained in force. Provision is made in a policy whereby the
assured becomes entitled on notice to surrender the policy and to be paid its surrender value. An option is
generally given to the assured either to take a fully paid up policy for a reduced amount proportionate to
the number of premiums actually paid or to adjust the surrender value for future premiums.39.
(iv) Even though the policy lapsed for non-payment of the premium, the assured may apply for the renewal of
the policy on payment of a penalty and satisfying other conditions. In LIC v Bharathi it was held that for
revival of a lapsed policy if certain requirements are prescribed, the insurer cannot impose new
conditions.40.
Insured has a legal or contractual right to insist with the insurer to renew the policy once the insurer accepted the
premium.41.
The Insurance Act, 1938 has laid down certain rules in favour of the insured with reference to life insurance
contract. They are listed below:
(a) According to section 50(1) of the Act, which is applicable to the Life Insurance Corporation, the insurer
must give, within three months of the date on which the premium was due and not paid, notice to the policy
holder informing him about the options available to him. The LIC has set forth in the policy itself the options
available to the insured and so there is no need to give a separate notice to the insured.42. For example,
the options are:
(i) either to treat the policy as paid up policy, or

(ii) to accept the guaranteed surrender value or
(iii) to keep the policy alive for such time as the surrender value will be sufficient etc. This must be
provided in the policy itself.
(b) According to section 113, which also applies to the Life Insurance Corporation without any modifications as
it applies to any other insurer, the assured can surrender the policy. If the premium has been paid for three
consecutive years, the policy of life insurance will acquire a guaranteed surrender value taking into account
the premium paid and also the bonus if any. Every such policy shall show the guaranteed surrender value.
Notwithstanding any contract to the contrary, a policy which has earned the surrender value shall not lapse
by reason of non-payment of the premium; but shall be kept alive to the extent of the paid up sum in the
policy and this is the minimum required by law.43. In Tolomal v Luxmi Insurance Company where the
insured has paid premiums for more than three years and defaulted to pay further premiums, the policy
was kept alive for a whole year thereafter and the assignee of the policy subsequently paid two more
premiums and when the policy was thus in force the insured died. The claim on the policy was allowed
subject to the charge for payment of the sums advanced to keep the policy alive.44.
Under the policies insured by the Life Insurance Corporation liberal surrender value is allowed after premiums have
been paid for at least two years or to the extent of one-tenth of the number stipulated for in the policy provided such
one-tenth exceeds the premium for one full year. The Life Insurance Corporation does not keep the policies alive as
in the case of Tolomal. Further, under these policies, if the premiums are paid for at least three years and the
insured dies within six months from the date of default, the full sum assured by the policy will be payable subject to
usual deductions. The policy can also be revived during the life-time of the assured and not later than the expiry of
Page 3 of 3
7.4 Forfeiture
five years from the due date of the first unpaid premium, without including the days of grace being counted for this
period, on production of evidence of health etc, to the satisfaction of the Corporation.
Surrender value generally means the value which the insurer is ready to pay at any particular time during the
currency of the policy in consideration of being relieved from the liability under the policy. Notice should be given to
the insurer regarding the intention to surrender. If the insured is unable to pay the premium he can surrender the
policy and receive the surrender value.
34. LIC of India v Mani Ram, (2005) 6 SCC 274 : AIR 2005 SC 3349.
35. Life Insurance Corporation of India v S Sindhu, AIR 2006 SC 2366 : (2006) 5 SCC 258.
36. AIR 1987 SC 1023.
37. Re Fleetwood, [1926] Ch 48.
38. LIC of India v S Sindhu, (2006) 5 SCC 258 : AIR 2006 SC 2366.
39. See Nandraj Tolomal v Luxmi Ins Co Ltd, AIR 1941 Sind 209; A Ghate v Hindustan Co-op Ins Society Ltd, AIR 1913
Nag 9.
40. AIR 1989 AP 39; Hindustan Ideal Insurance Co v Jayalakshmi, AIR 1959 AP 562 (FB).
41. The Regional Manager, United India Insurance Co Ltd v KO John, AIR 2005 Ker 22 : 2004 (3) KLT 334 (DB).
42. LIC v Omprakash Agarwala, AIR 1977 Gau 11.
43. Similar principle was recognised in England in Equitable Life Society of the USA v Reed, [1914] AC 587.
44. AIR 1941 Sind 209.
End of Document
7.5 The Return of the Premium
CHAPTER 7 PREMIUM
CHAPTER 7 PREMIUM

The general rule is that premium once paid cannot be asked to be refunded even if the insured is unable to enforce
his policy against the insurance company. But to this general rule certain exceptions have been laid down in which
he may ask for a refund of the premium though he cannot enforce the policy. Further in certain cases he may be
entitled to have a right to the return of only a part of the premium and this may arise where:
(i) there has been over-insurance, or

(ii) there is an express term to that effect in the policy or
(iii) when the company goes into liquidation.
The marine rules are now contained in sections 82–84 of the English and Indian Marine Insurance Acts, 1906 and
1963 respectively.
Section 84 of the Marine Insurance Act of 1906 in England and the Marine Insurance Act, 1963 in India lay down
the following rules:
(i) If the consideration totally fails and if there is no fault or illegality on the part of the assured, the total
premium is returnable.
(ii) If the consideration is apportionable, a proportionate part of the premium is returnable.
(iii) If the policy is void or avoided by the insurer from the commencement of the risk the premium is returnable
if there is fraud or illegality.
(iv) If the subject matter insured in not imperilled the premium is returnable.
(v) If the insured has no insurable interest throughout the currency of the risk the premium is returnable unless
it is a gaming or wagering contract.
They include the provision that where the insured has over-insured, a proportionate part of the premium is
returnable and such a doctrine has no place in non-marine insurance law.45. It may be noted that it is unsafe to rely
on marine decisions to non-marine cases for re-payment of premium; but generally three cases arise in which the
entire premium is to be refunded or returned, namely.
(i) where there has been fraud on the part of the insurer in inducing the policy to be taken;
(ii) where the policy has become void; and
(iii) where no risk has been incurred by the insurer and these rules are applicable to all branches of insurance.
7.5.1 Fraud on the Part of the Insurer

Page 2 of 6
In Tanjore Life Assurance Company v Kuppannarao it was held that the fraud of the insurer entitles the insured to
get back the premium paid by him. Under section 65 of the Indian Contract Act he can claim the refund of the
premium by avoiding the contract. There must be a fraudulent representation and breach of good faith on the part of
the insurer before a claim for return of the premium is laid by the assured.46. In Carter v Boelum, Lord Mansfield CJ
observed:
The policy would be equally void against the underwriter if he concealed...and an action would lie to recover the premium.47.
Where the policy has otherwise been rendered worthless to the assured the assured can claim for a return of the
premium.
But fraud on the part of the assured will not be a ground for claiming refund of the premium, because a person
cannot take advantage of his own fraud and no court will assist a person who does not come with clean hands. In
Mithoolal v Life Insurance Corporation it was held:
It is a well established principle that courts will not entertain an action for money had and received, where in order to
succeed the assured will have to prove his own fraud.48.
But on the other hand if the insurer or his agent is guilty of false or fraudulent misrepresentation in inducing the
insured to enter into the contract or issuance of the policy, he can revoke the contract and claim refund of the
premiums paid by him so far. In Kettlewell v Refuge Assurance Company where fraud was discovered after
premiums were paid for four years, the court ordered return of the premiums paid even though the insurer was on
risk for some years. If there is only an innocent misrepresentation or non-disclosure by the assured, though the
insurer is entitled to avoid the policy, he should return the premium.49.
In Anderson v Thornton, Parke J observed:
In cases of insurance, material misstatement or concealment vitiates the contract and whether it be fraudulently made or
not is a matter which is wholly immaterial except with reference to the return of the premium...The insurance never bound
the defendant, consequently the plaintiff was entitled to the return of the premium.50.
Section 84(3) (a) of the English Marine Insurance Act, 1906, states:
When the policy is…avoided by the insurer as from the commencement of the risk, the premium is returnable provided that
there has been no fraud or illegality on the part of the assured.
If there is fraud on the part of the assured, the insurer may resort to any of the following recourses:
(i) Refuse to receive further premiums and repudiate the contact.

(ii) To apply to the court for cancellation of the policy.
(iii) If the policy has matured, defence of fraud may be set up in any action for the recovery of insurance
amount.
(iv) If the evidence is likely to be lost, a suit may be filed for a declaratory decree under the Specific Relief Act.
On the other hand, if the insurer files a suit for the cancellation of the policy on the ground of fraud or innocent
misrepresentation of the insured, cancellation, declaration etc being equitable remedies, on the maxim “he who
seeks equity must be ready to do equity”, the court in apportionate cases may compel him to return the premium51.
or submit to any terms which the court may think fit. For example, in Prince of Wales etc Assurance Co v Palmer,
the defendant effected a policy in his brother’s name and on his brother’s life. The brother dies and it was found that
he was poisoned by Palmer. The insurance company filed a suit for declaration that the policy was void. The court
granted the declaration on condition that the premium should be returned and it should be applied towards the costs
of all parties.52.
Page 3 of 6
7.5.2 Where the Policy has Become Void ab initio
As in the case of any contract, where it becomes void ab initio, if consideration is paid, it can be claimed to be
returned. The contract may become void for various reasons like:
(i) when the parties were never ad idem;

(ii) when the company which issued the policy does so ultra vires;
(iii) where the terms of the contract are uncertain, that is, when the subject matter is incapable of identification;
(iv) where the object or consideration is illegal. In all these cases, it has been held that the insurer is bound to
return the premium, and the right to claim a return of the premium has further been held to be enforceable
by an action for money had and received,53. and not by an action on the policy.54.
7.5.2.1 Parties not in ad idem
It is a well-known principle of law of contracts that when there is no consensus ad idem or error in consensu the
contract becomes void. Parties are not said to be at ad idem when they do not think at the same time about the
same thing in the same manner. There must be a meeting of the minds. The minds are expressed by offer and
acceptance. The particular instance when there will be error in consensu is when the agreement is brought about
by a mutual mistake of fact essential to the contract. In Beach v Pearl Life, where the proposer thought the proposal
was for a policy on the life of her mother and the insurer’s agent thought that the life of her grandmother was the life
intended to be insured and the policy was also accordingly issued and there was no evidence to show that the
inconsistencies crept in due to fault of either party, it was a clear case of mutual mistake as the parties were not ad
idem to the subject matter of the insurance. The claim made on the death of the mother was dismissed and the
insurer agreed to return the premiums received by it.55. Similarly, the life of another person may be insured on the
mistaken belief of both the insurer and the insured that the person insured is still living while in fact he is dead
already by the date of issuance, or a fire policy may be effected on a house under the mistaken belief of both the
parties that the house was there, though in fact by that time the house was burnt. In both the cases, the insurance
becomes void and the premium has to be refunded. But this is again subjected to a limitation, that is, in case where
the parties may be estopped from pleading non est factum.
In Summers v London and Manchester, Mrs Summers sent a proposal on the life of her son Harry Summers whose
name and occupation were mentioned, but the agent thinking that it was a proposal on her husband’s life,
mentioned the age of her husband and the sum assured and the premium were calculated on that basis. On the
death of her son she claimed the sum assured and produced a “Record of Lost Policy” issued by the insurer where
her son’s name was noted as the life insured. The insurer resisted the claim on the ground of non est factum and
that the parties were not ad idem and so agreed to return the premiums paid. But the Industrial Assurance
Commissioner held that by their conduct in issuing the “Record of Lost Policy” which lead the proposer to believe
that her proposal to insure her son’s life was accepted they were estopped from pleading that there was no
contract. In such cases, the assured is entitled to claim a return of the entire premium paid by him as a payment
under a void contract. In particular, the Marine Insurance Act, 1906 in its section 84(3)(a) provides:
Where the policy is void...the premium is returnable provided that there has been no fraud or illegality on the part of the
assured; but if the risk is not apportionable and has once attached the premium is not returnable.56.
7.5.2.2 Ultra Vires the Powers of the Company
When a policy is issued by a company which is ultra vires its power, the policy is void and strictly speaking they
cannot rectify it but they will nevertheless be liable to return the premium.57. Re Argonaut Marine Insurance Co Ltd
where a marine insurer issued a fire policy the premium was held returnable.58.
A similar view was expressed when marine policies were issued by a Life Insurance Company,59. or where life
policies were issued by an insurance company prohibited by its memorandum of association from carrying on the
life insurance business,60. the court held that the assured was entitled to a return of the premium on the ground that
such a policy is void. But these decisions have been criticised and distinguished in Sinclair v Brougham, [1914] AC
398.
7.5.2.3 Where the Terms of the Contract are Uncertain

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In such a case the subject matter of the contract will become incapable of identification. Under section 29 of the
Indian Contract Act where the terms of the contract are not certain or not at least capable of being made certain, the
contract is void. In particular, the property insured has to be described, and the object of the description is three-
fold, namely, to identify the subject matter, to show the nature of the risk and to define the risk. Risk is the
consideration for the premium and for the risk to be attached to the policy the subject matter must be described
adequately and correctly. It will not be capable of identification where the assured has no property answering the
description of the subject matter contained in the policy61. or where the contract is otherwise void for uncertainty.
7.5.2.4 Where the Object or Consideration is Illegal
A contract of insurance may become void due to illegality as any contract is void under section 23 of the Indian
Contract Act whose object or consideration is unlawful or opposed to public policy. Cases of illegal contracts of
insurance present some difficulty. If the object or consideration is merely unlawful under section 23, the contract
between the parties only becomes void and under section 65 of the Indian Contract Act, premium is returnable and
can be claimed by the assured; but in cases where the object or consideration is illegal within the meaning of
section 23, difficulty arises. In English law the maxim in pari delicto potior est conditio defendentis applies and the
law leaves the parties exactly where they were, that is, the law refuses to help either party. If the insurer files a suit
for the premium or the assured files a suit under the policy or seeks refund of the premium, in all these cases the
suits will be dismissed. But even under the general principles of law of contract where the parties are not in pari
delicto or where there is locus poenitentiae before the illegal object is carried out, this maxim has no application.
From this it is clear that where the policy is illegal the illegality of the policy cannot be relied on by the insurers if the
facts of the case show that the assured was not in pari delicto with them. Even where both parties are equally guilty,
when the contract becomes void by reason of illegality, the question that arises in India is whether section 65
applies? In this respect there is a conflict of judicial opinion. According to the Bombay High Court as held in
Gulabchand v Fulbai that a person who paid money can get it back under section 65 of the Indian Contract Act
even though both parties are equally guilty and the illegal purpose has been carried out.62.
Another view is that section 65 will not apply to cases where the object of the agreement is illegal and its operation
is restricted only to cases where the contract is vitiated or becomes void by reasons of impossibility, mistake or
failure of consideration and therefore, the premium once paid under such a policy cannot be claimed to be
refunded. According to Pollock and Mulla as there is no specific provision covering the cases governed by in pari
delicto, English law would apply.63.
Even in English law there are however several exceptions and a premium paid under an unlawful policy is
recoverable in the following cases:
(i) Even before the risk has begun to run, if the insured gives notice to the insurers abandoning the contract
the insured can recover the premium. It is a principle of the law of contract that before the object of the
contract is carried out if one party has locus poenitentiae he cannot only avoid the contract but also claim
refund of any money paid by him under contract.64. But if the policy runs for a time and becomes void from
a future date, the insured is not entitled to the return of any part of the premium.65.
Though the rule that premium is recoverable under such circumstances is severely criticised,66. it is the
well-established policy of the law to give the assured a chance of repentance while the unlawful
contract is still executory.
(ii) If both the insurer and the insured are under a mistake of fact about its legality, and honestly believe that it
is a lawful contract, in Oom v Bruce the assured was held entitled to recover the premium. In that case an
agent in London made an insurance on SS Bruce from a port in Russia which was to proceed to London. It
was made in fact after the commencement of hostilities between Russia and England. But before the news
reached London the ship was confiscated. It has been held that the policy was void ab initio and the
premium was returnable.67.
(iii) If the assured is blameless himself but was induced by the fraud of the insurer to make the contract though
the contract is unlawful he can still recover the premium. In such circumstances it cannot be said that the
parties are in pari delicto. But the rule would be otherwise where a representation by the insurer or his
agent is either erroneous or innocent. The effects of inducements made by the insurance agents have
been considered and it has been held in Horse v Pearl Life Assurance Co that where the assured is
Page 5 of 6
induced to take an illegal policy—a policy on the life of his mother to cover funeral expenses relying on a
representation as to the legality of the contract based on the insurer’s practice made by the agent, the
assured cannot recover the premium paid. The court also observed that insurance agents are not to be
treated as persons who are under a greater obligation than others to know the law.68. Proposers are
therefore not to place more reliance than warranted and to act on the assumption that what they say is in
order.69. But when the agent induces him to enter into such a contract by fraudulent misrepresentation the
insurer can recover the premium.
7.5.3 Where no Risk is Incurred by the Insurer
Lord Mansfield said in Stevenson v Snow that “equity implies a condition that the insurer shall not receive the price
of running a risk if he runs none”.70. The risk is the consideration for the premium to be paid and therefore if the risk
insured against is not run the consideration fails and the assured is entitled to a refund of the premium. In
Stevenson v Snow it was observed that an assured is entitled to the return of the premium if the risk is not run, even
if the cause of or the risk not being run is the fault, will or pleasure of the assured.71. The court will order the refund
of the premium if the risk has not been incurred and in marine insurance, it will not inquire the reasons or motive of
the assured. It has been held in Wolenburgh v Royal Co-op Collecting Society, that Lord Mansfield’s dictum in
Stevenson v Snow that “equity implies a condition that the insurer shall not receive the price of running a risk if he
runs none” applies and in such cases even if it is by the neglect or fault of the insurer, it does not matter.72.
7.5.4 Return of Partial Premium
Where there is a partial failure of consideration there will be a partial return. In marine insurance the risk is generally
considered as divisible. On the other hand, in life policies, risk is not considered ordinarily as divisible except when
the policy is issued for a particular period of time, eg, say 12 months. But Porter says that though in life insurance
generally the risk is considered as invisible, in certain cases the risk is divisible and a proportionate part of the
premium is returnable. For example, if a person agrees to pay higher rates of premium for extraordinary risks like
military service, he may get a return of proportionate premium if he does not take up the military service. In fire
insurance also the risk is considered as not divisible and therefore proportionate part of the premium cannot be
claimed to be refunded. But where there has been over insurance, a proportionate part of the premium is
returnable. So far as the assured, honestly over-valued the subject matter of insurance and on that basis he has
paid the premium, to the extent of the excess, the insurer has not undertaken any risk and as such there is a failure
of consideration and to that extent the premium is refundable. As far as marine insurance is concerned the Marine
Insurance Act states:
Where the assured has over-insured under an unvalued policy, a proportionate part of the premium is returnable.73.
The same principle applies to liability insurance where the amount of the premium is dependent upon the amount of
wages or the number of vehicles plied or used.
Again, the policy made provides expressly circumstances when a part of the premium is returnable. Similarly, when
the insurance company goes into liquidation during the currency of the policy there will be a premature
determination of the policy and a rateable portion of the premium is returnable.
It may also be noted that where there is no total failure of consideration that is, when the risk is attached to the
policy even for a short time there cannot be a claim for return of the premium. Just as a stipulation specifying that
he can claim a return of the premium in certain circumstances entitles the assured to claim a return of the premium
in whole or in part, a stipulation that the premium is not returnable even in cases where the assured under law is
entitled to a return of the premium debars him from claiming a return of the premium. Where the assured has been
guilty of fraud, though there is failure of consideration the premium is not returnable. This is doubted and a contrary
view was held by Blackburn J in his dissenting judgment in Fowkes v Manchester and London Ass and Loan
Association holding that it is not returnable.74. It would not disentitle him if there is innocent misrepresentation.
The plaintiffs were the owners of the insured vessel and the bank who held the mortgage on the vessel and was
named payee on the policy. The defendant was the insurer. The plaintiff had insured the vessel with the defendant
since October, 1990. There had been three renewals of the coverage in October 1991, 1992 and 1993. The vessel
was damaged beyond repair in March 1994. The insurer defendant denied coverage on the basis that no insurance
premiums had been received since the October, 1993 renewal. It was held that no premiums have been paid does
not affect the existence of the contract. The court looked at the renewal notices and at the history of dealings
Page 6 of 6
between the parties. As to the renewal notices, while they demanded payment, there was no clear statement that
coverage would be cancelled if payment was not received. As to the dealings between the parties, the court found
that previous claims had been paid as credit for owing premiums so clearly in the past it had been the practice to
renew without the payment of premiums.75.
45. Stevenson v Snow, (1761) Burr 1237, 1240.

46. 3 Mad 333.
47. (1766) 3 Burr 1905.
48. AIR 1962 SC 814, 821; Mathiappa v Venus Assoc, 1944 Mad 281; Bhanumathi v LIC, 1970 Lab & Ind cases 598 (Guj).
49. [1907] 2 KB 242 : [1908] 1 KB 545 (CA) affirmed in [1909] AC 243.
50. (1853) 8 Exch 425.
51. De Costa v Scandrat, (1723) 2 P 170.
52. (1858) 25 Beal 605.
53. Stevenson v Snow, supra.
54. Castelli v Boddington, (1852) 1 E&B 1852.
55. [1938] 1 AC 3 .
56. [1946] 1 AC 56 .
57. Re Phoenix Life, Burges and Stocks Case, (1862) 2 J&H 441.
58. [1932] 2 Ch 34.
59. Flood v Irish PF Assurance Co Ltd & Hebernnian Bank Ltd, [1912] 2 Ch 597.
60. Ibid.
61. Homeger v Lushington, (1812) 15 East 46.
62. Pollock and Mulla, Indian Contract Act.
63. Ibid.
64. Bigos v Boustead, [1951] 1 All ER 92
65. Anderson v Fritzgerald, (1853) 4 HLC 484, 510 (House of Lords).
66. Lord Mansfield in Busk v Walsh, (1812) 4 Taunt 290; Lord Ellenborough in Palyart v Lockie, (1817) 6 M&S 290.
67. (1810) 12 East 225, 226.
68. [1904] 1 KB 558.
69. Mac Gillivray, Insurance Law, 1961, paras 2160–65.
70. (1915) 4 LJKB 1916.
71. (1761) 3 Burr 1237.
72. (1915) 4 LJKB 1916.
73. Marine Insurance Act, 1906, section 84(3)(e); Marine Insurance Act, 1963, section 84(3)(e).
74. (1863) B&S 917.
75. Dominion Insurance Co, Ltd, v Westpac Banking Corporation, (1998) FJCA 48.
End of Document
8.1 Meaning of Risk
CHAPTER 8 THE RISK
CHAPTER 8 THE RISK
8.1 Meaning of Risk

A contract of insurance is a contract under which the insurer undertakes to protect the insured from a specified loss
if it occurs. The insured is afraid of loss which is called the risk of loss and the insurer undertakes to indemnify him
from the apprehended loss if it occurs for a consideration called the premium. The insurer calculates the premium
according to the probability, nature and extent of risk from which the insured desires to be protected. The risk of
loss is co-extensive with the value of the insurable interest the insured has. The law does not compel a man to
insure, but if he so desires he may like to be covered in respect of all or certain risks, so he must describe in his
proposal form the risk, which he wants to be covered by the insurer. The insurer fixes the premium according to the
nature, quantity, quality and probability of the risk desired to be covered by the policy. The life-blood of an insurance
contract is the risk it deals with. The determination of the dimensions of the risk covered by the contract is important
to both parties; it is important to the assured as from that he can know the exact extent of the risk covered by the
contract so that he may adjust his economic affairs and to the insurer because he has to calculate the exact
premium required to cover it. In this context, risk remains the risk until the happening of the contingency. Once the
contingency happens it becomes a definite loss and it is against this loss the insurer undertakes to indemnify the
assured.
End of Document
8.2 Scope of Risk
CHAPTER 8 THE RISK
CHAPTER 8 THE RISK
8.2 Scope of Risk

The insurer indemnifies the insured only against the loss caused during the period insured, for which the direct and
proximate cause is the peril insured against. In Xantho’s case the scope of the risk is neatly described as: “It is
open to the parties by agreement to extend or limit the liability of the insurer in respect of the operation of the risk”.
In the absence of such agreement:
(i) the risk includes (a) the loss caused, i.e., risk brought about by the negligence not only of the insured but
even by his servants or strangers and (b) risk brought about wilfully or maliciously by the insured’s servants
or strangers, but
(ii) the risk does not include (a) loss caused by the willful misconduct of the insured or caused with his
convenience whether it amounts to a crime or not, (b) loss due to ordinary wear and tear and (c) inherent
vice of the subject matter insured as in (d) and (e) the risk is such that it must happen and the risk in
insurances is that which may happen and not which must happen.1.
8.2.1 Time of Loss
Firstly, the contingency must happen during the subsistence of the policy.2. It is sufficient if the peril insured against
happens during the period of insurance though the full effect to the peril is manifested or the extent of the loss is
discovered after the period of insurance. But where the event happens at or before the beginning of the insurance
and only the loss is manifested during the operation of the policy, the loss is not recoverable.3. Similarly, if the
operation of the peril begins partly before the commencement of the policy and party afterwards and if the loss is
apportionable, so much loss referable only to events which occurred after the commencement of the policy and
before the expiration of the policy are recoverable unless by the operation of the peril before the commencement,
the subject matter of insurance is so damaged that it does not answer the description. Where the loss is wholly
attributable to the operation of the peril after the policy ceases to be in operation the loss cannot be recovered. But
all this is subjected to a contract to the contrary. These difficulties are avoided in practice by resorting to the
insertion of express terms in the policy like: “The policy covers all losses disclosed during its currency irrespective
of the time when they were actually sustained”.4.
Causa Proxima
It must be caused by the peril insured against. In considering the cause of the loss, as in other branches of law like
torts and contracts, “the rule of proximate causes, the maxim in jure non remota causa, sed proxima, spectatur is to
be regarded”. The maxim means “in law the immediate and not the remote cause is to be considered in measuring
the damages.” This rule is applied in the law of insurance also. There cannot be an event without cause and effect.
In Hamilton, Fraser and Co v Pandorf and Co, where damage to cargo was caused by seawater escaping through a
hole in a pipe gnawed by rats it was held that damage was due to “dangers and accidents of the sea”, Lord
Halsbury observed:
A subtle analysis of all events which led upto, and, in that sense caused a thing, may doubtless remove the first link in the
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8.2 Scope of Risk
chain, so far that neither the law nor the ordinary business of mankind can permit it to be treated as a cause affecting the
legal rights of the parties to a suit. In this case the existence of the rats on the board, their thirst, the hardness of their teeth,
the law of gravitation which caused the water to descend upon the rice, the ship being afloat, the pipe being lead, and its
capacity of being gnawed, each of these may be represented as the cause of the water entering, but I do not assent to the
view that this contract can have a different meaning attached to it according as you regard each step in the chain of events
as the origin out of which the damage ultimately arises.5.
Where there is a succession of causes which must have existed in order to produce a particular result, the direct
and proximate cause i.e., the last cause must be looked into and the other rejected although the result would not
have been produced without their occurrence.6. In Pink v Fleming there was an insurance on a cargo of oranges
and was warranted free from partial loss or damage unless such loss or damage was consequent on collision with
any other ship. There was a collision during the voyage and the vessel had to be put into the port for repairs. In
order to make repairs the cargo had to be discharged into lighters and subsequently reloaded. When the vessel
arrived at her destination it was found that the fruit was considerably damaged partly due to its being handled in the
course of unloading and reloading and partly from natural decay which as a consequence of its perishable nature
arose, owing to the delay in the voyage. The question was whether or not this damage to the cargo was a
consequence of or was caused by the collision within the meaning of the policy. The court held that the loss was not
recoverable. Lord Esher M R said:
The proximate cause of the loss was the handling of the fruit, though no doubt the cause of the handling was the necessary
repairs, and the cause of the putting into port for repairs was the collision. There were three causes of the result, but
according to the English law of marine insurance, only the last of them is to be looked at for the purpose of determining the
liability of the underwriters.7.
In Ionides v Universal Marine Insurance Co, it was observed that the maxim causa proxima is peculiarly applicable
to the law of insurance.8. In Leyland Shipping Co v Norwich Union Fire Insurance Society Ltd, it was held that the
maxim causa proxima has to be applied to all policies and the doctrine has to be applied for the purpose of
ascertaining which of the successive causes is the cause to which the loss is to be attributed within the intention of
the policy. Lord Shaw observed:
To treat causa proxima as the cause which is nearest in time is out of the question. Causes are spoken as if they were
distinct from one another as beads in a row of links in a chain, but if the metaphysical logic has to be referred to, it is not
wholly so, the chain of causation is a handy expression, but the figure is inadequate, causation is not a chain, but a net. At
each point influences, forces, events, precedent and simultaneous, meet; and the radiation from each point extends
indefinitely. 9.
The learned judge by his observation gave a new dimension to the concept of causa proxima by extending it from a
lineal single dimension to double dimension plane. The same learned judge explained that the proximate cause of
an event is the real and efficient cause to which the event may be attributed and the application of the doctrine
varies according to the question whether the loss was caused by the peril insured against.
For the purpose of deciding whether the loss was caused by the peril covered by the policy the doctrine may be
applied. Where the causes are successive the peril insured against may be the last cause for the loss in which case
it can safely be said that the loss is caused by the peril insured against.10. In such cases there is no necessity to
inquire into the cause or causes unless the further question arises as to whether the peril was brought into
operation by an excepted cause. On the other hand, if the peril insured against is not the last cause for the loss but
is only a preceding cause, the further question arises whether the last cause is a mere consequence of the
preceding cause of the peril insured against or was there a break in the chain of causation? If the last cause is a
mere probable and reasonable consequence of the peril insured against without any novus actus interveniens, the
peril insured against will have to be treated as the real and efficient cause and the insurer will be liable; on the other
hand, if the connection between the preceding cause and the last cause is interrupted by the intervention of a fresh
cause, which is not a mere reasonable and probable consequence directly and naturally resulting in the ordinary
course of events from the peril insured against the insurer will not be liable. If there is a complete snap of the chain
of the events, though the peril insured against has caused to produce that loss, such a loss also cannot be
recovered from the insurer. In such cases, the relation of cause and effect does not exist between the peril insured
against and loss. Where a person becomes weakened by a railway accident and by reason of that weakness he
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8.2 Scope of Risk
could not avoid a street accident and was run over by a bus, his death is due to a street accident and not due to the
railway accident.11. Where a business premises or a factory is insured against fire, the policy-holder can recover
only indemnity for the physical loss of property by fire. Though there may be a consequential loss of profits which
could have been earned during the period or reinstatement or replacement, it cannot be recovered under an
ordinary fire policy as in such cases the chain of causation is broken and the connection between the peril and the
loss is not causal but accidental.
Where the causes do not succeed one another, but operate concurrently and produce the loss, the above rules will
not help. There are cases where the causes do not form a chain but a net. In such cases, the better opinion is that
the insurer will be liable because it is a loss caused by the peril insured against also. For example, when a person
while bathing dies due to drowning, and falls into the water in a fainting fit, the death is said to be caused by
accident notwithstanding the fact that the water was only one foot deep and had he not been unconscious he could
not have died.12.
When there are excepted causes, often difficulty arises whether the loss is caused by the excepted cause or the
peril insured against. If they operate independently or when they are disconnected there will be no difficulty. The
real difficulty arises when the loss is the combined effect of both, the causes and they are so connected that but for
the presence of both the loss would not have occurred.
Fire insurance policy covering risk of loss and damage caused by riot, strike, malicious damage and explosion and
consequential loss. The excepted peril clause in the policy is “loss caused by cessation of work”. There was a
lockout in the company and insured argued that workers before leaving company premises due lockout did not
follow instructions for planned shutdown of the plants causing damage and thereby the loss occurred was not
maintainable.13. In such a case recourse had to be made to the doctrine of causa proxima and in its application the
causes may be classified as follows:
Cases where the Peril Insured Proximately or Immediately Follows the Excepted Peril This may be illustrated
by the following cases:
The assured, a person with normal sight and hearing, crossed a main line and waited for one train to pass and was
crossing in front of an approaching second train which he ought to have seen, when he was run over and killed.
Though the death is caused by accident, a peril insured against, it is attributable to his want of care and hence was
held to fall within an exception of “exposure of the insured to obvious risk of injury” and so the insurer was held not
liable.14. In another case, a person fell from the platform on the rails and then a passing train crushed him. The
death was not caused by the fit but by the accident. The effect of the preceding cause was held to have been
exhausted.15. The policy contained a clause that “complications arising from pre-existing disease will be considered
part of that pre-existing of condition”. The insured was having diabetes at the time of taking the policy and it may
lead to cardiac disease. It was held that repudiation of the policy by the insurer on that ground that the insured was
having pre-existing disease which may lead to cardiac disease was not maintainable.16. Again where a shop was on
fire due to which a disorderly mob was brought together on an adjacent premises which broke a shop window, the
breakage of the window was held to be by the disorderly mob but not by fire.17. Similarly, where a person was
injured by a shell and became crippled and was run over by a passing motor car because he could not move away
from the car’s line it was held that death was caused due to an accident but not due to the shell injury which is an
excepted cause of the consequence of liabilities.18. In another case there was an air raid and it facilitated the
commission of an isolated act of burglary. The loss was held to be caused by burglary but not by the excepted
cause of the consequence of hostilities.19. The insured’s fire policy covers loss due to “riot, strike and malicious and
terrorism damage and exception clause is theft”. Due to cyclone, the roof of premises had blown up ten persons by
using force entered the premises and committed theft. It was held that the loss was covered by riot and
maintainable.20.
Cases where the Excepted Peril Proximately or Immediately Follows an Excepted Cause The following
illustrations may be noted under this category:
Hernia was caused by an accidental fall and due to that the assured died. There was an exception against hernia.
But still death was held due to the fall and not due to hernia.21. The excepted cause was a sequel to the peril
insured against. On the other hand, where a man was weakened by an accident and he is attacked by a disease
wholly disconnected with the accident, an exception against disease would apply.22. The policy covers buildings,
stocks and furniture/fixtures against flood and inundation. The policy also contains exclusion clauses and the loss is
resulted due to earthquake, typhoon. The exclusion clause did not cover “loss due to subsidence”. During the
subsistence of the policy the insured property damaged due to floods. It was held that the insurer was liable and the
Page 4 of 5
8.2 Scope of Risk
court did not accept the insurer’s contention that the loss incurred due to structural defect caused by “subsidence”
in view of the non-inclusion of “subsidence” in the non-exclusion clause.23. The insured insure the property against
loss by fire. The policy also contained a clause that it would cover the loss caused on account of militant related
violence including riot, strike and malicious damage. The insured lost the property due to theft by militants. It was
held that the loss was not covered by the policy because loss caused must be because of outbreak of fire and as a
result theft should occur.24. The insured’s vehicle was taken away by some unknown persons in the guise of hiring
it. It was held that it would be sufficient if factum of taking away the property of the insured and thereby depriving
him from using the property permanently would entitle the insured to claim the loss from the insurer.25.
Insurance Company repudiated the claim of appellant on ground that loss of eyesight could not be attributed to
accident but was due to disease phthisis bulbil (not covered under the policy). Medical Board constituted by the
State Commission inter alia opined that loss of vision could have been caused by fall while playing. It was held by
the Supreme Court that State Commission and National Commission wrongly ignored full import of report of
Medical Board which had opined that phthisis bulbi can be caused due to injury caused due to fall. In these
circumstances held, case of appellant covered under the policy.26.
Cases where the Excepted Peril and the Insured Peril are Concurrent and Immediate Causes—In such cases
the insurer will not be liable:
In Wayne Tank and Pump Co v Employer’s Liability Assurance Corporation, a firm of engineers by name Wayne
Tank and Pump Company were installing new equipment into an old mill manufacturing plasticine at Bathampton in
Somerset. They took a public liability policy with the defendants to indemnify them against liability they may incur as
a result of accidents happening in the course of installation. The policy contained an exception excluding the
insurer’s liability consequent upon damage caused by the nature or condition of the goods supplied by the insured.
The installation went up in flames on account of two causes, namely, (a) use of unsuitable and dangerous plastic
material by the insured and (b) servant of the insured switched on the installation and leaving it unattended when
the installation had not been tested. The first cause came within the exception and the second was an insured peril.
The court came to the conclusion that the effective, dominant and proximate cause of the loss was the defective
goods supplied by the insured and so the insurer was not liable. It was also held that even assuming that both the
causes were equally effective, the insurer was not liable, as one of the causes was an excluded peril.27.
If the other concurrent cause is not an excepted peril the rule would be otherwise. In those cases also the above
discussion equally applies i.e., whether the precedent cause is the effective cause and the subsequent cause is a
mere reflection of the precedent cause or does it constitute a novus actus interveniens. In cases of simultaneous
operation also the above rules apply.
Further, the policy may modify or altogether exclude the operation of the doctrine of proximate cause.
1. The Xantho, The Wilson Son's and Co vXantho, [1887] 12 AC 509 (HL).
2. New India Assurance Co Ltd v GN Sainonani, AIR 1997 SC 938.
3. Hutchins Bros v Royal Exchange Assurance, [1912] 2 KB 398 (CA).
4. Maxwell v Prince, [1906] 2 Lloyd Rep 155.
5. [1887] 12 AC 518, 524.
6. Pink v Flerning, (1890) 14 QBD 396 (CA).
7. Ibid.
8. (1863) 14 CBNS 259.
9. [1919] AC 350 .
10. Reynold v Accidental Insurance Co, [1870] 22 LT 820.
11. Insitt v Rly Passengers Assurance Co, [1889] 22 QBD 504.
12. Reynolds v Accidental Insurance Co supra.
13. Century Spinning and Manufacturing Co Ltd v Oriental Fire and General Insurance Co, AIR 2008 Bom 59.
Page 5 of 5
8.2 Scope of Risk
14. Cornish v Accident Insurance, (1889) 23 QBD 453 (AC).

15. Lawrence v Accident Insurance Co, (1881) 7 QBD 216.
16. Hari Om Agarwal v Oriental Insurance Co Ltd, AIR 2008 Del 29 : 2009 ACJ 891.
17. Marsden v City and County Assurance Co, (1886) LR 1 CP 232.
18. Leyland Shipping Co v Norwich Union Fire Insurance Society, [1917] 1 KB 873 (CA); JJ Lloyd (Instruments) Ltd v
Northern Star Insurance Company Ltd, [1987] 1 Lloyd’s Rep 32.
19. Wincofsky v Army and Navy Assurance Association Ltd, [1919] 1 KB 111 .
20. Usha International Limited v United India Insurance Co Ltd, AIR 2005 Del 424 : 123 (2005) DLT 466.
21. Fitton v Accidental Death Ins Co, (1864) CBNS 122.
22. Crawley v National Employees’ Accident and General Assurance Association Ltd, (1885) 1 TLR 255.
23. United India Insurance Co Ltd v Kiran Combers & Spinners, (2007) 1 SCC 368 : AIR 2007 SC 393.
24. National Insurance Co Ltd v Ashok Kumar Bararoo, AIR 2003 J&K 9 : 2010 (4) JKJ 474 (DB).
25. Ratul Das v Oriental Insurance Co Ltd, AIR 2008 Gau 180 : 2008 (3) GLT 874.
26. Sandeep Kumar Chourasia v New India Assurance Co, Ltd, (2013) 4 SCC 270 : 2013 ACJ 1288 : 2013 (5) Scale 103.
27. (1974)LR QB 57; Photo Production v Securicor Transport, [1980] AC 82 7 : [1980] 1 Lloyd’s Rep 315.
End of Document
8.3 Application of Rule in the various Classes of Insurance
CHAPTER 8 THE RISK
CHAPTER 8 THE RISK

8.3.1 Life Insurance
In life insurance the insurer proceeds on the calculation of the average duration of human life. The insurance is
against death due to natural causes. If the cause of death is other than natural e.g., if the assured voluntarily puts
an end to his life the insurer is not liable. This is on the grounds of public policy and also by the application of the
maxim causa proxima.
8.3.2 Accident Insurance
In accident insurance the proper question is whether the result in respect of which the claim is made arose directly
and proximately from the accident insured against. In Isitt v Railway Passengers Assurance Co, a railway
passenger was insured against death from the effect of an injury caused by an accident. He fell down from the train
and his shoulder was dislocated. He was undergoing treatment in the hospital and had an attack of pneumonia and
he died. Applying the maxim causa proxima it was held that death was the result of the accident and therefore the
insurance company was liable.28. The insured suffered total loss of vision in the right eye due to accidental fall. The
insurer repudiated the claim on the ground that the loss of eyesight was due to disease phthisis bulbi which was not
covered under the policy. Medical Board constituted by the State Commission opined that the loss of vision could
have been caused by fall while playing. It has also opined that phthisis bulbi can be caused due to the accident
also. In the stated circumstances, it was held that the loss is covered by the policy.29. The accidental insurance
policy should be taken by the insured before the accident.
Debashis Bhattacharjee, the spouse of the first respondent and the father of the second respondent applied for a
housing loan for an amount of Rs. 13.15lacks from the Bank of Baroda on 16 June 2011. The loan was sanctioned
and was repayable in 113 monthly installments, each of Rs. 19,105/-. Incidental to the loan, he availed of the facility
of an insurance scheme called “National Insurance Home Loan Suraksha Bima”. On 25 August 2011, a policy was
issued to cover the loan amount of Rs. 13.15 lacks with a term of 20 years commencing on 25 August 2011. A
single premium was paid against the policy. The policy was a non-life insurance product intended to provide
insurance security to a person who obtains a loan for constructing, purchasing or repairing a residential house, flat
or apartment. Section I of the policy insured the house against fire and allied perils, including earthquakes. Section
II insured the borrower against personal accidents. The insured was working as a manager of a Tea Estate in
Assam. He thereafter took up employment in 2012 as Manager of a Tea Factory at Cha-De-Magoma, District
Gurue, Province-Zambezia, Republic of Mozambidsque. During his stay in Mozambique, the insured was admitted
to the hospital on 14 November 2012. He was diagnosed with encephalitis malaria and died on 22 November 2012
due to multi-organ failure. His death certificate issued by the Republic of Mozambique spelt out the conditions and
causes of death thus “i) multi organ failure; ii)Encephalitis Malaria; iii) Pnasituria-Malaria”.
“The heirs of the deceased filed a complaint under the Consumer Protection Act, 1986 before the District Consumer
Forum. In the written statement filed by the appellant, it set up the lea that section II of the policy insured the
borrower of the loan against personal accident. Death due to malaria caused by a mosquito bite was, in the
submission of the insurer, a result of an infection or disease and was not an accidental death under the terms of the
Page 2 of 3
insurance policy. By an order dated 28 February 2014, the District Forum allowed the claim and called upon the
insurer to pay the entire outstanding EMIs in respect of the loan to the Bank of Baroda. A statutory appeal was filed
by the appellant before the State Commission. The State Commission by its order dt 2 February 2016 affirmed the
order of the District Forum, holding that a “sudden death due to mosquito bite in a foreign land” was an accident; it
would be rather silly to say that it was a natural death. The Order of the State Commission was assailed in revision
before the National Commission. In appeal to the Supreme Court while setting aside the National Commission’s
Order by observing that “the illness of encephalitis malaria through mosquito bite cannot be considered as an
accident. It was neither unexpected nor unforeseen. It was not a peril insured against in the policy of accident
insurance.” It also observed that “During the course of the hearing that the claim under the insurance policy has
been paid by the insurer. We direct in exercise of our jurisdiction under Article 142 of the Constitution of India that
no recoveries shall be made”.30.
8.3.3 Fire Insurance
The maxim causa proxima is applied liberally in fire insurance. The question is whether the loss arose proximately
from the fire. The loss may arise directly by fire or indirectly by the efforts to extinguish the fire. In Stanley v Western
Insurance Co, it was observed that any loss resulting from the fire and resulting from the necessary and bona fide
efforts to put out the fire whether by spoiling of goods by water or throwing the articles out of window or pulling
down a house for the purpose of preventing the spreading of the fire and flames is within the policy of fire
insurance.31. In Marsden v City and Country Fire Assurance Co, during the course of a fire accident, a mob looted
the goods and it was held that the insurance company was not liable because the proximate cause of the loss was
not fire but the subsequent independent lawless acts of the mob.32.
8.3.4 Marine Insurance
The maxim is applicable to marine insurance but the application is very difficult due to the different kinds of maritime
perils. To make a marine insurer liable the insured must prove three things namely,
(i) that the loss is caused by the perils of the sea;

(ii) that the peril is one that is insured against in the policy and
(iii) that the peril insured against is the proximate cause for the loss sustained.33.
In Dugdeon v Pembroke, a ship lying in her owner’s yard was insured under a time policy. It was lost due to the
violent action of the winds and waves. It was in evidence that the ship was unseaworthy at the time when she was
sent to sea, but the owners did not know about it. The insurers argued that as the ship was unfit for the voyage they
were not liable. It was held by the House of Lords applying the maxim causa proxima that the immediate cause of
the loss was the violent action of the winds and waves and therefore the insurance company was liable even
though the loss could not have happened but for the concurrent action of some other cause namely the
unseaworthiness of the ship.34. In McCarthy v Abel, the owner of a ship insured the ship and the freight separately.
He abandoned the ship to the underwriters for some time due to restrictions in the port by the enemy government.
Subsequently, the restrictions were removed. The ship owner filed a suit against the insurer for the loss of freight. It
was held that the proximate cause for the loss of freight was his own act of abandonment and therefore the insurer
was not liable.35.
In Grer v Poole, a policy was taken on goods on a French ship. The ship was injured by collision and the master,
not having sufficient funds for the necessary repairs, gave a bottomry bond on the ship, the freight not being
sufficient to pay the bond, the assured had to pay the deficit amount to get his goods. The insurer was not held
liable on the ground that the loss was not caused by perils of the sea, but by want of funds on the part of the
master.36. Similarly, in Powell v Gudgeon, a ship was disabled due to the perils of the sea and she went into a port
for repairs. The master of the ship sold away some of the goods to pay for the expenses of repairs. The owners of
the goods filed a suit against the insurer. It was held that the insurance company was not liable as the proximate
cause of the loss was the act of the master selling away the goods and not the peril of the sea.37.
Sometimes the application of the rules increase the liability of the insurer. The negligence of the insured or his
agents does not relieve the responsibility of the insurance company. The loss may be caused by the negligence of
the servants of the assured, eg, due to unskillful navigation but by the application of the maxim causa proxima the
insurance company is made liable. In Trinider Anderson and Company v Thames and Mersey Marine Insurance
Company, the owners of a ship brought an action against the insurance company for loss of freight. The loss of
freight was due to the stranding of the ship and it was due to the negligence of the master. It was held by the court
Page 3 of 3
that the proximate cause of the loss was due to stranding of the ship though it was due to the negligence of the
master and therefore the insurer was liable.38. This was given statutory recognition in the later part of section 55(2)
of the Marine Insurance Act, 1906 which reads that unless the policy otherwise provides the insurer is liable for any
loss proximately caused by a peril insured against, even though the loss would not have happened but for the
misconduct or negligence of the master or crew.
Arnould in his treatise on marine insurance rightly comments that “the maxim causa proxima has a two-fold
operation, that is, partly to limit and partly to enlarge the liability of the insurer”. This two-fold operation of the rule is
further illustrated by the following cases: In Ionides v Universal Marine Insurance Company, there was a marine
policy on goods from Rio to New York free from all consequences of hostilities. During the American civil war the
confederates extinguished the lights on Cape Hatters. As the lighthouse was not working, the ship unable to find
her way, ran on to the rocks and was grounded becoming a total wreck. A portion of the goods was seized by the
enemy troops. The other portion was lost or damaged. Applying the maxim causa proxima the court held that the
insurance company was not liable for the loss caused by the enemy and for the other loss, the insurance company
was liable because the loss was caused by the peril of the sea. The court rejected the argument that the loss was
due to the non-working of the lighthouse which was due to enemy action and pointed out that it was a remote
cause.39. In Leyland Shipping Company v Norwich Union Insurance Co, a ship was insured under a time policy free
from all consequence of hostilities. On her voyage the ship was struck by an enemy torpedo and was badly
damaged. She got into a nearby port for repair. She stayed afloat for two days. Subsequently there was a big gale
and as a consequence of bad weather the ship stranded and was lost. Applying the maxim causa proxima it was
held that the torpedo by the enemy ship was the proximate cause of the loss and therefore the insurance company
was not liable.40. In Fenwick (Fr William) and Company v North of England Indemnity Association, the ship owners
of the ship SS Harwood, insured the ship against war risk and in the course of her voyage she ran upon a
submerged wreck of another ship which had been sunk by an enemy submarine a few hours earlier. There was no
negligence on the part of the owners. Applying the maxim causa proxima, it was held that the insurance company
was not liable because the loss was not proximately caused by the perils insured against (i.e. war risk). Billache J
dismissing the suit observed that his decision would have been different if the ship had been deliberately sunk at
the particular spot with the object of damaging passing vessels.41.
28. (1889) 22 QBD 504.

29. Sandeep Kumar Chourasia v Divisional Manager, New India Insurance Company Ltd, (2013) 4 SCC 270 : 2013 (5)
Scale 103.
30. National Insurance Co, Ltd, v Mousumi Bhattacharjee, Supreme Court, Civil Appeal No 2614 of 2019 vide judgment
dated 26 March 2019.
31. (1868) LR 3 Exch 71.
32. (1861) LR 1 CP 232.
33. Yorkshire Water Services and Son Alliance & London Insurance plc, (1997) CLC 213.
34. [1877] 2 AC 284 (HL).
35. (1804) 7 RR 711.
36. (1880) 5 QBD 272.
37. (1816) 5 M&S 431.
38. [1898] 2 QB 114.
39. (1863) 32 LJCP 170.
40. [1918] AC 350.
41. [1917] 2 KB 522.
End of Document
8.4 The Risk and the Duty of the Assured
CHAPTER 8 THE RISK
CHAPTER 8 THE RISK

If the insured accelerates happening of the risks or if when it occurs refrains from doing what ought to be done to
minimise the damage consequent thereon, hazards the chance of recovering nothing on the contract.42.
It is the duty of the insured not to do anything which will accelerate the happening of the risk, i.e., he should not
contribute anything which will cause the happening of the risk. Not only should he refrain from accelerating the risk
but there is a positive duty on the assured to prevent the happening of the risk if possible. Once the risk takes place
it is the duty of the insured to minimise the loss or damage. He must act as a reasonable man not having an
insurance policy. The duty to mitigate damages is a general principle applicable in all branches of law and it is
applied to the law of insurance especially in view of the fact that insurance is a contract of indemnity. Sometimes
the insurance companies encourage the insured to take all possible steps to minimise the loss and to save the
property by inserting a clause in the policy to the effect that the insurance company will be ready to pay all such
expenses. For example in marine insurance policies we find the sue and labour clause.
No person is entitled to look on and let his property be lost just because it is insured. He is bound to take all
reasonable steps to prevent damage, and if he does any act which causes the happening of the risk prematurely or
if he is indifferent if the risk happens, he cannot recover on the policy. This is sometimes regarded as the
application of the maxim causa proxima because if the maxim is strictly applied the loss may be treated as the act
of the assured himself. In Beresford v Royal Assurance Co, it was observed that a fire assured cannot recover if he
intentionally burns his own house, nor the marine assured if he deliberately scuttles the ship, nor the nominee of the
life assured if the latter deliberately ends his own life.43. In Gray v Barr, Mrs Barr took a policy under which the
insurer agreed to indemnify the insured and any member of her family which such person “shall become legally
liable to pay as damages in respect of bodily injury...caused by accidents”. Her husband Mr Barr went on the night
of 13 June 1967 armed with a loaded shotgun to Mr Gray’s farm in search of her. She had been committing adultery
with Mr Gray. Gray prevented him from seeing for himself if she was there. Barr fired a shot into the ceiling to
frighten Gray. In the scuffle that followed, Barr fell backwards and another shot involuntarily went off and killed
Gray. Barr was acquitted of murder and manslaughter. But the widow and father of Gray claimed damages against
Barr for unlawfully and negligently causing the death of Gray. Barr claimed indemnity under his wife’s policy which
covered him also. It was held that the effective and dominant cause of Grey’s death amounted to an unlawful
assault with violence and it was against public policy to indemnify him of the consequences of his deliberate
crime.44. In Currie & Co v Bombay Native Insurance Co, the insurance policy was on a cargo of timber. The ship ran
aground and became a wreck. The master of the ship abandoned the ship as well as the cargo. It was in evidence
that if the help of the other ship had been taken the cargo could have been saved. It was held by the Privy Council
that the omission to take steps to save the cargo from loss prevented the assured from recovery under the policy.45.
In Devlin v Queen Insurance Co, the following propositions have been laid down:
(i) Because an insurance contract is a contract of indemnity the person to be protected shall neither wilfully
cause the loss nor purposely increase or influence by wilfully refraining or abstaining from easy and
ordinary exertion as may be reasonably expected from a person acting honestly.
Page 2 of 2
(ii) If he wilfully prevents the interference of others to save the property or prevents the working of the fire-
brigade, he commits fraud on the insurer.
(iii) If he wilfully refrains and neglects to save the property having no reasonable excuse he cannot recover.
(iv) If a person has insurance on valuable jewellery kept in a box of light weight which can easily be carried and
if during a fire he intentionally leaves the box to be consumed by fire, the mind naturally revolts against
such a conduct as essentially a dishonest mind and a fraudulent disregard of right of others.
(v) Such conduct induces an inference of fraud.
(vi) Mere negligence will not affect the recovery under the policy.46.
42. Porter, Law of Insurance.

43. Beresford v Royal Assurance Co, Supra.
44. [1971] 2 QB 554.
45. Ibid.
46. Devlin v Queen Insurance Co, Supra.
End of Document
8.5 The Elements of Risk
CHAPTER 8 THE RISK
CHAPTER 8 THE RISK

Risk depends upon various elements of the event insured against in its happening sooner or later. These
circumstances must be disclosed by the insured and the insurers generally calculate the premium with reference to
these elements.
In life insurance the risk depends upon:
(i) habits in life or mode of living,

(ii) occupation,
(iii) environment,
(iv) position and status in life,
(v) character,
(vi) heredity,
(vii) previous illness and
(viii) opportunities for exposure to special dangers.
In property insurance the risk depends upon:
(i) the nature of the property like movable or immovable, perishable or otherwise,
(ii) character and constitution,
(iii) area,
(iv) situation and locality,
(v) exposure to outside dangers,
(vi) inherent defect,
(vii) use and habits of the assured,
(viii) the title to the property.
In marine insurance the risk depends upon:
(i) voyage and its nature,

(ii) the route of the voyage,
(iii) the winds and storms in the locality,
Page 2 of 2
(iv) the danger of war, capture and seizure,

(v) pirates,
(vi) mutiny of the crew,
(vii) insurrection of natives and dangerous coasts.
End of Document
8.6 The Alteration of the Risk
CHAPTER 8 THE RISK
CHAPTER 8 THE RISK

The liability of the insurer under a contract of insurance is confined only to the particular risk insured against in the
policy. He would not be liable for any change or alteration which has either increased the original risk or has
brought out a new and substantially different risk. Where the alteration does not affect the description in the policy,
even though it increases the danger of loss, it does not vitiate the policy so long as the risk as defined in the policy
remains the same. When the terms of the contract have been reduced to writing it cannot be changed without the
mutual agreement of both the parties. If the insured was particular and vigilant and wanted the amendments to be
incorporated he should have prosecuted the matter seriously or repudiated the policy.47. In Baxendale v Harvey,
Pollock CJ observed:
This is a mere increase in danger. It is like the case of a person who has an oven on his premises and instead of using it for
baking bread he uses it for some other purpose. If a person who insures his life goes up in a balloon, that does not vitiate
his policy.48.
It was also observed, the society having had notice of the nature of the risk, were not entitled to any notice by
reason of the increase of the danger. A person who insures may light as many candles as he pleases in his house
though each additional candle increases the danger of setting the house on fire.49. So it cannot be said that
everything that increases the risk vitiates the policy.50.
The effect of an alteration on the policy further depends on the fact whether the policy contains any express
prohibition on alteration. Where there is no express condition against alterations, the effect of any alteration in the
risk depends upon the fact whether the statement in terms referring to the future is a mere representation of the
existing situation and nothing more or it is a contractual condition. If it is of the first type an alteration does not affect
the policy. On the other hand, if the representation is construed as a contractual condition any alteration in the
subject matter vitiates the policy.51. In some policies, there may be express conditions relating to the alteration of
the risk. Those conditions may prohibit alterations, (a) absolutely, (b) without prior notice, (c) without prior sanction
or (d) increasing the risk. Where there is an express absolute prohibition of alteration, any alteration even if trivial
would render the policy void. If the prohibition is in regard to alterations increasing the risk, the alterations which do
not increase the risk will not void the policy. Whether alteration increases or decreases the risk is a question of
fact.52. This must be proved by the insurance company. There may be conditions prohibiting alterations without
notice and in such a case mere giving of prior notice is sufficient. On the other hand there may be a prohibition from
alteration not only without giving mere notice but without obtaining previous sanction. Then for the continued validity
of the policy, the alteration must be made with prior sanction. Every alteration increasing risk must be sanctioned.
Simply because the insurer sanctioned an alteration increasing the risk on a prior occasion, he is not bound to
sanction another alteration which increases the original risk though it does not go in excess of the prior sanctioned
alteration. Such an increase in risk caused by an alteration also requires a fresh sanction.
Page 2 of 2
Once there is an alteration the insurance company can avoid the policy even though the loss was not caused by the
alteration.
In Pim v Reid, certain premises were insured and the buildings were used for paper manufacture. Subsequently,
large quantities of cotton waste were brought into the building. The building was destroyed by fire. The insurance
company argued that the cotton waste increased the risk and so they were not liable. But the court rejected the
contention and it was held that in the absence of fraud, such an alteration will not effect the policy unless there is a
condition in the policy.53. In Exchange Theatre v Iron Traders Mutual Insurance, a bingo hall was insured against
fire in March 1977. The assured without informing the insurers installed a petrol generator in the hall. In January
1978 the hall was destroyed by fire. The insurer denied their liability on the ground, inter alia, that installation of the
petrol generator amounted to an unauthorised alteration, as it increased risk. Lawson J rejected the contention and
upheld the claim of the assured.54. Again in Pennsylvania Co for Insurance on Lives and Granting Annuities v
Mumford, the following propositions were laid down: the insurer is not liable under a policy if the risk is altered (a) in
breach of an express or implied condition or warranty against the alteration; or (b) if the change is made by the
fraud of the assured or (c) if there is a complete change of risk or subject matter of insurance, e.g., a change of
voyage.55.
47. Polymat India (P) Ltd v National Insurance Co Ltd, (2005) 9 SCC 174 : AIR 2005 SC 286. Also see Insurance Act,
1938, section 46.
48. (1859) 4 H&N 445.
49. Ibid, 452.
50. Toulmin v Inglis, (1808) 1 Camp 421.
51. B Benham v United Guarantee and Life Assurance Co, (1852) 7 Exch 744.
52. Baxandale v Harvey, (1859) 4 H&N (445).
53. (1843) 6 Man&G 1.
54. [1983] 1 Lloyd’s Rep 674.
55. [1920] 2 KB 537.
End of Document
9.1 Nature and Manner of Assignment
CHAPTER 9 ASSIGNMENT OF THE INSURANCE POLICY

In England, insurance policies are regarded as a species of property, choses in action giving rise to right to recover
the money payable under the policy by filing an action in a court of law. Originally, common law did not recognise
an assignment of a policy without the assent of the debtor, but equity permitted the action treating the assignor as
trustee.1. In 1867, the Policies of Assurance Act,2. permitted the assignment of a life policy and the transferee was
enabled to file an action in his own name if he had complied with the provisions of the Act and had obtained an
assignment in writing. The Act also provided that notice should be given to the insurer. Before this enactment, the
life policies and claims under the other policies were governed by common law. At common law the contract
contained in the policy, being a purely personal contract, does not run with the subject matter of insurance, and any
such transferee being a third party was not entitled to enforce the contract for want of privity. The assignment of the
claims under the policies was treated as an assignment of a chose in action and equity courts permitted their
assignment. But with the passing of the Judicature Act, 1873,3. the assignment of a chose in action was recognised
also by law provided it is made in writing and the assignment is absolute. Section 136 of the Law of Property Act,
1925,4. now replaces this general provision and covers absolute assignments in writing of things in action. It may be
noted that unless the policy has been assigned, a transferee of the subject matter, by that reason alone cannot
claim any rights under the policy. For a valid assignment of the policy it must be made contemporaneously with the
transfer of the subject matter, and the consent of the insurer is also necessary if it is so prescribed in the policy. The
policy may contain an express prohibition against its alienation without notice to the insurers and without obtaining
their consent. Such a condition, of course, is not necessary in a fire policy, as in those policies what is said is that
they will indemnify the assured personally from any loss caused by the event insured against. If loss is caused by
fire, the assured will be indemnified. So it is a personal contract and it is not assignable at common law or at equity5.
without the consent of the insurers.
By statute, a marine insurance policy is made assignable unless there is an express prohibition and the assignee is
entitled to sue in his own name.6. Thus by statutory recognition, marine and life policies are made assignable
without the consent of the insurers. In cases where the consent is necessary, e.g., in fire policies or in other policies
by express terms, any assignment made without such consent will not render the policy altogether void but merely
voidable at the instance of the insurers. This consent may be express or implied, unless otherwise stated.
With regard to the time of assignment, it should be done either at the same time as the assignment of the subject
matter7. or in pursuance of a contemporaneous agreement.8. By section 51 of the Marine Insurance Act, 1906 the
assured must enter into an agreement to assign before parting with the interest in the subject matter or at the time
of parting with it. If the subject matter has been transferred without such agreement to assign the policy the
assignment is rendered inoperative. Further, it is provided that the assignment may be made even after the loss of
the property. These rules and restrictions do not apply to assignments by operation of law, because the interest in
the policy devolves on the personal representatives on the death or bankruptcy of the assured as being part of his
estate and not merely because of its connection with the subject matter.9.
As in England, in India also in the beginning the claim under policy is regarded as property by treating it as an
Page 2 of 2
actionable claim as defined under the Transfer of Property Act. Section 3 of the Transfer of Property Act defines an
actionable claim as a claim to any debt, other than a debt secured by a mortgage of immovable property or by
hypothecation or pledge of movable property or to any beneficial interest in movable property not in possession,
either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether
such debt or beneficial interest be existent, accruing, conditional or contingent. Therefore the rules relating to a
transfer of an actionable claim was held to apply to assignments of policies. But later special statutes have laid
down specific rules for their assignment. The assignment of life policies is now governed by section 38 of the
Insurance Act of 1938 and that of marine policies by sections 52–53 of Marine Insurance Act, 1963.10.
1. Hood's Trustees v Southern Union General Ins Co of Australasia, [1928] Ch 793, 808.
2. 30 and 31 Vict E 144.
3. 36 and 37 of Vict C 60.
4. 15 Geo VC 20.
5. Lynch v Dalzell, (1729) 4 Bro Parl Cas 431; Sadler’s Co v Badcock, (1743) 2 AK 554.
6. Marine Insurance Act, 1906, section 50 (1).
7. Gill v Yorkshire Insurance Co, [1913] 24 WLR 389.
8. North of England Oil Cake Co v Archangel Insurance Co, (1875) LR 10 QB 249.
9. Colonial Bank v Whinney, [1856] 11 AC 426.
10. DM Mudaliar v II and B Corp, AIR 1957 Mad 115.
End of Document
9.2 Assignment of Life Policies

Till 1938, the general rules relating to assignment of actionable claims governed the assignment of life policies.
Section 130 of the Transfer of Property Act which is now repealed provided that the transfer of an actionable claim,
with or without consideration is effected by the execution of an instrument in writing signed by the transferor or his
duly authorised agent and the same becomes complete and effectual upon the execution of the instrument of
transfer and all the rights and remedies of the transfer or vest in the transferee whether any notice of such transfer
is given or not except in the case of transfers of marine and fire policies. Therefore, under the Transfer of Property
Act, before 1938, for an assignment of a claim under a life policy to be valid it must be effected only by an
instrument in writing and signed by the assignor or his authorised agent. In Mulraj Khataw v Vishwanath Prabhuram
Vaidya, where the policy was deposited with his creditor to create a charge without a written instrument it was held
by the Privy Council that such a charge can be created only by a written instrument and that in view of the absence
of such an instrument no charge is created and the respondent does not acquire any right whatsoever in the policy
or its proceeds by reason of its deposit.11. In Sankar Viswanath v Umabai, it has been held that the assured could
divest himself of his beneficial interest under the policy only by an assignment in writing as provided by section 130
of the Transfer of Property Act.12. But then after the passing of the Insurance Act, 1938 the assignment of life
policies is governed by its section 38 and not by section 130 of the Transfer of Property Act.13. This section came
into force on 1 July 1939 and is prospective in operation and by its sub-section 6, it expressly saves the validity of
the prior assignments. Sub-section 6 of section 38 of the Insurance Act, 1938 states that the rights and remedies of
an assignee of a policy of life insurance under an assignment or transfer effected prior to the commencement of this
Act shall not be affected by the provision of this section. This section is largely based on the provisions in the
English Act, the Policies of Assurance Act, 1867, and being elaborate presents a complete code on assignment and
transfer of life insurance policies.
Sub-section 1 of section 38 provides that a transfer or assignment of a policy of life insurance, whether with or
without consideration may be made only by an endorsement on the policy itself or by a separate instrument, signed
in either case by the transferor or by the assignor or his duly authorised agent and attested by at least one witness,
specifically setting forth the fact of transfer or assignment. From this it follows that every assignment must satisfy
the following requirements, namely:
(i) It should be in writing. This writing may be either (a) as an endorsement on the policy itself, or (b) by a
separate document.
(ii) In either case it must be signed by the assignor, transferor or his duly authorised agent.
(iii) It must be attested at least by one witness, and
(iv) Lastly, it must specifically set forth the fact of transfer or assignment.
No particular words or form need be used nor prescribed. It may be made with or without consideration and even a
gift of a policy of life insurance can be made only under this section and not as provided in section 123 of the
Transfer of Property Act by delivery of possession of the policy to the donee.
Page 2 of 5
The assignment must be attested at least by one witness. Attestation means something more than merely
witnessing a document. Under section 3 of the Transfer of Property Act, attested means and is always deemed to
have been meant, attested by two or more witnesses each of whom has seen the executant sign or affix his mark to
the instrument, or has received a personal acknowledgement from the executant of his signature or mark and each
of whom has signed the instrument in the presence of the executant. For an assignment of life policy, one attestor is
sufficient, but it should be attested. Thus, an assignment is a document required by law to be attested and under
section 68 of the Indian Evidence Act, if the executant does not admit the execution of such a document, it cannot
be admitted in evidence until one attesting witness has been called for proving its execution, if there be an attesting
witness alive, subject to the process of the court and capable of giving evidence. If the attesting witness dies or
becomes incapable of giving evidence or is not subject to the process of court or does not recollect the execution,
then only the execution may be proved by other evidence as laid down in section 71 of the Indian Evidence Act.
A claim under policy is treated as property of the assured and it is likened to an actionable claim. As noted above,
the assignment may be made either for or for no consideration. When it is for consideration it may be by way of sale
or mortgage. When it is for no consideration it may be a gift or a legacy or even a donatio mortis causa. In the case
of sales, gift or mortgage of a policy, all of them being primarily contracts, can they be avoided on the grounds on
which a contract can be avoided. Where the consent for the transaction is obtained by coercion, undue influence,
fraud, mis-representation or mutual mistake of fact essential to the contract, the transaction can be avoided. For the
same reason, where the transaction is for an illegal object or consideration, the transaction becomes void under
section 23 of the Indian Contract Act. The object of the contract or consideration is said to be unlawful when:
(i) it is forbidden by law; or

(ii) if allowed it would defeat the provisions of law; or
(ii) where it is fraudulent; or
(iv) where it involves an injury to the person or property of another or
(v) where it is immoral or opposed to the public policy and is void.
So, also every agreement in restraint of the marriage of the person, other than a minor is considered as opposed to
public policy and is void.14. When such a condition is added in an assignment as a condition subsequent, when the
condition subsequent is void, the transfer is valid but the condition only will not be enforceable. In such a case, the
donee takes the gift without the condition and the condition in restraint of marriage will not be enforced.15. Again,
wagering contracts are held void under section 30 of the Indian Contract Act. The words “public policy” and
“immoral” used in clause 5 of section 23 of the Indian Contract Act are words of very wide comprehension, but
judicial decisions gave these expressions a more concrete meaning. “Public Policy” has been declared to be a
dangerous and difficult horse to ride as it is admitted that the list of objects under this title is not a closed one but
judges, both in England and India, breathed into it a certain amount of concreteness by holding that the list shall not
be lightly extended. The present judicial tendency both in England and in India is not to invent new heads of public
policy.
In Gherrulal Parekh v Mahadev Das, AIR 1959 SC 781 the Supreme Court held that the principles governing public
policy have been crystallised under different heads. Though it is permissible and possible to expand and apply them
to different situations it should be done only in clear and obvious cases. Though the heads of public policy are not
closed it is the policy of the courts in the interest of stability not to discover new heads of public policy. The court
also held that though the word immoral is a very comprehensive word containing every aspect of personal conduct
deviating from standard norms of life, judicial decisions in England have restricted the operation of the doctrine to
cases of sexual immorality. While in India though judges followed English decisions in the interpretation of the word
“immoral”, illustration to section 23 makes it clear that immorality contemplated by the Act is not merely sexual
immorality.
Sub-section 7 of section 38 provides that notwithstanding any law or custom to the contrary, an assignment in
favour of a person made with the condition that it shall be inoperative or that the interest shall pass to some other
person on the happening of a specified event during the lifetime of the person whose life is insured and an
assignment in favour of the survivor or survivors of a number of persons shall be valid. This sub-section gives three
specific instances of conditional assignments which will be valid notwithstanding the condition being in
contravention of any law or custom to the contrary. For example, under the personal law of the Mohammedans
where there is a conditional gift although the gift is valid the condition is void; the gift takes effect without the
condition. The clause says that notwithstanding any such law the assignment is valid in toto and takes full effect.
Page 3 of 5
The consequence is that decisions like Re Khyrunnissa would no longer be good law; in that case a Mohammedan
assigned his policy out of natural love and affection to his wife in 1928 with a condition that the benefit of the policy
should revert to him if she predeceases him. It is a conditional gift. She died in 1943 during his lifetime. Still
applying the principle of Mohammedan law that in a conditional gift, the gift or hiba is valid but the condition is void,
it was held that the benefit of the policy did not revert to him but would go to the heirs of his wife.16. Had the
assignment been made subsequent to this section, by the effect of the non obstante clause, the decision would
have been otherwise. The benefits of the policy would have reverted to the assignor. The three types of conditional
assignments declared valid under this sub-section are:
(i) the assignment shall become inoperative if a specified event happens during the lifetime of the insured, eg,
it shall be inoperative if the insured survived the date of maturity of the policy;
(ii) the assignee’s interest shall pass on to some other person if a specified event happens during the lifetime
of the insured; eg, an assignment made in favour of A shall pass to B, if A does not survive the insured;
(iii) an assignment in favour of the survivor or survivors of the assignees, eg, assignment in favour of A, B and
C and if one or some die to the survivor or survivors; these are all conditions subsequent.
The effect of such assignments is to vest the interest in the assignee defeasible on the happening of the specified
events. The consequence is the assignee can further assign his interest.17. Even prior to the enactment of this sub-
section such conditional assignments were valid under the general law.18.
The condition in all these cases should happen during the currency of the policy, that is, during the life-time of the
assured or before maturity of the policy whichever is earlier. The claim under a policy being likened to an actionable
claim cannot be assigned in part and the policy is not divisible for the purpose of legal assignment. If it is partly
assigned it may be good assignment under English equitable principles. In Restill Wing Co, it was held that a partial
assignment was not within the statute but the assignee would be a creditor of the debtor in equity.19. The principle in
this case has been followed in India in Rajamier v Subrahmaniam, AIR 1928 Mad 121.
The next point relates to the necessity of the notice of assignment for the completion of the assignment. Sub-
section 2 of section 38 says that the transfer or assignment shall be complete and effectual upon the execution of
an endorsement on the policy or a separate instrument duly attested. Though the transaction is complete and
effectual between the assignor and the assignee it will not be operative as against an insurer, except when the
assignment is in favour of the insurer, and it does not confer upon the transferee or assignee, or his legal
representative, any right to sue for the amount of such policy or the moneys secured thereby until a notice in writing
of the transfer or assignment has been given to the insurer. The sub-section further prescribes that such notice
should be accompanied by the instrument or endorsement assigning the policy or copies thereof certified to be
correct by both the parties or their duly authorised agents. The insured, by taking loan from the bank, purchased
mechanised fishing boat and hypothecated the boat to the bank. The borrower also insured the boat as a security to
the said loan. When the boat was destroyed, the bank sued the insurance company for the policy amount and it
was held that there was no privity of contract and the bank was not entitled to sue the insurance company.20.
Sub-section 3 of section 38 provides that the date on which the notice referred to in sub-section 2 is delivered to the
insurer shall regulate the priority of all claims under a transfer or assignment as between persons interested in the
policy; where there is more than one instrument of transfer or assignment the priority of claims under such
instrument shall be governed by the order in which the said notices are delivered. From this it is clear that notice of
assignment should be given to the insurer for two purposes, namely:
(i) to bind the insurer to the assignee, that is to enable him to sue in his own name; and
(ii) to save his own priorities.
This is a statutory recognition of the rule in Dearle v Hall, (1878) 2 Russ 1. The priority amongst the various bona
fide assignees is to be decided not according to the dates of the execution of the instruments or endorsements of
assignment but according to the dates of notices. Where the insurer has only one place of business in India there is
no difficulty as the notice is to be given at that place. But where the insurer maintains more than one place of
business in India, the proviso to sub-section 2 of section 38 provides that such a notice shall be delivered only at
the place in India mentioned in the policy for this purpose or at his principal place of business in India. The insurer
receiving the notice, shall record the fact of such transfer or assignment and in so recording he shall mention; (a)
the date on which he received the notice, and (b) the name of the transferee or assignee; further he is enjoined to
grant a written acknowledgement of the receipt of such notice if there is a request by the person by whom the notice
Page 4 of 5
is given or by the transferee or assignee on payment of a fee not exceeding one rupee.21. It is further provided that
such an acknowledgement shall be conclusive evidence against the insurer that he has duly received the notice to
which such acknowledgement relates. When once the formalities prescribed by this section for assignment are
gone through subject to the terms and conditions of the transfer, the insurer shall recognise the assignee as the
only person entitled to the claim under the policy. The assignee steps into the shoes of the assignor, in the sense
that he would not only be entitled to all the rights of the assignor at the time of transfer, but also be liable to the
same duties towards the insurer. The insurer is entitled to all the equities which would have been available to him
against the assignor and the maxim nemo dat quod non habet legime applies.
This has been clearly stated in Mithoolal v Life Insurance Corporation of India, AIR 1962 SC 814, by the Supreme
Court. In that case the insured submitted a proposal in December 1942 for the insurance of his life with an
insurance company for a sum of Rs 10,000 but the proposal lapsed on the expiry of six months for want of
completion of the medical examination. Again on 16 July 1944, he made a second proposal for Rs 25,000 for such
insurance. On 13 March 1945, the policy was issued to him by the said company on the usual terms, one of which
was that in case it would appear that any untrue or incorrect statement had been made in the proposal form or
personal statement, the policy would be void. After a short time the policy lapsed for non-payment of premium for
1945 and on 28 October the insured made a request for revival of the policy and in the meanwhile on 18 October
1945, the policy was assigned in favour of the plaintiff by an endorsement made on the policy itself. The assignment
was duly registered by the company by its letter dated 1 November 1945. On receipt of this revival fee, the policy
had been revived sometime in July 1946. The insured-assignor died in November 1946. Thereafter, the assignee
made a demand against the insurance company for a sum of Rs 26,000 on the basis of the life insurance policy
which has been assigned to him. The claim or demand of the assignee was repudiated by the company by a letter
dated 10 October 1947, on the ground that the insured-assignor was guilty of deliberate misrepresentation and
fraudulent suppression of material information in answer to the questions in the proposal form and personal
statement, which formed the basis of the contract in the policy. On the repudiation of the claim, the assignee
brought the suit which was decreed by the trial court and on appeal the suit was dismissed with costs by the High
Court, upon a finding that the original policy-holder was guilty of a fraudulent suppression of material facts relating
to his health and hence the defendant company was entitled to void the contract on that ground. In appeal before
the Supreme Court it was contended on behalf of the appellant assignee, that section 38 of the Insurance Act
provided a complete code for assignment and transfer of insurance policies and the assignment in favour of the
appellant by the original policy-holder was a valid assignment in accordance with the provisions of section 38
aforesaid. Repealing the said contention the Supreme Court held that if the assignor was guilty of a fraudulent
suppression of material facts on which the company was discharged from performing its part of the contract, the
assignee who holds the assignment of the policy cannot stand on a better footing than this assignor himself and
hence the appellant is clearly out of court and cannot claim the benefit to the contract which had been entered into
as a result of fraudulent suppression of material facts by the insured.
From this it is clear that an assignee stands in no better position than the transferor and he would be subject to the
same defences to which the assignor would have been liable. The mere fact of registration of the assignment by the
insurer does not estop him from denying the validity of the policy if he comes to know that the validity of the contract
under the policy is impeachable for reasons not known to him by the date of the assignment. Sub-clause 5 of
section 38 expressly states that the assignee is the person entitled to benefit under the policy and that he shall be
subject to all liabilities and equities to which the transferor or assignor was subject at the date of the transfer or
assignment. In this connection a doubt may arise in cases where the loss was caused by the assured’s own
wrongdoing. There is no doubt and it is understandable on the grounds of public policy that a life assured could not
recover moneys under his policy when the death was caused by his own wrongdoing, that is, when he commits
suicide. But the question arises whether the assignee also could be denied the benefit of the policy when the
assured commits suicide. Much can be said on both sides. When the assignor himself could not claim and when the
assured is debarred from recovering the amount under the policy by his own wrongdoing, any person claiming
through him or under any derivative title whatsoever should equally be debarred. On the other hand, there is also
the view, that a bona fide assignee for value shall not be subjected to this disability. In Moore v Woolsey Lord
Campbell C J observed:
Where we are called to nullify a contract on the grounds of public policy we must take care that we do not lay down a rule
which may interfere with the innocent and useful transactions of mankind...That the condition (in favour of a bona fide
assignee for valuable consideration) may promote evil by leading to suicide is a very remote and improbable contingency,
and it may frequently be very beneficial by rendering a life policy a safe security in the hands of the assignee.22.
Page 5 of 5
Further, it may be noted that section 38 makes a conditional or contingent assignment valid and it also expressly
provides that its operation is only prospective and not retrospective.
The Insurance Laws (Amendment) Act, 2015 has amended section 38 of the Insurance Act, 1938. The amended
section allows partial assignment of the policy which means “assigning a part of the interest in a life insurance
policy.” This partial assignment comes with the restriction that the holder of this partial assignment “won’t be entitled
to further assign or transfer the residual amount payable under the same policy. Prior to the amendment this section
allowed only the policy in Toto.
11. (1912) 37 Bom 198 : 40 IA 24 (PC).

12. 37 Bom 471.
13. DM Mudaliar v II and B Corp, AIR 1957 Mad 115, 120.
15. Re Willing Settlement, [1905] 1 Ch 96.
16. AIR 1955 Mad 459.
17. Bai Lakshmi v Jaswantlal Tribhuvandas, AIR 1947 Bom 369; Lakshmi Kutty v Nambisan, AIR 1939 Mad 411.
18. Somasekhar Rao v Mishra, AIR 1944 Nag 185.
19. [1921] 1 Ch 349.
20. New India Assurance Co Ltd v Lakka Vijaya Gopala Reddy, AIR 2003 AP 465 : 2003 (5) ALD 8 : 2003 (5) ALT 735
(DB).
21. Section 38, sub-section 4, The Insurance Act, 1938.
22. (1854) 4 E1 and B1 203.
End of Document
9.3 Assignment of Fire Policies

The assignment of fire and marine policies was first given statutory recognition under the Policies of Insurance
(Marine and Fire) Act23. and this was repealed and replaced with certain alterations in the Transfer of Property
Act,24. and again this was amended by section 3 of the Transfer of Property (Amendment) Act.25. Section 135 of the
Transfer of Property Act26. reads:
Every assignee, by endorsement or other writing, of a policy of insurance against fire, in whom the property in the subject
insured shall be absolutely vested at the date of assignment, shall have transferred and vested in him all rights of suit as if
the contract contained in the policy had been made with himself.
This section states that in order that an assignee of a policy of fire insurance may claim under the policy he has to
prove two conditions, (a) that there is a valid assignment of transfer of the policy in his favour, and (b) that the
property in the subject insured has been vested in him at the date of assignment. Both the conditions must be
proved. If he merely got the assignment of the policy, without any interest in the subject matter or merely got the
subject matter in the policy transferred to him, he would not get any claims under the policy. In such cases
curiously, for the loss after an assignment of the policy without the transfer of subject matter or transfer of subject
matter without assignment of the policy, contracts of insurance being contracts of indemnity, even though there is
damage by fire neither the assignor nor the assignee can claim from the insurance company.
Where property is transferred to a person and along with that the policy is also assigned to the transferee by
assignment or endorsement such a transferee shall have vested in him all rights of suit as if the contract contained
in the policy had been entered into with him; in other words, he will be clothed with all the claims which the assignor
had at the date of assignment. This is an adaptation of the rule in English law that the benefit of fire insurance policy
does not run with the land unless there is an express contract. The purchaser by mere fact of purchase does not
acquire any right in the insurance policy. If the property has been transferred the buyer cannot get the benefit of the
policy because he has not paid for it. In Rayner v Preston, (1881) 18 Ch D 1, a leading case on the point, a house
was insured by the vendor. After the date of contract of sale but before the completion of the sale the house was
burnt down. The vendor received the insurance amount. The purchaser filed a suit against the vendor to recover the
insurance amount. It was held by the majority of the judges that a fire insurance policy does not run with the land
and therefore the purchaser cannot recover from the vendor, the insurance amount, and if the vendor had received
the full consideration from the purchaser, the insurance company can compel him to refund the amount on the
principle of indemnity. James LJ dissenting from the majority held that a fire insurance policy runs with the land and
annures to the benefit of the purchaser. He pointed out that the relationship between the vendor and the purchaser
is truly that of the trustee and a beneficiary and therefore the vendor has to keep the insurance amount as a trustee
for the purchaser and this is a universal rule of equity. Section 47 of the Law of Property Act, 1925 gives statutory
recognition to the above dissenting opinion of James LJ and according to that section, in English law, the vendor is
liable to pay the insurance amount to the purchaser, if the loss occurs after the contract of sale.
Page 2 of 3
In India section 54 of the Transfer of Property Act, 1882 lays down that a contract of sale by itself does not create
any interest or charge with reference to the property and in this sense it makes a departure from English law
according to which on a contract of sale, the purchaser acquires an equitable estate. Indian law knows nothing of
equitable estates. Therefore an express provision is made in Indian law in section 49 of the Transfer of Property Act
which reads:
Where immovable property is transferred for consideration, and such property or any part thereof is at the date of the
transfer insured against loss or damage by fire, the transferee, in case of such loss or damage may, in the absence of a
contract to the contrary, require any money which the transferor actually received under the policy, or so much thereof as
may be necessary, to be applied in reinstating the property.
This section is a blending of the reasons of the decisions in Garden v Ingaani and the dissenting judgment of James
LJ in Rayner v Preston. Section 49 comes into play only when there is no contract to the contrary. Where there is
an absolute transfer of property and if the policy also is assigned the transferee alone can claim under the policy;
where there is no assignment of the policy neither can claim under the policy as noted earlier. Where there is a
transfer for no consideration without assignment of policy, and where the transferor still has interest in the property,
the transferor alone can claim the benefit under the policy. For example, where the transfer is made by way of
mortgage or lease, the transferor still has interest in the property and in such transfers, when the claims under the
policy are not assigned, or where the transfer is still an agreement to sell, the transferor alone can claim under the
policy and in such a case the transferee is given the right to compel the transferor who receives money from the
insurer under a fire policy in force at the time of transfer, to utilise it for reinstatement. This claim for reinstatement
arises only when there is a policy in force at the time of the transfer and the transferor actually receives moneys for
the loss by fire from the insurer. Even in such cases where the transferor does not actually receive the money27. or
where money is received under a policy effected after the date of the transfer, or where the transfer is gratuitous, or
where there is contract to the contrary, the transferee would be without any remedy and this section does not apply.
The position has been neatly summarised thus:
If the assignment of property insured against fire, be total, the assignor cannot recover on the policy for himself as his
interest in the property will have ceased but if the assignment be partial, he can recover for his own benefit only to the
extent of his remaining interest. The assignee of property insured against fire can recover nothing under the policy effected
by the assignor unless (i) it was part of the contract between the assignor and the assignee that the latter should have the
benefit of the policy as between assignor and himself, and (ii) the office consented to hold the assignee assured either by
the terms of the policy, or on notice of the intention to assign before the transfer of the policy. If the policy expresses that
consent of the office shall be given in any particular form, that form must be complied with.28.
In such cases where the assignee has no claims under the policy, in the absence of a contract to the contrary,
section 49 of the Transfer of Property Act comes into play. The Insured had taken the insurance policies from the
insurance company and subsequently assigned the same policies in favour of Canara Bank. On the happening of
the peril insured, when the insurance company refused to pay the policy amount the insured approached the
National Commission. The bank contended that once the order is given in favour of the insured, the bank is entitled
to claim the policy amount from the insurance company directly. When National Commission rejected its claim, on
appeal, the Supreme Court held that the National Commission was not right in rejecting the Bank’s claim and
observed that again the Bank need not file a fresh suit against the insurance company to obtain a decree in its
favour. In the light of the statutory provisions in the insurance Act and the Transfer of Property Act, the Bank is
entitled to the amount directly from the Insurance Company.29.
23. Act 5 of 1866.

24. Act 2 of 1900.
25. Act 6 of 1944.
26. Act 4 of 1882.
Page 3 of 3
27. PV Chetty Finn v Motor Insurance Co, AIR 1923 Rang 6.

28. Preston and Colinvaux, Law of Insurance, second edn, pp 163–164.
29. Krishna Food & Baking Industry (P) Ltd v New India Assurance Co Ltd, (2008) 15 SCC 631 : AIR 2009 SC 1000.
End of Document
9.4 Assignment of Marine Policy

As in fire policies, the assignment of marine policies was first statutorily governed by section 15 of the Policies of
Insurance (Marine and Fire) Assignment Act, 186630. and this was re-enacted with certain modifications as section
135 under the Transfer of Property Act, 1882, amended by its Amendment Act 2 of 1900. This section was again
repealed and replaced by section 3 of the Transfer of Property (Amendment) Act, 194431. omitting the portion
relating to the assignment of marine policies and inserting separate sections, sections 130A and 135A, dealing with
the assignment of marine policies. While making this amendment, the reasons are stated thus:
The rules and principles governing marine insurance policies being materially different from those governing a fire
insurance policy, it is very unsatisfactory to accord the same treatment in the matter of assignment to both categories of
policies.32.
These two sections of the Transfer of Property Act, sections 130A and 135A which are largely based on section 50
of the Marine Insurance Act of England, have now been repealed,33. and have been replaced by sections 52 and 53
of the Marine Insurance Act, 1963. The Act states:
(i) A marine policy may be transferred by assignment unless it contains terms expressly prohibiting assignment. It
may be assigned either before or after loss.
(ii) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the
policy is entitled to sue thereon in his own name; and the defendant is entitled to make any defence arising out of
the contract which he would have been entitled to make if the suit had been brought in the name of the person by
or on behalf of whom the policy was effected.
(iii) A marine policy may be assigned by endorsement thereon or in any other customary manner.34.
Section 53 of the Act further provides as follows:
Where the assured has parted with or lost his interest in the subject matter insured, and has not, before or at the time of so
doing expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative:
Provided that nothing in this section affects the assignment of a policy after loss.35.
Thus, sections 52 and 53 of the Marine Insurance Act, 1963 now present the complete law, both substantive and
procedural, of assignment or transfer of marine insurance policies. Thus, unless by express terms in the policy, an
assignment is prohibited, a marine policy can always be assigned under law and such assignment can be made
either by endorsement on the policy or in any other customary manner. Such an assignment may be made before
or after loss. When it is made after loss, it would amount to a transfer of a mere right to sue which is prohibited by
Page 2 of 3
section 6(e) of the Transfer of Property Act, 1882. In England, assignability of marine policies is placed beyond
doubt by section 50 of the Marine Insurance Act, 1906. Here also, for such transfers statutory recognition is given
by section 90 of the Marine Insurance Act, 1963 and sections 52 and 53 are placed beyond the scope of section
6(e) of the Transfer of Property Act. The Marine Insurance Act, states that nothing in clause (e) of section 6 of the
Transfer of Property Act, 1882, shall affect the provisions of sections 17, 52, 53 and 79.36.
An assignment of a marine policy is inoperative in law where such assignment is made after the insured has parted
with or lost his interest in the subject matter insured and there was neither any express nor implied agreement to
assign the policy either before or at the time when the insured so parted with or lost his interest in the said subject
matter. Where a marine policy is validly assigned in accordance with the aforesaid provisions, the assignee is
subrogated to the position of the assured and he would be entitled to sue in his own name as if the contract in the
policy has been entered into with him. But he would take the claims under the policy subject to the same equities to
which his assignor was subject at the date of the assignment and the insurer is entitled to defend the suit and can
take the same plea or pleas which he could have taken had the suit been brought by the assured or by any person
on whose behalf the policy was affected.
9.4.1 Assignment of Fire and Marine Policies Compared
Both being property insurances, there are some points of similarity and at the same time, some points of difference.
The points of similarity are:
(i) In both, the transfer of property by itself does not amount to a transfer or assignment of the policy. The
policy must be assigned by an endorsement or some other instrument or in any other customary manner.
Without an independent and separate assignment of the policy, the transfer of property insured itself does
not ipso facto operate as a transfer of the property.
(ii) The assignment of the policy must be made at the time of the transfer of property.
(iii) Again in both if the insured parts with interest in the property without assigning the policy and if loss occurs
afterwards neither the transferor nor the transferee can recover under the policy. The reason is obvious;
the transferor has no loss to be indemnified as he has parted with the property and indemnity is the
controlling principle of all property insurance and the transferee cannot recover as he is a third party to the
contract in the policy and no assignment of the policy is made.
But at the same time there are some points of difference in the assignment of fire and marine policies. They may be
noted thus:
(i) A fire policy cannot be assigned without the consent of the insurer. On the other hand, a marine policy can
be assigned without such assent except when such assignment is expressly prohibited by the terms of the
contract in the policy.
(ii) A more important point of difference is that a fire policy can be assigned only before the loss of the
property, while an assignment of marine policy may be made before or after the loss. But in this respect, it
may be noted that where the assured parts with the whole of his interest in the insured property, before the
loss without assigning the policy of insurance and the policy becomes inoperative in both; but in the case of
marine policy, even if there is an agreement to assign it or hold it for the benefit of the assignee, at the time
of the transfer of property, the assignee can maintain an action in the name of the assured; and this could
be done even if the assured had become a bankrupt after the assignment. When once the property is lost,
the fire insurance policy becomes unassignable while the marine policy can be assigned as it is expressly
recognised by the statute.37.
30. Act 5 of 1866.

31. Act 6 of 1944.
32. See statement of Objects and Reasons in Bill No 9 of 1944.
33. See section 92 of Marine Insurance Act, 1963.
34. Marine Insurance Act, 1963, section 52.
Page 3 of 3
35. Ibid, section 53.

37. Marine Insurance Act, 1963, section 52 (1).
End of Document
10.1 Meaning of Warranty
CHAPTER 10 WARRANTIES AND DISCLOSURES

The term “warranty” is used in the law of insurance in a different sense from that in which it is used in other
branches of law, like sale of goods. Warranty here may be defined as a stipulation or engagement by a party
insured that certain matters relating to the subject matter affecting risk exist or shall exist or have been done or shall
be done. In Thompson v Weems, Lord Blackburn observed that in all policies of marine insurance any statement of
fact bearing upon the risk introduced into the policy is construed as a warranty and compliance with that warranty is
a condition precedent to the attaching of the risk.1. The Marine Insurance Act, 1963 defines a warranty as:
A promissory warranty that is to say, a warranty by which the assured undertakes that some particular thing shall or shall
not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state
of facts.2.
Thus, according to this definition a warranty comes into existence in one of the following ways, namely:
(i) where the assured undertakes that some particular thing shall or shall not be done; or
(ii) where he undertakes that some condition shall be fulfilled; or
(iii) where he affirms or negatives the existence of a particular state of facts.
The definition given and the analysis may be taken to be of general application except that in the case of life
insurance undertakings as to the future are not usually given.
A contract of insurance is a special contract and hence it should also satisfy all the essentials of a valid contract and
the general principles of contract law generally apply. In the process of formation of any contract many
representations are made by parties before an agreement is reached and a contract is formed. These
representations or stipulations are of two kinds, namely, (a) those which form merely the inducing causes to the
other party to give his consent to the contract and (b) those which form part of the terms of the contract. The first
type of representations if they turn out to be false they become misrepresentations, innocent or willful under
sections 17 and 18 of the Contract Act and they vitiate the consent and the contract becomes voidable. The second
type of representations under the Sale of Goods Act are called conditions or warranties. Section 12 of that Act
defines a condition as a stipulation essential to the main purpose of the contract, the breach of which gives rise to a
right to avoid the contract. It goes to the root of the contract. On the other hand, a warranty has been defined as a
stipulation collateral to the main purpose of the contract, the breach of which gives rise only to a claim for damages
but not to avoid the contract altogether. A condition may be treated as a warranty but not vice versa, that is, the
party entitled to avoid the contract by a breach of condition may not avoid the contract but may elect to be satisfied
with the lesser remedy of damages.3. The term warranty is used in the law of insurance without using the word
condition. The warranty is a contract of insurance and may be express or implied. A warranty as defined is a
condition which must be exactly and strictly complied with whether it is material to the risk or not. If it is not complied
with, subject to the terms of the contract, the insurer is discharged from liability from the date of breach of warranty
Page 2 of 2
but without prejudice to the rights of the insured before that date. The same rules are laid down in the Marine
Insurance Act, 1906, in England.4.
In the law of insurance the term warranty is used to denote (a) a condition or a condition precedent for the liability of
the insurance company; or (b) as an exception from liability of the insurance company or (c) as a limitation on the
general words used in the policy. In this sense, it may be said the word “warranty” in the law of insurance is used as
a “condition” as used in the Sale of Goods Act but at the same time it is slightly wider in scope. Lord Wright in
Provincial Ins v Morgan, observed that in policies of insurance the term warranty has been used interchangeably
with condition.5. In relation to contracts of insurance the two words are often used indifferently.6. In Lakshmi
Insurance Co v Bibi Padmavathi, it has been held that the warranty is a statement or representation forming the
basis of the contract, on the truth or falsity of which the validity of the entire contract depends.7.
1. [1884] 9 AC 671 (HL).

2. Marine Insurance Act, 1963, section 35(1).
3. Sale of Goods Act, 1930, section 13.
4. Section 33.
5. [1933] AC 240, 253.
6. Bellinger v Mutual Life, [1905] 1 KB 31; Palatine v Gregory, [1920] AC 90 , 93.
7. AIR 1961 Punj 253.
End of Document
10.2 Form of Warranty
10.2 Form of Warranty

A warranty is generally in writing and is usually inserted in the policy. It may be inserted at any place in the margin
or footnote or even on the back of the policy; but if it is written on the back of the policy, the fact should be referred
to on the face of the policy. It may be made in another document which may be incorporated in the policy by
specific reference in the policy. Neither any particular form nor any technical words are necessary so long as the
intention to stipulate a warranty is clear. Even an answer in a proposal form, whether incorporated in the policy or
not will have the effect of a warranty if it is clear, either from the terms of the form or otherwise, that it was the basis
on which the parties contracted.8. In marine insurance, warranties may be implied but in other types of insurance
warranties are expressly provided.
8. Condogianis v Guardian, [1921] 2 AC 125; Ravipati Tirupathane v LIC Masulipatam, 1977 ANWR 299.
End of Document
10.3 Difference Between a Warranty and a Representation

The following points of difference between the two may be noted:
(i) A representation need not be inserted in the policy and it may be made orally or in writing while a warranty
should form part of the written contract in the policy and so it must always be in writing.
(ii) A substantial compliance with a stipulation would be sufficient while in the case of a warranty it must be
strictly complied with. A warranted statement must be proved to have been exactly correct or it must be
literally fulfilled. Sub-section (1) of section 35 of the Marine Insurance Act, 1906 says that a warranty must
be complied with exactly.
(iii) The representation must be an inducing cause to enter into a contract and so it precedes the formation of
the contract while a warranty comes into existence only on the completion of the contract and never before.
(iv) If a representation becomes false it becomes a misrepresentation, wilful or innocent, as defined in sections
17 and 18 of the Indian Contract Act and under section 19 of that Act the contract becomes voidable and
the insurer can avoid the contract on certain equities like return of the benefit like premium etc. On the
other hand if a warranty is breached it discharges the insurer absolutely without giving rise to any equity in
favour of the assured in regard to the return of the premiums, except where the breach of warranty makes
the contract wholly void but not merely voidable.
(v) A representation should be complied with only when it is material while in the case of a warranty, whether it
is material or not, it should be complied with. For example, in Re Bradley and Essex Accident Indemnity
Society, a term in an “employer’s liability policy” that the assured should keep a proper wage book was
held to be merely a collateral agreement relating to the adjustment of premium, the breach of which would
not discharge the insurers from liability.9. The Marine Insurance Act, 1963 provides that a breach of
warranty entitles the insurer to repudiate his liability irrespective of the fact whether it is material or not.10.
As we have noted earlier, a representation may be oral or written while a warranty should be in writing and should
form part of the terms of the contract. It often becomes difficult to distinguish between a written stipulation and a
warranty. All the written stipulations in a contract therefore may be divided into two kinds depending upon the
nature of the stipulation or representation and the intention of the parties either expressed or to be gathered from
the policy. In Benham v United Guarantee and Life Assurance Co, a secretary of an institution took out an
insurance policy for his integrity. A statement was made that the accounts will be checked every fortnight by a
committee. It was held that it was not a warranty but only a representation, or the expression of opinion or
intention.11. In Farr v Motor Traders Mutual Insurance Co, two taxis were insured and a statement was made that
each taxi would be used for one shift. Actually they were used for two shifts. Still it was held that the statement was
not a warranty but a description of the risk.12. In Provincial Insurance Co v Morgan, a truck was insured and a
statement was made that would be used to carry coal. While carrying the coal, the lorry met with an accident. On a
claim by the insured, the insurer contended and proved that it was used during the currency of the policy for
carrying timber on certain occasions and hence there was a breach of warranty. Negating the contention it was held
that the statement was not a warranty but a mere description of the risk.13.
Page 2 of 2
In De Maurier (Jewels) v Bastion Insurance Co, it was held that a “warranty” regarding locks and alarms fitted to
vehicles was “not of promissory character”, it delimited and was part of the description of the risk.14. It may be noted
that the principle is not limited to motor cases. In CTN Cash and Carry v General Accident, an obligation on the
assured to ensure that its cash chest was at all times attended to during business hours, described in the policy as
a “warranty” was held to be a term descriptive of the risk. On this finding it was held that the insurers could deny
their liability when cash was stolen when the chest was unattended.15. On the other hand the “clear space clause”
which reads “warranted by the assured that a clear space of 15 feet shall hereafter be maintained between the
property hereby insured and any sawmill,” in fire insurances on timber, was held to be a promissory warranty, and
was not merely a limitation on the risk in the policy.16.
Thus, a stipulation or representation will not become a warranty for the mere reason that it is inserted in the
contract. All warranties are stipulations but all stipulations are not warranties. The difference between the two is
analogous to the difference between a condition and warranty under the Sale of Goods Act. The breach of
warranty, whether material or immaterial, increasing or diminishing the risk, intentionally or unintentional, will always
give rise to a right to the insurer to avoid the policy.17. If it is a mere stipulation, the breach of it does not vitiate the
policy and does not give rise to a right to the insurer to avoid the policy but may give rise to a claim for
compensation.
9. [1912] 1 KB 415.
10. Marine Insurance Act, 1963, section 35(3).
11. (1852) 7 Exch 744.
12. [1920] 3 KB 660 (CA).
13. [1933] AC 240.
14. [1967] 2 Lloyd’s Rep 550, 558, Facer v Vehicle and General Insurance Co, [1965] 1 Lloyd’s Rep 113.
15. [1989] 1 Lloyd’s Rep 299.
16. [1926] AC 90, 92, supra note 6.
17. See for example, The (English) Law Commission’s restatement of Warranties in the Report No 104, Insurance Law:
Non-Disclosure and Breach of Warranty, 1980 Commd 8064 and the draft Bill appended to that Report; Bank of Nova
Scotia v HellenickVronock Mutual War Risk Assoc (Bermuda) Good Luck, The, [1992] 1 AC 233, [1991] Lloyd’s Rep
191; See also Bird’s (1991) 107 LQR 540 (case comments).
End of Document
10.4 The Effect of Breach of Warranty

In Condogianis v Guardian Insurance Co, Lord Shaw pointed out that in a contract of insurance, the warranty holds
good even though the untruth has come into existence due to the inadvertence or negligence and without fraud.
The materiality of the untruth is not in issue, because the parties have settled for themselves by making the fact the
basis of the contract. The effect of a warranty is to bind the assured hand and foot to a strict compliance with its
terms.18. By making representations into warranties, insurers derive three advantages.
Firstly, a breach of warranty gives them an option and a right even to avoid the contract whether the representation
is material or not while if it remains a mere representation the insurers have not only to prove that the
representation is false but also further proves that it is material before they can exercise the right to avoid the
contract.
Secondly, even in cases where the insurer decides to avoid a contract on the ground of breach of warranty, he can
merely repudiate his liability but can still rely on the terms of the contract like a clause providing for arbitration,19.
while in the case of a breach of representation, whether it amounts to misrepresentation or fraud it renders the
whole contract voidable and if the insurer decides to avoid the contract he should avoid it in toto including the
arbitration clause or any other clause.
Lastly, when the representation becomes a part of the written contract by incorporation, oral evidence cannot be
admitted to vary the terms of the contract except as provided in section 92 of the Indian Evidence Act while if it is
not a term of the written contract the principle of exclusive evidence does not restrict the scope of evidence to be
adduced to the written document.
Because of these advantages, a practice has grown among the insurers to include in the terms of the contract a
further stipulation that all statements and representations contained in a proposal and the answers form the basis of
the contract and by that the assured will be deemed to guarantee the truth of all particulars.20. The declaration will
be deemed to be a warranty and the insurance company will not be liable if any statement is untrue. For example,
in Dawsons Ltd v Bonnin, a motor lorry was insured against loss by fire. The policy contained a clause making the
proposal the basis of the contract and also contained other clauses one of which read “material misstatement or
concealment of any circumstance by the insured, material to assessing the premium herein, or in connection with
any claim, shall render the policy void.” When a claim was made under the policy, it was proved that the proposal
contained a misstatement about the place where the lorry was usually garaged. Though this statement was not
material the court held that the insurer can avoid the policy on the ground of breach of warranty, the representations
in the proposal form having been incorporated into the policy were treated as warranties irrespective of their
materiality. It was contended on behalf of the assured that the basis clause was limited or qualified by the other
condition referred above, according to which a misstatement in the proposal does not vitiate the contract unless it is
a material misstatement. Repelling this contention it was observed that the basis clause and the fourth condition
(expressly referred above) do not cover the same ground. The former includes promissory statements which are
apparently not within the condition, and the condition covers misstatement and concealments outside the proposal
Page 2 of 3
with which the basis clause is not concerned... the two clauses are independent and cumulative provisions, each of
which must take effect.21. Again in Oriental Government Insurance Co v Narasimhachary, a life insurance policy
contained a declaration that the statements, shall be the basis of the contract. The assured made a statement
regarding his age which was false. It was held that the declaration amounted to a warranty and as it was false the
policy could be avoided by the insurance company.22. The view in Dawnson’s case has been affirmed in Mutual Life
Insurance Co of New York v Ontario Metal Products where there was a misstatement in the proposal that he has
not taken any treatment within five years before taking the policy. The court held that the statement is not material
and so the policy cannot be avoided as there was no clause in the policy making the answers in the proposal form
the basis of the policy and the court also observed that the decision would have been different if there had been the
basis clause in the policy.23.
Punjab and Haryana High Court affirmed the finding of the tribunal in Middle High School v HDFC Ergo General
Insurance Co,24. by way of SLP No 31406/2017 that the offending vehicle did not possess a permit and that
constituted breach of condition in insurance policy. The said judgment was through a special leave petition. The
Supreme Court also supported the High Court’s decision. The Bench also observed that High Court had relied upon
apex court decisions in National Insurance Company Ltd, v Challa Bharathamma.25. The Bench also observed that
the contrary view in a judgment of full bench of Kerala High Court, in the case titled Augustine VM v Ayyappankutty,
is disapproved to the extent holding that insurer was liable even if there was breach of conditions of policy. (Kerala
High Court decided on 4 March 2015).
This harsh rule of construction was introduced to induce the insured to be careful at the time when he makes a
representation and to protect the insurers from the negligent or dishonest assured, who alone have the means of
knowing about the truth of the representations made by them. Though the intention of the rule was good,
unscrupulous insurers started compelling the assured to state every representation, material or immaterial,
important or trivial, as a warranty and any deviation from it by the assured would entitle the insurer to avoid his
liability. This practice of turning what ought to be a mere representation to a warranty operated unfairly to the
assured. This practice of incorporation of the proposal form into the policy by reference has been severely and
frequently criticised by the judges. It was puzzling to the assured, as oftentimes, it was difficult for him to fit the
disjointed parts together as to get a true and complete conspectus of what his duties and rights are and what acts
on his part may debar him from recovering under the policy involving a forfeiture of the insurance.26. The courts
though recognised the hardship, could not but enforce as at common law, the parties are given the absolute
freedom to choose which representation should and which should not be warranties. To check up this avaricious
tendency of the insurers the legislature had to intervene and give protection to the insured from the uncertainty and
inconvenience caused by this rule. Thus, the Canadian Legislature modified and restricted the rights of the insurer
under such circumstances and the same has been followed in India in life insurance under section 45 of the
Insurance Act, 1938. The section limits the right of the insurers to resist a claim on life insurance on the ground of
misstatements by the assured in the proposal form, the report of the medical officer or referee or any other
document, whether those documents are declared to be the basis of the contract or not. This section is in detail
considered under the law of life insurance.27. It is desirable and advisable that the principle of that section be
applied in the matter of interpretation and decision of claims on policies in the other branches of law of insurance.
18. AIR 1921 PC 195.

19. Stebbing v Liverpool & London & Globe Ins Co, [1917] 2 KB 433.
20. Holt Motors v South East Lancashire Insurance Co, (35) Comp Cas 281, 287 (CA).
21. [1922] AC 413 .
22. 25 Mad 153.
23. [1925] AC 344.
24. Middle High School v HDFC Ergo General Insurance Co, decided on 22 November 2017 by the Supreme Court of
India.
25. National Insurance Company Ltd, v Challa Bharathamma, 2004 8 SCC p 517; New India Assurance Company Limited
v Asha Rani, (2003) 2 SCC P 223.
26. Provincial v Morgan, [1933] AC 240, 242.
27. Ibid.
Page 3 of 3
End of Document
10.5 Character of Warranty

In distinguishing a representation from a warranty we have already noted the special characteristics of warranty
which may be for convenience stated here as follows:
10.5.1 Materiality Irrelevant
In order to avoid a contract on the ground of falsity of a representation, the representation should be material to
induce the consent; while in the case of warranty, the only fact to be proved to avoid the policy is that it is false. The
fact whether it is material or not is wholly irrelevant. It also does not matter whether the fact represented by the
warranty is important or trivial.28.
10.5.2 Strict Compliance Necessary
What is purported to be a promise to do must be strictly performed. It does not lie in the mouth of the assured to say
that what has been done by him, though not the same thing exactly is substantially the same. What he is promised
by the warranty must be strictly performed and any deviation, however slight and irrelevant it may be entitles the
insurer to avoid the liability under the policy. Strict compliance is necessary and a substantial compliance is not
sufficient because the compliance with the warranty is independent of its effect on the risk.
10.5.3 The Breach of Warranty may not Cause the Loss
It is no defence for the assured that though he committed a breach of warranty the breach has nothing to do with
the occurrence of the loss or damage. The rule of proximate cause has no application in the case of breach of
warranty. For example, in Glen v Lewis, a warranty is made that steam engines will not be used but subsequently
on an experimental basis for a short time a steam engine was used and then withdrawn. Later the loss was caused
by fire, but still the insurer was held discharged by breach of the warranty.29.
10.5.4 Once a Breach Always a Breach
If once a breach of warranty is committed, it discharges the insurer from liability notwithstanding that the breach of
warranty is remedied and complied with long before the loss. But in order to entitle the insurer to avoid the policy on
the ground of breach of warranty, it must be proved that the breach has been committed during the factual
subsistence of the policy. For example, in an American case where the policy was antedated to the date of the
proposal and the breach of the warranty was committed and remedied before the policy was issued but after the
proposal was made, it was held that the breach does not discharge the insurer.30.
Page 2 of 2
28. Thompson v Weeins supra; Yorkshire Insurance Co v Campbell, [1917] AC 218.

29. (1853) 8 Exch 607.
30. Wainer v Milford Mutual Fire, (1891) 153 Mass 335.
End of Document
10.6 Waiver of Breach of Warranty
10.6 Waiver of Breach of Warranty

As already noted, a breach of warranty does not render the contract in the policy void but only confers a right on the
insurer to avoid the contract under the policy. So it is left to the insurer either to claim this right or leave it. When the
insurer decides not to exercise the right and allows the policy to be treated as subsisting with the knowledge of the
breach by the assured of warranty, he is said to have waived his right. This waiver may be express or implied; but it
must be intentional. In certain circumstances, the conduct of the insurer may not be sufficient to imply a waiver but
the acts done or statements made by him may estop him from relying on the breach of warranty. A waiver of a right
is possible, only when the person waiving has full knowledge of his right. Mere suspicion is not sufficient. The
waiver must be made before the loss occurs; or in other words a waiver of breach made after loss does not operate
as a waiver if the insurer is ignorant of the loss. Acceptance of a renewal premium after the breach of warranty may
operate as a waiver depending upon whether the breach is committed earlier or the premium fell due earlier. If the
premium does not amount to a waiver because it is not inconsistent with the forfeiture of the policy as at the date of
the breach. But if the premium fell due after the breach, the acceptance of such a premium may amount to a waiver.
End of Document
10.7 Kinds of Warranties

Warranties may be classified into the following types:
10.7.1 Implied Warranties
These are warranties implied by law or from the circumstances. They are recognised only in marine insurance
policies, and they have no counterparts in other branches of insurance. There is no implied warranty in a fire policy,
eg, that the assured will do nothing to increase the risk.31. In life insurance also, where the assured is already dead,
the policy no doubt becomes void, not on the ground that it is a breach of implied warranty that the life insured is in
good health or even alive, for there is no such implied warranty, but on the ground that there is a mutual mistake of
fact essential to the contract.32. However, an implied term that the risk will not materially change will be imported
into an agreement to issue a policy.33.
10.7.2 Warranties as to Present
There are warranties relating to a fact or set of affairs warranted to exist at the time of the contract. These are
sometimes called “warranties as to the present only”. For example, in life insurance a warranty that the assured is in
good health is treated as a warranty as to the present. A breach of such a warranty has the same legal effect as a
fraudulent misrepresentation made by the assured before the completion of the contract and the insurers can avoid
their liability under the contract.34.
10.7.3 Warranties as to Future
These are warranties as to future facts or state of affairs, eg, in life insurance, a warranty that the assured will not
go abroad, or in burglary insurance, the assured warrants that he will use a Godrej lock for the front door are
instances of “warranties as to future”.
It is always a difficult question to find out whether a warranty refers to the future or to the present and this is
demonstrated by Porter by giving the following examples based on judicial decisions:
Examples of Future Warranties
(a) In motor insurance:
Q: State full address at which vehicles will be usually garaged.

A: The address given above.
It was held that it was a warranty as to the future.35.

Page 2 of 3
(b) In accident insurance:
Q: Are any explosives used in your business?

A: No.
Here again it was held that it was a warranty as to the future.36. Examples of Warranty as to Present
(a) In fidelity insurance:
Q: How often is X required to send statements of cash received?

A: Daily.
This was held to be a warranty as to present.37.
(b) In employer’s liability insurance:
Q: Is your machinery properly lettered?

A: Yes.
This again was held to be a warranty as to the present.38.
From the above it can be clearly seen how difficult it is to find out whether a warranty is a present warranty or a
future warranty.
10.7.4 Promissory Warranty
A warranty as to future is sometimes called a promissory warranty. Generally the adjective “promissory” is used for
representations which were warranties or conditions precedent. The term promissory warranty is misleading
because sometimes it is used with reference to exceptions, e.g., where a ship is warranted in a marine policy by the
FCS clause that the ship and cargo is free from capture and seizure. In such a case, it is not a warranty as such but
it is only an excepted peril in the sense that if they are breached the insurer is not entitled to repudiate all liability
under the policy. For example, if a vessel warranted free of capture is captured the insurers will not be liable for that
loss as it comes within the excepted peril; but they will be liable for a subsequent loss by a peril of the sea if the
capture was not the proximate cause of it.39. This is because the FCS clause does not import a warranty but only an
exception. On the other hand, if there is a promissory warranty and it is breached the insurer is completely relieved
from liability whatever may be the cause of loss. For example where a vessel was warranted on St Lawrence
between October 1 and April 1 it was held that the warranty was a promissory warranty and the breach of it entitles
the insurers to avoid any liability for a subsequent loss.40. In De Maurier (Jewels) v Bastion Insurance Co, a
warranty regarding locks and alarms fitted to vehicles was held to be a clause describing the risk but “not of a
promissory character”.41. On the other hand, where a fire policy contained a clause by reference that “warranted by
the assured that a clear space of fifty feet shall hereafter be maintained between the property hereby insured and
any saw mill”, it was held that the clause amounted to a promissory warranty, and was not merely a limitation on the
liability of the insurer.42.
31. Shaw v Robberds, (1837) 6 A&E 75.

32. Pritchard v Merchants Life, (1858) 3 CB 622 (NS).
33. Harrington v Pearl Life, (1914) 30 TLR 613.
34. Anderson v Fitzgerald, (1853) 4 HL Cas 484.
35. Dawsons v Botumin, [1922] 2 AC 413.
36. Beanchamp v National Mutual, [1937] 3 All ER 19.
Page 3 of 3
37. Hearts of Oak v Law Umm, [1936] 2 All ER 619.

38. Windfall and Rummer v Novle, [1941] 3 All ER 44.
39. Anderson v Marten, [1908] AC 334.
40. Birrell v Baer, [1884] 9 AC 84 .
41. [1967] 2 Lolyd’s Rep 550, 558.
42. Palatine Insurance v Gregory, [1926] AC 90, 92.
End of Document
CHAPTER 11 INSURANCE INTERMEDIARIES
There are a variety of insurance intermediaries between the insurers and insured like financial institutions,
actuaries, loss assessors and the Malhotra Committee recommended that all of them must come under the
effective supervision of the IRDA. In view of this the IRDA immediately passed regulations relating to the licensing
of insurance agents, insurance surveyors and loss assessors. Agents play an important role in the beginning of the
operation of the policy at the formation of the contract and in the end in settling the loss under the policy on the
happening of the risk insured particularly in general insurance. They are not employees of the insurer but only
freelancers.
End of Document
11.1 Insurance Agents
11.1 Insurance Agents

The law relating to insurance agents is of special and practical importance because in effect all insurance business
is conducted through the medium of agents since most of the insurers are corporate bodies. In the country of its
origin insurance business carried on by Lloyds is required to be done by custom and stature,1. through the agency
of Lloyd’s broker. Brokers are only professionals who bring together the insured and the insurers, carry out
preparatory work to insurance contracts. With the development of the market, much of the insurance business is
transacted through other insurance brokers and other independent agencies. They are increasingly becoming
professional risk managers and their professional standards are subject to control both of their self-regulatory
bodies and of requirements or registration with designated authorities. The Malhotra Committee rightly observed
that the institution of brokers which is well established in most insurance markets all over the world does not exist in
India.
1. Lloyds Act, 1982, section 8(3).
End of Document
11.2 Indian Practice
11.2 Indian Practice

The Indian counterparts of British insurance brokers are the insurance agents. In India the marketing apparatus
consists of:
(i) Insurance agents

(ii) Developments officers
(iii) Branch/divisional managers (sales)
At the time of nationalisation of the life insurance business there were three categories of agents designated as
chief agents, special agents and agents. By the passing of the LIC Act, 1856 all the contracts subsisting between
insurers and their chief or special agents and between chief agents and special agents were terminated.2. Over
12,000 agents came over to LIC as direct agents. This number increased to 52,080 by 1992–93. At the time of
nationalisation of general insurance business there were 4,270 field officers. Over the years they were designated
as development officers and by the end of 1992–93 their number increased substantially to 13,025. All these agents
were appointed both in life and general insurance in a routine manner and Malhotra Committee recommended that
the marketing apparatus requires a thorough review to promote and sustain professionalism. It also observed that
there is an urgent need to upgrade the training and skills of agents and their commission structure should be
improved to attract real talent. In pursuance of this recommendation the IRDA immediately after its constitution
issued a regulation relating to licensing of agents (see appendix).
2. LIC Act, 1956, section 36.
End of Document
11.3 Law of Agency
11.3 Law of Agency

Where a person appoints another person to do his work such person may be an independent contractor or agent or
servant. With reference to the acts of the independent contractor the other party is not vicariously liable to third
parties. But in the case of servants and agents the master or the principal will be liable. The distinction between the
servant and agent is very thin as both act for the employer’s benefit. The distinction between a servant and
independent contractor may broadly be stated as that an independent contractor can be asked as to what is to be
done while a servant cannot only be asked as to what is to be done but also as to how it is to be done. The master
has control over the servant and this control makes him vicariously liable to the third parties for the wrongful acts of
the servant. This is based on the principle of respondent superior.
This principal is made available to third parties for the acts of the agent on a different principle, namely qui facit per
alium facit per se which means that he who does through another, does it himself. His position is that he brings the
principal and the third party face to face and drops himself down. Generally, the third party cannot make the agent
personally liable and he is treated as a mere conduit pipe through which rights and liabilities pass through from the
principal to the third parties and vice versa. So, under general law even a minor can be appointed as an agent and
no consideration is necessary for the validity of the contract.
End of Document
11.4 Appointment of an Agent
11.4 Appointment of an Agent

An agent may be appointed by a contract. The contract may be express or implied. Agency may come into
existence by estoppel and such an agent is called “agency” by holding out. When there was a tripartite agreement
between LIC, an employer and its employees for purchase of life insurance policies by employees, with employer
ostensibly acting as agent for employees, but as per terms and modalities of agreement in fact acting as though
agent for LIC. When employer failed to pay premiums after deducting the same from the salaries of the employees
there was an obligation on the insurance company to inform the same to the employees and it failed to do so.
Hence the Insurance Company was liable to pay out on policies to the employees of the company.3. There may be
agency by ratification, called facts agency. A person may act as an agent even though he has no authority to act an
agent. Such a contract does not bind the principal. But when it is put to him, the principal is entitled to affirm or
reject it. If he affirms it, it is called ratification. A ratification relates back to the date of contract, the contract will be
binding on the principal as if it was entered into by the agent with previous authority, but ratification is not valid if it
prejudiciously effects the rights of third parties.
3. Chairman, LIC v Rajiv Kumar Bhasker, (2005) 6 SCC 188 : AIR 2005 SC 3087.
End of Document
11.5 Agents in Law of Insurance

The passing of the Insurance Act, 1938 the above general law only applied. A person can be an agent for any
member or person. In insurance contracts he acts at times as agent of the insured and at other times as that of
insurer. Scruttom LJ in Newsholme Brother v Road Transport and General Insurance Co Ltd, [1929] 2 KB 536 ,
observed:
It sometimes happens that the proposal is filled in by the agents of the company and the proposer merely signs it. The
question in such cases is whether such agent is the agent of the proposer or of the company. I found considerable difficulty
in seeing how a person who fills up the proposal form can be the agent of the person to whom the proposal is made. A man
cannot contract with himself. ‘A’ makes a proposal to ‘B’ by signing it and communicating it to ‘B’. If ‘A’ gets someone ‘C’ to
fill up the form for him before he signs it, it seems to me that ‘C’ in doing so, is the agent of ‘A’ who has to make the
proposal and not of ‘B’ who has to consider whether he will accept it. In each case, the agent is the agent of the insured.4.
The question assumes much importance because of the vicarious liability of the principal for the fraud or
misrepresentation of the agent. Again in the matter of the notice, notice is deemed to be notice to the principal and
on that principle disclosure to the agent amounts to disclosure to the insurer and the right of repudiation on the
ground of non-disclosure will be impaired by proving that a disclosure was to the agent.
An agent has not only the actual authority but also the ostensible authority. Actual authority again may be
expressed or implied. Implied actual authority arises where in the circumstances, it must be the position that the
agent had actual authority, but it was never conferred on him in so many words. If an insurer gives his agent blank
cover notes, he impliedly authorises him to make temporary insurance contracts.5.
Ostensible or apparent authority arises where the principal, by words or by conduct, holds out his agent as bearing
particular authority.6. This is based on estoppel usually the representation being the conduct of the insurer rather
than anything expressly said.7. An agent held out as having authority to make alterations in a policy or to waive a
breach of condition will bind the insurer.8. If an agent is provided by insurer with cover-notes, it covers within his
ostensible authority to conclude such temporary contract.9. The payment of premium to an agent binds the insurer
even if he is not authorised to accept them, if, nonetheless, he is held out as having authority to receive them.10.
4. Qurich General Accident and Liability Insurance Co Ltd v Rowberry, [1954] 2 Lloyd’s Rep 55.
5. Markie v European Assurance Society, (1869) 21 LT 102; Stockston v Mason, [1978] 2 Lloyd’s Rep 430.
6. Freeman & Lockyer v Buckburst Park Properties, [1964] 2 KB 480 .
Page 2 of 2
7. Eagle Star Insurance Co v Sprati, [1971] 2 Lloyd’s Rep 116.

8. Wing v Harvey, (1854) 5 De GM & G 265.
9. Stocktom v Mason, [1978] 2 Lloyd’s Rep 430.
10. Kelly v London and Staffomhire Fire Insurance Co, (1883) Cab & E 47; Hindustan Ideal Insurance Co v
Gayalakshamma, AIR 1959 AP 562.
End of Document
11.6 Licensing of Agents

Occupying such an important position in the insurance market, the agents were not regulated by law before 1938
and before the passing of the Insurance Act, 1938. Their acts of malfeasance and misfeasance exposed both the
insurers and insured to risk of loss. Commenting on this Mr SC Sen observed:
It has been pointed out from various sources that some provision should be made in the statute to protect the public from
the vagaries of the persons who pose to act as agents of insurance companies. It has been said that various sorts of
misrepresentation are made by persons purporting to act as agents for procuring business with the result that innocent
persons are often victimised. It has therefore suggested that provisions should be made in the statute for a licensing of
agents and misstatements made by any person acting as agents.11.
In pursuance of this recommendation, the Insurance Act, 1938 provided for licensing of agents in sections 40 and
42–42C which were further elaborated and streamlined by the IRDA in its regulation called “Insurance Regulatory
and Development Authority (Licensing of Insurance Agents) Regulations 2000”.12.
Section 40(1) of the Insurance Act, 1938 stipulates that only authorised agents are entitled to solicit business for
insurance companies. Section 42 of the above Act provides for insuring licenses to the insurance agents. A licence
is issued by the IRDA to a person who applies for an agency on payment of a prescribed fee. He must have the
minimum educational qualification and must not suffer from any disqualifications mentioned in section 42(4) of the
above Act. The licence will be valid for three years subject to renewal under the regulation. Practical training is also
prescribed. The regulation also prescribes a code of conduct. Acting as an agent without holding a licence is made
an offence punishable with Rs 500 and a fine of it is also provided that if an insurer appoints a person having no
license, the insurer is liable for punishment by a fine which may extend to Rs 1000 under the regulation. The
previous penalties under the Act were, Rs 50 and Rs 100 respectively which were grossly inadequate deterrents.
After the passing of the Insurance Act, 1938 the agent is not entitled to make any alteration in the policy unless the
agent has express or implied authority. Payments of premium to the agent amounts to payments to the insurer; but
he has no power to receive a renewal premium unless authorised by insurer.
Minimum business required to be done by an agent in a year is prescribed and the commission rates and rebates
which he can give are regulated. The Act also provided the grounds for termination of agency. An appeal is also
provided, for unreasonable termination.
In PG Natarajan v LIC, (2016) 14 SCC 232, though the termination of the agency of the appellant was affirmed as
legal and justified, held the appellant’s fraud had not been established, therefore the LIC could not withhold the
renewal commission due to the appellant.
Page 2 of 2
11. SC Sen, Report on the Laws of Insurance, paras 211–12.

12. For full text see Appendix V.
End of Document
11.7 Insurance Surveyors

Agents often play an important role between the insurer, before and at the earlier stages of forming the policy and
surveyors and loss assessor at the final stages. As soon as the risk insured occurs, the insured has to inform the
insurer that it happened and the insurer immediately directs the surveyor to assess the loss. Indeed, as a matter of
practice, surveyors are required not only to assess the loss and opine whether the relevant conditions and
warranties of the concerned insurance policy are complied with, but also record their view as to whether or not the
claim made by the insured is payable. For this purpose he can give a notice of his visit to the same and the insured
is expected to show him the loss. The surveyor has to submit his report as soon as possible. They are independent
individuals or firms having qualifications prescribed by section 64VM of the Insurance Act, 1938 read with rule 56A
of the rules made under the Act.
The Malhotra Committee observed that in India by then there were over 38,000 licensed surveyors of whom only
about 7000 are in active practice. There is an institute of insurance surveyors and adjusters whose fellowship,
associateship and licentiateship are recognised in the insurance rules as technical qualifications, amongst many
others, for licensing of surveyors. The institute has a membership of only about 2500 and so the committee
observed that it is not a representative body of the profession.
Before the introduction of section 64UM by the Insurance Amendment Act, 1968 there was no requirement of
licensing surveyors as qualified individuals and firms carrying on this important profession had both competitive and
high standards of professionalism. Malhotra Committee recommended that working in a monopoly market situation,
the profession and the system of survey have suffered in many respects licensing without effective control, erosions
in standards of integrity, lack of professional expertise, frequent delays in execution of survey assignments, and
inadequate sensitivity towards the consumer. A system of rotation of empanelled surveyors was followed by
insurers to avoid accusations of favoritism. In actual practice the insurance officials did not exercise the requisite
discretion in evaluating survey reports for claims of settlement for fear of audit and vigilance resulting in unintended
power of decision to surveyors. Sometimes the insurance officials, surveyors and the insured colluded in
manipulation claim statements to the detriment of the abstract entity of the insurance company and its non-
interfering shareholders. To set right these glaring inequitable practices, the IRDA streamlined and tightened the
situation of the surveyors by passing a regulation called the “Insurance Surveyors and Loss Assessors (Licensing,
Professional Requirements and Code of Conduct) Regulations 2000”.13.
The surveyors according to their level of equipment’s are classified into A, B, C categories and their application fee
for license has been enhanced. Surveyors of category A, if an individual, Rs 10,000 and if a corporate body Rs
25,000; for Category B, Rs 7000 and Rs 20,000 and for Category C, Rs 5,000 and Rs 15,000 are fixed.
Qualifications have been raised and disqualifications prescribed in the Insurance Act have been retained. A licence
issued will be valid for five year and then it has to be renewed with IRDA. Power has been reserved to the IRDA not
only to grant license but also to suspend and cancel the license. It is also provided that acting as a surveyor without
a valid license, or obtaining a license by making a false statement is an offence. Provision is made for the
constitution of a committee for surveyors and loss assessors to hear complaints of misconduct of surveyors. Their
Page 2 of 2
duties and responsibilities are delineated in detail and a code of conduct is also prescribed. It is also provided that a
register of licensed insurance surveyors and loss assessors should be maintained by the IRDA. Every licensed
surveyor is required to submit an annual statement in form IRDA–12 to the IRDA. If any complaint is received
against a surveyor, the IRDA appoints a committee to investigate the matter and report a finding to the IRDA which
will pass suitable orders and communicate the same to the surveyor.
PART II
Life Insurance
13. For full text see Appendix VI.
End of Document
12.1 Definition
Modern Law of Insurance, 6th ed > PART II Life Insurance > CHAPTER 12 NATURE AND SCOPE
OF LIFE INSURANCE
PART II Life Insurance
CHAPTER 12 NATURE AND SCOPE OF LIFE INSURANCE
12.1 Definition
There is no statutory definition of life insurance, but it may be defined as a contract in which the insurer, in
consideration of a certain premium, either in a lump sum or in any other periodical payments, in return agrees to
pay to the assured, or to the person for whose benefit the policy is taken, a stated sum of money on the happening
of a particular event contingent on the duration of human life. In Dalby v London and India Life Assurance
Company, (1884) 15 CB 365 it is defined as a “contract to pay a certain sum of money on the death of a person in
consideration of the due payment of a certain annuity for his life calculated according to the probable duration of
life.”
The essential features of life insurance are the following:
(i) It is a contract relating to human life.

(ii) There need not be an express provision that the payment is due on the death of the person.
(iii) The contract provides for payment of lump sum money.
(iv) The amount is paid at the expiration of a certain period or on death of the person.
Life insurance has both short range and long range advantages. Primarily it encourages thrift in the individual and
serves also to form capital. It protects the potential estate of the policy holder as distinguished from acquired estate.
It saves the insured from worry and makes him a little less careworn. For the purposes of insurance he has to be
medically examined and such examination may reveal some latent ailment which may be nipped in the bud. There
is yet another person who takes interest in the maintenance of the health of the assured. If everyone looks after his
family, there will be no dependants on society and the public expenditure on orphanages and charities will be
saved. By life insurance, if he prematurely dies, his family need not depend on the charity of relatives or of the
government. If he survives the period, the insurance amount will be useful in his old age and period of disablement.
If he wants money for an emergency, he can raise a loan without worry. Huebner says:
A life insurance policy is a callable sinking-fund bond, issued upon the life of the policy holder. It will be paid promptly if
Providence sees it fit to call away the policy holder. In case there is no call the bond will be paid through the accumulation
of its sinking-fund provision, or reserve at the time of maturity.
Life insurance is a husband’s privilege, a wife’s right and a child’s claim.1. SC Roy observed:
Insurance offers the safest and surest means of establishing a socialistic pattern, perhaps not without a lot of sweat but
certainly without blood and tears.
It stabilises the economic security of the policy holder and at the same time contributes its might to promotion of
industry by providing the necessary capital and also to social security measures.
Page 2 of 2
12.1 Definition
1. Huebner, Life Insurance, pp 17, 24.
End of Document
12.2 Difference Between Life Insurance and Other Insurances
OF LIFE INSURANCE
12.2 Difference Between Life Insurance and Other Insurances

The primary point of distinction between life insurance and fire and marine insurances is that the subject matter of
insurance in the former is human life which has no economic value but only a juridical value and is invaluable in
terms of money and further the event insured against, that is death, is a certain event; while in fire and marine
insurance, the subject matter has economic value and the event insured against, that is fire or maritime peril, may
or may not occur. From these characteristics the points of difference flow. Life insurance differs from the other
forms of insurance in following respects, namely:
(i) In life insurance, the sum insured becomes payable in full without any requirement of proof of loss. Life
insurance is thus not a contract of indemnity in the strict sense. Fire and marine insurances are contracts
of indemnity and the assured cannot recover more than the loss suffered by him subject to the maximum of
the insured amount. The amount recoverable under these policies is measured by the actual loss suffered
by the assured.
(ii) In life insurance, the event insured against, namely death, is a certain event and it is bound to happen
sooner or later. The uncertainty lies only in the time when it occurs. In fire and marine insurances, the
event insured against may not happen at all.
(iii) In life insurance, the insurable interest need exist only at the time of the contract and it is not necessary
that the interest should continue to subsist at the time when the policy falls due. In fire and marine
insurances, the assured must have an insurable interest at the time of loss.
(iv) In life insurance, the insurable interest is incapable of being valued in terms of money and so no question
of avoiding the policy on the ground of over-valuation however gross it may be arising. In fire and marine
insurances the insurable interest is such that it is capable of valuation in terms of money and so where
there is gross over-valuation, the policy may become void as a wager.
(v) In life insurance, the contract is for the whole life or generally for a sufficiently long time and is a continuous
contract with a provision that if the premium is not paid annually or at stated intervals the contract should
lapse. In fire and marine insurances the contract is for a short time, usually year to year only, and the
insurance automatically comes to an end after the expiry of the year. It is like a railway ticket useful for a
journey and if the assured desires, he can extend it by renewing it for a further period by paying the
premium in which case the policy continues for the extended period.
End of Document
12.3 Kinds of Life Insurance
OF LIFE INSURANCE

In its origin, life insurance has the object of securing some support to the members of the family of the assured who
were depending on the salary or other income of the assured which ceases on his death and with this object life
policies are taken by agreeing to part with a small portion of the annual income in favour of the insurer as
premiums. These are simple whole life policies. As time passed on, it was realised that the assured’s income may
cease even during his lifetime say by retirement, and in such cases he needs money not only for the maintenance
of his family but also of himself and so endowment policies came into vogue. Like this, in recent years many new
features have been added to this business which may seem to be foreign to its original conception, but the main
principles on which it rests have not been changed. In modern times, life insurance forms have been baptised by
various names according to the nature of terms and conditions in the different policies. The Life Insurance
Corporation of India undertook innumerable kinds of insurance of which mention may be made of some important
kinds, viz, (a) Whole-life insurance, (b) Endowment insurance, (c) Joint-life insurance, (d) Annuity insurance, (e)
Fixed-terms marriage endowment insurance, (f) Two-year temporary insurance, (g) Children’s deferred insurance,
(h) Limited payment life insurance.
12.3.1 Whole-life Insurance
This is the original and normal form of insurance. Under this policy, the assured agrees to pay fixed premiums
periodically throughout his life. The policy amount is payable on the death of the assured to his legal
representatives, assigns or nominees. This is intended for the benefit of the members of the family of the assured
after his death.
12.3.2 Endowment Insurance
Under this policy, the assured agrees to pay fixed premiums periodically, not throughout his life but for a term of
years or until he attains a particular age say 50 or 55 years. The policy amount is payable to the assured at the end
of the stipulated time; but if he dies before that time the amount is payable to his legal representatives or assigns or
nominees. This is intended for the benefit of the assured himself in his old age, should he survive or for the benefit
of the members of the family if he dies before the time. The policy combines in it the advantage of insurance and a
compulsory saving bank account.
This head also includes a child’s endowment or deferred life insurance. Considerable difficulties have been
experienced with regard to children’s endowment policies as normally a parent does not have insurable interest in
the life of his child and such a policy would therefore be illegal but when the policy is in the form now commonly
current, the proposer will be regarded as holding the policy in trust for the child.2.
12.3.3 Annuity Insurance

Page 2 of 3
Under this policy, the insurer undertakes to pay a certain fixed sum as annuity by monthly payment either for the
expiration of the specified period or earlier if death should occur to the assured. This is as though to provide
pension or family pension to the assured.
12.3.4 Terms Insurance
Under this policy, the insurer agrees to pay the amount only in the event of the assured dropping before a certain
time or age. This type is frequently adopted as collateral security for loan. It also provides a right to continue it from
term to term on payment of the required premium. Such a policy provides for a low premium at the outset with a
gradual increase and as such is known as the ascending scale policy. It may provide for converting it into a whole-
life policy and in such a case it is known as convertible term policy. The policies are usually for a short period and
are also called short-term policies. Two-year temporary assurance policies issued by the Life Insurance Corporation
of India may be cited as examples of short-term policies.
12.3.5 Joint-Life Insurance
It is an insurance on the joint life of husband and wife and the money under the policy becomes payable on the
death of either of them.
A more complex form of this insurance is last survival insurance. In this type of policy, money becomes payable on
the death of all but one. It may be in the form of last survivor endowment policy. These policies carry surrender
values and proportionate paid-up policies are allowed.3.
Yet another species of this class of insurance is “Contingent survivorship Assurance”. Surgeon says;
The simplest form of contingent assurance is one under which the sum assured is payable on the death of the person say
X, known as the falling life, provided another person say Y, known as the counter life survives him.
This class of insurance takes many forms. If the counter life comes to an end during the falling life the policy comes
to an end and the insurer forfeits the premiums. These policies are used mainly to complete contingent reversionary
interests, and thereby render them negotiable.4.
12.3.6 Advance Insurance
This is another modern form of assurance in which the policy provides for the payment of a lump sum amount to the
assured in consideration of his agreeing to pay the premiums for a specified period or for the life of the assured if
his life should terminate before the end of that period. Examples of this kind of insurance may be found in contracts
to furnish funds for the building of a house, to be repaid by monthly or quarterly instalments, which shall cease on
death. Life policies may also be taken to pay estate duty.
Apart from the above types of insurances, in the field of industry, group insurances are also recognised. This is an
insurance on lives of a group of persons, usually the employees under the same employer, under one policy. In
these insurances, the assured will be the employer. Employees State Insurance Corporation is engaged in that type
of business. Apart from this industrial assurance, the group life assurance was probably not in vogue in India till
very recently. In fact, the Chairman of the Life Insurance Corporation expressed a policy to extend the corporation
group insurance scheme for bank depositors in the nationalised banks. The LIC has announced introduction of
“Deposit linked life insurance scheme” in ten banks. This was the first of its kind in the world.
2. Re Webb, Barclays Bank Ltd v Webb, [1941] 1 All ER 321; Halsbury’s Laws of England, vol 22, p 290.
3. Tayler & Tayler, Life Assurance, p 45.
4. Dictionary of Life Assurance, p 103.
Page 3 of 3
End of Document
12.4 The Policy
OF LIFE INSURANCE
12.4 The Policy

Life insurance policies are of two kinds in form namely, (a) narration type, and (b) schedule type.
12.4.1 Narration Type
In this form, the contract is expressed in a long narration containing continuous details. In modern times this is not
used.
12.4.2 Schedule Type
This is the modern form and its contents may be summarised as follows:
12.4.2.1 Date
The date inserted is generally but not necessarily the date on which the deed is executed or the date on which it
becomes operative.
12.4.2.2 Parties
The names are mentioned and the persons expressed to be parties are presumed to have contractual competency
until the contrary is proved.
12.4.2.3 Preamble or Recitals
This part gives the necessary explanations as to the circumstances under which the deed is executed and its
object. It generally runs as “whereas the proposal for assurance has been made etc”.
12.4.2.4 Operative Clause or Consideration
This speaks of the consideration and generally runs as follows: “If the premium as mentioned in the schedule
should be paid, the company will pay to the payee the sum assured within one month of the receipt of the
satisfactory evidence as to the happening of the event and title to the payee etc”.
12.4.2.5 Covenants of Title and Conditions
Besides the unusual implied covenants like covenant for (a) right to convey, (b) for quiet enjoyment, (c) for freedom
from encumbrances, (d) for further assurance it may also contain some conditions. They may be either conditions
limiting the operation of the policy or creating privileges in favour of the assured or declarations that the answers
given in the proposal, medical report, etc should be held to be the basis of the contract, eg
Page 2 of 3
12.4 The Policy
(i) proposal and declarations therein shall be the basis of the contract;
(ii) the age of the life assured shall be proved to the satisfaction of the directors;
(iii) the policy shall be void if before the expiry of two years from the date of the policy, the assured shall die by
his own hand. If any interest in the policy has been acquired in a bona fide manner by a third party for
valuable consideration, the company will be liable for a sum not exceeding the sum assured.
12.4.2.6 Schedule or Parcels
It contains an accurate description of the property. Often, in modern policies, it is given in the form of schedules. It
is often convenient to give the description in one or more schedules. In life policies it is given generally in two
schedules:
(i) Benefit schedule: It contains particulars of the assured, the event insured, the sum assured, the payees
etc.
(ii) Payable schedule: In this schedule particulars will be given regarding payments, eg, the date or dates on
which first premium, and renewal premiums are payable, special conditions etc.
12.4.2.7 Habendum
This clause expresses the quantity of the estate or interest which the assignee is to take.
12.4.2.8 Execution
The corporation has to execute a deed under its common seal in the presence of such officers and with such
formalities as may be prescribed by its articles or constitution.
12.4.2.9 Attestation of Signatures
12.4.2.10 Delivery
Unless a deed is delivered, it will not be operative.5.
Great care should be taken in drafting a policy. It must truly and completely reflect the intention of the parties. The
words used in the policy, as far as possible, should be plain, simple and ordinary and must be used in the popular
sense. In Anderson v Fitzerald, Lord St Leonards observed:
A policy ought to be so framed that he who runs can read. It ought to be framed with such deliberate care, that no form of
expression by which, on the one hand, the party assured can be caught or by which, on the other, the company can be
cheated shall be found upon the face of it; nothing ought to be wanting in it, the absence of which may lead to such results.
When you consider that such contracts as these are often entered into with men in humble conditions of life, who can but ill-
understand them it is clear that they ought not be framed in a manner to perplex...6.
These observations apply more emphatically to the conditions in India where the literacy percentage is
comparatively less favourable to the situation in England.
The policy is the document prepared by the life office to express the terms of the contract which has already been
made by the parties. In modern times, this is one of the instances of standard form of contracts. It is printed in the
standard form. The variations in the printed policy are usually typewritten and where there is a contradiction
between printed words and typewritten or otherwise written words, the latter will prevail. No alterations should be
made by the assured. As this is a record of an already concluded contract, if the terms of the contract are not
correctly represented in the policy, the assured shall not alter but can seek rectification of the policy under the
Specific Relief Act. Terms in other documents may be incorporated in the policy by doctrine of incorporation, e.g.
the terms in the prospectus, the answer given by the assured in the proposal form, the contents of the medical
report or the friend’s report may be incorporated in the policy by express reference. Before leaving this topic we
may just have a bird’s eye-view of how a life insurance contract, which is recorded in the policy, is concluded.
Page 3 of 3
12.4 The Policy
5. Housemann, Law of Life Assurance, pp 36–40.

6. (1853) 4 HL Cas 484.
End of Document
12.5 Formation of a Life Insurance Contract
OF LIFE INSURANCE

Like any other contract, a contract of insurance must satisfy the essentials stated in the Contract Act, 1872. Section
10 of that Act reads that:
All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby expressly declared to be void.
From this it follows that every contract must contain the following elements, namely (a) an agreement, (b)
competency of parties, (c) free consent, (d) consideration and (e) lawful object.
12.5.1 Agreement
Sir John Salamond defining the scope of the law of contracts observed that the law of contracts is not the whole law
of agreements nor is it the whole law of obligations; but it is the law of those obligations which arise out of an
agreement and of those agreements which results in obligations. Section 2(h) of the Indian Contract Act defines
contract as an agreement enforceable by law. Therefore, all contracts are agreements but not vice versa. Thus, an
agreement is the first essential element in any contract. Then what is an agreement? Section 2(e) of the Contract
Act says, every promise and every set of promises, forming the consideration for each other, is an agreement. If an
agreement is a promise, than what is a promise? Promise, in its turn is again defined in the later part of section 2(b)
as “a proposal when accepted becomes a promise”. From this, we find that an agreement has two elements: (a)
Proposal, which in English law is called offer, and (b) Acceptance. When a proposal is made by a person to another
and if that person accepts the proposal, the two together ripen themselves into an agreement. Though Cheshire
and Fifoot criticised this analysis by saying:
The phrase offer and acceptance, though hallowed by judicial usage for a century and half, does not reveal by a species of
esoteric art the presence of an agreement, it is ludicrous to suppose that businessmen couch their agreements in the form
of a catechism as in Roman ‘Stipulation’.
Still the analysis of Anson and that followed by the Indian Contract Act is a good workable principle. It is true, even
in insurance contracts, it is difficult to categorically say that the assured is the offeror and makes his offer by the
proposal form and the insurer is the acceptor. The answer depends on the circumstance of each case and the
process of the formation of an insurance contract.
The offer in life insurance is usually made by the assured in the printed form of the proposal supplied by the insurer.
A proposal or offer is defined in section 2(a) of the Contract Act as:
When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtain the
Page 2 of 10
assent of that other to such act or abstinence, he is said to make a proposal.
In life insurance, the proposal is contained in four parts, namely, (a) proposal form, (b) medical report consisting of
two parts, (i) family history, and (ii) medical examination report, (c) agent’s report and (d) friend’s report. The
proposer signs a declaration at the foot of the medical report declaring that to the best of his knowledge and belief
the answers that have been given by him are correct and that they form the basis of the contract between him and
the insurer. The offer to be operative should be communicated and this is generally done in life insurance, by the
insurance agent with his report and the friend’s report. It may also be sent by the medical officer after medical
examination. According to section 4 of the Indian Contract Act, the communication of the proposal is complete when
it comes to the knowledge of the person to whom it is made.
Generally, the acceptance is to be made by the insurer. Section 2(b) of the Contract Act defines acceptance as
“when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.”
The insurer on receiving the papers containing the proposal scrutinises them and when they are found in order he
signifies his assent thereto by a letter and the letter is called the letter of acceptance. Until this is sent there is no
acceptance, though a cheque for the premium is sent and the money is received and retained till after the death of
the insured.7. This letter is also usually in a printed form. Generally, it contains four clauses, namely, (a) accepted at
ordinary rates on the terms proposed, (b) accepted with extra premium, (c) accepted subject to satisfactory
assessment by further examination after a lapse of time or (d) not accepted. The appropriate clause is retained and
the rest struck-off. If clause (a) or (d) is retained there is no difficulty. In the first case, it amounts to acceptance and
the contract is concluded and in the latter case the proposal is said to be rejected. If the choice is on clause (b), the
proposal may be said to be deferred; but if the choice is on clause (c) it does not amount to acceptance, but
amounts only to a counter-offer. An acceptance to be valid and effective, should be absolute and unqualified and
should be in the same terms as the offer.8. It is then up to the assured to accept the additional terms, that is higher
rates of premium prescribed in the letter. Even when clause (a) is chosen, if the insurer adds, which the modern
insurers do, the clause that on payment of the first premium the contract is said to be concluded, it becomes only a
counter-offer and the payment of the first premium, according to the rates prescribed by the insurer, becomes
acceptance and concludes the contract. The insured did not agree to the policy covering the period 26 August 1988
to 25 August 1989 instead of the period 12 March 1988 to 12 September 1999, the result would never create an
insurance contract.9. Houseman therefore opines:
The true acceptance would be that of the proposer by payment of premium, unless the life office reserves the right to refuse
to take payment, and where the right is reserved the acceptance is by taking the payment.10.
Until the contract is concluded, each party can revoke the contract. In case of ambiguity in a contact of insurance,
the said ambiguity should be resolved in favour of claimant and against insurance company.11. Mere submission of
proposal form and cheque with the insurer would not constitute a contract between the insurer and the insured
unless and until the policy is issued to the insured.12.
12.5.2 Competency of Parties
The assured is generally an individual while life insurer is always a corporate body.
12.5.2.1 Competency of the Insured
Every person is competent to contract if he is a major according to the law to which he is subject, who is of sound
mind and who is not disqualified from contracting by any law to which he is subject.13. In India a person is said to
attain majority on the completion of the age of 18 years and if a guardian has been appointed or his estate is under
court of wards, on the completion of 21 years.14. That is why, in rate tables issued by life offices in India, the rates
commence from 18 in some cases and 19 in other cases but in most of the cases 20 years. The proof of the age of
the proposer is relevant in insurance contracts for two purposes, namely, (i) to determine the validity of the contract,
and (ii) to determine the rate of the premium.
After the memorable decision of the Privy Council in Mohoribibi v Dharmodas Ghose, 30 Cal 539 (PC) in India, a
contract by a minor is not merely voidable but is altogether void, but he can enter into a contract through a
guardian. The contracts by a guardian, though binds the minor, cannot impose personal liability. Therefore, a parent
or a guardian of a child, can take a policy under the scheme of “Children’s Deferred Assurance”. Under this
scheme, on behalf of the child, the parent takes out a policy on the life of the child whose life is covered by the
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policy after the child attains a certain age. It need not be exactly at 18, it may be any age above 18. In such a
policy, the assured is the child and the parent or guardian who takes out the policy is called the guarantee and the
period until the child attains the specified age is called the period of deferment. Usually there is a term in the policy
for returning the premium in case the child dies during the period of deferment. In Chandulal v ITC, the Supreme
Court held that in such cases in substance the contract of insurance between the child’s father and the LIC is a
contract of life insurance with regard to the life of the child who is the insured, and the clauses in the policy
regarding return of premiums to the proposer are merely ancillary or subordinate to that main purpose.15. The idea
of the policy is to introduce the child into the insurance habit.
There is another type of policy in which the child appears. This is called the child endowment policy. Popularly
these are called Child’s education policies and child’s marriage policies. Strictly speaking, these have nothing to do
with the child. The policy is effected by the parent, the rates are fixed according to the age of the parent, and the
money is payable at the time specified with the concession that further premiums need not be paid in case the
parent dies earlier.
A person of unsound mind, an alien enemy and an undischarged insolvent are also incompetent to enter into a
contract and so they are also incapable of effecting policies. Artificial persons have no life to be insured.
12.5.3 Coparcener in a Hindu Joint Family
Though a Hindu joint family is an institution which is slowly dying due to the recent statutory modifications in Hindu
law, it is not yet dead. The property of a Hindu Joint Family vests in the manager or karta of a joint family for all
purposes of management and the other members of the coparcenary have only a right to be maintained by him.
Over the income of the property, the karta of a Hindu undivided family has unbridled rights and no coparcener
normally can question him or ask him for accounts. If any property is acquired either by the karta or any other
coparcener with the aid of the joint family property, the newly acquired property will undoubtedly form part of the
joint family property. If an acquisition is made without the aid of the joint family property, it becomes the self-
acquired property of the acquiring member, but he may throw it, expressly or by conduct, into the hotchpotch of the
joint family property, which then becomes coparcenary property. In these circumstances, if a member of a
mitakshara coparcenary takes out a life insurance, whether the policy becomes a joint property or the self-acquired
property of the assured is a question which often arises because a policy of insurance is regarded as property. In
this connection the following possibilities may be stated:
(i) Where a member of a mitakshara coparcenary takes out a life policy with the funds of the joint family
property and there is no nomination interfering with joint family ownership, the property in the policy can be
assumed to be joint family property because the normal rule and presumption in Hindu joint family law is
that the property is joint until the contrary is proved.16.
(ii) Where a member of a coparcenary takes out a policy with his self-acquired property funds, the question
whether the policy is joint family property depends upon the intention of the assured, the general
presumption being in favour of jointness.
(iii) Where a member of a coparcenary takes out a life policy with or without joint family property funds and
makes a nomination for the benefit of his wife and or children, there is no difficulty in stating that the policy
does not form part of the joint family property because of the statutory trust. In such a case, where the
policy is taken at the expense of the joint family funds, the only right of the other members of the family, is
to get back the amount that is utilised to make the payments of the premium.
For a coparcener, to take out an insurance on another coparcener’s life, mere membership of the coparcenary is
not sufficient to constitute insurable interest unless some dependence is shown; because even parents, children,
brothers and sisters should do the same.
12.5.3.1 Insurer
In the beginning any person, whether a company or a provident society or co-operative society or a firm or even an
individual could undertake and carry on any type of insurance business. But since 1956 the life insurance business
has been nationalised in India, since then the Life Insurance Corporation alone has the exclusive privilege and
monopoly and no other body, whether a company, firm or a person, except those to the extent sanctioned by the
Central Government for the same time granted in the notification, can enter into a life insurance contract as an
insurer. The corporation possesses the monopoly right so far as the carrying on of life insurance business in India is
concerned. Section 30 of the Life Insurance Corporation Act reads:
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Except to the extent otherwise expressly provided in this Act, on and from the appointed day, the Corporation shall have the
exclusive privilege of carrying on life insurance business in India, and on and from the said day any certificate of registration
under the Insurance Act held by any insurer immediately before the said day shall cease to have effect in so far as it
authorises him to carry on life insurance business in India.
Section 31 is an exception to the above section. That section permits any person who has obtained permission from
the Central Government to carry on the life insurance business in India in respect of the lives of persons ordinarily
resident outside India,17. but section 2 again prohibits him to insure the life of any person ordinarily resident outside
India, during any period of his temporary residence in India. Such an insurer need not obtain registration from the
Controller of Insurance under the Insurance Act, 1938.
Prior to nationalisation, since 1950 by section 2C of the Insurance Act, 1938, insurance business could be done in
India only by; (i) a public company; (ii) a society registered under the Co-operative Societies Act and (iii) a foreign
public company. Since 1938, no person could do insurance business without a certificate of registration. To avoid
the mushroom growth of companies, special restrictions have been imposed and unless those conditions are
satisfied, the controller does not issue a certificate of registration and he can also cancel a registration even if
granted earlier, if it does not continue to satisfy those conditions. A minimum capital requirement is prescribed for
an insurance company to avoid unscrupulous insurers from cheating innocent investors. It is provided that no
insurance company may be registered by the Controller of Insurance unless it has a specified working capital
exclusive of the preliminary expenses and deposits required to be made with the Reserve Bank of India are actually
made.18. Since 1956, after nationalisation of the life insurance business, by and large, it is exclusively carried on by
the government through the statutory corporation called the Life Insurance Corporation, and by the Post Office Life
Insurance Department and certain state insurance departments in certain states like Andhra Pradesh, Kerala,
Mysore and Rajasthan. The Postal Life Insurance Fund was left out of the purview of the field of nationalisation.19.
All and sundry cannot insure their lives with this insurer. It is restricted for the benefit of the temporary and
permanent officials of the government, Railways, Universities, Military and local funds, and all permanent servants
of the government aided educational institutions and various councils of research. The minimum sum assured is Rs
100 and the aggregate insurance for anyone cannot exceed Rs 30,000. Before the merger of the native Indian
States, some of them like Gwalior, Jaipur, Hyderabad and Mysore maintained separate insurance departments.
Though primarily they were intended for the benefit of their employees, some states like Mysore underwrote lives of
the other members of the state. But with the merger of the native states into the Indian Union, the respective state
governments into which the princely states merged inherited the business concerning the lives of the officials, and
the public branch was taken over by the Life Insurance Corporation. These state governments are still working by
their State Life Insurance Departments under the control of their respective Finance Departments.20.
12.5.4 Free Consent
For the validity of a contract, two positive elements and three negative elements are prescribed by law. The first two
positive elements, namely, that there should be an agreement evidenced by a proposal and an acceptance and that
there should be competency for the parties are noted above. The third essential is that there should not be any flaw
in the consent and this is discussed in sections 13–22 of the Indian Contract Act. Section 13 defines consent as
“two or more persons are said to consent when they agree upon the same thing in the same sense”. Section 14
defines free consent in a negative way in that it states that a consent is said to be not free when it is obtained by (i)
coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation or (v) mistake. The first four factors lead to error in
causa while the operative mistake leads to error in consensus. In the first four cases, there is consensus ad idem,
but there is a vice only in the cause that produced that consensus and so section 19 renders a contract with such a
faulty consent only voidable, avoidable at the instance of one party only, that is, the party coerced, unduly
influenced, defrauded, or misrepresented but not at the instance of the other who is the author of that cause. The
effect of the voidable contract is that it is valid until avoided and void when avoided. In the case of operative mistake
it negatives the consensus itself and thus renders the contract altogether void.
Sections 20–22 of the Indian Contract Act state that every mistake committed by the parties does not affect the
validity of the contract. A mistake of law is no excuse; but mistake of foreign law and mistake regarding private
rights are treated as mistake of fact for this purpose. A unilateral mistake as a general rule, unless it gives rise to
the defence of non est factum, does not again render the contract void. It is only where both the parties to an
agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is rendered void
and the mistake is called as operative mistake.
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Coercion and undue influence are called duress under English law. The first is called physical duress and the latter
moral. Coercion is defined as the committing or threatening to commit any act forbidden by the Indian Penal Code,
or the unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement; it is immaterial whether the Indian Penal Code is or is
not in force in the place where the coercion is employed.21. The cases of coercion are rare in the field of insurance
law as insurance is generally done by companies. Again, cases of undue influence are also rare because undue
influence requires a pre-existing relationship between the contracting parties. Undue influence is defined thus:
A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of
the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the
other.22.
The remaining two vitiating causes, namely, fraud and misrepresentation have a good bearing on the law of
insurance. The consent to the contract is said to be given by the assured when he signs the proposal form. When
the policy is given to the assured, the insurer is said to have given his consent. So, often the question arises
whether the assured through his several representations in the policy, induced the insurer to accept his life for
insurance? To answer this, first it must be proved that they are his representations and then alone the further
questions arise. If the proponent knows English, and he fills up the proposal form, there is no difficulty in holding
that they are his representations. But when the proposal form is in English and the proposer does not know English
and he signs in the vernacular or fixes his thumb-impression, the difficulty arises. In such circumstances, great care
should be taken to ensure that the contents of the proposal be translated into his language and explained to him so
that he can fully appreciate their effect. It is also, therefore, the practice to make him sign a declaration to that effect
along with a signed declaration of the person who translated and explained the terms.
In Bernarasi Devi v New India Assurance Co Ltd, AIR 1959 Pat 540, 546–47 the principle of law has been laid down
thus:
It is a well established rule of law that in the case of a person who is illiterate or who is not in a position to read the contents
of a document, the contract cannot be imposed upon him simply because he had endorsed his signature thereon unless it
is further proved that he did that after understanding the contents of the same. In other words, the rule of law is that the pen
must go with the mind; unless both the elements are present it cannot be said that the document is his.
Further in this case, the effect of obtaining the signature under the declaration that they were read out and
understood by him also has been discussed. In that case, the proposal form and the answers were in English which
language he did not know. His signature in Hindi was accompanied by a declaration again in Hindi as “samaj kar
sahi kiya”. This endorsement was held to prove that those particular portions of the proposal form were written in
the pen of the assured but not that they had been written after he had fully understood their contents which were
admittedly in English. In Kulta Ammal v Oriental Government Security Life Assurance Co Ltd, it was held that in the
case of such a person, it is necessary to prove the fact that he had knowledge of what was stated in the proposal
form; independent evidence to that effect must be given.23.
Very often it is seen that the life insurance agents fill up the proposal forms and gets the signature of the
proponents. On this question, two conflicting views have been held. According to one view, where the agent fills up
the proposal form, the contract cannot be rescinded because some of the answers have not been accurately
recorded by the agent, either by omission or misrepresentation, as the agent is the agent of the insurer and his
knowledge has been imputed to the insurer, who by that reason is disabled from avoiding the contract.24. This view
has been severely criticised and has not been followed in other countries. The other view is that the proposer is
bound by the literae seriptae manert doctrine and the agent while filling up the form is the agent of the proponent,
not that of the insurer; and if there are any false statements the insurer is entitled to avoid the policy. In Biggar Rock
Life Association Co it was observed that:
When an agent is apparently acting for his principal, but is really acting for himself or third persons and against his principal
there is no agency in respect to the transaction. The law required that the insured shall not only in good faith answer all the
interrogatories correctly but shall use reasonable diligence to see that the answers are correctly written.25.
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This second view has been accepted by the Court of Appeal in New Sholme Brothers v Road Transport and
General Insurance Co, [1929] 2 KB 356 and this was also followed in a later case.26. The Law Reform Committee
stated in their Fifth Report27. that the result of the present position is that insurers could repudiate liability because
an agent had been allowed by the proposer to fill up the proposal form, and had carelessly or deliberately falsified
therein the oral information given to him by the proposer.28. The committee recommended:
Any person who solicits or negotiates a contract of insurance shall be deemed, for the purposes of the formation of such
contract, to be the agent of the insurers, and that the knowledge of such person shall be deemed to be the knowledge of
the insurers.29.
It may be submitted, that in such circumstances no single view can be preferred and that the best thing is to apply
that view which is applicable to the facts of the case on hand as different circumstances justify the application of the
one or the other rule and no hard and fast rule can be laid down for all cases where the agent fills up the proposal
form. Probably for this difficulty, only the proposals for illiterate lives are not encouraged by life assurance
companies in India.
These representations made by the proposer through the proposal form generally form the inducing causes for
obtaining the consent of the insurer in issuing a policy unless they are stated to form part of and the basis of the
contract, when they will be called “warranties” in insurance law and their nature has been discussed earlier in the
general principles part. These representations, which are the inducing causes may be made by the parties with the
following different states of mind:
(i) representations made believing them to be true based on reasonable and sufficient grounds; or
(ii) representations made believing them to be true not based on reasonable and sufficient grounds; or
(iii) representations made knowing them to be false or not believing them to be true or without caring for their
truth at all; or
(iv) representations made knowing them to be false but without intention to deceive;
(v) representations made knowing them to be false and with intention to deceive.
In these states of mind, the first and the last are obvious as definite innocent misrepresentation and as definite
cases of fraud, respectively. Later, the third and the fourth categories also have been aligned with fraud. The
second category was called “legal fraud” but in Wier v Bell, it was observed by Lord Bramwell who criticised the
“doctrine of legal fraud” by holding that if a representation is fraudulent it is fraudulent or otherwise it is not; but
there cannot be legal fraud as much as there cannot be “legal light” and “legal shade” or “legal heat” and “legal
cold”.30. The same view was approved by the House of Lords in Derry v Peek, [1889] 14 AC 337. Since that
decision, representations under class (ii) were resolved either into the first or the third category depending upon the
measure of insufficiency, namely, if the grounds on which the belief that it is true is based on slightly insufficient
grounds such a representation amounted only to innocent misrepresentation; and if the belief is based on grossly
insufficient grounds it is treated as wilful misrepresentation or fraud. So, the present position is that the
representation in the first category and a part of the second alone constitute misrepresentation and the rest
constitute fraud.
Representation is defined to be an assertion or statement of fact intended by neither party to form part of the terms
of the contract, but nevertheless must seriously affect the inclination of the other party in giving his consent. So, a
representation to be operative must satisfy the following conditions:
(i) Representation must be one of fact. A mere expression of opinion always does not amount to a
representation. In Anderson v Pacific Fire and Marine Insurance Co, the proponent in a marine policy,
communicated to the insurance company a letter written by the master of his vessel stating that in his
opinion the anchorage of the place to which the vessel was bound was safe and good but the ship was lost
there. The court held that the insured, by communicating the letter of the master, communicated to them all
that he himself knew of the voyage, and that the letter was not a representation of fact, but of opinion, on
which the insurers could act or not as they pleased.31.
(ii) Representation must not be one of law, because it has been said that misrepresentation of law does not
render the contract voidable as against the person making it.32. This must be distinguished from a
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misrepresentation of the effect of general law which again has the effect of mistake of fact and renders the
contract voidable.33.
(iii) The representation must be made with the intention that it shall be acted upon by the other party.34.
(iv) Mere commendatory expressions are not treated as serious representation and puffery is permitted. The
border line between permitted puffery and actionable fraud is very thin and is not always easily discernible.
(v) The representation must induce the contract. Every misrepresentation does not render the contract
voidable. It must relate to a material fact. What facts are relevant and material in life insurance contracts
are discussed later.
Misrepresentation is defined by section 18 of the Indian Contract Act, 1872 as,
Misrepresentation means and includes:

(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not
true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one
claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him;
(3) causing, however innocently a party to an agreement, to make a mistake as to the substance of the thing which is
the subject of agreement.
Section 17 of the Indian Contract Act, 1872 defines fraud as:
Fraud means and includes, any of the following acts committed by a party to a contract or with his connivance or by his
agent with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:
(1) the suggestion as to a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specifically declares to be fraudulent.
Explanation: Mere silence as to facts likely to effect the willingness, of a person to enter into a contract is not fraud, unless
the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak,
or unless his silence is, in itself, equivalent to speech.
Where consent to the contract is obtained by innocent misrepresentation or wilful misrepresentation or fraud, the
effect is that the contract is rendered voidable. The difference lies only in the fact that in case of fraud the party
defrauded not only can avoid the contract but can also claim compensation for the tort of deceit and also in extreme
cases the person committing the fraud may be made liable for prosecution under section 420 of the Indian Penal
Code.
The explanation to section 17 of the Contract Act merely recognises the principle of English common law that there
is no general duty imposed on one party to a contract to appraise the other of facts unknown to him and which
might affect his decision to consent to the contract. In Bell v Lever Bros Ltd, Lord Atkin observed:
The failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid
the contract.35. The principles of caveat emptor applies outside contract of sale.
But in case of uberrimae fidei contracts, the rule of caveat emptor does not apply and therefore in insurance
contracts in which utmost good faith is demanded this rule cannot apply. There must on both sides be uberrimae
fidei and a duty of full disclosure is imposed. The reason for the necessity of full disclosure is that one of the parties
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is presumed to know or has means of knowledge which is not accessible to the other and so such a person is
bound to disclose all the facts which may be supposed to affect such other person’s judgment. The exact scope and
extent of this duty of disclosure is discussed earlier and it is co-extensive with his knowledge, actual or imputed, of
the material facts in the sense that a failure on the part of the assured to disclose a material fact within his actual or
implied knowledge, whether such failure is attributable to fraud, carelessness, inadvertence, indifference, error of
judgment, mistake or even by his failure to appreciate its materiality renders the policy voidable at the option of the
insurer. The extent of the duty of disclosure in life insurance is discussed in detail a little later.
For the validity of a contract, there should be consideration. Section 2(d) of the Indian Contract Act defines
consideration as when at the desire of the promisor, the promisee or any other person has done or abstained from
doing, does or abstains from doing, promises to do or abstains from doing something, such act, abstinence or
promise is called a consideration for the promise. The payment of the first premium is the consideration for the
insurer and the insurer’s promise to indemnify the assured from the stipulated risk in the policy is the consideration
to the assured. The second and later premiums cannot strictly be called part of consideration because the insurer
cannot compel the assured to pay them. If default in payment of subsequent premiums is made, the insurer may be
released from the promise to pay the sum assured but remains bound by the various subsidiary promises in the
policy such as surrender value. The risk and premium are already discussed in earlier chapters in the general
principles part.
The object and the consideration of an agreement shall be lawful; otherwise the contract becomes void. Section 23
of the Contract Act enumerates the unlawful objects of an agreement. An object or consideration is lawful unless it:
(i) is forbidden by law; or

(ii) is of such a nature that if permitted, it should defeat the provision of any law; or
(iii) is fraudulent; or
(iv) involves or implies injury to the person or property of another; or
(v) the court regards it as immoral or opposed to public policy.
It can be seen that for a contract to be void, not only the object but also the consideration must be lawful. In the
unlawful objects enumerated above, the last clause states that the object or consideration shall not be opposed to
public policy. Judicial decisions both in England and in India declare certain objects such as stifling prosecutions,
maintenance and champerty, interference with administration, sale of titles as opposed to public policy. As noted
earlier in a different connection, the enumeration of these objects is not a closed list but it has been pointed out that
the list shall not be lightly extended as public policy has been described to be an unruly horse, dangerous and
difficult to ride. In its applicability to life insurance the rule assumed importance with reference to the suicide clause
and policies without insurable interest. One of the recognised objects against public policy is “wager” and a contract
of insurance without insurable interest is a wagering contract and is void. This aspect has also been discussed
earlier in considering the nature of the insurance contract, and the topic of insurable interest and the legality of
suicide clauses will be discussed in the following chapters.
When these essential elements are present, then only a contract will be treated as valid and binding and an
insurance contract is no exception. When a valid contract is concluded, it is a practice of the insurers to issue a
written version of the contract and that document is called a policy of insurance.
The policy is usually worded as follows:
WHEREAS the insurer has received proposals and declaration for Assurance which proposals and declarations with the
statements contained and referred to therein the proposers and Life Assured namely in the Schedule hereto have agreed
shall be and are hereby declared to be the basis of this assurance and has received the first Premium for an Assurance of
the amount and on the terms stated in the said Schedule.
NOW THIS POLICY WITNESSETH that in consideration of premises and on condition that there shall be duly paid to the
insurer the subsequent premiums as stipulated for, in the said schedule the insurer will pay the Sum Assured together with
such further sum or sums as may be allocated by way of bonus but without interest to the Person or Persons to whom the
same is therein expressed to be payable upon proof to the satisfaction of the insurer of the happening of the event on which
the Sum Assured is to become payable in terms of the said Schedule, of the title of the person or persons claiming payment
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and of the correctness of the age of the Lives Assured stated in the proposals if not previously admitted.
AND IT IS HEREBY DECLARED that the policy of Assurance shall be subject to the Conditions and Privileges printed on
the back hereof, and that the following schedule and every endorsement placed on the policy by the insurer shall be
deemed part of the policy.
The LIC Act 1956 empowers the government to make regulations which may provide for the form and manner in
which policies may be issued and contracts binding on the corporation may be executed.36. Where the words of a
document are ambiguous, they shall be construed against the party who prepared the document. This rule applies
to contracts of insurance and clause 5 in the insurance policy issued by the insurance company should be
construed against the insurance company.37. The life policies also should be stamped. For every sum insured of Rs
1000 or part thereof in excess of it, the stamp duty payable is Rs 6 if the policy is drawn simply and Rs 3 if drawn in
duplicate for each part.38. If the policy is not stamped, the contract in the policy is unenforceable. An unstamped
policy, like any other document required by law to be stamped but not stamped, is liable becomes admissible in
evidence and becomes enforceable.39. The stamp duty is to be borne by the assured, unless there is a contract to
the contrary,40. and section 66 of the Stamp Act makes it an offence punishable with fine which may extend to Rs
200 if an insurer receives or takes credit for any premium or consideration for any contract of insurance and does
not within one month therefrom make out and execute a duly stamped policy. The policies are usually printed forms
in which the gaps will be filled in by the insurer.
The appellant along with his wife Smt D Suguna and son Mr D Venugopal obtained housing loan of Rupees thirty
lakhs in the month of September, 2008 from the respondent Nos 2 and 3 for construction of a house in Hyderabad.
On 29 September 2008, a sum of Rs 78,150/- was debited from their loan account towards SBI Life Insurance
Cover under Group Insurance Scheme for home loan borrowers, through master policy holder, ie, SBH, covering
the Life of Mr Venugopal, who was one of the joint loaness. The proposal form dated 29 September 2008 was
accompanied by good health declaration by the insured. Dr Venugopal expired on 17 December 2009 due to a
massive heart attack. Consequently, the said life insurance obtained in his name came into force, obligating the
insurer, the first respondent herein, to pay the outstanding amount in their loan account. The appellant approached
the insurer and the bank informing them about the demise of Venugopal and requested them to settle the insurance
claim and to discharge the outstanding loan amount in their house loan account. Since the insurer did not accede to
his request, he filed a consumer complaint before the State Commission. The insurer contested the complaint
mainly on the ground that the proposal for the policy was not accepted as the insured did not present himself for
medical examination in spite of repeated requests made by the insurer. It was asserted that the amount of premium
was refunded by cheque dt 10 December 2008 to the SBH. Thus, the insurer pleaded no deficiency in service and
denied its liability in connection with the payment to the insured. The State Commission allowed the complaint by its
order dt 16 July 2012. However, the National Commission, by majority, allowed the appeal and dismissed the
complaint filed by the appellant. The Supreme Court held that it is clear that there was presumption of acceptance
of the proposal in favour of the deceased as the proposal form along with good health declaration form was
accepted by the bank and sent to the insurance company and the premium was debited by the bank from his loan
account. Neither the appellant nor the deceased were intimated by the respondents to appear for medical
examination. They did not receive any intimation from the respondents that the policy has not been issued even
though he continued to remain alive for more than 1 year 3 months. The premium was refunded only after the
appellant insisted for clearance of dues vide cheque dt 23 February 2011, nearly two and half years after the death
of the insured. In view of the matter, the majority view of the National Commission is clearly unsustainable.41.
7. LIC v Kamalvathi, 1984 (2) SCC 719.

8. Section 7, Indian Contract Act, 1872.
9. Deokar Exports (P) Ltd v New India Assurance Co Ltd, (2008) 14 SCC 598 : AIR 2009 SC 2026 : (2009) 1 CPJ 6 SC.
10. Houseman, Law of Life Assurance, p 2.
11. New India Assurance Co Ltd v Zuari Industries Ltd, (2009) 9 SCC 70 : 2009 (12) Scale 98.
12. SR Kharidia v Max New York Life Insurance Co Ltd, AIR 2009 Guj 57 (DB)
13. Section 11, Indian Contract Act, 1872.
Page 10 of 10
14. Section 3, Indian Majority Act, 1890.

15. AIR 1967 SC 816.
16. Ibid.
17. Life Insurance Corporation Act, 1956, section 31 (1).
18. The Insurance Act, 1938, sections 3—9.
19. Life Insurance Corporation Act, 1956, section 44.
20. Ibid, section 44(b).
23. AIR 1954 Mad 636.
24. Bawden v The London Edinburgh Glasgow Assurance Co, [1829] 2 KB 534 .
25. [1902] 1 KB 516.
26. Dunn v Ocean Accident and Guarantee Corpn Ltd, (1933) 50 TLR 32 (CA).
27. Conditions and Exceptions in Insurance Policies, 1957 Commd 62.
28. Ibid, p 7.
29. Ibid, p 16.
30. (1878) 3 Ex D 243 .
31. (1872) LR 7 CP 65.
32. Beauty v Lord Ebury, (1872) LR 7 CA 777; Solle v Bucher, [1950] 1 KB 671.
33. West London Commercial Bank v Kitson, [1884] 13 QBD 360.
34. Peek v Gumey, [1865] LR 6 HL 377.
35. [1932] AC 161, p 227.
36. Life Insurance Corporation Act 1956, 49 (2j).
37. United India Insurance Co Ltd v Pushpalaya Printers, (2004) 3 SCC 694 : AIR 2004 SC 1700.
38. Indian Stamp Act, 1889, section 47.
39. Ibid, section 35(a).
40. Ibid, section 29(b).
41. D Srinivas v SBI Life Insurance Co, Ltd, Supreme Court, Civil Appeal No 2216 of 2018 vide order dated 16 February
2018.
End of Document
13.1 Extent Insured
Modern Law of Insurance, 6th ed > PART II Life Insurance > CHAPTER 13 EVENT INSURED
AGAINST IN LIFE INSURANCE
CHAPTER 13 EVENT INSURED AGAINST IN LIFE INSURANCE
13.1 Extent Insured

The event insured against in ordinary life insurance is the death of the life assured arising from disease or accident.
It is immaterial whether the death is caused by natural or accidental causes or even due to the criminal act of a third
party. A contract to be valid must satisfy the element of legality of consideration and object. Courts of law do not
enforce contracts, the objects of which are against public policy. One of the cardinal rules of legal theory based on
public policy is that, no man shall be allowed to take advantage of his own wrong and this rule is expressed in the
maxim ex turpi causa non oritur actio, that is, no cause of action arises out of a wrong. Based on this principle, in
law of life insurance, to the above general rule that the legal representatives of the assured can recover on a life
policy of the assured on his death, whether the death is due to natural or accidental causes including death caused
by a criminal act of a third party. Insured was murdered by a group of persons belonging to the other faction. It was
held that the repudiation of the claim by the insurer on the ground that the insured belong to a group of faction and
was involved in criminal cases was not tenable and the death of the insured should only be understood as an
“accident” for the purpose of contractual obligation by insurance company for awarding compensation.1.
Two exceptions have been laid down, namely:
(i) where death of the assured is caused due to the violation of a rule of criminal law by the assured himself;
and
(ii) where death is the result of a suicide.
Murder is one of the most serious offences and therefore on principles of justice, equity and good conscience, the
law lays down that a murderer cannot inherit the property of the murdered person and to hold otherwise, it would be
allowing a person to take advantage of his own wrong. As a sequel to this principle, it has been observed by Lord
Atkin in Beresford v Royal Assurance Co that death caused by the wilful misconduct of the assured himself debars
the personal representatives from recovering on the assured’s life policy.2.
The wilful misconduct of the assured has always been treated as an implied exception in a policy not only in life
insurance but in other branches also. For example, in the case of fire insurance where the fire is caused by the
wilful misconduct of the assured, he is debarred from recovering on the policy. Similarly, where a person takes a life
insurance on the life of another and later kills him, neither he nor any person claiming under such assured is entitled
to recover under the policy either on the ground that there is an implied exception or it is against public policy.3. The
point is well illustrated in Liberty National Life Insurance Co v Weldon where a registered nurse effected three
policies from three different companies on the life of her niece without the knowledge of the parents of the life
assured. The niece was a child of two years. One day the nurse visited the child’s house and gave her soft drink
containing arsenic as a result of which the child died within a few hours. The nurse was prosecuted and convicted
for murder. Not only this, but the insurance companies were held to pay damages to the parents of the child for their
negligence in issuing policies to one who had no interest in the life of the assured.4. Where the misconduct which
resulted in the loss is caused even by a wilful act of an independent third party, the implied exception does not
apply and the assured or his representatives are not deprived of their right to recover under the policy provided the
assured is not a privy to the misconduct. The major source of the risk is from the wilful or negligent conduct of the
Page 2 of 6
13.1 Extent Insured
third parties. In fact, oftentimes, insurance is resorted only to protect from such risk or fear. When a person is afraid
that somebody may kill him, or his property may be set on fire by somebody, he generally applies for insurance to
save himself from the possible loss and if the assured is denied the right to recover under such policies, the very
object of insurance law is defeated. Again, if the insured violates the law or commits an act punishable with a capital
punishment and if he is sentenced to death, he is said to have brought death on himself and the rule of public policy
that no one can make a profit out of his own wrongful or culpable conduct comes into play and debars the assured
or his representatives to recover under the policy. For example, in Amicable Insurance Society v Bolland where a
person is sentenced to death for committing the murder of another person and loses his life in execution of the
sentence, it was held that all persons on whom the right to recover devolves by operation of law and who claim
through such a convict are debarred from claiming under the policy.5. It may be noted that what shall not be done
directly cannot be done indirectly. It shall be seen presenting that when the assured commits suicide, the claims
under the policy are denied. In the above case, it was pointed out that it would be contrary to public policy to insure
a man to benefit upon his death, by the hands of justice. Death resulting from illegal operations or death in a fight or
duel falls within this principle and the insurance company is absolved from liability in such cases.
13.1.1 Suicide or Felo De Se
The risk insured against in a life policy is death and death may be caused by disease, accident, negligence or wilful
acts of himself or of a third person. When the event insured against, namely death occurs, the insurer is liable to
pay normally under the contract. As death is natural to a human being so also a human being is always susceptible
to disease and even without disease as age advances the body is bound to lose strength and this may be likened to
“inherent vice” and “wear and tear” of the subject matter in other branches of insurance; but these exceptions of
“inherent vice” and “wear and tear” are not applicable in life insurance. When death occurs, which is an inevitable
event in the course of every human life, in all life policies, the insurer must pay. But as in other branches of
insurance when the event insured against happens due to the wilful and wrongful acts of the assured or his agent,
the implied term theory comes in and it absolves the insurer from liability. Thus, an ordinary life policy covers the
risk of the assured being murdered by third parties,6. and on similar grounds the commission of suicide by the
insured while insane should not imply an exception to the risk. The reason is obvious. When a person is insane, in
the sense that he does not know the nature of his act, or when he is acting under an irresistible impulse, it is an act,
though done by him apparently, is not one done by him when he is not within himself and such an act is not
culpable and cannot come within the exception based on the rule that no one can benefit himself out of his own
wrong.
In England, it was formally thought when death was caused by the assured himself while sane, it amounted to a felo
de se, a criminal act and so absolved the insurer from liability on the ground that no one can be benefited by his
own wrong. The leading case on this point is Beresford v Royal Insurance Co Ltd, [1935] AC 586 where one
major Rowlandson insured his life in 1925 and the sum assured was payable on his death to the executors of his
estate. It was provided in the policy that if the assured shall die by his own hand, whether sane or insane, within
one year from the commencement of the assurance, the policy shall be void as against any person claiming the
amount thereby assured or any part thereof except that it shall remain in force to the extent to which a bona fide
interest for pecuniary consideration, or as a security for money, possessed or acquired by a third party before the
date of such death shall be established to the satisfaction of the directors. The assured paid premiums for nine
years. Afterwards in a sound state of mind, he committed suicide in 1934 as he was hopelessly indebted. In an
action on the policy the insurance company pleaded that as the assured died by his own hand, it was contrary to
public policy that the company should pay the sum assured. The trial court held that where death from felo de se
was not excluded from the risk except during the first year, the life office could not rely on public policy to define a
claim which arose from felo de se some years after the issue of the policy. The trial court evidently gave greater
importance to the sanctity of the contract. But the court of appeal, after an elaborate discussion, unanimously
reversed the judgement of the trial court. The House of Lords in upholding the decision of the court of appeal
expressed the view that, although the conditions in the policy necessarily implied a positive undertaking by the
company to pay even if the assured died by his own hand, sane or insane, after the expiry of a year from the date of
the policy, it was contrary to public policy that a person who had committed a crime or his personal representative
should be allowed to benefit by that crime. Lord Atkin relied on the words of Lord Justice Fry in Clever v Mutual
Reserve Fund Life Association that:
No system of jurisprudence can with reason include amongst the rights which it enforces, rights directly resulting to the
person asserting them from the crime of that person deliberate suicide, felo de se, is and always has been regarded in
English law as a crime, though by the very nature of it, the offender escapes personal punishment.7.
Page 3 of 6
13.1 Extent Insured
The learned Lord continuing observed:
The remaining question is whether the principle applied when the criminal is dead and his personal representative is
seeking to recover a benefit which only takes shape after his death...I cannot think the principles of public policy to be so
narrow as not to include the increase of the criminals’ estate amongst the benefits which he is deprived of by his crime. His
executor or administrator claims as his representative and as his representative, falls under the same ban.8.
In an earlier decision, in Barradaile v Hunter there was a term in the policy that if the assured should die by his or
her own hands or by hands of justice or in consequence of a duel, the policy should be void. The assured threw
himself into the river Thames and was drowned. The Jury found that he died so voluntarily but he was not capable
of distinguishing between right and wrong. It was held that the contract will govern and his act amounted to “death
by his own hands” and the insurance company was not liable as the clause in the contract providing exception to
the liability of the insurer included all acts of self-destruction.9. From these cases it can be seen that a clause in the
policy may do one of these two things namely, (a) it may provide exemption to the insurer from liability in all cases
of self-destruction, whether sane or insane, or (b) it may provide for liability of the insurer if suicide is committed
after a particular period, say one or two years from the date of the policy whether the suicide is committed while the
assured is sane or insane. In the first class of cases, there is no difficulty as it provides an exemption from liability.
The event insured against, or the risk may be described by the parties as they please and as such there is nothing
wrong in providing for an exemption to the insurance company from liability for suicide committed even by an
insane person. That is exactly what happened in Borradaile’s case. The death caused by the insane person was
held to be covered by the expression death by his own hands. The difficulty was felt in the interpretation of the
clauses of the second type imposing liability on the insurer when suicide is committed by the assured in a sound
state of mind. If liability is imposed on the insurer in case where the suicide is committed by an insane assured,
there is no difficulty. The real difficulty lies when it is provided in the policy, which it is usually the practice of the
insurers, that the insurer will not be liable if the insured in a sound state of mind commits suicide within a specified
time, which implies, or in some cases it may even be expressly provided that the insured will be liable if the assured
even in a sound state of mind commits suicide after the stipulated period. This is exactly what happened in
Beresford’s case. The insurance company assured liability for the death of the assured even while he was sane but
only if it was after one year. Supposed after the stipulated period, if the assured kills himself having a sound mind
and if the insurance company pays the amounts to the claimant there is no difficulty. But if it fails to pay or
repudiates its liability, the difficulty arises. In all other cases, the contract will govern; but in this case the question
arises whether the contract can be enforced? On this point there is some difficulty. The courts generally held the
view, following Beresford’s case that it is against public policy to make the insurer liable in case of deliberate suicide
because it encourages persons to commit suicide and thereby enabling the claimants to recover the amount. The
better opinion seems to be that if the assured commits suicide with the intention of benefiting his dependants it must
be construed as a fraud on the insurance company because it will offend a public policy and the insurance company
will not be liable in spite of providing for liability in the policy. This is because according to English law suicide is of
two kinds: (a) felonious suicide i.e. suicide in a sound state of mind, and (b) suicide in an unsound state of mind; the
first mind of suicide is a crime; but latter type is not. Therefore in cases of suicide the courts consider whether the
assured has sufficient powers of mind and reason to understand the physical and moral consequences of the act,
whether he had an intention to cause his death; if so the insurer is not liable even if liability is provided in the policy.
On the other hand unless otherwise expressly exempted in the policy, if the suicide is due to an irresistible impulse
originating from an insane or unsound state of mind and therefore he did not know what he was doing, it is not the
act of the assured and hence the insurance company cannot escape its liability.
Indian Law Judicial decisions in India preferred not to follow the rule in Beresford’s case, In Northern India
Insurance Co v Kanhaya Lal, the assured insured his life with the company and in the letters of the contract it was
provided that the policy was to become unenforceable if the assured would cause his own death before the policy
has been in existence for one year. The assured after one year assigned the policy in favour of his son and 10
months thereafter he committed suicide out of disgust. It was shown that he did it out of disgust but while in
possession of his senses. In a suit by his son, the assignee, it was held by the Lahore High Court, that the
committing of suicide is not a crime in India and that the rule in English law laid down in Beresford’s case has no
application in our country and the insurers were therefore liable. The condition in the policy is that if the assured has
committed suicide within one year, then alone the company would not be liable, but in this case the suicide was
committed long after the excepted period, the insurers were held liable.
Further, it was pointed out that the English common law was inapplicable in India as the criminal law in India was
the creation of a statute where no punishment for suicide is provided.10. The question came up again in Scottish
Union and National Insurance Co v NR Jahan Begum. In that case the husband of the plaintiff insured his life with
Page 4 of 6
13.1 Extent Insured
the defendant company in 1928 and under several policies in subsequent years. On 31 August 1935, the assured
submitted fresh proposals for 12 more policies for Rs 5,000 each and paid the first premium of all these policies.
The company accepted the proposals and issued the receipts. On the night between 12th and 13th September
1935 the assured shot himself and died. The suit was filed for recovery of the amount under the policies against the
insurers and the defendants’ contention was that they were not liable to pay as the assured committed deliberate
suicide. The questions which arose for decision were considered from two aspects: Firstly, whether on a true
construction of the letter of the policies and the assurances, the risk of death by suicide was in fact covered by
them, and secondly, if they covered such a risk whether the contract to that extent was against public policy, and
therefore unenforceable. The point that fell to be considered was whether the word death included in its scope self-
inflicted death also. The language of the policy did not in terms contain anything indicative of a restrictive meaning
and the word in its ordinary connotation included extinction of life in whatever way or whatever means. It was,
however, contended that the payment being conditioned on the event of death the fulfilment of the condition upon
which it was made contingent, could not be brought about by a voluntary act of the life assured and the word death,
therefore, though used in a general sense was in reality meant to be used in a limited sense. The court held that
they were unable to read any such limitation in the language of the contract. When the intention of the parties was
embodied in a written instrument, the language of that instrument was evidently the final evidence of the intention.
The contracts which were concerned were one set policies adopted avowedly after hundred years of experience by
the company. One of the well-known canons of interpretation was that the language of a deed must be understood
in its ordinary and grammatical sense. It would be more so when the language employed was of the company’s own
deliberate choice and was contained in its formal set of policies. In a letter the company under the signature of its
assistant secretary informed that they thought they were the only company operating in India that issued a policy
free of the suicide restriction whatsoever. The letter indicated that the word death used in the policies was intended
to cover not only death by natural causes but also by suicide as well as death by accident or by the hands of justice.
In these cases, death must be presumed to be accidental and not by suicide, of course such presumptions like all
other rebuttable presumptions may be rebutted by showing facts and circumstances which may be sufficient to
nullify the probative value of the presumption.11.
Then came the question whether suicide was a crime in India and against public policy. The case of Royal
Insurance Co v Major Rowlandson was to show that in England suicide was a crime and against public policy and
as such no liability attached to the company due to the claim arising out of the suicide of Major Rowlandson. The
facts of that case were: In 1925 Major Rowlandson insured his life with the insurance company for £81,000. In 1932
the assured found it impossible to continue paying premiums and by an agreement between him and the company
the policy was reduced to £50,000. Financially Major Rowlandson was hopelessly involved in 1934. The date of
payment of premiums had been extended till 16 July and then again until 21 July and finally till 3 pm on 3 August.
He could not find the money and at 3 minutes to 3 pm he shot himself in a taxicab. It was found by the special Jury
that he was perfectly sane at the time he committed suicide. The action for realisation of the money due on
Rowlandson’s policies was brought by his administratrix for the benefit of his creditors. The question whether
felonious suicide was a bar to the action was fully considered in the light of English law and it being found that the
plaintiff, as a special representative stood in the shoes of the assured who had committed as it were a murder on
himself, the claim was equivalent technically to a claim brought by the assured or his representative or assigns on a
policy effected by the murderer on the life of the murdered man. It was held, therefore, that the court could not allow
a claim in contract to be based upon the contracting party’s crime as a necessary constituent of the cause of action
even though an interval of time and circumstance separated the crime from the resulting death. The following
observation from the judgment is very instructive:
Opinions may differ whether suicide of a man while sane should be deemed to be a crime, but it is so...It may be
that both ecclesiastical and civil penalties have been mitigated or abolished but the criminal law still remains. Only
the legislature in his country can change the law in this matter if it should so will. While law remains unchanged the
court must, we think, apply the general principle that it will not allow a criminal or representative to reap by the
judgement of the court the fruits of his crime.
In cases where the contract dealt with expressly the event of suicide, it was said that even though the insurance
company had agreed to pay the executors or assigns on death the sum assured if he dies by his own hand, the
contract would not be enforced in a court of law because of the well-established principle that the rights resulting to
the person asserting them from the crime of that person could not have the sanction of law. The view in this behalf
was based on public policy in England.
The question whether suicide is against public policy depends upon the system of jurisprudence prevailing in that
country and upon the conception of public policy as embodied therein. It is, for example, in England a crime not to
send a child to school while it is not a crime in India. Again, the crime of champerty is well known to English law
Page 5 of 6
13.1 Extent Insured
while in India, it is neither a crime nor is it against public policy. The court also observed that upon a reading of the
criminal law of this country one would be convinced that suicide was not an offence in India. In India, law would
unhesitatingly hold that suicide is not against public policy as exhibited by the normal conception of society or as
conceived by its laws. The contention of the learned counsel for the company on this behalf was therefore rejected
and the suit decreed.12.
It is submitted that the correctness of these decisions is open to doubt because of the following reasons:
(i) Suicide is condemned according to the personal law of Hindus as well as Mohammedans and it is declared
to be a sinful and immoral act.
(ii) It is because of the above principle, on principles of justice, equity and good conscience, a murder has
been disqualified from succeeding to the estate of the deceased person.
(ii) It is wrong to think that an “attempt to suicide” only is an offence while “suicide” is not, considering morality
of the act. In fact such a contention was raised in a different situation in a case before the Madras High
Court in Amiraju v Seshamma, where it was contended that attempt to commit suicide is an offence while
suicide is not an offence and therefore a consent of wife obtained by the husband by threatening to commit
suicide cannot be held to be one obtained by coercion, the court negatived the contention and held that
suicide is not punished not because it is not a detachable or immoral act, but because of physical
impossibility of punishing such a commission.
For these reasons, it is submitted that, if a policy of life insurance contains an agreement to pay the sum insured,
even though the assured commits suicide while sane, it must be considered as an agreement opposed to public
policy, within the meaning of section 23 of Indian Contract Act and the insurers should not be made liable.
13.1.2 Exception to Suicide
A clause is generally inserted in the policy that if any third party has acquired a bona fide interest for valuable
consideration, he will be entitled to recover the amount not exceeding the sum assured. In City Bank v Sovereign
Assurance Co, the assured deposited the policy and received a loan on the security of the policy. Later on, he
committed suicide. There were other securities also. It was held that the debt might be paid out of the insurance
amounts, because a bona fide assignee for valuable consideration is not subjected to the disabilities incurred by the
assured subsequent to the assignment.13. The bona fide assignee, as noted in the general principles of insurance
law, is subjected only to the equities the assignor was liable by the date of assignment. But it may be noted that this
benefit is not and cannot be extended to persons who obtained an interest in the policy by operation of law or
bankruptcy and likewise to voluntary assignments.
1. Manager, United India Insurance Co Ltd v Ummadi Shankunthala, AIR 2005 AP 336 : 2004 (5) ALD 692 : 2004 (5) ALT
525.
2. [1935] AC 586 , 595.
3. Beresford v The Royal Assurance Co, [1935] AC 586 .
4. 1957 Alabama 100 So 2d 696.
5. (1830) 4 Bligh NS 194 HL.
6. Lord Abinger in Wainwright v Bland, (1835) 1 Moo&Rob 481, 486.
7. [1892] 1 QB 147.
8. [1938] AC 586, 599.
9. [1843] 5 M &G 639.
10. AIR 1938 Lah 561.
11. Ranjani Bai v New India Assurance Co, AIR 1956 Bom 633.
12. AIR 1945 Oudh 152.
13. (1884) 32 WR 658.
Page 6 of 6
13.1 Extent Insured
End of Document
14.1 Matters Affecting the Risk
Modern Law of Insurance, 6th ed > PART II Life Insurance > CHAPTER 14 CIRCUMSTANCES
AFFECTING THE RISK
CHAPTER 14 CIRCUMSTANCES AFFECTING THE RISK

Risk in life insurance is the risk of death at an early date due to disease as distinguished from accident. In Thomson
v Weems, Lord Blackburn observed:
Those whose business is to insure lives calculate on the average rate of mortality, and charge a premium which on that
average will prevent their being losers.1.
Hence in life insurance, facts which tend to shorten the span of the life assured would amount to the circumstances
affecting the risk and those facts are regarded as material facts for purposes of the duty of disclosure. It is common
practice for the insurers to put specific questions in the proposal form about these facts. A life insurer makes
enquiries regarding the following facts, namely, (a) age of the proponent, (b) his family history, (c) personal health,
(d) moral history including habits of life, past and present and (e) geographical position and occupation.
14.1.1 Age of the Proponent
Age is an important material fact in life insurance as the rate of premium depends on the age of the assured. The
age is generally proved when the policy is issued and if the age is admitted an endorsement declaring “age
admitted” is generally made on the policy. When once the endorsement in writing is there on the policy, no further
proof is necessary.2. Once the age is admitted by the insurer, the correctness of the age cannot be questioned
unless the insurer can prove that his admission was procured by the fraud of the assured.3. If age is not proved and
admitted on the policy when issued, it should be proved by the assured during the performance of his contract.
For proof of age, he may submit any one of the following documents, namely:
(i) Birth register extract from Municipal or other authentic public record,
(ii) School or College certificate,
(iii) Certificate of Baptism,
(iv) Passport,
(v) Horoscope prepared at the time of birth, or
(vi) a Declaration from an elderly person having knowledge of the date of birth sworn to before a magistrate,
(vii) Domicile certificate,
(viii) Marriage certificate or
(ix) Extract from service register in the case of government servants or employees of other authorised
institutions.
Page 2 of 3
It is always desirable and convenient for the assured to get his age admitted by endorsement on the policy by
proving his age either at the time when the policy is issued or as soon as possible thereafter during his lifetime. It
becomes more difficult and inconvenient to prove it for the claimant after the death of assured. When once a date is
given as the date of birth, and on subsequent verification after the issue of the policy, the date is found to be wrong
it may result in either overstatement of age or understatement of age. In either case, the original representation
becomes a misrepresentation, but the effect on the validity of the policy is different. If it is overstatement, it is
considered to be an innocent misrepresentation as it will be against the interest of the maker and so in such cases
the validity of the policy is not affected. In such cases if the insurer accepts the proof of age, he can be compelled to
refund the excess payment towards the premium and to adjust the rate for future payment according to the proved
age. But when it turns out to be an understatement of age, if it is a gross understatement or is proved to have been
made wilfully, it amounts to fraud and the policy becomes voidable. If it does not amount to fraud, the insurer may
follow either of the following two courses:
(i) the sum assured may be reduced to such amount as would have been secured if the correct age is known
at the time when the policy is issued; or
(ii) the assured may be required, if he wants to continue the policy for the entire insured amount, to pay the
difference of premium with interest for the earlier period and raise the rate of premium for future payment.
The Insurance Act 1938 says:
Nothing in this section shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no
policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent proof
that the age of the life insured was incorrectly stated in the proposal.4.
The section generally provides that the correctness of a representation shall not be questioned by an insurer after
two years but the proviso specifically makes an exception with reference to the representation of age in a proposal
form. According to this, the insurer is entitled to call for proof of the age from the assured at any time if the same
had not been proved and admitted as true by an endorsement on the policy notwithstanding the fact that the
requisition for proof has been made by the insurer after two years. Further, the proviso provides, that although his
right to call for proof is recognised even after two years, it is made clear that the insurer has no right to cancel or
avoid the policy and his right is restricted to adjust the rate of payment of premium. The result is that if an insurer
misstates his age, a reasonable insurer makes a corresponding adjustment of the sum assured instead of avoiding
the policy but if he does neither and accepts premiums even after knowing the mis-statement about his age, the
insurer is estopped from denying the validity of the policy as held in Hemmin’s v Sceptore Life Association, [1905] 1
Ch 365. In that case a proposer effected with the insurers an endowment policy payable at the age of 60 or at death
and negligently misstated her age as 41 years though in fact she was at that time forty-four years of age. This fact
was brought to notice of the insurers in 1897 and in spite of that the insurers accepted the premiums for two
subsequent years. Later they demanded from the assignee a higher rate of premium and also the difference of
premiums accumulated to date at the revised rate. The assignee declined to pay the higher rate and tendered the
original rate premium and the insurers refused to receive the same. It was held that the insurers had forfeited their
right to claim adjustment of premium as they accepted the original rates of premium without protest even after they
came to know about the error in age. Houseman also observes: “if after becoming acquainted with a breach of
warranty, the life office continues to treat the policy as valid it will be held to have waived the breach.”5. The
Standard Provisions Law in USA provides a simpler and better solution for this problem by insisting a clause to be
included in every policy to the effect that “if the age of the assured has been misstated, the amount payable and
every benefit accruing thereunder shall be said as the premium paid would have purchased at the correct age.”
14.1.2 Final History
The risk in life policies depend on longevity of the assured and heredity throws sufficient light and plays an
important role in the determination or the probable longevity of a person. Therefore, the medical officers usually put
a number of questions about the births and deaths of brothers, sisters, parents and near relations, the diseases
from which they suffer then or suffered in the past, the causes of their death and ages at their deaths. Family history
gives a clue to the insurers as to the constitution and prospects of longevity of the assured. Insanity of the near
relatives is one of the things to be revealed. The assured must give correct answers regarding the family history. In
Asia Assurance Company v Kartiya Devi, the total number of brothers and sisters had to be filled in one column and
the actual number alive in another column. The assured filled the first column but left the other blank. It was held
Page 3 of 3
the answer amounted to suppression of truth and hence amounted to misrepresentation and the policy was void.6.
14.1.3 Personal Health and Moral History
The habits of life, past and present and which tend to shorten the life must be disclosed, e.g., the use of opium,
tobacco or alcohol. Questions are often asked as to the temperate habits of the assured.7. What is intemperance
has nowhere been defined but it has been held that it is not limited to such intemperance as would impair the
general health of the assured.8. The present state of health is material because no prudent insurer would underwrite
the life of a person afflicted with a fatal disease or who is one on a death bed. The past illness also becomes
material because sometimes, some kinds of diseases leave a permanent effect on the constitution of the person
and shorten his life. The nature and duration of treatment becomes useful to make an enquiry from the previous
medical attendants. Questions about past illness and treatment stand on a different footing than the questions
about the present state of health, because the answers to the former type of questions are facts while those of the
latter type of questions are mostly matters of opinion, but even questions relating to past have been construed to
have a limited meaning. For example the question “what medical men have you consulted?” has been interpreted
as not to extend to consultations during the assured’s early childhood.9. Again the duration of a man’s life depends
as much on his habits of life as on his inherited constitution. Regular habits regarding food, sleep, etc tend to
increase the longevity; similarly, marriage and children in some cases contribute tendency to stability and provide
an incentive for the person to safeguard his life and at the same time in some other cases become a source of
additional strain and worry as he should earn money for their maintenance and thereby adversely affect his
chances of longevity.
14.1.4 Geographical Position
The place where the application lives is important as climate and environment have an appreciable effect on one’s
health. Unhealthy surroundings have a tendency to shorten life. Further, the particular place may be subject to
earthquake, volcanoes and floods. Therefore, the applicant must give his residential address. In an English case
Huguenin v Rayley where the assured gave his residential address but actually he was not there at that time, it was
held that the omission of this fact was fatal to the policy and the insurance company was not liable.10.
14.1.5 Occupation
Information regarding the occupation is essential to understand the nature of the risk. If it is a dangerous occupation
such as a soldier, sailor, airman or workman in ammunition factory, the insurers charge a higher rate of premium. If
the description is with reference to non-dangerous occupation, it will not affect the validity of the policy.
1. [1884] 9 AC 671 , 681.

2. Alliance and Strutgarter v Hemantha Kumar, AIR 1938 Cal 641.
3. MK Shah v Yorkshire Insurance Co, AIR 1938 Bom 161.
4. Insurance Act, 1938, section 45.
5. Houseman, Law of Life Insurance, p 24.
6. [1936] Cal 437.
7. Hutton v Waterloo Life, (1899) 1 F & F 735.
8. South Combe v Merriman, (1843) Car & M 286, 287.
9. Goel v Law Union, [1908] 2 KB 891 .
10. (1815) 6 Taunt 180.
End of Document
14.2 Section 45 of the Insurance Act
Modern Law of Insurance, 6th ed > PART II Life Insurance > CHAPTER 14 CIRCUMSTANCES
AFFECTING THE RISK
CHAPTER 14 CIRCUMSTANCES AFFECTING THE RISK

The insurance contract is a contract of utmost good faith and therefore if the assured has not disclosed all the
material facts, the insurance company can avoid the contract. It has become the practice of the insurers to insert a
clause in the policies and proposal forms as we have already noted, to declare that all the answers stated in the
proposal form shall form the basis and form part of the terms of the contract in the policy. By such a declaration, for
any variation of the state of things from the representations in the proposal form, whether in fact such a fact is
material or not and however slight the variation may be, the insurer gets a right to avoid the policy. Section 45 of the
Insurance Act, 1938, modified this rule materially and mitigated the rigour of the rule of utmost good faith. It lays
down that no policy can be challenged after two years from the date of the policy on the ground that any statement
made in the proposal or in any report of the medical officer or any document was inaccurate or false unless it is
material to disclose and it was fraudulently made and the policy holder knows at the time that it was false or he
suppressed the fact material to be disclosed, provided that nothing in that section prevents the insurer from calling
for proof of age of the assured or to adjust the rate of premium according to the correct age proved subsequently.
In Life Insurance Corporation v Parvathavardhini, the Madras High Court considered the scope of the above section
and also discussed the case law on the application of the rule of utmost good faith to insurance contracts. In that
case the widow of the assured filed a suit against the Life Insurance Corporation in order to recover Rs 20,000 and
Rs 30,000 under two policies one in March 1955 and the other in May 1955, respectively. The assured died in May
1955, due to Quro Khrom (heart-trouble). The Life Insurance Corporation contended amongst other things that the
assured had failed to disclose that he was suffering from blood pressure, diabetes and heart-trouble and also the
fact that in 1929 his application for insurance was accepted with extra payment and so the policy is void. It was held
by the Madras High Court that as the company failed to examine the doctors, the statements made by the doctors
in their reports have to be taken as true unless evidence is adduced to the contrary. The burden of proof under
section 45 is a very heavy one and is placed on the insurers and they cannot escape the obligation of examining
the doctors on whose reports they accepted the proposal of the assured. The failure to examine the doctors and the
other officers of the corporation or company shall make the court draw an adverse inference against the company.
It is true that the rule of utmost good faith is applied to insurance contracts; but section 45 has eliminated the nice
distinction of English law.11. The Court considered the earlier cases which may be referred here. In Mithoolal v Life
Insurance Corporation, the Life Insurance Corporation challenged a policy after two years after its issue. It was in
evidence that the assured fraudulently suppressed facts. It was held that the Life Insurance Corporation was not
liable.12.
In New India Insurance Company v Raghava Reddi, it was held that a policy cannot be avoided on the ground of
misrepresentation unless the following are established by the insurer namely, (a) the statement was inaccurate or
false, (b) such statement was on a material matter or that the statement suppressed facts which it was material to
disclose, (c) the statement was fraudulently made, (d) the policy holder knew at the time of making the statement
that it was false or that fact which ought to be disclosed has been suppressed.13. In All India General Insurance Co
Ltd v SP Maheshwari, it has been held that the insurance company is entitled to avoid the policy on the grounds of
deliberate misrepresentation about a drinking habit and non-disclosure of venereal disease.14. In Life Insurance
Page 2 of 2
Corporation of India v Janaki Ammal, following the observations of the Supreme Court in Mithoolal v Life Insurance
Corporation referred to above held that if a period of two years has expired from the date on which the policy of life
insurance was effected, that policy cannot be called in question by an insurer on the ground that a statement made
in the proposal for insurance or on any report of a medical officer or referee, or a friend of the insured, or in any
other document leading to the issue of the policy, was inaccurate or false.15. If the policy is questioned after a period
of two years, the insurer can repudiate the policy only if he knows that such a statement was on a material matter or
the insured suppressed facts which it was material to disclose and that it was fraudulently made by the policy holder
and that the policy holder knew at the time of making it that the statement was false or that it suppressed facts
which it was material to disclose.
14.2.1 Terminus Que for the Period
The period of 2 years fixed by section 45 of the Insurance Act, 1938, was for policies effected before the Act, the
date of commencement of the Act, i.e., 1 July 1939. In the case of other policies, the period runs from the date on
which the policy is effected. This is the date from which the risk is covered and not from the date when a formal
policy is issued.16. In the following cases when the insurer attempted to repudiate the policy after 2 years as the
burden of proof is on him the repudiation was not upheld and the suits were decreed.17. Similarly, when the insurer
discharged the burden of proving fraud in respect of material facts the repudiation by the LIC was upheld and suits
for the sum insured were dismissed.18.
In Shanta Trivedi v LIC, five policies taken by the husband of the plaintiff were repudiated by the LIC on the ground
that the proposer knowingly suppressed the fact that he was suffering from Diabetes, Hypertension and that he had
Ectopic Kidney. The LIC could not prove the allegations. The court therefore refused to uphold the repudiation.19.
11. (1964) 2 Mad LJ 202.

12. AIR 1962 SC 814.
13. AIR 1961 AP 295.
14. AIR 1960 Mad 484.
15. AIR 1968 Mad 324.
16. Sheo Sankar v LIC, AIR 1971 Bom 314.
17. New India Assurance Co v Sulochana, AIR 1962 Ass 65; Lakshmi v Bibi Padmavathi, AIR 1961 Punj 263; New India
Assurance v Raghavareddy, AIR 1965 AP 295; LIC v Parvathavardhani, AIR 1965 Mad 357; Daulatram v Bharat
Insurance Co, AIR 1975 Del 180; LIC v Janaki Ammal, AIR 1968 Mad 324; LIC v Chandravathamma, AIR 1971 AP 41;
LIC v Manjula Joshi, AIR 1975 Ori 116.
18. Mithoolal v LIC, AIR 1962 SC 814; All India General Insurance Co v Maheshwari, AIR 1960 Mad 484; Srinivas v
Premier Life and General Ins Co, AIR 1958 Mys 53; Munilaxmi v Hindustan Cooperative Insurance, AIR 1962 Cal 625;
Keshava Seethamma v Bombay Life, AIR 1954 Mys 134; Balakrishna v New India Assurance AIR 1959 Pat 102;
Bhanumathi v LIC, AIR 1970 Lab Ind Cas 598 (Guj); LIC v Canara Bank, (1973) 2 Mys LJ 117; Srinivas Pillai v LIC, AIR
1977 Mad 381; Ramabhai v LIC Bhopal, AIR 1981 MP 69 (DB).
19. AIR 1988 Del 39.
End of Document
15.1 Amount Recoverable
Modern Law of Insurance, 6th ed > PART II Life Insurance > CHAPTER 15 AMOUNTS
RECOVERABLE UNDER LIFE POLICY
CHAPTER 15 AMOUNTS RECOVERABLE UNDER LIFE POLICY

Under a life insurance policy the following amounts are recoverable, namely:
(i) The amount insured on the happening of the event insured or after the completion of the period.
(ii) Bonus if declared by the company: This is also recoverable with the insurance amount.
(iii) The share of the profits: In the case of a participation policy, a share in the profits may be recovered in
addition to the sum assured. This will not make the assured a member or a contributory of the company.
But he has a right only after the profits have been declared by the Board of Directors of the company.
(iv) Surrender value: In case where the policy lapses due to non-payment of premium or where the assured
surrenders the policy, the insurance company may pay a percentage of premium paid according to the
rules of the company.
The Insurance Act, 1938 lays down in section 113 as follows:
A policy of life insurance under which the whole of the benefits become payable either on the occurrence, or at a fixed
interval or fixed intervals after occurrence, of a contingency which is bound to happen, shall, if all premiums have been paid
for at least three consecutive years in the case of policy issued by an insurer...acquire a guaranteed surrender value, to
which shall be added the surrender value of any subsisting bonus already attached to the policy, and every such policy
issued by an insurer shall show the guaranteed surrender value of the policy at the close of each year after the second year
of the currency of the policy:
Provided that the requirement of this sub-section as to the addition of the Surrender Value of the bonus attaching to a policy
at Surrender shall be deemed to have been complied with when the method of calculation of the guaranteed Surrender
Value of the policy makes provision for the Surrender Value of the bonus attaching to the policy.
Provided further that the requirements of this sub-section as to the showing of the guaranteed Surrender Value on the
policy shall be deemed to have been complied withwhen the insurer shown on the policy the guaranteed Surrender Value
of the policy by means of a formula accepted in this behalf by the Authority as satisfying the said requirements.1.
Life assurance is mainly based on a co-operative principle in the sense that the premiums paid by the policy holders
are pooled together and after meeting the preliminary expenses of administration, etc, the balance is formed into or
added to a fund which is invested in good business or which attracts an accumulated interest. On that basis, when
the calculations are made, and if one of the policy holders withdraws from such a co-operative enterprise, the
remaining policy holders suffer a set-back and it is the duty of the seceding policy holder to make good not only the
administrative expenses, etc, incurred, but something more must be deducted; but that amount also must be fair
Page 2 of 2
and equitable. Though, under the general principle of contract law, the breaching party is not entitled to any remedy
and the insurer is entitled to forfeit the entire premium paid, equity leans against forfeiture and provides a claim
even to a defaulting party but at the same time he who seeks equity must be ready to do equity and so he is also
required to forego a reasonable amount as though to contribute to compensate the continuing policy holders for any
loss that might be caused to them as a result of his sudden withdrawal. The amount thus payable to a seceding or
defaulting policy holder is technically called the surrender value of the policy. The surrender value is the amount
agreed to be paid by the insurer to the policy holder whose policy lapses due to default of payment of premium. In
actual practice, in India, after the advent of the Life Insurance Corporation a policy acquires a surrender value after
payment of premiums for two years or 1/10th the total number of premiums stipulated in the policy contract,
whichever is less, provided the premiums paid exceed at least one full year’s premium.
In Reserve Bank v Peerless General, O Chinnapa Reddy J remarked:
…We suggest that there should be a complete ban on forfeiture clauses in all savings schemes including life insurance
policies, since these clauses hit hardest the class of people who need security and protection must...
Khalid J added:
The LIC enjoys many privileges. It has a duty to be above suspicion. It has a duty to serve the people in the right manner. I
am constrained to observe from my experience that I have found the LIC heartless wherever claims are made against it.2.
When once the policy acquires a surrender value the insured has two options; one to continue the policy to the
extent of the paid-up sum, which arises in cases where the policy holder has a temporary financial trouble and the
other is to take a paid-up policy for a reduced sum. When the policy holder wants, it is generally provided in the
policy that after a policy has acquired a surrender value, if the assured desires to discontinue payment of future
premiums he can secure a paid-up policy for a reduced sum without any liability to pay further premiums, provided
he makes at least during the days of grace an application to the insurer while the policy is in force. This will be done
by the policy holder when there is no hope of adjusting his affairs as to enable him to continue the policy.
From the practical point of view, it may be noted that during the first few years of the policy, the surrender value is
comparatively lower than that which he would get when the policy is kept up for a substantial time, as the initial
expenses of the policy are heavy and that deduction is constant in either case. So, it is always advisable to a policy
holder to keep the policy in currency and pay as many premiums as possible. In case he opts to make the policy a
paid-up policy, he can recover that amount which is calculated according to the premiums paid on the happening of
the event. But a paid-up policy holder is not entitled to a share in the profit or bonus.
1. The Insurance Act, 1938, section 113.

2. AIR 1987 SC 1023.
End of Document
15.2 Automatic Extension Clause
Modern Law of Insurance, 6th ed > PART II Life Insurance > CHAPTER 15 AMOUNTS
RECOVERABLE UNDER LIFE POLICY
CHAPTER 15 AMOUNTS RECOVERABLE UNDER LIFE POLICY

This clause is one of the facilities given by the Life Insurance Corporation to prevent a forfeiture of the policy,
especially, in a case where the policy holder is in a temporary financial difficulty. Therefore, this is called a non-
forfeiture clause. Section 113(4) provides that section 113(2) (automatic paid-up sum) shall not apply to policies in
which the surrender value is automatically applied under the terms of the contract to maintaining the policy in force
after the lapse of policy by non-payment of premium. In Mekenna v City Life Assurance Co, a policy was effected at
a quarterly premium and contained the condition that “Any policy which has acquired a surrender value will not
immediately lapse if a renewal premium be not paid within the days of grace, but will be kept in force for twelve
calendar months from the date upon which the last premium became due.”3. In such cases, since this is of the
essence of the life insurance contract, equity will not give again a relief against forfeiture for non-payment for the
assured and the life offices are not on an equal footing as Houseman states, the former having the right to renew
while the latter cannot compel payment.4. For this reason it was held in the above case that a tender of overdue
premium must be made within two months from the renewal date and a tender after that time, though within 12
months of the expiry of days of grace, was too late and the policy had lapsed.
Under this clause (automatic non-forfeiture) if the assured fails to pay the amount, the insurance company will
adjust the surrender value and treat the value towards the payment of the premiums, or as though the payment of
the premium has been made. This amount will be deducted from the sum to be paid after the policy matures. This
clause is interpreted liberally by the courts. For example, in Annapurnabai v Hindustan Co-operative Insurance Co,
the insurance amount was Rs 3,000 and for a 20 year period. It was stipulated in the policy that the surrender value
would remain the property of the assured even if the policy lapsed on account of non-payment of premiums. The
assured failed to pay the premium and the assured was informed by the Insurance Company that the policy lapsed
for non-payment of premium and the surrender value was exhausted as the surrender value was applied for
keeping the policy alive by reference to the prospectus and rules of the company which were not referred to in the
policy. The assured filed a suit for recovery of the surrender value. It was held that the surrender value always
remains the property of the assured and therefore it could not be exhausted by adjustment under the extension
clause and the only right of the company is to treat the adjustment as loan.5.
In Hundraj Tolamal v Lakshmi Insurance Co Ltd, the policy acquired surrender value after three years. Subsequent
premiums were not paid. The policy was kept alive by applying the said surrender value; within the days of grace
the subsequent premiums were paid. It was held that in applying the surrender value for the payment of premiums,
the benefit of days of grace would be available.6. Again in National Indian Life Insurance Co Ltd v Mahadavan, the
annual premium of Rs 151–12–0 was payable in four quarterly instalments. This first three instalments were paid
and default occurred in respect of the fourth instalment of about Rs 37–15–0. The surrender value on the date of
default was Rs 86–3–0. It was argued by the insurance company that the surrender value must be sufficient to pay
at least one year’s premium. The court rejected the argument and held that under the extension clause the
surrender value must be adjusted towards the payment of the quarterly premium and the policy could not be
forfeited.7. But the non-forfeiture provision in the policies issued by the Life Insurance Corporation does not keep the
policies alive in this manner. An LIC policy will become paid-up for a proportionate reduced sum, free from liability
Page 2 of 2
to pay further premiums, if the default occurs after regular payment of the premiums for at least two years, provided
however, if the premiums are paid for at least three years and the assured dies within six months from the date of
default, the full amount assured by the policy will be paid subject to usual deductions.8. Further the LIC policies,
however, can be revived during the lifetime of the assured within five years from the due date of the first unpaid
premium without including the days of grace on production of evidence of good health etc to the satisfaction of the
corporation.9. In Hindustan Ideal Insurance v Vijayalakshmamma, the insured paid the premiums due and gave the
declaration of good health to the insurer’s agent in compliance with the insurer’s letter. The insurer, on receiving
these, admitted the insured as a policy holder. In the meanwhile, the insured was murdered. On the day of death of
the insured the policy remained lapsed and on that ground the insurer repudiated the claim. But rejecting the
contention of the insurer the court held that the policy revived at the instant when the agent received the amount
and the declaration of revival brought about by the exercise of the contractual right of the insured restores the
original policy to its full force and effect.10. It was also held that an insurer cannot under the guise of reinstatement
impose new conditions or restrictions that are not found in the original policy or rewrite the contract in such a way as
to repudiate or alter the risk assumed in the original policy.11.
The insured took the policy in the name of his son. After that his son disappeared and he paid premiums for four
years and stopped thereafter. After seven years, the insured claimed the policy money. The insurer denied to pay
full sum on the ground that the son would be presumed to be dead at the end of the seven years and premiums
were paid only for four years and as a result the policy lapsed. It was held that the date of death can be taken as
date of his disappearance and the premiums need not be paid from the date his disappearance.12.
3. [1919] 2 KB 491.
4. Houseman, Life Insurance, p 25.
5. AIR 1943 Nag 9.
6. AIR 1941 Sind 209.
7. AIR 1933 Mad 680.
8. Refer to LIC policy.
9. Ibid.
10. AIR 1959 AP 562 (FB).
11. Ibid.
12. Bhanumati Dayaram Mhatre v Life Insurance Corporation of India, AIR 2008 Bom 196 : 2008 (6) Bom CR 311.
End of Document
16.1 Persons Entitled
Modern Law of Insurance, 6th ed > PART II Life Insurance > CHAPTER 16 PERSONS ENTITLED
TO PAYMENT
CHAPTER 16 PERSONS ENTITLED TO PAYMENT

After the maturity of the policy either by death or by the happening of the event insured against, the contract in the
policy is discharged by payment of the insurance money; but then the question arises as to whom should the
money be paid? It must be paid to the following persons:
16.1.1 Payees
The person whose name is entered in the benefit schedule of this policy, is generally entitled to receive the amount
due under the policy after its maturity. He is a person who by his own name on the face of the policy is entitled to
the proceeds of the policy and he is called the payee.
16.1.2 The Assured Himself
In the case of insurance on one’s own life, the assured himself can get the payment if he is living at the time of its
maturity. In the case of insurance on the life of third parties also the assured will be entitled to get the amount. For
example, if a creditor takes a policy on the life of the debtor, the creditor will be entitled to get the payment. If it is
the intention of the parties, the debtor may get the payment especially, if the debtor paid the premium or if the
insurance is by way of indemnity. In Salt v Marquis of Northampton, Lord Selborne observed that the prima facie
effect of the agreement is to vest the equitable property in the policy in the debtor, subject to the creditor’s
security.1. Even if the debtor has refused to pay the premium, there is no question of abandonment.
16.1.3 Executors and Administrators
In the case of his death before the event, his legal representative can get the payment. It is generally provided in
the policy that the sum assured is payable to the assured or his executors, administrators, assigns or other legal
representatives. Here, the term legal representative is used in a broader sense than in general law or the Indian
Succession Act. Generally, the expression includes only executors and administrators, but here it includes any
person who in law can give a valid discharge to the insurer on receiving the payment. It may be the heir at law or a
surviving coparcener under the Hindu Mitakshara coparcenary. The Indian Succession Act, 1925 lays down that the
executor or administrator of a deceased person is his legal representative for all purposes and all the property of
the deceased person vests in him as such.2. But where the property of the deceased person who is a Hindu,
Mohammedan, Buddhist, Sikh or Jain or an exempted person and his property would otherwise have passed by
survivorship to some other person, the property of the deceased will not vest in an executor or administrator.3. No
right to any part of the property of a person who has died intestate can be established in any court of justice unless
Letters of Administration have first been granted by a court of competent jurisdiction; but this however, shall not
apply in the case of a Hindu, Mohammedan, Buddhist, Sikh, Jain or Indian Christian.4. Further, no right as executor
or legatee can be established in a court of justice, unless a court of competent jurisdiction in India has granted
probate of the will under which the right is claimed, or has granted letters of administration with the will but, this will
not generally apply in the case of wills made by any Hindu, Buddhist, Sikh or Jain, where the wills are of the types
referred to in clauses (a) and (b) of section 57 of the Indian Succession Act.5. These clauses refer to:
Page 2 of 11
(a) all wills and codicils made by any Hindu, Buddhist, Sikh or Jain on or after the first day of September, 1870
within the territories which at the said date were subject to the Lieutenant Governor of Bengal or within the
local limits of the ordinary original civil jurisdiction of the High Courts of Judicature at Madras and Bombay;
and
(b) all such wills and codicils made outside those territories and limits so far as relates to immovable property
situate within those territories or limits; and
(c) all wills and codicils made by any Hindu, Buddhist, Sikh or Jain on or after the first day or January, 1927, to
which those provisions (set out in Sch III) are not applied by clauses (a) and (b):
Provided that marriage shall not revoke any such will or codicil.
No suit shall lie against the insurer if the deceased was a Hindu, Buddhist, Sikh or Jain at the instance of his
executor unless his executor obtains a probate if the policy has been disposed of by the testator by a will or codicil.
In cases where Letters of Administration or Probate are not necessary, a Succession Certificate may be obtained
under Pt X of the Indian Succession Act, 1925 and a payment to a holder of a Succession Certificate will completely
indemnify the insurance company.6.
If the life-assured has died without making an assignment or nomination under the policy, the insurer ordinarily
requires evidence of legal title of the person to receive the payment under the policy by production of letters of
administration or probate of a will and in cases where it is not compulsory to have them, a succession certificate is
sufficient. But in actual practice, the Life Insurance Corporation does not insist on the production of the above legal
documents where the claim amount is not very large and the deceased died leaving class heirs under the Hindu
Succession Act such as wife, sons, daughters and mother and if there is no dispute between themselves but makes
payment to the agreed and admitted heirs on the strength of an indemnity bond.
16.1.4 Joint Family Members
Insurance on the life of a joint family member gives rise to some difficulty as noted earlier.7. The general rule in such
cases is that, in the absence of anything to the contrary, the insurance amount is treated as the separate property
of the assured, because it is a personal contract and the primary object of life insurance is to benefit the wife and
children of the assured. In Mathupalli Venkata Subbarao v Lakshminarasamma it was held that having regard to
modern social conditions, the general presumption is that the policy amount is separate property and does not
become joint family property unless there is a clear contrary intention.8. If the premiums are paid from the joint
family funds, there is a difference of opinion. The better opinion seems to be that the coparceners have the right of
account for the premiums paid but the policy amount will be treated as a separate property of the assured. A
different rule was laid down in Oriental Life Insurance Co v Ammiraju, 35 Mad 162. This view seems to have been
accepted by the Supreme Court in Parvati Kuer v Saranghar. In that case the premiums of a policy on the life of the
eldest brother were paid out of joint family funds. Similar policies are taken on the lives of all brothers and all
premiums have been paid out of the joint family funds. On the death of the eldest brother, his widow and children
claimed the sum for themselves contending that insurance policies must be placed in a separate category by
themselves, and they should be treated as the separate property. Rejecting the contention, Hidayatullah J
observed:
We are also of the opinion that there is no proposition of law by which insurance policies must be regarded as the self
acquired property of the coparceners on whose lives the insurance is effected by a coparcenary and the proceeds of an
insurance policy do not belong to the joint family.
Commenting about the contrary view expressed in the above case, in Venkata Subbarao v Lakshminarasamma on
similar facts, the court observed that having regard to the growth of individual consciousness in marked contrast to
the more corporate outlook of an earlier day, the general presumption must be that when one of them insures his
life, the amount of the policy belongs to the assured as his separate property and loss does not become a joint
family property and that therefore “the premiums would be treated as amounts drawn by the individual members
and they must be debited with same amounts”, the Supreme Court observed “we need not decide whether such a
broad proposition should be accepted as being in consonance with rules of Hindu Law”.9.
16.1.5 Voluntary Assignees
The claim under a life insurance policy constitutes the property of the assured. Just as other properties, this is also
Page 3 of 11
alienable and heritable. It is an actionable claim. The Transfer of Property Act defines an actionable claim and we
have noted earlier about the procedure for assignment.10. If a life insurance policy is transferred by sale, gift or
mortgage, the assignee will be entitled to receive the payment, if it is a valid assignment satisfying the conditions
laid down in section 38 of the Insurance Act. If the conditions are not satisfied, the assignment is invalid and the
assignee cannot get any rights under it. After a valid assignment is made it cannot be revoked and the assignor
ceases to have any interest in the policy. As in the case of a gift of any other property, the donor and the donee
may agree that on the happening of any specified event, which does not depend upon the will of the donor, a gift
shall be suspended or revoked wholly or in part.11. Therefore, if a policy holder assigns the policy subject to a
condition that if he survived until the date of maturity or a condition that the assignee predeceasing him, the
condition is valid and the assignor gets the rights in the policy on the happening of those conditions. Each such
assignment makes the policy free from attachment of the creditors of the assignor. For example, in Lakshmi Kutty v
TM Vishnu Nambisam an endowment policy was assigned by the assured in favour of his wife by an endorsement.
The assignment was duly communicated to the insurer who registered it in his records. The assignment contained a
clause as “I hereby assign the policy to my wife subject to the conditions that if I survive her by the date of maturity
of the policy, the right to receive the policy money shall revert to me as if this assignment has not been made.”
Before the policy was matured and during the lifetime of the assignee, the assignor died. The moneys due under
the policy in the hands of the assignee were sought to be attached in execution of a money decree obtained against
the deceased, but it was held that the assignment operated as a present transfer in favour of the assignee giving
her an absolute interest under the same.12. On similar facts in Bai Lakshmi v Jaswantlal Thribhuvandas, it was held
that the whole tenor of the assignments was to give an immediate interest in the policy to the assured’s wife, that
the only effect of the conditions was to make the assignment inoperative upon the subsequent happening of either
of the two contingencies mentioned therein and that the money due under the policy did not therefore form part of
the estate of the assured.13. In Dinabai v Bomanshaji where the assignment stated: “I assign the policy to my wife
provided she survives me…” it was held that there is no present transfer in favour of the assignee at all.14. In the
former it was a condition subsequent while here it is a condition precedent without the happening of which the
interest does not pass.
16.1.5.1 Assignment to Create Security
A life insurance policy may be assigned as a security for the repayment of loan taken by the assured when it may
be called a mortgage. Mortgages of life policies by deed of assignment usually include the following covenants and
provisions:
(i) A covenant by the borrower that he will pay the premium and other moneys required to keep the policy on
foot and will restore the policy if it becomes voidable.
(ii) A covenant by the borrower that in the event of the policy becoming void he will effect a new policy for an
equivalent amount and assign it to the lender.
(iii) A power to the lender to pay any premium in arrears and add the amount to the principal.
(iv) A power to the lender to exercise his power of sale by way of surrender to the life office.
(v) A power to the lender, if his power of sale has arisen, to convert the policy to a fully paid-up policy.15.
Credit institutions lend money on the security of policies up to a certain percentage of their cash value. Even the
insurers as a matter of common practice and as an integral part of their services to the assured grant loans even up
to 90–95 per cent of the surrender value of the policies on the security of the unencumbered life policies. A specific
provision is made in regard to the assignment of life insurance policies in favour of the insurer. In DVV
Suryanarayana v National Life Assurance Co Ltd on receiving the policy and after paying some premium, the
assured took a loan from the insurer and executed a bond in which he agreed that in case of default of payment on
demand, the company should have the power to sell the policies and in the event of the sale being to the company
itself the price should be the then surrender value. There was a further provision to the effect that the company
should have a right to cancel the policies on payment of the surrender value and the cancellation shall be deemed
to be a sale within the meaning of the bond. The assured took policies for Rs 2,000 each on 26 October 1914 and
borrowed Rs 1,500 on the security of the same policies on 4 August 1936. The assured continued to pay premiums
until 28 March 1938 but then committed default. The company under the terms of the agreement converted each
into a paid up policy for Rs 1,782 on 22 December 1939. In exercise of this alternative power the company
cancelled the two policies on 22 December 1940. The assured died on 12 June 1942 leaving a widow and two
sons. The widow and two sons filed a suit as heirs of the deceased for an account of the amounts payable to them
under the two policies. It was held that the provision in the bond for the cancellation of the policies amounted to a
Page 4 of 11
clog on the equity of redemption and that the company took over the policies on its own initiative without any
acquiescence of the assured, which in law it was not entitled to do and therefore the heirs were entitled to succeed.
The mortgagee thus has a right to sue for the amount of the policy money secured by the mortgage, provided there
is a valid assignment to him and due notice has been served on the insurer under section 38 unless the insurer
himself is the creditor. But when the mortgagee has a claim for an amount less than the money due under the
policy, he cannot ask for the whole amount being paid to him.16. The insurance company may pay the whole
amount due to such an assignee and the acknowledgement of receipt, even of the whole money gives the insurer a
valid discharge under English Law according to the Law of Property Act 1925. It may be noted that although it is
safe for the insurer to pay the whole money to the assignee mortgagee to get a valid discharge though his
mortgage amount is less, it is not obligatory on the part of the insurer to pay more than the mortgage money to such
an assignee. In such cases, where the full amount under the policy is not paid to the mortgagee as it is not due to
him in its entirety, the insurer becomes a trustee for the balance to the mortgagor or his legal representative in
respect of the residue.17.
Amendment Act, 2015 is neither a declaratory nor clarificatory piece of legislation and is not retrospective in nature.
The law as it now stands after 2015 Amendment vide amended section 38(2) gives insurer a discretion as to
whether or not to accept an assignment provided its decision is predicated on transfer or assignment being a) mala
fide, or b) contrary to the interest of the policy holder, or c) against public interest, or d) only for trading in the policy.
Thus, since Parliament intended to save all previous assignments and transfers provided they complied with the
requirements laid out in section 38, no other interpretation of section 38 was possible.18.
Lien The general rule is that a stranger cannot get a lien on the policy. In case of a life insurance policy, a lien may
be created especially if the policy is on the life of a third person, eg, if a creditor takes a policy on the life of the
debtor and if the debtor fails to pay the premiums, and if they are paid by the creditor, a lien may be created on the
policy. In life insurance, the term lien is popularly used in connection with the matter of acceptance of proposals for
assurance requiring imposition of fixed or decreasing temporary debt. This charge on the policy in lieu of an extra
premium resulting in the reduction of the sum assured in the event of the assured’s death within the specified term
is popularly known as lien.
A right of lien does not arise by the mere fact of the payment of premium though such payment is necessary for the
preservation of the property. In Re Leslie, Leslie v French the husband paid the premiums voluntarily due on a
policy on the life of his wife and claimed a lien on the policy to the extent of the premiums paid by him. It was held
that the husband has no lien on the policy.19. The above case is the leading authority and in that it was laid down
that a lien may be created upon the moneys secured by a policy by payment of premiums in the following cases:
(i) By contract with the beneficial owner of the policy.

(ii) By reason of the right of trustees to an indemnity out of their trust property for money expanded by them in
its preservation.
(iii) By subrogation to this right or trustees of some person who may at their request have advanced money for
the preservation of the property.
(iv) By reason of the right vested in mortgagees or other persons having a charge upon the policy, to add to
their original debt.
In these circumstances only, without contract or request, a third party has been held to acquire a lien on the policy
by payment or premiums.20.
16.1.6 Nominees or Nomination
When a person is named in proposal form as the person for whose benefit the insurance is effected such person
whose name is mentioned is called the nominee. The insurer agrees with the assured that he would pay the
assured amount to the nominee in case of the death of the assured. The nominee is a third party to the contract and
he is neither a party to the contract nor has privity with it and so in case of breach of payment by the insurer, he
cannot recover the amount by suit. Even if money is paid to such a person he cannot give a valid discharge to the
insurer. The only persons entitled to receive or sue or give a valid discharge are the executors or administrators or
other legal representatives of the deceased assured. Houseman observes:
The fact that a policy may be expressed to be for the benefit of some third party will not be of itself suffice to give that third
Page 5 of 11
party any right of property in the policy or in the policy money either at law or in equity.21.
This principle is well illustrated in the leading case of Cleaver v Mutual Reserve Fund Life Association, where a
husband effected a policy on his own life and also expressed in the proposal form that the sum assured should be
payable to his wife living at his death but otherwise payable to his legal representatives. The wife was convicted of
the murder of her husband. The trust created by the policy in her favour under the Married Woman’s Property Act,
having become incapable of being performed by reason of her conviction. The assurance money constituting a
resulting trust for the assured was paid to his executors. Lord Easher MR observed:
The contract is with the husband and with nobody else. The wife is no party to it. Apart from the state the right to sue on
such a contract would clearly pass to the legal representatives of the husband.
Fry LJ observed:
She was, independently of the statute a stranger to the contract; it might have been put an end to by the contracting parties
without her consent, the breach of it would have given her no cause of action against any one.22.
But a contrary view has been expressed by Joyce J in Re a policy No 6402 of the Scottish Equitable Assurance
Society that the nominee is the person entitled to receive the money at law though in equity the money belonged to
the legal personal representative of the assured.23. The latter case has not been followed in some subsequent
cases. In this state of divided opinions the better opinion seems to be that a nominee in England by mere
nomination does not get a right to enforce the policy except in the following cases:
(i) the nomination amounts to a declaration of trust;24.

(ii) the assured takes out the policy as the agent of the nominee;25.
(iii) the nomination is made under section 11 of the Married Women’s Property Act 1882.26.
(iv) the nomination is made under section 56 of the Friendly Societies Act 1896.27.
The position in India before the Insurance Act 1938 was the same as that in England as stated in a series of
cases.28. The Indian Law was contained in sections 132 and 135 of the Transfer of Property Act.29. An assignee of a
life policy could not sue in his own name and if the assignor died his personal representative would be a necessary
party to a suit by the assignee.30. Since the passing of the Insurance Act 1938, the legal position of a nominee does
not appear to have been changed except to the extent provided in section 39 which reads as follows:
(1) The holder of a policy of life insurance on his own life may when effecting the policy or at any time before
the policy matures for payment, nominate the person or persons to whom the money secured by the policy
shall be paid in the event of his death:
Provided that, where any nominee is a minor, it shall be lawful for the policy holder to appoint in the
prescribed manner any person to receive the money, secured by the policy in the event of his death
during the minority of the nominee.
(2) Any such nomination in order to be effectual shall, unless it is incorporated in the text of the policy itself, be
made by an endorsement on the policy communicated to the insurer and registered by him in the records
relating to the policy and any such nomination may at any time before the policy matures for payment be
cancelled or changed by an endorsement or a will, as the case may be, unless notice in writing of any such
cancellation or change has been delivered to the insurer, the insurer shall not be liable for any payment
under the policy made bona fide by him to a nominee mentioned in the text of the policy or registered in
records of the insurer.
(3) The insurer shall furnish to the policy holder a written acknowledgement of having registered a nomination
or a cancellation or change thereof, and may charge a fee not exceeding one rupee for registering such
cancellation or change.
Page 6 of 11
(4) A transfer of assignment of a policy made in accordance with section 38 shall automatically cancel a
nomination:
Provided that the assignment of a policy to the insurer who bears the risk on the policy at the time of
assignment, in consideration of a loan granted by that insurer on the security of the policy within its
surrender value, or its reassignment on repayment of the loan, shall not cancel a nomination, but shall
effect the rights of the nominee only to the extent of the insurer’s interest in the policy.
(5) Where the policy matures for payment during the lifetime of the person whose life is insured or where the
nominee or, if there are more nominees than one, all the nominees die before the policy matures for
payment, the amount secured by the policy shall be payable to the policy holder or his heirs or legal
representatives of the holder of a succession certificate, as the case may be.
(6) Where the nominee or, if there are more nominees than one, a nominee or nominees survive the person
whose life is insured, the amount secured by the policy shall be payable to such survivor or survivors.
(7) The provision of this section shall not apply to any policy of life insurance to which s 6 of the Married
Women’s Property Act 1874, applies or has at any time applied:
Provided that where a nomination made whether before or after the commencement of the Insurance
(Amendment) Act 1946, in favour of the wife of the person who has insured his life or of his wife and
children or any of them is expressed, whether or not in the face of the policy, as being made under this
section, the said section 6 shall be deemed not to apply or not to have applied to the policy.
The object of the section appears to be to empower the nominee merely with the power to collect the money due
under the policy and to make it clear that the nomination itself does not confer any title on the nominee in the
money received.31. It only empowers the nominee to give a valid discharge to the insurer and clothes him with the
right to sue and to the extent only the law seems to have been changed. The nominee does not become the
beneficial owner of the money so received and it has been held that he is liable to hold the money in trust and for
the benefit of the legal representatives of the deceased; he had to ultimately hand over the money to them. For
example, in Sarojini Amma v Neelakantha Pillai it has been held that a nominee under a policy of life insurance has
a bare right to collect the money payable under the policy on the death of the assured and give a good discharge to
the insurer. The nominee does not become the owner of the money due under the policy and he is liable to make it
over to the legal representatives of the assured. Thus, the nominee acts only as a receiver. A nominee is only
entitled to give a valid discharge to the insurer. Once the nominee receives the policy money it would become part
of the deceased policy holder’s estate and the same should be distributed according to the law of succession
applicable to him.32.
But in Kesari Devi v Dharma Devi a different view is expressed that there is nothing in section 39 to suggest that the
nominee received the money merely as a trustee or agent of the assured’s legal representatives; section 39 does
not lay down that he is under any liability to account for the money received to any person. The obvious meaning of
the language used in sub-sections 1 and 6 is that the insurance company must pay the money to him and he is left
to deal with it in any manner he likes. The learned Chief Justice continued: “We do not think it is the universal rule
or rule of justice, equity and good conscience that the policy money that is paid to a nominee under section 39(6) is
held by him as trustee for the legal representatives of the assured.”33. The same view was reiterated in Uma v
Dwarakadas, AIR 1982 Del 36 and also expressed surprise at the controversy and also gave a big list of conflicting
decisions. It is respectfully submitted that the Allahabad and Delhi view appears to be erroneous and if that was
correct sub-section 7 becomes otiose.
In LIC v Nirmala Adi Reddy the widow and children of the deceased insured who had nominated his policy in favour
of his mother demanded the LIC as a legal heirs of the assured to pay their shares of the sum assured to them. But
the LIC insisted that payment would be made only to the nominee unless they are stopped by a stay order from the
court. The legal heirs thereupon filed this suit which ordered the LIC to pay their shares to them in spite of the
nomination following the Supreme Court decision in Sabita Devi’s case and ordered the LIC to pay the plaintiff’s
cost as the LIC’s stand was not justifiable.34. In Sabita Devi v Usha Devi, a person insured his life and appointed his
wife Usha Devi as nominee to receive the sum assured on his death. Sometime later he died, leaving behind his
wife, son Ashok Kumar and mother Sabita Devi as his nearest legal heirs. On the strength of the nomination Usha
Devi claimed absolute right to the sum assured to the exclusion of the other two legal heirs. The Supreme Court
dismissed her claim and held: A mere nomination made under section 39 does not have the right of conferring on
Page 7 of 11
the nominee any beneficial interest in the amount payable under the life insurance policies on the death of the
insured. The nomination only indicates the hand which is authorised to receive the amount on the payment of which
the insurer gets a valid discharge of its liability under the policy. The amount however can be claimed by the heirs of
the assured in accordance with the law of succession governing them...the language of section 39 is not capable of
altering the course of succession under the law. Also there is no warrant for the position that section 39 operates as
a third kind of succession which is styled as a “Statutory Testamentary disposition in Uma Sehgal’s case.35. All legal
heirs would be entitled to share with reference to the amount released in favour of nominee of deceased insured as
per their personal law.”36.
This section merely declares the existing law that a policy holder, who effects an insurance on his own life, in his
discretion may nominate any person he likes. He may appoint even a minor; but when he appoints a minor as a
nominee he may appoint some other major to receive the money in case of death of the minor. Such a person
almost acts as an ad hoc guardian for the minor nominee. Nomination can be made either by incorporating such
nomination in the text of the policy or by an endorsement on the policy. In the case of nomination by endorsement it
must be communicated to the insurer who registers it in his records. Unless the nomination is communicated and
registered it will not be effective. Likewise, a cancellation of a nomination can also be made by an endorsement. It
is made obligatory on the part of the insurer to register it in records and to furnish an acknowledgement of the
communication of either the nomination or its cancellation to the policy holder. Nomination does not affect the title to
the money secured by the policy. The policy holder continues to be the owner with a power of disposition over such
insurance money which he can exercise either by transfer or assignment or further endorsement on will.37. A
nomination may be cancelled even by conduct, for example, the assured makes a nomination in an endowment
policy and the assured being alive at the date of maturity himself directly collects the benefits, the nomination is
deemed to have been cancelled by conduct. Again, there is an automatic cancellation, according to sub-section 4 of
section 39, when the policy holder subsequent to nomination makes an assignment of the policy under section 38 to
some other person.38. But an exception has been provided to this automatic cancellation rule in the above sub-
section, in case where the assignment of the policy has been made to the insurer who has granted a loan on the
security of the policy within its surrender value or when the policy is reassigned on repayment of the loan. In such
cases the nomination stands good subject to the interest of the assignee, the creditor-insurer. This in effect means,
if the person dies, the nominee is entitled to receive only the balance of the amount from the insurance company.
Under sub-section 5 if the policy matures during the lifetime of the assured or of the nominee, or if there are more
nominees than one and if the nominee or all the nominees die before the policy matures the amount payable under
the policy on its maturity becomes payable to the assured or his heirs or legal representatives as the case may be.
Where the nominee or nominees die before the policy becomes mature for payment the amount is payable to the
assured, if alive, if not to his heirs. But if the nominees survive the assured who died before maturity of the policy
before payment a fortiori, the nominee would be entitled to receive payment. Restraining the insurer from making
the payment of the policy money to the nominee till the succession certificate is issued by the competent court is
not valid.39. If the nominee dies after maturity but before receiving the payment, his heirs and not the heirs of the
assured would be entitled to receive the payment.40.
Mere nomination does not confer any beneficial interest in amount payable under the policy. Nomination indicates,
the person authorised to receive the payment. However, this amount can be claimed by heirs of assured as per law
of succession.41.
16.1.6.1 Nomination in Favour of Wife and Children
This kind of nomination stands on a separate footing and forms another exception to the rule that a nomination is
subject to cancellation. Sub-section 7 of section 39 of the Insurance Act provides that the rules contained in that
section will not apply to any policy to which section 6 of the Married Women’s Property Act, 1874, applied. So, for a
better understanding of the scope of this sub-section, sections 5 and 6 of the Married Women’s Property Act may
be noted. Section 5 provides that:
Any married woman may effect a policy of insurance on her own behalf and independently of her husband; and the same
and all benefits thereof, if expressed on the face of it to be so effected, shall ensure as her separate property, and the
contract evidenced by such policy shall be as valid as if made with a unmarried woman.
Section 6 of the Act as amended by the Amendment Act, 1923 and 1959, reads:
(1) A policy of life insurance effected by any married man on his own life, and expressed on the face of it to be for the
benefit of his wife, or of his wife and children, or any of them shall ensure and be deemed to be a trust for the
Page 8 of 11
benefit of his wife, or of his wife and children, or any of them according to the interest so expressed, and shall not,
so long as any object of trust remains, be subject to the control of the husband, or to his creditors, or form part of
his estate.
When a sum secured by the policy becomes payable it shall, unless special trustees are duly appointed to
receive and hold the same, be paid to the Official Trustee of the State in which the office at which the
insurance was effected is situate, and shall be received and held by him upon the trusts expressed in the
policy, or such of them as are then existing.
And in reference to such sum he shall stand in the same position in all respects as if he has been duly
appointed trustee thereof by the High Court under Act XVII of 1864 (to constitute an office of official Trustee),
section 10.
Nothing herein contained shall operate to destroy or impede the right of any creditor to be paid out of the
proceeds of any policy of assurance which may have been effected with intent to defraud creditors.
42.[(2) Notwithstanding anything contained in s 2, the provisions of sub-s (1) shall apply in the case of any policy of
insurance such as is referred to therein which is effected—
(a) by any Hindu, Mohammedan, Sikh or Jain—
(i) in Madras, after the thirty-first day of December, 1913, or
(ii) in any other territory to which this Act extended immediately before the commencement of the Married
Women’s Property (Extension) Act 1959, after the first day of April, 1923, or
(iii) in any territory to which this Act extends on and from the commencement of the Married Women’s
Property (Extension) Act, 1959: on or after such commencement;
(b) by a Buddhist in any territory to which this Act extends, on or after the commencement of the Married
Women’s Property (Extension Act, 1959)
Provided that nothing herein contained shall affect any right or liability which has accrued or been
incurred under any decree of a competent court passed—
(i) before the first day of April, 1923, in any case to which sub-clause (i) or sub-clause (ii) of clause (a)
applies; or
(ii) before the commencement of the Married Women’s Property (Extension) Act, 1959 (61 of 1959), in any
case to which sub-clause (iii) of clause (a) or clause (b) applies.]
Section 2 prohibits the application of the Act to any married woman or her husband who at the time of her marriage
professed the Hindu, Mohammedan, Buddhist, Sikh or Jain religion. The Amendment Act of 1923 extended the
application of section 6 to the cases of Hindu, Mohammedan, Sikhs and Jains. But it has left out Buddhists.
From this it follows that such a nomination cannot be cancelled and it confers on such nominees the beneficial
interest in the proceeds of the policy even to the exclusion of the assured. It becomes a statutory trust and neither
the assured nor his creditors can tamper with it. This is a welcome provision based on public policy. The assured is
not permitted to deprive his dear wife and children of his helping hand. Even the court officials such as official
receiver or official assignee cannot have a right to proceed against an insurance policy covered by such a
nomination.
The statutory trust is spelled out from the use of the words for the benefit of wife and or children. But sometimes
such precise words may not be used. It is open to the court to apply a liberal interpretation and see whether the
assured intended by such nomination that the policy in the event of his death should ensure for the benefit or his
wife. This view was taken by the Madras High Court in Abhinamavalli Ammal v Official Trustee, where the trust
concept was upheld even though no express words to that effect were used.43. A later Full Bench decision of the
Madras High Court went a step further in its policy of liberal construction in Krishnanchettiyar v Velayu Ammal
Page 9 of 11
where also the trust concept was not clear from the words used in the policy itself, but still it was held that the
proposal submitted by the assured could also be looked into for the purpose of understanding his intention.44. It was
further held that where the money under a policy is payable to self or wife, a trust in favour of the wife immediately
can be spelled out.45. The importance of the decision lies in establishing the liberal outlook of the judiciary in the
interpretation by holding that the court in spelling out a statutory trust in favour of wife and or children can look not
merely at the policy but even at the entire transaction for the purpose of gathering the unexpressed intention of the
assured in this regard.
Another important case is Krishnamurthy v Anjayya, where the words used by the husband in the nomination are
“for the maintenance of the family”. The question dealt with was the interpretation of the word “family”. The court
held that the words were found only in the proposal form and not in the policy itself and therefore should not create
a trust in favour of wife and children of the assured and that the policy amount was liable to be attached for the
debts of the policy holder after his death. This decision had to deal with a family whose immediate members
included brothers and sisters. Hence it could not be said that the intention of the husband was to confine the word
family only to wife and children.46.
Krishnanchettiyar v Velayu Ammal47. has been approved and followed by the Lahore High Court in Bharat
Insurance Co Ltd v Lakshmi Devi, where the sum assured was expressed to be payable to the life assured on his
attainment of 60 years or his wife…on his death if earlier. The assured with the consent of the nominee converted
the policy into a paid-up policy. Subsequently, he raised a loan with the company on the security of the policy. On
the death of the assured the question arose whether the company was entitled to deduct the sum representing the
loan and interest thereon from the amount payable to the window of the assured. It was held that a trust was
created in favour of the wife of the assured from the very inception of the policy under section 6 of the Married
Women’s Property Act; that the assured could not raise a loan which would adversely affect the trust in her favour
and that, therefore, the company was not entitled to deduct the amount representing loan and interest thereon from
the sum payable to her.48.
The nomination to come within the scope of section 6 of the Married Women’s Property Act shall be made at the
time when the policy is issued and any nomination by subsequent endorsement even in favour of wife or wife and/or
children will not give rise to the presumption of statutory trust. In cases where trust arises, the official trustee has
the same powers and duties as a trustee appointed under the Trusts Act, and his liabilities and duties are governed
by the Indian Trusts Act. Further, it may be noted that the proviso to sub-section 7 of section 39 of the Insurance
Act, 1938, provides that after 1946, the date when the proviso was added, a nomination which hitherto brought the
transaction under Married Women’s Property Act, does not bring it within its purview and broadly speaking the
statutory trust does not arise by implication.
Then the proviso as the wording itself indicates, has retrospective effect, the proviso was introduced by the
Amendment Act of 1946 that it was given retrospective effect in MB Leelamma v Venkata Ramana Rao where the
insured effected a nomination in 1944 it was held that the policy will not be governed by the Married Women’s
Property Act, but that the wife gets rights only as a nominee subject to the liabilities of the policy holder.49.
The Amendment Act, 2015 provides that “If the nominee is spouse, parents or children, nomination in life insurance
acts almost like a will – the nominees have full right on the claim money (unless the legal heir can prove that the
claim amount is not beneficial to the nominees). Nominees can now claim full maturity benefits if policyholder dies
after the policy period and before receiving the claim. This would also very likely be as intended by the policy
holder.
1. [1892] AC 1.
2. The Indian Succession Act, 1925, section 211(1).
3. Ibid, section 221 (2).
8. (1954) 1 Mad LJ 94.
Page 10 of 11
9. AIR 1960 SC 403, 406.

10. See Chapter 9 on Assignment of Insurance Policy.
11. The Transfer of Property Act, 1882, section 126.
12. AIR 1939 Mad 411.
13. AIR 1947 Bom 369.
14. 50 AH 621.
15. Houseman, Life Insurance, p 99.
16. Re Bell, Geffrey v Sayles [1896] 1 Ch 1.
17. Dictionary of Life Assurance, p 515.
18. LIC v Insurance Policy Plus Services (P) Ltd, (2016) 2 SCC 507 : 2016 (1) Scale 32 : 2016 (1) SCJ 546.
19. (1883) 23 Ch D 552; Houseman, Law of Life Assurance, pp 96—97.
20. Ibid.
21. Houseman, Law of Life Assurance, p 145.
22. [1892] 1 QB 147.
23. [1902] 1 Ch 282.
24. Re Webb (1941) Chapter 225.
25. Re Scottish Equitable Life Policy no 6402, supra.
26. Re Davis Policy [1882] 1 Chapter 22.
27. Section 56 of the said Act as amended by section 5 of the Friendly Societies Act 1955.
28. Sankar v Umabai, 37 Bom 471; Nadir Shaw v Times of India Employee's Death Benefits Fund, AIR 1931 Bom 300;
Oriental Govt Security Life Ass Ltd v Vanteddu Ammiraj 35 Mad 162; Eshad Dasi v Gopal Chandra, 18 CWN 1385;
Krishna Lala v Pramila Bala, AIR 1928 Cal 518.
29. Mulraj Khataw v Vishwanath, 37 Bom 198 (PC).
30. Rajnarayan Bose v Universal Life Ass, (1881) 7 Cal 594.
31. Sabratha Devi v Usha Devi, AIR 1984 SC 346.
32. Challamma v Tilaga, (2009) 9 SCC 299 : 2009 (10) JT 246
33. AIR 1964 All 355.
34. AIR 1985 AP 58.
35. AIR 1984 SC 346; Uma Sehgal v Dwarkadas, AIR 1982 Del 36.
36. Saleha Fatima v Mirza Fazal Hussain Baig, AIR 2009 AP 103 : 2009 (4) ALJ (NOC) 645: 2009 (4) ALT 296.
37. Ramabalav v Gangadhar, AIR 1956 Cal 275; Amardas v DD Maharabha, AIR 1953 All 721.
38. Sasikala v LIC of India, AIR 1999 AP 32.
39. Mausumi Bose nee Bandopadhyay v Life Insurance Corporation of India, AIR 2011 Cal 63.
40. Kesari Devi v Dharna Devi, AIR 1962 All 355.
41. Shreya Vidyarthi v Ashok Vidyarthi, (2015) 16 SCC 46 : 2015 (13) Scale 643 : 2016 (2) SCJ 324.
42. Subs. by Act 61 of 1959, S. 3, for sub-sec. (2) (w.e.f. 1-3-1960), Before substitution it stood as under:
“(2) Notwithstanding anything contained in s 2, the provision of sub-s (1) shall apply to any policy of insurance such as
referred to therein which is effected by any Hindu, Mohammedan, Sikh or Jain in Madras after 31 December 1913, or in
any other part of British India after 1 April 1923.
Provided that nothing herein contained shall affect any right or liability which has accused or been incurred under any
decree of a competent court passed before the 1 April 1923.”
43. 55 Mad 171.
44. AIR 1938 Mad 90 (FB).
45. Ibid.
Page 11 of 11
46. Krishnanchettiyar v Velayu Ammal, 71 MLJ 39.

47. Ibid.
48. AIR 1948 Lah 21.
49. AIR 1957 AP 759; Shanti Devi v Srinamlal, AIR 1958 All 569 : (1966) 2 Mad LJ 484.
End of Document
17.1 Liability of the Insurer to Pay
Modern Law of Insurance, 6th ed > PART II Life Insurance > CHAPTER 17 SETTLEMENT OF
CLAIM AND PAYMENT OF MONEY
CHAPTER 17 SETTLEMENT OF CLAIM AND PAYMENT OF MONEY
17.1 Liability of the Insurer to Pay

When the event insured against happens, the assured becomes entitled to enforce the policy and the insurer
becomes liable to pay the amount secured in the policy in accordance with its terms. The operative portion of an
Endowment Life Assurance Policy states that the insurer will pay the sum assured with bonuses to the persons to
whom it is expressed to be payable in the schedule upon proof to the satisfaction of the insurer:
(i) of the happening of event on which the sum assured is to become payable in terms of the Schedule,
(ii) of the title of the person or person claiming payment, and
(iii) of the correctness of the age of the life assured stated in the proposal, if not previously admitted.
In the previous chapter, the persons who are entitled to claim and receive payments under a life policy and also the
proof of age has been dealt with. The rights of the parties are usually defined in the policy. In life insurance, the
insurer is bound to make the payment to the rightful claimant on the maturity of the policy or the death of the
assured.
End of Document
17.2 Claim by Maturity
17.2 Claim by Maturity

Well in advance of the date of maturity, the Life Insurance Corporation sends maturity intimation informing the
insured of all the requirements which he has to satisfy for enabling him to receive payment under the policy. The
requirements for settlement by a maturity claim may be briefly stated as follows:
(i) The policy document must be submitted by the claimant to the corporation office.
(ii) If the age is not endorsed on the policy by the company as admitted, the claimant should send the proof of
age.
(iii) If there has been an assignment or reassignment under the policy by a separate document, the original of
such deed of assignment or reassignment should also be submitted along with the policy.
A discharge form is supplied by the insurer and that has to be signed, stamped and attested. The discharge form is
an acknowledgement of receipt of money and so it should bear a 20 paise revenue stamp. He should get it attested
by any witness who has seen the assured sign or fix his mark or receive a personal acknowledgement from him.
The “discharge form” has to be sent along with: (a) policy, (b) proof of age and (c) deed of assignment or
reassignment, if any. If the policy holder desires payment either by money order or demand draft, he should
intimate the Corporation by signing at the appropriate place in the discharge form.
End of Document
17.3 Claim on Death
17.3 Claim on Death

The claimants of the amount due on the policy, usually the heirs, assignees or nominees should inform the insurer
of the death of the assured within the stipulated time, if any, in the policy and in its absence within a reasonable
time. What is reasonable time is a question of fact. On receiving the intimation, certain forms will be sent by the
Corporation to the claimant or claimants informing him or them of the requirements to be satisfied for settling the
claim. In case of death of the assured after three years from the date of the policy, the requirements are:
(i) The three requirements stated above in the case of a claim on maturity.
(ii) Claim Form A which is the statement of the claimant.
(iii) A certificate of death of the policy holder issued by the Municipal Death Registry, or by a Public Record
Office which maintains the records of births and deaths in the locality.
It is the duty of the claimant to make all the statements required in Form A and they should be true and complete. If
the policy has run for five years, along with the “Claim Form A” the “Discharge Form” will also be issued. If the
policy did not run even for two years, that is, if the assured died within two years from the date of the policy, the
Corporation insists on the following requirements also namely; (a) if the assured who died is an employee, a
certificate in Form E” from the employer that the assured was his employee and that he died; and (b) a Statement in
Claim Form B” from the doctor who attended the assured in the last illness and in case he is not an employee,
besides “Claim Form B” from the doctor who last attended on the assured, Claim Forms C and D must also be
submitted. Claim Form C is a certificate of cremation or burial from an independent person who has attended the
funeral and seen the dead body and claim Form D is a certificate of identity by a respectable person. Similarly,
when Form B, a certificate from the doctor who last attended on him and the Municipal Death Certificate are
available Form C is not necessary. These variations are due to the fact that a life insurance contract is a conditional
contract in the sense that the liability of the insurer to pay the money to the assured is not absolute but conditional.
The policy clearly recites that the insurer’s promise to pay the sum assured is not absolute, but “on condition that
there shall be duly paid to the insurer the subsequent premiums as stipulated in the Sch, and the policy shall be
subject to the conditions and privileges printed on the back thereof”. So, the insurer on receipt of notice of death will
have to first decide whether the sum assured is payable before deciding the question as to whom it is to be paid.
The insurer therefore has to satisfy himself that the assured satisfied all the conditions in the policy and therefore
closely reviews the history of the policy. Where the policy is in force by the date of death or date of maturity by
regular payment of the premiums, there will generally be no difficulty. Where default in payment is made, the sum
assured is not payable, except when death occurs within the days of grace, if any allowed, from the date of first
default.
In the case of policies lapsed for non-payment of premium, the question whether any portion of the sum assured is
payable depends on the conditions in the policy. The sum payable depends on the period for which premiums have
been paid and the current Life Insurance Corporation’s Endowment Policy contains the following conditions on the
back of the policy namely; (a) Nothing is payable if regular payment of premiums has not been made at least for two
years;1. (b) if at least premiums for two years have been paid before the default occurs, the policy will become paid-
Page 2 of 4
17.3 Claim on Death
up for a proportionately reduced amount which will be payable; provided that, if at least premiums for three full
years have been paid and death occurs within six months thereafter from the due date of the first unpaid premium,
the sum assured is paid as if the policy has remained in full force, subject to deduction of the unpaid premiums, etc
and appropriate claim forms are supplied accordingly as indicated above.
On receipt of these forms, the insurer makes his own investigation and if there are no suspicious circumstances, the
insurer issues the discharge form to the claimant to be sent back to the insurer after filling it up properly. When the
assured dies an unnatural death, such as by accident, suicide or due to unknown causes, the insurer makes further
investigations after seeking further information from the claimant.
Even if the policy is in force at the time of death, or on death of the assured, whether a person is entitled to some
amount according to the conditions stipulated in the policy, a further question arises whether the death is
accidental, or intentional. If the death is by suicide, there is a further clause, usually inserted in the policy that even
if death is caused during the subsistence of policy, if it occurs within a period specified therein, the sum assured is
not payable and in case it is after that period the insurer will be liable, notwithstanding the death being intentional.
Whether death was by accident or by design assumes importance in cases where the policy excludes the liability of
the insurer in case of death by suicide during the period of contract or where the full amount assured is not payable
in such event. The Life Insurance Corporation policies exclude liability only where suicide is committed within one
year from the date of the policy. The question becomes complicated especially where conclusive evidence about
the cause of death is not available. In such cases the matter rests on legal presumptions. In Rajani Bai v New India
Assurance where death was caused by the fall of the assured from the fourth floor, in the absence of evidence
whether it was intentional or accidental the court held that the presumption against violence or suicide must be
raised, and in the absence of evidence of rebuttal the presumption must be allowed to prevail.2. The reason for this
presumption is explained in Bender v Owners of Steamship Zent that suicide being a crime the presumption is
against it.3. A doubt arises after the Suicide Act 1961, whether the decision is still good law. In Ibrahim v Mackinnon
Mackenzie and Co, where Ibrahim was a deck hand on board the ship SS Dwarka on the high seas, he was last
seen on the deck on 16 December 1961 at 3 am but at 7 am was found missing, the court inferred and held that he
died by accident and also observed that in such circumstances direct or positive evidence of his falling overboard or
being drowned was not necessary.4.
If the assured had assigned the policy or nominated any person under it, the Corporation pays the amount to such
assignee or nominee. In the absence of an assignment or nomination, the claimant should produce evidence of
legal title, like Succession Certificate, Letters of Administration or Probate of a Will. However, where the amount to
be paid is not large and where the assured died leaving Class I heirs such as wife, children and mother and if there
is no dispute among them, the proof of legal title, ie, the production of the above legal documents may be
dispensed with at the discretion of the Corporation and it may pay the amount to the claimant on the mere strength
of an indemnity bond to the satisfaction of the Corporation. As obtaining evidence of legal title involves enormous
delay and expense this is a welcome favour to the claimants and in a small insurance it does not prejudice the
insurer much as he is protected by the indemnity bond. In such cases, the Corporation gives two Forms one to be
filled up by the claimant5. and the other by a gentleman of sound financial position who is prepared to execute the
Indemnity Bond as security in case of a future dispute about the title of the claimant.6.
However, in cases where there are conflicting claims, or where the claimant is not in a position to obtain sufficient
proof of legal title or if it is for any reason not possible to obtain a satisfactory discharge, the insurance company
may apply to the court before the expiry of nine months from the date of maturity or date of notice to the company.
Section 47 of the Insurance Act, 1938 provides for payment of money into court and states:
(1) Where in respect of any policy of life insurance maturing for payment an insurer is of opinion that by reason
of conflicting claims to or insufficiency of proof of title to the amount secured thereby or for any other
adequate reason it is impossible otherwise for the insurer to obtain a satisfactory discharge for the
payment of such amount, the insurer may apply to pay the amount into the court within the jurisdiction of
which is situated the place at which such amount is payable under the terms of the policy or otherwise.
(2) A receipt granted by the court for any such payment shall be satisfactory discharge to the insurer for the
payment of such amount.
(3) An application for permission to make a payment into court under this section shall be made by a petition
verified by an affidavit signed by a principal officer of the insurer setting forth the following particulars,
namely:
(a) the name of the insured person and his address;

Page 3 of 4
17.3 Claim on Death
(b) if the insured person is deceased, the date and place of his death;
(c) the nature of the policy and the amount secured by it;
(d) the name and address of each claimant so far as is known to the insurer with details of every notice of
claim received;
(e) The reason why in the opinion of the insurer a satisfactory discharge cannot be obtained for the
payment of the amount; and
(f) the address at which the insurer may be served with notice of any proceeding relating to disposal of
the amount paid into the court.
(4) An application under this section shall not be entertained by the court if the application is made before the
expiry of six months from the maturing of the policy by survival, or from the date of receipt of notice by the
insurer of the death of the insured, as the case may be.
(5) If it appears to the court that a satisfactory discharge for the payment of the amount cannot otherwise be
obtained by the insurer it shall allow the amount to be paid into court and shall invest the amount in
government securities pending its disposal.
(6) The insurer shall transmit to the court every notice of claim received after the making of the application
under sub-section (3), and any payment required by the court as costs of the proceedings or otherwise in
connection with the disposal of the amount paid into court shall as to be the costs of the application under
sub-section (3) be borne by the insurer and as to any other costs be in the discretion of the court.
(7) The court shall cause notice to be given to every ascertained claimant of the fact that the amount has been
paid into court, and shall cause notice at the cost of any claimant applying to withdraw the amount to be
given to every other ascertained claimant.
(8) The court shall decide all questions relating to the disposal of claims to the amount paid into court.7.
The provisions of this section are applicable only to claims due under life insurance but not other insurances such
as fire, marine, etc. Further, this section does not apply to small insurances as they are covered by a different
provision of the Insurance Act, 1938.8. The section provides a complete code, both substantive and procedural, as
to when, how and where the amount due under a life insurance policy should be paid in order to get a valid
discharge. In doubtful cases, the section applies and the payment of money into court can be made only under
three specified circumstances namely:
(i) where there are conflicting claimants to the money;

(ii) where there is insufficiency of proof of title to the amount secured by the policy; or
(iii) where there is any other adequate reason.
Permission to deposit the money into court must be obtained by filing a petition supported by an affidavit after six
months after the money becomes payable giving reasons as to why the insurer has opted to take this course. The
allegations to be made in the petition are stated in section 47(3) of the Insurance Act, 1938. The court grants
permission only when it is satisfied that there is no other mode of obtaining a valid discharge by the insurer in the
circumstances of the case. This section aims at relieving the insurer from entering into the dilatory and lengthy
course of filing an interpleader suit and at the same time provides a speedy and summary method of obtaining a
valid discharge from liability under the policy. It also relieves the insurer from being exposed to litigation on the
ground that a wrong person is paid the money.
In the event of a dispute, as to claims on small life insurance policies for sums not exceeding Rs 2,000 arising
between a claimant and the insurer, the insurer may refer the matter to the Controller of Insurance and his decision
on the matter is final.9.
17.3.1 Interest on Policy Amount
Where there is a delay in payment of the claim, the question arises whether interest should be paid on the amount
due under the policy. There is no provision in section 47 or any other section as to whether court can allow interest
on the amount to the rightful claimant for the period of delay in payment to him. Where there is unreasonable delay
Page 4 of 4
17.3 Claim on Death
in payment of the policy money in settlement of the claim, the claimant can demand interest from the insurer by way
of damages.10.
In Oriental Got Security Life Assurance Co Ltd v Vanteddu Ammiraju the Madras High Court held that the company
will be guilty of wrongful detention of the policy money and would be liable to pay interest if it does not make prompt
payment of the claim on submission of a Succession Certificate, as a Succession Certificate is a sufficient proof of
title to the amount under the policy and its holder can give a valid discharge to the company.11. Again, in Western
India Life Insurance Co Ltd v Sitabai, the assured in the proposal named his wife as the nominee but the policy did
not contain the name of his wife as the nominee. The brothers made some counter claims but ultimately withdrew
them. Due to this there was delay. The claimant, the nominee, passed a receipt in full satisfaction of the claim and
the money was paid. Later, the claimant filed this suit for interest but the company contended that the subsequent
claim by the claimant for interest on account of the delay in payment, made long after passing of the receipt for the
principal money amounted to waiver or release of the claim for interest and it is binding on the claimant under
section 63 of the Indian Contract Act. The company also contended that the claim for interest was a complete after-
thought and was conceived much later by the claimant. It was held that the claim for interest being not in virtue of
any promise, there could be no dispensing with or remission of performance of the promise within the meaning of
section 63 of the Indian Contract Act. Further, the passing of the receipt in full satisfaction of claim under an
insurance policy could presumably refer to claims contemplated by the parties at the time of the receipt. Even if the
claim for interest was at the time present in the mind of the plaintiff, there was every likelihood that she left it in
reserve and had been so advised. Regarding the argument on behalf of the defendant company that the plaintiff’s
claim for interest was a complete after-thought and was conceived much later, the court observed that this makes
the position worse and not better for the company. The onus was on the defendant company to establish that the
plaintiff had in passing the voucher signed off her claim for interest. There was no evidence whatsoever to that
effect and the voucher by itself does not lead to such inference. It was held further that a suit for mere interest was
perfectly competent. It was therefore finally held that when the insurance company had delayed the payment of the
insurance amount until the counter-claims had been withdrawn by the counter-claimants and such amount had not
been made to lie idle pending payment, the principle of justice, equity and good conscience required the award of
interest to the claimant.12.
It may be noted that in awarding interest the court can also exercise its discretion as given to it by section 34 of the
Civil Procedure Code, 1908. The Administrative Reforms Commission had, however, suggested nine per cent rate
of interest and the present rate of the three per cent has been raised to six per cent in fit cases.
1. Reserve Bank of India v Peerless General Finance and Investment Co, AIR 1987 SC 1023.
2. AIR 1956 Bom 633.
3. [1909] 2 KB 1.
4. (1965) 67 Bom LR 735, 739.
5. Form No 3806.
6. Form No 3807.
7. The Insurance Act, 1938, section 47.
8. The Insurance Act, 1938, section 47A.
9. The Insurance Act, 1938, section 47A.
10. Interest Act 42 of 1839.
11. (1912) ILR 35 Mad 162.
12. AIR 1944 Nag 122.
End of Document
18.1 Definition of Fire Insurance
Modern Law of Insurance, 6th ed > PART III Fire Insurance > CHAPTER 18 THE DEFINITION,
NATURE ANDSCOPE OF FIRE INSURANCE
PART III Fire Insurance
CHAPTER 18 THE DEFINITION, NATURE ANDSCOPE OF FIRE INSURANCE

In England, the Insurance Companies Act, 1958 defined the fire insurance business .., the issue of, or the
undertaking of liability under policies of insurance against loss by or incidental to fire;1 but the Companies Act, 1967
repealed this section containing the definition and included in effect the fire insurance business in the definition of
property insurance business.2 In India, the Insurance Act, 1938 defined the fire insurance business as the business
of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against
loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire
insurance policies.3 According to Halsbury, it is a contract of insurance by which the insurer agrees for
consideration to indemnify the assured up to a certain extent and subject to certain terms and conditions against
loss or damage by fire which may happen to the property of the assured during a specified period. In similar terms it
has been defined by Cotton LJ in Ctsteliian v Perston that it means a contract whereby one person undertakes in
return for the agreed consideration to indemnify another person against loss of damage occasioned by fire up to the
agreed amount.4 From these definitions the following essentials emerge, namely:
(i) It is a contract of insurance.

(ii) There must be consideration.
(iii) The object of the contract should be to indemnify the assured from loss caused by damage or destruction
of property by fire.
18.1.1 It is a Contract of Insurance
This implies, that like any other insurance contract this is also a contract and so this also must possess all the
essentials of a valid contract. More or less it is a special contract, the object of which is to indemnify the other party
from loss caused to him by damage or destruction of his property by fire. It may be noted that essentially it must be
a contract of insurance in the sense that a contract is not necessarily a contract of fire insurance because it
imposes on one of the contracting parties an obligation to make good at his own expense any loss or damage,
which may be caused by fire to the property specified in the contract sustained by the other party. In certain
contracts other than contracts of fire insurance, such a duty to indemnify the owner from any loss to the property,
including loss by fire may be either imposed and implied by the law or may be undertaken by the express terms of
the contract. For example, a bailee may agree by express terms of the contract of bailment to make good the loss
by fire of the goods bailed to him. Similarly, the tenant may by express terms of the contract of lease agree to repair
the premises leased to him and reinstate them if they are damaged or destroyed by fire. Such contracts do not lose
their original character, simply because they contain terms by which they undertake to indemnify the owners of
property from damage caused to it by fire. Notwithstanding such stipulations in the contracts, they are still contracts
of bailment and contracts of lease and do not become contracts of fire insurance. Mellish LJ in North British and
Mercantile Insurance Co v London, Liverpool and Globe Insurance Co observed:
It makes no difference that here the bailment, instead of being in the mere ordinary terms that the bailee should be liable to
take due care in the case of loss by fire, is upto the terms that he should be absolutely liable in the case of loss by fire. That
Page 2 of 4
is not a contract of insurance so as to make the bailee himself an insurer.5
Yet there may be other cases where this duty to make good the loss to the property of one party to the contract may
be imposed by law on the other party in certain types of contracts. For example, in a contract of carriage of goods
by a public carrier, the carrier is made liable to make good the loss of property by fire or any other cause and in
such cases, judicial decisions describe them as insurers. The description of a public carrier as an insurer is only
intended to explain the scope of duty of the carrier and does not make such a contract of carriage, a contract of
insurance.6 In these cases, these parties have an interest or concern in the safety of the goods while in the case of
contract of insurance, the insurers have no concern or interest in the safety of the goods but for the one created by
the contract of insurance. A contract of fire insurance therefore is a contract for the specific purpose of indemnifying
the assured, from any loss caused to the property by fire. Their relation to the subject-matter must depend solely on
their contract and must be created and regulated thereby.
Where a charter party contained a clause that the carrier would be liable for any loss to the goods including the one
created by an accident of fire, in Admiralty Commissioners v Ropner and Co Ltd Lord Reading CJ observed that
even if they incur any liability beyond that imposed by the contract, or derive any benefit other than the agreed
consideration, such liability or benefit is attributable to some right of property in the subject-matter, or to some other
contract (in this case, the charter party) relating thereto, which is more extensive in its operation, and the contract in
question has, in reality therefore no independent existence.7 Again, even if there is a contract of insurance, it may
not always be a contract of fire insurance simply because that other contract also contains a clause to cover the
loss by fire; e.g., simply because a marine insurance policy undertakes to pay the loss caused by fire also, it will not
cease to be a contract of marine insurance and become a contract of fire insurance. Therefore, even a contract of
insurance will be a contract of fire insurance only if its main object is to insure against loss or damage caused by
fire, and the peril insured against is fire and no other. This is what is intended by the statute when it employed the
excepting parenthetical phrase “otherwise than incidentally to some other class of “insurance business” in its
definition of “Fire Insurance Business”.8 It is the duty of the court to interpret the words in which contract is
expressed by parties and not otherwise. Moreover, the terms of the agreement have to be strictly construed to
determine the extent of liability of the insurer.9
18.1.2 There must be Consideration
Consideration is, as in any other case of insurance, in this contract also in the form of premium. It may be but not
necessarily a periodical payment of money agreed to be paid by the assured to the insurer. As in the case of other
contracts, in the case of these contracts also, premium is very important without which the contract becomes
nudum pactum. It has been an established principle that until a premium is fixed by the insurers and agreed to by
the assured, there cannot be a concluded contract.1 In fixing the premium the insurers take into consideration all
matters affecting the risk. It may be noted that it is not necessary for the insurers to consider meticulously and
minutely every proposal for insurance that may be presented to them, and to work out the premium to be paid in
respect of the property proposed to be insured. It is the general practice of all insurers to prepare tables of rates or
premiums based upon long experience in insuring practically every kind of property. The rates also vary according
to the extent of risk sought to be protected; enhanced rates of premium may be charged where the assured seeks a
protection wider than that, which the insurers generally agree to give in respect of property similar to that sought to
be insured and likewise the rate of premium may be diminished if the assured is willing to accept a narrower
protection or agrees to comply with any special requirements imposed by the insurer. For example, a special
discount may be allowed where sprinklers or other fire extinguishers are maintained by the assured. It may be
noted that though the fixing of the premium is necessary for the validity of the contract it is not necessary that it
must be a fixed amount all through. It may be agreed to be varied according to the variation for the circumstances.
This is generally done when the parties contemplate that during the subsistence of the policy there may be increase
or decrease in the risk. In policies on “fluctuating classes of property” such as “stock in trade”, provision may be
made for adjustment of the premium according to the value of the property to be at risk. Though fixation of the
premium is necessary for the validity of the contract, its payment is not necessary unless otherwise provided in the
policy. So it is common practice, to insert a clause in the policy, that the risk attaches only on the payment of the
first premium. It is not necessary for the assured to pay the premium at any particular time unless it is specifically so
provided in the policy. In McEvory v London Assurance Corp, Lord Maclaran observed:
If the insurance company delivers a policy without requiring immediate payment of the premium, they incur responsibility for
a risk, because having delivered the policy, they are held to have given credit for the premium.11
Page 3 of 4
When once the contract is concluded with the premium and other particulars fixed, the policy drawn and delivered,
the insurer becomes liable for loss by fire, and it is immaterial whether the premium is paid before or after the fire.
18.1.3 Subject-matter of Insurance
The object of the contract should be to indemnify the assured from the loss caused by damage or destruction by fire
of the property of the assured. Thus, a contract of fire insurance presupposes the existence of some physical object
which is capable of being destroyed by fire and upon the loss of which by fire the right of indemnity given by the
contract is intended to arise. This physical object is called the subject-matter of insurance. On the other hand, the
subject-matter of contract of insurance is not the physical object or property of the assured but is money and money
only. Lord Brett, in Reynor v Preston, observed:
The subject-matter of insurance is a different thing from the subject-matter of contract of insurance…The only result of the
policy, if an accident which is within the insurance happens is a payment of money. It is true that under certain
circumstances in a fire policy there may be an option to spend the money in rebuilding the premises, but that does not alter
the fact that the only liability of the insurance company is to pay the money.12
It may be noted that what is insured is not the physical property of the assured but only loss of it by fire because by
this contract loss by fire cannot be prevented. The object of fire insurance contract, therefore, is not to prevent
accidents but to minimise the loss of the assured.
Though a fire insurance contract is classified under property insurance a fire insurance contract is considered as a
personal contract.13 It is not an insurance against accidents but an agreement to protect against damage by a fire
accident. Not only property can be insured but any consequential loss also may be covered by a fire policy. Any
loss which is excluded from the scope of an ordinary fire policy as being too remote may be specifically insured
against.14 This type of insurance is intended to supplement the protection given by an ordinary fire policy. There
cannot be a separate “consequential loss policy” without an ordinary fire policy. The claim under this head can
succeed only if the insurers adjust their liability for loss of property by fire under an ordinary policy. It generally
provides indemnity for the following kinds of consequential loss, namely; (a) loss profits; (b) standing charges; (c)
increased cost of working; (d) increased cost of reinstatement. Loss of profits may be estimated or they may be
limited as in a valued policy to a certain percentage of the estimated profits. “The standing charges” policy is
intended to cover the loss caused by the items of expenditure insured in maintaining the establishment, etc,
notwithstanding the fire and the consequent interruption of business. It includes items like, rent, rates and taxes,
insurance premiums, salaries of servants, interest on loan and may also includes such items as general expenses
or depreciation of any part of the property which is not actually destroyed by fire.15 An insurance under the head
“increased cost of working” is intended to cover the additional expenditure incurred in keeping the business going
during the period of reinstatement and such expenditure includes the rent of temporary premises and the extra cost
of labour or materials required for the purpose of the business.16 Further, a special form of “consequential loss
insurance” has been introduced to protect the insured against what may be called the increased cost of
reinstatement. Yet another form of reinstatement insurance, which deals with building and machinery, is not
confined to the increased cost of reinstatement.
1 The Insurance Companies Act, 1958, section 33 (1).

2 The Companies Act, 1967, section 59 (9).
3 The Insurance Act, 1938, section 2(6A).
4 (1833) 199 BD 380.
5 (1877) 5 CH D 569.
6 Joseph Travers and Sons Ltd v Cooper, [1915] 1 KB 72 (CA).
7 (1917) 117 LT 58.
8 Refer to definition in the Insurance Act, 1938, section 2(6A).
9 Amaravathi District Central Coop Bank Ltd v United India Fire & General Insurance Co Ltd,(2010) 5 SCC 294 : 2010 (3)
Bom CR 555 : JT 2010 (4) SC 1 : (2010) 5 SCC 294; Suraj Mal Ram Niwas Oil Mills (P) Ltd v United India Insurance
Page 4 of 4
Co Ltd, (2010) 10 SCC 567 : 2010 (11) JT 404 : 2011 ACJ 418 : 2010 AWC 6396 SC; Sumitomo Heavy Industries Ltd v
ONGC Ltd, (2010) 11 SCC 296 : AIR 2010 SC 3400.
1 Christrie v North British Insurance Co, (1825) 3 Shaw 519 (Ct of Sess).
11 (1897) 24 R 287, 291 (Ct of Sess).
12 (1881) 18 CD 19 (CA).
13 Lynche v Dalzell, (1729) 41 Bro Parl Cas 431 (HL).
14 Wright v Pole, (1834) 1 Ad & El 621, 623 per Tanton JP.
15 Polikoff Ltd v North British and Mercantile Insurance Co Ltd, (1936) 55 Lloyd’s Rep 279, 288.
16 Henry Booth & Sons v Commercial Union Assurance Co Ltd, (1922) 14 Lloyd’s Rep 114.
End of Document
18.2 Nature of Fire Insurance Contract

From the above it can be seen that a contract of fire insurance is a species of a contract of insurance and it exhibits
all the characteristics namely:
(i) This is a contract of indemnity

(ii) It is a contract uberrima fides
(iii) It must be distinguished from a wagering contract and a contract of guarantee
(iv) It is a personal contract and
(v) The cause of fire is immaterial generally.
(i) Contract of Indemnity:
Unlike life insurance, a contract of fire like marine insurance is a contract of indemnity. Time and again contracts of
fire and marine insurance have been held to be contracts of indemnity. In Dalby v India and London Life Assurance
Co, Parke J observed that policies of assurance against fire and marine risk are both properly contracts of
indemnity, the insurer engaging to make good, within certain limited amounts, the losses sustained by the assured
in the buildings, ships and effects.17. Again Brett LJ, in Castellian v Perston said:
The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract
of insurance contained in the marine or fire policy is a contract of indemnity, and of indemnity only.18.
Indemnity has been held to be the controlling principle of insurance law. Therefore, if any loss occurs by the event
insured against, subject to the terms and conditions in the policy, what the assured is entitled is not the entire value
of the property insured but only the value of the loss or damage caused to the property by fire. Even though fire
occurs and the property insured is damaged due to the wrongful act of a third party and if he received
compensation from the tort-feasor, to the extent he receives the damages, his claim against the insurer is abated.
On the other hand, if he receives money from the insurer and then receives any money from a third party tort-feasor
he must account for that amount to the insurers. Likewise, if he acquires any right to sue for damages against a
third party, the insurer will be subrogated to that right. Again even when the property is insured with a number of
insurers, he is entitled to collect only the actual loss from the insurers together, e.g., when he collects from the first
insurer all the loss, the second and subsequent or other insurers will not be liable to pay anything to the assured
though inter se they may be liable to contribute rateably to the insurer who has met with the liability entirely. The
application of the special doctrines of subrogation, contribution, option of reinstatement, etc is a sequel to the
principle that fire insurance is a contract of indemnity.
(ii) Contract Uberrima Fides

Page 2 of 4
A contract of fire insurance like any other contract of insurance is one based on good faith. This good faith must be
observed on the part of both the assured and the insured. Often, it is the assured as compared with the insurer that
will have better means of knowledge about the subject-matter of insurance and so all the material facts which are in
his knowledge which are in fact material to the contract of insurance must be disclosed to the insurer. It is not
sufficient if he merely discloses only those matters which he believes to be material. What facts are material in a
contract of fire insurance are already discussed in the general principles of insurance law.19.
(iii) Different from a Contract of Wager and a Contract of Guarantee
The very fact that a contract of insurance is a contract of indemnity distinguishes it from a wager. They are two
contracts with opposite effects. A contract of wager creates the risk while a contract of insurance saves the assured
from a risk already existing. It is also to be distinguished from a contract of guarantee in the sense that in a
guarantee contract the surety undertakes to save the creditor from the loss occasioned to him by the default of the
principal debtor while in a contract of insurance, the insurer does not undertake to answer for the default of another;
he only agrees to make good the loss which may happen by reason of a certain event.
(iv) It is a Personal Contract
A contract of fire insurance though appears to be a property insurance is not so and it is a personal contract
between the insurer and the assured for the payment of money in case the loss is occasioned to the property of the
contracting party by fire. The purpose of contract is not to insure the safety of the property but only to save the
insured from the loss caused by damage to the property by fire. Therefore if one can imagine a case where a
property insured against fire is consumed by fire but still there is no pecuniary loss to the owner of the property, the
insurer will not be liable to pay any amount. For example, if there is timber and if it is insured against fire, and if fire
occurs and makes the timber coal, and if the value of the coal is more than the value of the timber, probably the
insurer will not be liable to pay anything under the policy. Even if literally interpreted and enforced, the insurer will
be liable to pay the value of the timber which is less in value and he can get in its place the converted coal, by
subrogation, which is of more value. So no assured enforces the claim in practice, because by that he suffers loss
but does not gain. So it is a personal contract. Therefore, only a transfer of the insured property does not entitle the
transferee to the benefit of insurance unless it is specifically assigned. To put it in short the contract of insurance
does not run with the property insured.
(v) Cause of Fire Immaterial
If the assured is careful and still there is a fire, it would be unjust and inequitable to disentitle him to claim and also if
the assured is careless or negligent and there is fire, to disentitle him to claim under the policy would defeat the
very object of insurance. So even if the assured or his servants are negligent, the claim must not be disallowed and
it is for these cases only generally that an insurance contract is entered into. So generally the cause of fire is
immaterial. The only exception is when the assured voluntarily and willfully sets fire to the insured property or allows
others to do the same. If a person takes out a fire insurance policy on a property, and by himself or through his
friends sets fire to his property and then claims insurance money it amounts to playing fraud on the insurer. So
when it is alleged that the assured voluntarily or wilfully caused the fire or suffered others to do the same or is a
privy to the act the cause of fire is material as generally the event insured against is the occurrence of damage by
fire and not the cause of fire. There is yet another circumstance when the cause of fire becomes relevant, i.e., when
fire is caused by a cause falling within an exception of the contract. So except in these two cases, the cause of fire
is immaterial.
18.2.1 Formation of Contract
The fire insurance contract like a life insurance contract already discussed is also formed with the proposal made by
the assured in a printed proposal form supplied by the insurers. No printed proposal form is necessary for fire
insurance on house property, or for large industrial risks. All the more it would not be necessary where the proposer
is known to the insurer’s agents and in such cases only oral proposals are made. Comprehensive insurance
proposals are made in printed forms. The contents of a form will vary from company to company but usually all of
them contain the following particulars, namely:
(i) name and full description of the proposers;

(ii) their business or profession together with the situation of the property;
Page 3 of 4
(iii) the value of each item of property;

(iv) in the case of buildings how they are heated, lighted and protected against fire;
(v) whether any manufacturing process or hazardous trade is carried on in the building or near it;
(vi) the details of previous insurance;
(vii) whether any previous proposal has been made and the result;
(viii) whether any previous policies have been cancelled or discontinued;
(ix) whether any property insured by him has ever been destroyed by fire and also the proposer is asked to
state whether there are any other facts, within his knowledge which are material to the insurance proposed.
In the end there will be a declaration that he agrees that the answers to the question in the proposal form are to be
the basis of the contract and if any of them is untrue, the policy can be treated as null and void.20.
18.2.2 Cover Note
In practice on making the proposal, the insurance company on payment of the premium gives a deposit receipt
called the “cover note”. It is also called an interim protection note. In General Assurance Society v Chandmull,
Hidayatulla J observed:
A contract of insurance is a species of commercial transactions and there is a well established commercial practice to send
cover notes even prior to the completion of a proper proposal or while the proposal is being considered or a policy is in
preparation for delivery. It is a temporary and limited agreement. It may be self contained or it may incorporate by reference
to the terms and conditions of the future policy.21.
Insurers of non-life policies usually empower their agents to grant cover notes valid at the most for a short period of
15 or 30 days, after satisfying themselves about the acceptability of the proposal. In Indian Trade & General
Insurance Co v Bhailal the plaintiff insured his goods in a godown in Bombay and a cover note was issued on 18
June 1951, which stated that the goods were insured from 15 June 1951. The goods were destroyed by fire on the
evening of 16 June which neither the plaintiff nor the insurance company knew. On 18 June 1951, when the cover
note was issued, the Insurance Company contended that the risk attached from June 18 but this was rejected
observing:
Apart from authorities and apart from principles of natural justice it seems difficult to understand how, if an insurance
Company issues a cover note on June 18 and solemnly states in it that the insurance is effected from June 15, the risk
should not attach from June 15, but only from June 18.22.
It is similar to a slip in marine insurance. The effect of a cover note is that if fire takes place between the date of the
receipt of the cover note and the date of intimation by the insurance company regarding the acceptance or refusal
of the policy the insurance company will be responsible.
The Supreme Court in Ratialal v National Security Assurance Co considered the legal aspects of a cover note; it
was observed that a letter of cover or the cover note is not defined in the Insurance Act or the Stamp Act.23. It may
be shortly stated that the letter of cover no doubt contains a contract of insurance but it is not a policy of insurance.
It is only a protection for the interim period between the date of proposal and the date of issue of the policy and
therefore the cover note is a protection for the interim period. Sometimes, the cover note may mention some time,
say 30 days, and in such cases it covers only for that period. When cover note mentions date of issue of policy as 9
June 1989 and time of issue as 4.40 p.m., then policy will come into force only from 4.40 p.m. Accident in this case
occurred at 11.30 a.m. on the date of issue of the policy i.e. 9 June 1989. It was held that the cover note was issued
after the time of the accident and so the insurance company was not liable.24. The Insurance Company’s cover note
contained a clause that” the commencement of policy was from 8 May 1998.” But the insurance company received
the cheque on 7 May 1998 at 4 p.m. The accident occurred at 8.30 p.m. on 7 May 1998. It was held that the
insurance commenced from the date and time of payment of premium and accepted by the insurer and so the
company was liable.25. But on the question whether it can be admitted in evidence, when it is not stamped, the
majority of the judges held that it is like an insurance policy and so under section 35 of the Stamp Act, it is
inadmissible in evidence but can be received in evidence on payment of penalty. But the dissenting judge,
Page 4 of 4
Raghudayal J observed that interim protection does not amount to a policy or an engagement to issue the policy
and so it can be used only for compelling the delivery of the policy and cannot be used for any other purpose or any
claim. Section 35 contemplates that the letter of cover must have the necessary stamp at the time of execution and
therefore subsequent stamping will not make it a document, which can be used for claiming the amount.26. A “cover
note” is a contract of insurance distinct from contract comprised in policy, even where a policy is in fact issued.
Accordingly, even though cover note is superseded by subsequent issue of a policy, rights and liabilities of parties
in respect of any loss which happens during currency of cover note normally to be determined by reference to terms
of cover note, but not to terms of subsequent policy, especially if latter document introduces a new condition of
which insurer had no knowledge.27. After issuing the “cover note” and before issuing the regular policy the insured
died. The bank refused to pay the cheque on the ground that the insured died and not due to lack of funds. It was
held that once the proposal is accepted by the company, the contract is concluded between the insured and the
company and by issuing a cover note legal right was accrued in favour of the insured. On the date of accident, the
cover note was subsisting and the insurer cannot exonerate its liability on the ground that the regular policy was not
issued.28.
17. (1854) 15 CB 365, 387.

18. [1883] 11 QBD 380, 386(CA).
19. For further discussion, refer to the chapter on good faith in General Principles of Insurance—Pt I.
20. Form of Standard Fire Policy.
21. AIR 1966 SC 1644.
22. AIR 1954 Bom 148 (DB); Ramsingh v SentinalInsurance Co, AIR 1933 Cal 170.
23. Form of Standard Fire Policy.
24. National Insurance Co Ltd v Geeta Devi, (2010) 15 SCC 670; Insurance Act, 1938 : section 64-VB.
25. Oriental Insurance Co Ltd v Dharam Chand, (2010) 15 SCC 141.
26. 1964 (2) SCF 159.
27. Tipu v New India Assurance Co Ltd, AIR 2003 Raj 145 : 2003 (1) WLN 560.
28. Ibid.
End of Document
18.3 Policy
18.3 Policy
Fire insurance policy like many modern standard forms of contract, is a printed document containing the terms and
conditions of the contract, with gaps for the inclusion of the relevant details of the individual contract. In England, a
standard form of fire policy was introduced in 1922 as a result of the realisation of the considerable advantage not
only to both the parties to the contract but also for the co-insurers. It is common practice that the details are
grouped together in a schedule as:
(i) recitals,
(ii) the heading,
(iii) the name of the insured,
(iv) the description of the subject-matter,
(v) the amount of the insurance,
(vi) the contract of the insurers to indemnify the insured,
(vii) the conditions,
(viii) the perils insured against,
(ix) the duration of the policy,
(x) the extent of the insurer’s liability,
(xi) the amount of the premium,
(xii) the signature of the insurers,
(xiii) the schedule,
(xiv) the special terms if any,
(xv) the outside cover.
These are common in all policies and to these may be added any special conditions or warranties agreed upon by
the parties. Indemnity is given by fire policies not for an indefinite period but for a fixed term. According to this the
fire policies may be classified as: (a) long term policies, (b) annual policies and (c) short term policies. The usual
period of cover in a fire policy is for one year and if it is for a longer time than that, like a policy for a term of two or
more years it is called a long term policy. In such cases, the whole of the premium is payable at the inception of the
contract. This must not be confused with insurances with long term agreements where the insurance is for one year
but the insurer agrees to renew the insurance contract annually at a premium subject to discount for a long term say
three or five years. Short period policies are issued for a period of less than one year and the premium payable is
the pro rata amount of the annual premium in addition to five per cent of the difference between the annual and pro
rata premiums. The annual policy is a common policy. Even if it is slightly for more than one year, the extra period
Page 2 of 2
18.3 Policy
until the recognised guarantee day is called odd time for which pro rata additional premium is collected. In giving
this period, the date is given and not the time. If the policy is to commence at a future date it commences
immediately after midnight of the previous day. The last day will end at midnight on the last date mentioned unless
otherwise agreed. In other policies, the policy comes into effect and risk attaches on the performance of the
prescribed condition, say payment of the first premium.
The conditions in a fire policy, as in the case of other policies like life and marine, are of two kinds, namely; (a)
express or (b) implied. The express conditions in the standard policy may be classified as; (a) those which reiterate
implied conditions, (b) those which deal with expansion of, or exclusion from, the contract and (c) those which give
instructions as to procedure. The implied conditions in every contract of insurance, unless excluded are; (a)
condition as to good faith, (b) existence of insurable interest, (c) existence of the subject-matter and (d) as to
indemnity.
From another perspective the conditions expressed in a standard policy may be classified as: (a) general conditions
which are printed which are common to all and (b) special conditions, which are written or type written on the policy
which may vary with the terms of the contract in the individual case.
The insured cannot claim anything more than what is covered by the insurance policy. The terms of the contracts
have to be construed strictly, without altering the nature of the contract as the same may affect the interest of the
parties adversely. The clauses of the insurance policy have to be read as they are. Consequently, the terms of the
insurance policy that fix the responsibility of the insurance company must also be read strictly. The contract must be
read as a whole and every attempt should be made to harmonise the terms thereof, keeping in mind that the rule of
contra proferentem does not apply in case of commercial contracts, for the reasons that a clause in a commercial
contract is bilateral has mutually been agreed upon. Courts are not permitted to substitute terms of contract under a
grab of liberal construction. In the instant case, insured failed to inform insurer about default committed by buyer as
per the terms of the contract. Except two claims where statutory compliance was admittedly observed, all 17 claims
placed by the insured disallowed for non-compliance with terms of the insurance policy.29.
Courts need to interpret words employed in insurance contract but courts cannot make a new contract. Contra
Proferentem means that ambiguities in wordings of policy are to be resolved against party who prepared it. Words
used in the policy should receive their ordinary and natural meaning. When wording used in the policy drafted by
the insurer make court unable to decide which of two meanings the right one is, only then does the scope for
applicability of doctrine of contra proferentem arise.30.
The policies containing a clause stating that actual, forcible and violent entry of and/or exist from premises as
precondition for applicability for claiming the loss due to burglary or house breaking. Under such circumstances,
claim cannot be accepted in the absence of proof of these preconditions.31.
In PG Natarajan v LIC, (2016) 14 SCC 232 : 2016 (3) Scale 373, though the termination of the agency of the
appellant was affirmed as legal and justified, held the appellant’s fraud had not been established, therefore the LIC
could not withhold the renewal commission due to the appellant.
29. Export Credit Guarantee Corporation of India Ltd v Grag Sons International, (2014) 1 SCC 686 : 2013 (1) Scale 410 :
[2013] 1 SCR 336.
30. Industrial Promotion & Investment Corpn Of Orissa Ltd v New India Assurance Co Ltd, (2016) 15 SCC 315 : AIR 2016
SC 3908.
31. Ibid.
End of Document
18.4 Scope of the Policy

The general conditions in a standard fire policy may be noted as hereunder:
18.4.1 Misdescription
The policy shall be voidable in the case of misrepresentation, misdescription or non-disclosure in any material
particular.
This is a restatement or incorporation of the implied condition as to good faith but with this difference that a breach
of utmost good faith renders the policy void or voidable, but this condition does not possess this automatic effect,
the contract being voidable at the option of the insurers.
18.4.2 Alteration
The policy shall be avoided with respect to any item thereof in regard to which there may be any alteration after the
commencement of this insurance: (a) by removal; or (b) whereby the risk of destruction or damage is incurred or (c)
whereby the insured’s interest ceases except by will or operation of law, unless such alteration be admitted by
memorandum signed by or on behalf of the insurers.
This condition partially imports the implied condition to indemnity and it makes specific provision in giving directions
to the assured as to how to proceed in the extent of alteration either in the interests in the policy or the situation.
There is a difference in the effect of breach of an implied condition and this type of express condition. In the case of
the implied condition where there is a misdescription or misrepresentation even with regard to a part of the subject-
matter of the policy the whole policy can be avoided by the insurer while in the cases where there is this type of
express condition an alteration of certain items of the subject-matter entitles the insurer to avoid cover only with
regard to those items affected by the alteration. Further, the alteration must be a material alteration and what is
material alteration is again a question of fact.
18.4.3 Exclusions
The policy does not cover: (a) destruction or damage by explosion (whether the explosion be occasioned by fire or
otherwise) except as stated on the face of this policy.
(b) Goods held in trust or on commission, money, securities, stamps, documents, manuscripts, business
books, pattern, models, moulds, plans, designs, explosives unless specially mentioned as insured by the
policy.
(c) Destruction of or damage to, property which at the time of the happening of such destruction or damage is
insured by or would but for the existence of this policy be insured by any Marine policy or policies, except
in respect of any excess beyond the amount which would have been payable under the Marine policy or
policies had this insurance not been effected.
Page 2 of 4
Some insurers state this Marine clause as a separate condition instead of including it as a part of this condition.
18.4.4 Claims
On the happening of any destruction or damage the insured shall forthwith give notice thereof in writing to the
insurers and shall within 30 days after such destruction or damage or such further time as the insurers may in
writing allow, at his own expense deliver to the insurers a claim in writing containing as particular an account as
may be reasonably practicable of the several articles or portions of property destroyed or damaged and of the
amount of destruction or damage thereto respectively, having regard to their value at the time of the destruction or
damage together with details of any other insurances on any property hereby insured. The insured shall also give to
the insurers all such proofs and information with respect to the claim as may reasonably be required together with
(if demanded) a statutory declaration of the truth of the claim and of any matters connected therewith. No claim
under the policy shall be payable unless the terms of this condition have been complied with.
This condition stipulates the procedure to be followed by the insured in order to lay a claim against the insurer and
unless steps mentioned in the clause are taken and complied with in the stipulated time, there cannot be any claim
against the insurer.
18.4.5 Fraud
If the claim be in any respect fraudulent or if any fraudulent means or devices be used by the insured or anyone
acting on his behalf to obtain any benefit under this policy, or if any destruction or damage be occasioned by the
wilful act or with the connivance of the insured all benefit under this policy shall be forfeited.
This is an importation of the implied condition of good faith. Insurers may be confronted with some situations where
they suspect that there is some fraud, in the claim but are not able to locate the spot of fraud in which situations
they are entitled to demand a statutory declaration which if subsequently turns out to be false, will expose the
declarant assured to prosecution for perjury. This provision is intended to persuade an assured to withdraw a
fraudulent claim.
18.4.6 Reinstatement
If the insurers elect or become bound to reinstate or replace any property, the insured shall, at his own expense,
produce and give to the insurers all such land, documents, books and information as the insurers may reasonably
require. The insurers shall not be bound to reinstate exactly or completely but only as circumstances permit and in
reasonably sufficient manner, and shall not in any case be bound to extend in respect of any one of the items
insured more than the sum insured thereon.
This condition gives a right to the insurer in case of damage to elect either to pay money under the policy or to
reinstate the property. The rules relating to “reinstatement” are discussed in the chapter, under the title “Special
Doctrines”.
18.4.7 Insurer’s Rights After a Fire
On the happening of any destruction or damage in respect of which a claim is or may be made under this policy the
insurers and every person authorised by the insurers may without thereby incurring any liability and without
diminishing the right of the insurers to rely upon any conditions of this policy, either, take or keep possession of the
buildings or mines where the destruction or damage has happened and may take possession of or require to be
delivered to them any of the property hereby insured and may keep possession of and deal with such property for
all reasonable purposes and in any reasonable manner. This condition shall be evidence of the leave and licence of
the insured to the insurers so to do. If the insured or anyone acting on his behalf shall not comply with the
requirements of the insurers, or shall hinder or obstruct the insurers in doing any of the above mentioned acts then
all benefits under the policy shall be forfeited. The insured shall not in any case be entitled to abandon any property
to the insurers whether taken possession of by the insurers or not.
The importance of this condition is to confer a right of entry into the property and therefore it is also called by some
as the right of entry condition. This right is conferred on the insurers to enable them to take reasonable steps to
minimise the loss and also to make enquiries regarding the origin of the fire. If any obstruction is caused by or on
behalf of the insured, he loses all his claims and benefits under the policy, unlike in marine insurance, the insured
Page 3 of 4
has no right to abandon the damaged property and treat the loss as a total loss. Abandonment is possible in fire
insurance only by agreement.
18.4.8 Contribution and Average
If at the time of any destruction of or damage to any property hereby insured there be any other insurance effected
by or on behalf of the insured covering any of the property destroyed or damaged the liability of the insurers
hereunder shall be limited to their rateable proportion of such destruction or damage.
If any such other insurance shall be subject to any condition of average this policy, if not already subject to any
condition of average, shall be subject to average in like manner.
If any other insurance effected by or on behalf of the insured is expressed to cover any of the property hereby
insured, but is subject to any provision whereby it is excluded from ranking concurrently with this policy either in
whole or in part or from contributing rateably to the destruction or damage, the liability of the insurers hereunder
shall be limited to such proportion of the destruction or damage as the sum hereby insured bears to the value of the
property.
The right to contribution and the right to average is conferred on the insurers by this condition and the law relating
to contribution is dealt with in the chapter on “Special Doctrines.”
18.4.9 Subrogation
Any claimant under this policy shall at the request and at the expense of the insurers do and concur in doing and
permit to be done all such acts and things as may be necessary or reasonably required by the insurers for the
purpose of enforcing any rights and remedies or of obtaining relief or indemnity from other parties to which the
insurers shall be or would become entitled or subrogated upon their paying for or making good any destruction or
damage under this policy, whether such acts and things shall be or become necessary or required before or after
this indemnification by the insurers.
This condition confers on the insurer the right of “subrogation” which is also discussed in the “Special Doctrines”
chapter and this right is a necessary sequel to the principle that a contract of insurance is a contract of indemnity.
18.4.10 Warranties
Every warranty to which the property insured or any item thereof is, or may be, made subject, shall from the time
the warranty attaches apply and continue to be in force during the whole currency of this policy, and non-
compliance with any such warranty, whether it increases the risk or not, shall be a bar to any claim in respect of
such property or item; provided that whenever this policy is renewed a claim in respect of destruction or damage
occurring during the renewal period shall not be barred by reason of a warranty not having been complied with at
any time before the commencement of such period.
This condition makes it clear that the operation of the warranty is co-extensive with the currency of the policy.
During the currency of the policy, if a breach of warranty is committed the insurer can either avoid the policy as a
whole or only the item to which it is related. A breach of condition, whether it increases the risk or not gives rise to a
right in the insurer to avoid the policy. If a breach is committed and subsequently, but before renewal, it is remedied,
then the policy is valid when renewed.
Further, warranties must be strictly construed. In Bhattacharjee v Sentinal Insurance Co, the plaintiff insured his
machinery and stock of goods stored in the factory premises against damage by fire and a “protection note” was
given subject to the usual conditions of the Company’s policy and one of the usual clauses was a warranty to the
effect that “smoking and cooking be strictly prohibited in or about the said premises…”. The stocks were damaged
by fire said to be of accidental nature but which the insurer alleged was due to some employee carelessly smoking
a bidi or cigarette in the premises. The claim was resisted on the ground among others that there was a breach of
warranty as the fire was occasioned by smoking which is strictly prohibited. As there was no eye-witness to the
origin of the fire the court held that the cause of fire was a matter of conjecture. The court relied on Dekhari Tea Co
v Assam Bengal Roadways Co, AIR 1920 Cal 758 where Rankin CJ, observed “Fires cannot always be explained”
and Ralliaram Durga v GG of India in Council, AIR 1946 Cal 252, where Gentle J observed “the cause of this fire as
in the case of many fires must be a matter of conjecture”, and said that the fire might have been caused by bidi or
cigarette fire.
Page 4 of 4
As regards the warranty the court found that the plaintiff had strictly complied with it as he had put warning notices
strictly prohibiting smoking in and around the places where the fire occurred and held that if in spite of it some
employee smoked a bidi or a cigarette on one occasion it does not amount to a breach of warranty. The court held
that warranties in fire insurance policies must be strictly construed and that what the warranty prohibits is the
habitual smoking or cooking and not on one occasion by an employee or other person.32.
18.4.11 Arbitration
All differences arising out of this policy shall be referred to the decision of an arbitrator to be appointed in writing by
the parties in difference or if they cannot agree upon a single Arbitrator, to the decision of two Arbitrators, one to be
appointed in writing by each of the parties within one calendar month after having been required in writing so to do
by either of the parties, or in case the Arbitrators do not agree, of an Umpire appointed in writing by the Arbitrators
before entering upon the reference. The Umpire shall sit with the Arbitrators and preside at their meetings and
making of an Award shall be a condition precedent to any right of action against the insurers. After the expiration of
one year after any destruction or damage the insurers shall not be liable in respect of any claim therefore unless
such claim shall in the meantime have been referred to arbitration.
This condition deals with the procedure to be followed by the insured in case any difference or dispute arise “out of
their policy” and also sets a time limit for all claims of the insured against the insurers.
Usually, at the end of the conditions in the policy a clause is inserted to cover the interests of the insured and his
intending purchasers. When the property insured is the subject-matter of a contract of sale, by the insertion of this
clause interests of both seller and buyer up to the date of the completion of sale are protected by the policy. On
completion of sale condition two will apply. The clause refers only to buildings. The clause called the Purchaser’s
clause runs thus:
If at the time of destruction or damage to any building hereby insured the insured shall have contracted to sell his
interests in such buildings and the purchase shall not have been but shall be thereafter completed, the purchaser
on the completion of the purchase, if and so far as the property is not otherwise insured by or on behalf of the
purchaser against such destruction or damage, shall be entitled to the benefit of this policy so far as it relates to the
liabilities of the insured or the insurers under this policy up to the date of completion.
32. AIR 1955 Cal 594.
End of Document
19.1 Meaning of Fire
Modern Law of Insurance, 6th ed > PART III Fire Insurance > CHAPTER 19 THE MEANING OF
THE TERMS “FIRE” AND “LOSS BY FIRE”
CHAPTER 19 THE MEANING OF THE TERMS “FIRE” AND “LOSS BY FIRE”

A contract of fire insurance being a contract to indemnify the insured against loss by fire, does not extend to any
loss caused by any causes other than fire. Unless there is contrary intention, the word “fire” is given, its plain
popular, primary or ordinary meaning and in that sense, to constitute fire, there must be ignition or combustion. It
does not extend to chemical actions which do not result in actual ignition though they correspond in their effects to
fire. Thus, lightning may be a form of fire, but loss occasioned by lightning unaccompanied by ignition, is not, in the
ordinary meaning of the words, a loss by fire, although the contract as usually framed covers such loss. Where,
however, lightning results in ignition, a loss occasioned by such ignition is a loss by fire. Also, damage caused by
excessive heat of the sun unaccompanied by ignition will not fall under a fire policy. In Upjohn v Ford, it was held
that damage caused to sugar by the heat of furnaces does not fall under the policy.
In certain American cases, a distinction has been drawn between hostile and friendly fire, i.e., a fire which is
contained in the usual receptacle or ordinary circumstance, e.g., fire in a fire-place, stove, etc. In such cases the
insurer will not be liable if damage is caused. But a friendly fire may transgress its limits and in such cases it will be
treated as a hostile fire and the insurance company will be liable for damage caused by such fire.
The origin of the fire is immaterial provided there is no fraud on the part of the assured. In Harris v Poland, the
plaintiff took a comprehensive policy insuring her jewels inter alia against loss by fire. During the summer she kept
the jewels and currency notes in a newspaper and placed them for safety in the fire-place to prevent burglars from
noticing them. Later without removing the jewels and currency as she forgot about them she lighted a fire and they
were burnt and damaged. The insurers repudiated their liability, contending that the loss was not covered since it
did not fall within the terms of the policy as the damage had been done to the insured property by fire in a place
where it was intended to be, i.e., in the grate. Atkin J held that the underwriter was liable and said that the risks
insured against included the risk of the insured property coming unintentionally in contact with fire and being
thereby damaged or destroyed. It made no difference whether that fire came to the insured property or the insured
property came to the fire.1. But fire caused deliberately by the insured or at his instigation is not covered by a fire
policy.
In ordinary policies, loss by explosion is not included. In considering the question how far a loss by explosion is
covered by a contract of insurance against fire, two kinds of explosions must be distinguished, namely:
(i) explosions caused by an explosive substance, e.g., gunpowder or gas coming into contact with fire,
(ii) explosions caused by the application of fire to a substance not of itself explosive, e.g., a boiler.
(i) Explosions of Gunpowder or Gas
An explosion caused by an explosive substance such as gunpowder or gas, coming into contact with fire is a fire of
inconceivable rapidity, though it can hardly be considered as “fire” in the popular sense of the word. Whether a loss
by explosion is a loss by fire may, in individual cases, give rise to questions of great difficulty. In Everest v London
Assurance Co, the plaintiff effected a policy of fire insurance on buildings. A quantity of gunpowder belonging to a
Page 2 of 2
gunpowder factory of a third person a half a mile distance away from the insured property ignited and exploded and
consequently the windows and window frames were shattered, and the structure was damaged generally by the
atmospheric pressure caused by the explosion. Byles J held that the insurance company was not liable because the
loss was not caused by fire within the meaning of the policy, the house itself was not burnt but was damaged due to
concussion of the atmosphere.2. It has, therefore become a general practice amongst the insurers to deal specially
in their contracts with losses by explosions so as to express with precision the extent of their liability.
(ii) Explosion of Boilers
Where an explosion is caused by the application of fire in the ordinary course to a sustenance not of itself
explosive, e.g., a boiler used for generating steam, any loss occasioned by the explosion is not a loss by fire. On
the other hand if an explosion is caused by a fire within the meaning of the contract, the loss of the boiler is clearly a
loss by fire. If, in the course of fire, a boiler is caused to burst, the loss of the boiler is a loss by fire. Any other loss
occasioned by the explosion, at any rate in the premises in which the fire is, seems equally to be covered.
1. [1941] 69 Lloyd’s Rep 35 (KB).

2. (1865) 19 CBNS 126, 133.
End of Document
19.2 Loss by Fire
Modern Law of Insurance, 6th ed > PART III Fire Insurance > CHAPTER 19 THE MEANING OF
THE TERMS “FIRE” AND “LOSS BY FIRE”
CHAPTER 19 THE MEANING OF THE TERMS “FIRE” AND “LOSS BY FIRE”
19.2 Loss by Fire

In order to constitute a loss covered by a fire policy, there must be an actual fire or ignition. Any loss attributed to
the fire whether by actual burning or by cracking or scorching, or by smoke, or otherwise will have to be borne by
the insurers. If the assured has deliberately set fire to his own property, his loss nonetheless, is one by fire,
although public policy will prevent him from recovering under the policy.3. But that does not mean that in all cases of
deliberate acts of setting fire to his insured property the insurer is disabled; for example, when he sets fire to his
property in case of necessity like setting fire to his vessel to save it from capture”4. or because that the ship has
plague on board”5. he is entitled to recover the money under the policy. A fire caused by negligence of the assured
is covered by the policy. Incendiarism, i.e., mischief by fire, is usually covered by fire policies, but any threat of
incendiarism must be reported to the insurers immediately. Further, any loss resulting from bona fide efforts to put
down fire is within the policy. It sometimes happens that property may be damaged or destroyed or loss is
sustained as a direct consequence of fire, though the property is not directly burnt by fire. The loss could not have
occurred but for fire. In the following circumstances such loss is directly attributable to fire may be regarded as
covered by a fire policy:
(i) Damage by smoke and scorching caused by a fire within the meaning of the policy.
(ii) Property blown up to prevent a fire from spreading.
(iii) Property damaged by water used for extinguishing fire.
(iv) Damage done by the fire brigade in execution of its duties.
(v) Loss to property removed from a burning building caused by rain, theft or damage during removal provided
that the removal was justified and was made in an honest attempt to mitigate loss.
(vi) Loss occasioned by the fall of walls or part of a building in which the fire takes place.
From these, it may be seen that the term “fire” for purposes of fire policy has a wider meaning than that it has in
common parlance.
Further, an insurance against fire may be combined in one contract with insurance against other perils which are in
no way analogous to fire, but which are equally likely to effect adversely the interest of the assured in the subject-
matter of insurance, such as, an insurance against loss by theft, or against liability for accident, or against death by
accident, or any other event likely to prove adverse to the interest of the assured. Damage during removal to save
the property from the spreading of fire is considered to be proximately connected and is within the policy. The
insured insure the property against loss by fire. The insured suffered loss not due to actual burning of books but in
the process of extinguishing fire, books were thrown away and lost. It was held that to constitute loss within the
meaning of fire policy it is not necessary to show that subject-matter itself was burnt, it is sufficient to show that fire
was the proximate cause of the loss.6. But where the loss is remotely connected with fire it is not within the policy.
The doctrine of proximate cause is applied, not only for the purpose of ascertaining whether the subject-matter of
insurance was destroyed by fire, but also for the purpose of determining how far the loss which the insured sustains
in consequence of its destruction can be regarded as a loss by fire within the meaning of the policy.
Page 2 of 2
19.2 Loss by Fire
A loss for which fire is not the proximate cause but only a remote cause, is not recoverable under an ordinary policy
of fire insurance. The different kinds of loss which are to be regarded as being only remotely caused by fire may be
classified as: (a) anticipated profit; (b) continuing expenditure; (c) increased expenditure; (d) depreciation and (e)
liability.
(a) Anticipated Profit Where fire destroys property, from the use of which the insured expects to earn a profit in the
ordinary course of business, he does not merely lose his property. He loses in addition the chance of earning the
profit which he might have earned if the property had not been destroyed. But this loss of anticipated profit is
regarded as too remote and is not recoverable under an ordinary fire policy on the property lost by fire. Accordingly,
an insurance upon a hotel, shop or factory covers only the value of the hotel, shop or factory but does not cover the
loss of business. In Wright v Pole, the insured took out a fire policy on his inn at Dover with the fire office company.
A fire took place and his inn was destroyed. The assured included in his claim the sum which he has to pay by way
of rent to his landlord, the cost of hiring alternate accommodation whilst the insured premises were under repair,
and the loss caused by the customers not frequenting the inn during the period of repair. It was held that none of
the above items is covered by the policy.7. Anticipated profit is to be distinguished from the profit ascertained at the
date and the latter is to be taken into account in estimating the value of the subject-matter and in fixing the amount
recoverable under the policy.
(b) Continuing Expenditure The expenditure to which the insured is committed in consequence of his connection
with the property insured does not necessarily cease when the property is destroyed, but still it is considered to be
too remote though the effect of the fire is to prevent him from deriving any benefit from the payments which he is
compelled to continue to pay.
(c) Increased Expenditure The effect of fire may be to involve the insured to incur additional expenditure which he
need not have incurred but for the accident but still is considered to be too remote.
(d) Depreciation Where part of the property is destroyed, the effect of fire may be to depreciate the value of the
remainder.
(e) Liability The circumstances in which the destruction of the insured property occurs may involve the insured in
liability to third persons for personal injuries, or for damage to property other than the insured property. The loss in
consequence of such liability is not proximately caused by fire and hence not recoverable.
In all these cases, the loss logically may be consequential but not proximate and is not recoverable.
3. The Alexion Hope, (1988) FTLR 270.

4. Gordon v Remmington, (1807) 1 Camp 123.
5. Emerigon, tom 1, p 434.
6. Oriental Insurance Company Ltd v Mitra and Ghosh Publishers (Pvt) Ltd, AIR 2009 Cal 268 : 2010 ACJ 2461 : 2009
(80) All Ind Cas 491.
7. (1834) 1 Ad & El 621.
End of Document
Modern Law of Insurance, 6th ed > PART III Fire Insurance > CHAPTER 20 THE AMOUNT
RECOVERABLE BY THE ASSURED
CHAPTER 20 THE AMOUNT RECOVERABLE BY THE ASSURED

A fire insurance contract is a contract of indemnity and therefore only the actual loss can be recovered by the
assured. The amount recoverable by the assured therefore merely depends upon whether the policy is a valued
one or unvalued one.
20.1.1 Valued Policies
Where the policy under which the claim of the insured arises is a valued policy, the valuation placed upon the
subject-matter in the policy except in the case of fraud or mistake, conclusively establishes the sum required for the
purpose of a full indemnity in the case of a total loss.1. In such cases, the insured is absolved from the necessity of
proving the value of loss once again and on his proving the total loss he is entitled to recover the full amount even
though the practical result may be to give him more than true indemnity in many cases.2.
In the cases of partial loss, where the subject-matter is not destroyed but only damaged, the insured, being entitled
to indemnity only, cannot recover more than the amount of damage sustained by him. In such cases, it is immaterial
that the policy is valued because what is valued is the subject-matter of insurance but not the amount of the loss.
Generally, valued policies are not used in fire insurance.
20.1.2 Unvalued or Open Policies
Where the policy is not a valued policy, the amount of insurance specified in the policy does not necessarily
represent the measure of indemnity.3. In such cases, it is generally calculated according to the intrinsic value or the
market value on the date of fire.
In Butter v Standard Fire Insurance Co, the insured was held entitled to recover the value of the stock as at the date
of fire, though, in fact it is greater than its value at the time of insuring.4. The value of the subject-matter at any other
time is immaterial. Its value at the commencement of risk is irrelevant and in this respect it differs from the rule in
marine insurance where the amount recoverable is based, in the case of a ship, upon her value at the
commencement of the risk and in the case of goods, upon their prime cost, with additions for shipping expenses
and insurance charges. On the other hand in fire insurance, the rule is that the value of the subject-matter is its real
value to the insured and no addition is to be made for merely sentimental value of pretium affectionis.5. Another rule
in this connection is that the value of the subject-matter is its value at the place of fire.6. It is also the rule that in
estimating the value of the subject-matter that no allowance is to be made for loss of prospective profit or other
consequential loss.
The application of the above rules presented a number of difficulties. The principal difficulty is to determine the
basis, upon which the value of the subject-matter is to be calculated. The contract of fire insurance is a contract of
indemnity, and the insured is not adequately indemnified against the loss of his property, unless, so far as money
can do so, he is restored to the position which he occupied at the time of loss. No hard and fast rule can be laid
down. That basis must be adopted which is best calculated in the particular case to carry out the intention of the
parties. This is similar to the observation of Lord Wright in Liesbosch (Dredger) v Edison (owners) speaking about
Page 2 of 5
the measure of damages in tort that “the dominant rule is the principle of restitutis integrum, and subsidiary rules
can only be justified if they give effect to that rule.”7. The exclusion clause in the policy reads as under: “It is hereby
understood and agreed that loss or damage due to mere cracking or settlement neither of building nor for any loss
unless entire building or a part thereof has collapsed through shifting or falling away of soil beneath it”. In the
present case cracks in building had developed because of sinking of land underneath. In these circumstances to
say that compensation is payable only when building completely falls down would not be valid. If cracks are such
that building is not safe then its occupant is not to wait for its total collapse and is entitled to claim the loss by
issuing the notice of abandonment to the insurer.8.
If he can be restored to his original position, as is usually the case, by the purchase of an equivalent or by
reinstatement of the property destroyed, the amount of indemnity must be sufficient for the purpose. Prima facie,
therefore, the basis of calculation is either the market value of the property destroyed or the cost of reinstatement. It
must be borne in mind throughout that what the insured is entitled to recover is the value of the property. Whichever
basis is adopted, it is only as a basis for calculating the real value of the property, and the insured does not recover
more than the market value or the cost of reinstatement as such.9.
In many cases, the market value of the property destroyed represents its real value. Payment of the market value is
an adequate indemnity, since the insured, by purchasing similar property in the market with that money, can be said
to have been completely restored to his original position. In many cases, the market value is the selling value, e.g.,
in the case of stock in trade, but in others there may be a wide difference between the selling and purchase price,
e.g., a sale by the insured of his used furniture may only fetch him the dealer’s price whereas, he will have to pay a
much greater price if he goes to the dealer to purchase a similar article. In case of this type of difference, the
insured is entitled to recover the latter price. The amount recoverable under the policy is, therefore, calculated upon
the basis of the market value, that is, a dealer’s selling price in the market of the place of destruction at the time of
loss.
In Maurice v Goldsborough Mort & Co, it was held that the value should be the gross selling price realisable by
auction at the date of the fire.10. Where the property is enhanced in value before the fire and its market value is
accordingly increased, an objection may be raised that the enhancement represents profit and cannot therefore be
recovered unless specifically insured. In a sense, the enhancement of value no doubt is profit; in marine insurance
it must be insured as profit. On the other hand, in fire insurance however, the rule that profit must be specifically
insured applies only to prospective profit, the chance of earning which is taken away by the fire. The property is
valued as at the time of fire, and not as marine insurance at an earlier date. Consequently, any enhancement of
value which has already taken place is not prospective profit, but an accrued profit, and it forms part of the value of
the property at the time of loss, and therefore forms part of the then market value.11. The objection therefore is
untenable and the amount recoverable under an ordinary policy includes any enhancement of value which has
taken place before the loss. In Equitable Fire Insurance Co v Quinn, it was held that the insurers are liable to pay
the market value at the time of fire, which exceeded the cost price although the insured has not insured the profit.12.
The insured insure the vehicle for Rupees one lakh against theft. When the vehicle was stolen, the insurer pleaded
that the company was liable to pay market value only but not the contract amount. It was held that the insurer was
liable to pay contract amount but not the market value.13. In case of payment of money in foreign exchange, the
relevant rate of exchange would be that prevailing on the date when the debt became payable i.e. immediately on
receipt of the foreign currency in India.14.
Theoretically, the market value and the cost of reinstatement ought to be the same. In practice, however, there is
frequently a difference between them. Further, property does not always possess a market value, and even where
there is a market value, it does not necessarily represent the real value of the property. In McCuaig v Quacker City
Insurance Co, where a steamboat was insured against fire, the insurers were held liable to pay the real value of the
steamboat notwithstanding the fact that there was a depreciation in value generally of steam boats caused by
circumstances which might only be temporary.15. In Green v Manitoba Assurance Co, the insured was not
precluded from showing the real value of the property by the fact that on previous occasions in particular
circumstances he had offered to sell it for a smaller sum.16. Hence, the view that in all cases the basis of calculation
is the market value of the property, it is submitted, is not applicable. There are cases in which, the loss cannot be
made good except by reinstatement. The insured is not restored to his original position, if he is unable to reinstate
the property out of the proceeds of the insurance. Different considerations apply where the owner is not in
possession but is only a reversioner and where the insurance is not intended to cover the whole interest in the
property. In Moss v Christ Church Rural District Council, wherein an action arising out of the burning of a cottage let
to a tenant who was protected by the Rent Restriction Acts, the court held that the measure of damages
recoverable by the landlord was not the cost of reinstatement but the difference between the value of her
reversionary interest before and after the fire.17.
Page 3 of 5
Payment of market value therefore does not give the insured an adequate indemnity, since he cannot reinstate the
property with this sum representing its market value, but is necessarily compelled to incur further expenditure
before he can be restored to his original position. Consequently, a basis of calculation must be adopted which gives
him adequate indemnity, and the basis is the cost of reinstatement. Again, in the case of stock in trade, which can
be sold in a damaged condition, the measure of indemnity is the market value, the amount recoverable being the
difference between the market price and the actual selling price. Further, there is no such thing as constructive total
loss; therefore the relation between the cost of the repairs and the repaired value is immaterial. The insured if paid
sufficient money for repairs is adequately indemnified. In estimating the cost of repairs also, the proper cost of
repairs must be paid, though the assured was able to get the repairs done more cheaply due to some extraneous
reasons, because of other repairs not covered by the policy.18.
Where the cost of reinstatement is taken as the basis of calculation, the reinstatement contemplated is a
reinstatement sufficient to restore the property insured to the condition in which, it was, at the time of loss. But very
often, by reinstatement the assured will be more than fully indemnified because an old property is now substituted
by new property.
In certain peculiar cases, neither reinstatement nor market value can be the basis of valuation as reinstatement
may be impossible and market value does not exist. The property may not have market value, except perhaps as
scrap and it may be capable of physical reinstatement but it may not be commercially practicable to do this. In such
cases, the test is the real value to insured at the time of loss.
For estimation of loss the insurer cannot appoint second surveyor as a matter of right but at the same time he has
to give valid, proper and cogent reasons for rejecting the first surveyor’s report appointed by the company.19. The
approved surveyor’s report may be the basis for the settlement of the claim by the insurer in respect of the loss
suffered by the insured but such report is neither binding upon the insurer nor insured.20.
20.1.3 Where the Insured has a Limited Interest
The insured is, as a general rule, precluded from recovering more than the value of his interest in the subject-
matter, since, the measure of his loss is the interest in respect of which, he has been prejudiced, and if he was
permitted to recover a greater sum, he would be receiving more than what was necessary for a full indemnity. The
value of his interest is not necessarily the value of the subject-matter; it may be only a portion of such value, varying
in extent according to the quantum of interest possessed by him at the time of loss.
However, in North British and Mercantile Insurance Co v McMillan, (1892) 21 SCH 228, where the insured is not the
absolute owner of the subject-matter, it was held that the value of his interest may nevertheless be the value of the
subject-matter. His right of indemnity cannot always be measured by the market value of his proprietory interest in
the subject-matter for the purpose of giving him a full indemnity and consequently, the amount recoverable may
have to be determined by the extent of loss. Thus a tenant for life is entitled as a general rule, subject to the limits of
his insurance, to recover a full value of the property insured.
Generally when the following conditions are satisfied a limited owner can recover the full value of the property,
namely:
(i) The form of the policy must be such as to enable the insured to recover the full value.
(ii) The insured must, at the time of insuring, intend to insure the whole value of the subject-matter for the
purpose of covering not merely his own limited interest, but the interest of all other persons who are
interested in the subject-matter.
(iii) There must be no statute prohibiting the insured from recovering the full amount.
Where the insured is the owner of the subject-matter the value of his interest is measured by the value of the
subject-matter destroyed. It is immaterial whether he is the legal or equitable owner. Thus, a mortgagor may,
notwithstanding the existence of a mortgage, recover the full value of the property destroyed.
20.1.4 Salvage Expenses
Regarding these expenses there is difference of opinion on the question whether they can be recovered. Salvage
expenses are those expenses which are incurred by the assured in salvaging or saving the property. It is the duty of
Page 4 of 5
the assured to minimise the loss by saving the property and preventing the spread of fire, because a fire insurance
contract is a contract of indemnity. In English law, it was held in Falcke v Scottish Imperial Insurance Co by Bowen
LJ that the doctrine of salvage is not applicable to fire insurance and therefore salvage expenses cannot be
recovered by the assured.21. Under the Indian law the salvage expenses may be recovered under a quasi-
contract.22. It was held in Seth Chitormal v Shiblal that the dictum of Bowen LJ need not be followed in India and
therefore salvage expenses can be recovered by the assured under a fire insurance contract because; (a) Bowen
LJ has not given any reasons why the doctrine of salvage should not be applied; (b) the technicalities of common
law do not apply to Indian law and (c) no sanctity can be attached to the perils of the sea. Mahmood J observed:
As I understand Lord Justice Bowen’s dictum a man who saved a vessel from sinking would be entitled to a salvage lien,
because this would be a peril of the sea. But a person who saves Pompei from destruction by eruption of Mount Vesuvius
at the risk of his life and at expenditure of his money would not be entitled to such a salvage because the eruption took
place on the land and not in the sea.23.
In modern fire policies, with a view to encourage the assured to take steps to save the property a clause is inserted
known as the “sue and labour” clause under which the insurance company will be liable to pay the expenses
incurred by the assured in salvaging the property even though nothing has been saved.
20.1.5 Procedure to Claim the Amount
In actual practice, as soon as the loss occurs, it is the duty of the insured under the policy to notify the damage to
the insurers and lay his claim before them. The insurers on receiving the claim will first see whether the policy is in
force and then whether the policy covers the peril causing the damage. When once they are satisfied with both the
conditions, the question arises whether the amount claimed is substantial or small. In small claims a summary
procedure is followed while in substantial or serious claims a detailed procedure is followed.
20.1.5.1 Procedure in Substantial Claims
In such cases, the insurers as soon as they receive a claim notice appoint adjusters to act for them. The adjusters
so appointed proceed immediately to the scene of occurrence to make a preliminary investigation about the cause
of fire and the damage sustained. They go to the scene with copies of the claim form and of the policy or policies.
On making this preliminary inquiry they submit to the insurers a preliminary report and a fair estimate of the loss. In
case of damage of buildings an estimate is prepared. He then looks into the completed claim form and adjusts the
loss on the basis of the information supplied by the insured and the results of his investigation in case the policy is
subsisting and the property is covered by it. Then if the insurers and insured reach an agreement, the latter signs
the claim form. Then the adjuster submits his final report with the claim and acceptance forms of the insured to the
insurers. When the insured had discharged the initial burden regarding destruction, damage of the showroom and
the stocks therein by fire and riot in support of the claim under the insurance policy and it was for the insurance
company to disprove such claim with evidence, if any. The insurance company was liable to pay when it failed to
establish that the claim of the insured was not justified.24. Then the insurers give a cheque for the settled amount.
The cheque is given in favour of all the parties mentioned in the policy and obtain discharge from all of them. If the
property is insured with more than one insurer and the adjuster is appointed by the leading office, the report of the
adjuster is sent to all the co-insurer. In the final report, the adjuster also apportions the liability of all the insurers.
Once the insurer and the insured appointed joint surveyor and after he submitted the report the insurer appointed
another surveyor and his report is contrary to the first surveyor’s report, then subsequent surveyor’s appointment
was hit by section 64 UM (3) of Insurance Act, 1938 and the second surveyor’s report has no evidentiary value.25.
20.1.5.2 Small Claims and Summary Procedure
Generally, these are with reference to household goods. The claim is adjusted on the insured’s own verified and
detailed statement. If there is any small difference, the insurer sends his inspector and or agent and on the
negotiations the claim is settled. The payment is, as in the above cases, made in full discharge of their liability.
1. Bousfield v Barnes, (1815) 4 Camp 228.

2. Maurice v Goldsborough Mort and Co Ltd, [1939] AC 452 (PC).
Page 5 of 5
3. Vance v Forster, (1841) Ir Cir Rep 47.

4. (1879) 26 GR 341 (UC).
5. Re Earl Egmount’s Trust, Lefroy v Earl Egoinot, [1908] 1 Ch 821, 826.
6. Rice v Baxandale, (1861) 7 H&N 96.
7. [1933] AC 449.
8. National Insurance Co Ltd v Abdul Rashid Kichloo, AIR 2001 J&K 30 (DB) : 2001 (4) RecCivR 464.
9. Jockson v Canada Accident & Fire Assurance Co, (1924) 52 NBR 33.
10. [1939] AC 452(PC).
11. O’Hanland v Great Western Rail Co, (1865) 34 LJQB 154.
12. (1861) 112 CR 170.
13. Vishan Narain v Oriental Insurance Co Ltd, AIR 2002 Del 336 : 97 (2002) DLT 225 : 2002 (64) DRJ 617.
14. Rahee Industries Ltd v Export Credit Guarantee Corporation of India Ltd, (2009) 1 SCC 38 : JT 2008 (12) SC 244 :
2008 (13) Scale 261.
15. (1859) 18 UCR 130.
16. (1901) 13 Man LR 395.
17. [1925] 2 KB 750.
18. Glasgow Provident Investment Society v Westminster Fire Office, (1887) 14 R 947, 989 (Ct of Sessions).
19. Sri Venkateswara Syndicate v Oriental Insurance Co Ltd, (2009) 8 SCC 507 : 2009 (11) Scale 597 : [2009] 14 SCR 57.
20. New India Assurance Co Ltd v Pradeep Kumar, (2009) 7 SCC 787 : JT 2009 (8) SC 111 : [2009] 16 SCR 508 : 2010 (1)
UC 152.
21. (1886) 34 Ch D 234.
23. ILR 14 All 273.
24. Shobika Attire v New India Assurance Co Ltd, (2006) 8 SCC 35 : AIR 2006 SC 3261 : 2006 (9) Scale 293.
25. The New India Assurance Co Ltd v Protection Manufacturers (P) Ltd, (2010) 7 SCC 386 : AIR 2010 SC 3035.
End of Document
21.1 Doctrine of Reinstatement
Modern Law of Insurance, 6th ed > PART III Fire Insurance > CHAPTER 21 SPECIAL
DOCTRINES
CHAPTER 21 SPECIAL DOCTRINES

Reinstatement literally means replacement of what is lost or repairing the damaged property and bringing it to its
original value and utility. In Anderson v Commercial Assurance Co, Lord Esher MR explained:
We have come to the conclusion that the words “reinstate” and “replace” should thus be applied: if the property is wholly
destroyed, the company may, if they choose, instead of paying the money replace the things by others which are
equivalent; or, if the goods insured are damaged but not destroyed, may exercise the option to reinstate them, i.e., to repair
them and put them in a condition in which they were before the fire.1.
From this it may be seen that the word reinstate in a policy of fire insurance, refers to building or chattels which
have been damaged and the word replace refers those which have been totally destroyed. Restoration is a
convenient term used in modern times to cover both reinstatement and replacement.2. Lord Anderson explained in
Sutherland v Sun Fire Office, that reinstatement is replacement of the stock in forma specifica.3. Under an insurance
policy, the normal liability of the insurer is generally to indemnify the assured by paying the value of the thing lost or
the expenses incurred by the assured in repairing the damage occurred by an event insured against. Though
usually payment of money is made by the insurer, in certain cases, with the consent of the assured, they may
discharge their liability by reinstatement. The right of “reinstatement” is usually stipulated as an option to the insurer
in the sense that on the happening of the loss, the insurer will have right to elect either to pay the assured in money
or to reinstate the property.4. The assured will not have a right to compel the insurer to reinstate, nor the insurer5.
has a right to compel the assured on payment of money to apply the proceeds of the policy in reinstatement. The
assured has always an unbridled right to utilise the policy proceeds as he pleases without any interference from the
insurers.6.
Reinstatement insurance was introduced in England after the first world war. These clauses were necessitated
because of the rapid increase in prices due to which the normal provision was found to be insufficient or almost
insignificant and the insurance was not achieving the object with which it was made. So the insurers permitted the
insured to insure their building and plant (excluding stock) on the basis of its value as new and agreed to settle the
loss on that basis. The original wording of the reinstatement was changed just before the second world war and the
substance of the clause now used under title “Reinstatement Memorandum” is that the claim should be settled in
case of destruction where the property insured is “buildings” by “rebuilding” and in the case of other property
insured replacement and in case of damage, whatever may be the property, to repair and restore the damaged
portion and in either case “equal to but not better or more extensive than its condition when new”. The words in the
quotation are very important and significant, especially in case the property insured is plant or machinery in the
wake of technological advancement and new inventions rendering the old machinery partly or wholly obsolete. The
import of the words in quotation is that, when a new type of machinery or plant is substituted by “reinstatement” and
there are definite advantages to the insured, say by increased output or saving of labour, he is obligated to
contribute a reasonable proportion of the cost of “reinstatement”, the amount or contribution, of course, depending
entirely on the facts and circumstances of each particular case.
Page 2 of 4
This right of the insurers to reinstate the property instead of paying the money may spring up; (a) either from a
contract in the form of a clause under the policy or (b) under a statute. This type of clause is not inserted in all
policies in all branches of insurances, e.g., it is not and cannot be included in life policies. Only in indemnity
insurances, in appropriate branches of insurance, like fire, burglary, steam boilers, or motor vehicle insurances, this
clause called the “reinstatement clause”, entitling the insurers to exercise an option, on the happening of the
insured event, either to reinstate or to pay the insured money can be incorporated. This only empowers the insured
to exercise the option and under no circumstances the assured can compel the insurer to reinstate. The insurers
can exercise this option by expressly giving a motive to the assured or it may be inferred from their conduct. In
Sutherland v Sun Fire Office, it was observed that simply because the insurers made a reference to valuers to
ascertain the amount of loss, they cannot be deemed to have opted for reinstatement. Before such option can be
inferred from their conduct, it must be shown that the insurer has full notice of all the facts which show as to which
of the two courses, viz, to pay money or to reinstate the property would be advantageous. It is unreasonable to hold
that the insurer by simply doing any preliminary acts like reference to the valuers is deemed to have exercised his
option in reinstating the property especially when he has no knowledge of all the necessary facts. When once the
insurer has exercised this option expressly or by declaration or by his conduct, the assured gets a right to insist on
the reinstatement. If there is any time fixed in the policy, the insurer has to exercise this option within that time. If no
time is fixed in the policy containing an option to reinstate, they must do so within a reasonable time from the loss;
otherwise, it was held in USA that they will be obliged to pay.7.
When once the option to reinstate is expressly or by implication exercised in favour or reinstatement, it amounts to
a new contract and they cannot go back and say that they would pay money. The selection of one alternative
amounts to an abandonment of the other.8. In Brown v Royal Assurance Co Ltd, Campbell CJ observed:
On exercising the option the case stands as if the policy had been simply to reinstate the premises in case of fire; because,
where a contract provides for an election, the party making the election is in the same position as if he had originally
contracted to do the act which he has elected to do.9.
In Sutherland v Sun Fire Office, it was held that they cannot go back from it.10. The House of Lords held that a
breach of this obligation will make the insurers liable to damages,11. it is doubtful whether the contract is specifically
enforceable. Reinstatement, as the clause indicates, means repairing or replacing in the sense that if the property
insured is a building and if it is destroyed, they should rebuild it. In doing so, it sufficient that a substantially similar
building is constructed although the new building is not identical in all minute details with the destroyed one. But if
the new building is by far less than the original building, they have to make good the loss. In Brown v Royal
Insurance Co, it has been held that if the new building is costlier than the original building, on that count they cannot
go back from their duty nor in the absence of a specific agreement, require the assured to contribute for the
balance.12. It was further held in that case that if a fire occurs for a second time during the reinstatement, they are
their own insurers and so cannot claim credit for what they have already spent.13. They should replace a similar
building. For reasons beyond the control of the parties, if a building cannot be constructed in the same place, the
assured can demand the construction of a similar building in a suitable alternative space within a reasonable
distance from the original place, and on that count alone the insurers cannot absolve themselves from the duty or
reinstatement.
If the property insured is goods, as a general rule, they should be literally reinstated as similar goods will be
available in the market as laid down in Sutherland v Sun Fire Office.14.
In Young v New Zealand Insurance Co, it has been held that as in the standard fire policy, a fire policy having a
“reinstatement clause” usually provides that the assured is bound to supply at his own expense when required by
the insurers for the purpose of reinstatement, the necessary plans, documents, books and other information.15. It is
the duty of the assured not only to abstain from impeding the progress of reinstatement work, but also help the
insurers to the extent possible and within his means. If the insurers are ready to do the work, but the assured
wilfully prevents them from carrying on their work, they are even discharged from this duty of reinstatement.
In certain circumstances third parties may be entitled to compel this reinstatement under a statute.
In the case of sale of real property under the old English law, it was held in Rayner v Preston, 18 Ch Div 1 (1881)
that suppose X sells a house to Y and after the sale the house is destroyed by fire, X goes to the insurance
Page 3 of 4
company and collects the money. He need not hand over the money to Y. Another case, Castellain v Preston, went
a step further and held that X should refund the money to the insurance company and that they could recover from
him as the company is not bound to pay him under the policy on the ground that he has not suffered any loss. In the
former case James LJ in a dissenting judgment pointed out that the relation between the vendor and the vendee
being that of a trustee and cestui que trust, the insurance money received by the vendor must be held by him as a
trustee for the beneficial owner, the purchaser. The majority of judges, however, came to the conclusion that the
contract between the vendor and the insurers being purely collateral, no interest therein passes to the vendee in the
absence of an assignment of the policy. The legislation of 1925 has adopted the dissenting opinion of James LJ
and amended the law suitably. Section 47 of the Law of Property Act, 1925, states that the vendor is liable, subject
to a contract to the contrary and the consent of the insurers, on completion of the sale to pay the purchaser the
insurance money in case of damage occurring after the contract of sale.
Indian law is also to the same effect. The Transfer of Property Act, 1882 provides that where the property is
transferred for consideration and such property or any part thereof is at the date of the transfer insured against loss
or damage by fire, the transferee, in case of such loss or damage may in the absence of contract to the contrary,
require any money which the transferor actually receives under the policy, or so much thereof as may be necessary
to be applied in reinstating the property.16. A right to get the policy assigned in favour of the transferee is recognised
in section 135 of the Transfer of Property Act which reads:
Every assignee by endorsement or other writing, of a policy of insurance against fire, in whom the property in the subject
insured shall be absolutely vested at the date of assignment, shall have transferred and vested in him all rights of suit as if
the contract contained in the policy had been made with himself.
Therefore, if the transferee gets the policy in favour of the transferor assigned to him, there will be no difficulty for
the transferee in getting the money from the insurance company or receiving reinstatement benefit if the company
so chooses.
The statutes in England provide a claim for reinstatement to, amongst others, the owners, lessors, lessees, tenants
for life, remainder man, mortgagors, mortgagees and beneficiaries. On first principles similar relief may be granted
to most of them in India also, under section 49 of the Transfer of Property Act, 1882.
21.1.1 Right of Co-Insurers to Combine in Reinstatement
When two or more insurers grant insurances on the same subject-matter and if they combine together to reinstate,
the assured cannot prevent them from joining to do the work and when once they complete reinstatement they are
discharged from their liability.17. This right of combination sometimes may be a valuable right where the policies
relate to separate interest on the same subject-matter because the cost of reinstatement may then be very much
less and more economical than the measure of loss.18.
1. (1855) 55 DJQB 146(CA).

2. Ibid, 146, 149 per Bowen LJ.
3. (1852) 14 Dunnl, 775.
4. Bowen LJ in Anderson v Commercial Union, supra.
5. Leppard v Express Insurance Co, [1979] All ER 668(CA).
6. Queen Insurance v Vey, (1867) 16 LT 239.
7. Insurance of North America v Hope, 11 Am Rep 48, 49.
8. Times Fire v Hawke, (1858) F&F 406.
9. (1859) 1 E&E 853.
10. Sutherland v Sun Fire Office, supra.
11. Times Fire Insurance Co v Hawke, supra.
Page 4 of 4
12. Brown v Royal Ins Co, supra.

13. Smith v Colonial Mutual Fire, (1880) 6 Vict LR 200.
14. Sutherland v Sum Fire Office, supra.
15. (1910) NZ Gaz LR 315.
16. Transfer of Property Act, 1882, section 49.
17. Scottish Amicable v Northern, (1883) 11 R 287 (Ct of Sessions).
18. Westminster Fire Office v Glasgow Provident Investment Society, [1888] 13 AC 699.
End of Document
21.2 Doctrine of Subrogation
DOCTRINES

The doctrine of subrogation is a necessary incident to a contract of indemnity and therefore is applicable to a
contract of fire insurance and one of marine insurance.19. Diplock J in Yorkshire Insurance Co v Nisbet Shipping Co
observed:
Although often referred to as in “equity” (subrogation) is not an exclusively equitable doctrine. It was applied by the common
law courts in insurance cases long before the fusion of law and equity, although the powers of the common law courts
might in some cases require to be supplemented by those of a court of equity in order to give full effect to the doctrine; for
example, by compelling an assured to allow his name to be used by the insurer for the purpose of enforcing the assured’s
remedies against third parties in respect of the subject-matter of the loss.20.
It is given statutory recognition in section 79 of the Marine Insurance Act, 1906. Under this doctrine, as applicable to
fire insurance, the insurer has a right of standing in the shoes of the insured and avail himself of all the rights and
remedies of the insured, whether already enforced or not. The principle of subrogation prevents an insured who
holds a policy of indemnity from recovering from the insurer the sum greater than the economic loss he has
sustained. Therefore, if a loss occurs under such circumstances that he has an alternative right to recover
damages, under common law, tort or statute and if the loss is also covered by the policy and so he can recover the
entire loss from the insurer and if he so receives, the insurer is entitled to, or is subrogated to, the former alternative
rights and remedies of the insured and this is technically called “subrogation”. The insurer in his turn is entitled by
subrogation only up to the amount he has paid the insured. Lord Blackburn in Burnand v Rodocanachi observed:
Where there is a contract of indemnity… and a loss happens, anything which reduces or diminishes the loss reduces or
diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already paid it, then, if anything
which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the person
who has already paid the full indemnity is entitled to be recouped by having that amount back.21.
Again, in Castellian v Preston it was explained:
A person who wishes to recover for, and is paid by the insurers as for a total loss, cannot take with both hands. If he has a
means of diminishing the loss, the result of the use of the means belongs to the insurers.
This case is a locus classicus and to explain the way in which the doctrine is linked with indemnity the facts of the
case are briefly given hereunder even at the risk of repetition.
Preston was the owner of a house and he agreed to sell the same to Rayner. The purchaser under the agreement
to sell paid a deposit and in effect, owned the house, subject only to the payment of the balance of the purchase
money. A fire occurred and Preston claimed from the insurers and received payment of the cost of the damage
Page 2 of 3
caused by fire. Subsequently, the sale deed was executed on payment of the balance of the purchase money. The
vendor thus received the full value of the house and also the sum received from the insurers. The insurers claimed
the repayment of the amount of the loss paid to Preston and the court decreed the suit on the ground that the fact
that Rayner paid in full for the house diminished the loss against which the insurers merely undertook to indemnify
him. The matter was taken to the Court of Appeal which set out clearly the doctrine of subrogation by observing:
In order to carry out the fundamental rule of insurance law this doctrine of subrogation must be carried to the following
extent as between the underwriter and the assured, the underwriter is entitled to the advantage of every right of the assured
whether such right consists in contract fulfilled or unfulfilled or in remedy for tort capable of being insisted on or already
insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable which can be or has been
exercised or has accrued and whether such right could or could not be enforced by the insurer in the name of the assured,
by the exercise or acquiring of which right or condition the loss against which the assured is insured can be or has been
diminished. That seems to put this doctrine of subrogation in the largest possible forum.22.
The important type of right in respect of which subrogation arises are rights arising out of a tort, contract or statue.
The right of subrogation is exercisable at common law after the amount to the insured has been fully paid, but
Condition 9 in the standard fire policy enables the insurer to claim against the third party even before the payment is
made. However, the insurers cannot recover from a third party before he has indemnified his own insured, but can
only take steps to hold the third party liable pending the settlement of the claim under the policy. It is from actual
payment under a contract of indemnity that the right of subrogation springs.23. As subrogation means substitution
where the assured himself cannot bring an action the insurer also cannot claim any thing by subrogation. For
example, where the wife of the assured set fire to his house and the insurers paid, it was held in Midland Insurance
v Smith that the insurers cannot recover the insurance money as the assured had no right of action against his
wife.24. Again, where two ships belonging to the same owner collide by the fault of one, the insurers of the ship not
in fault will not be entitled to any claim on the owner for acts of the other ship, though the insurers of the cargo
owned by a third party would have had a claim against him.25. In National Insurance Co v SS Navigation Co, a
vessel belonging to the SS Navigation Company, collided with a vessel belonging to the Shalimar Paints Company,
causing it to sink. The insurer indemnified the insured, took a deed of subrogation and filed this suit against SS
Navigation Company, to recover damages for the loss caused more than three years after the collision. The
defendant contended that the suit was barred by limitation. The plaintiff (insurer) claimed that as a public
undertaking it had 30 years’ time to sue according to the West Bengal Amendment to Article 112 of the Limitation
Act, 1963. Rejecting this claim the court held that the insurer could not claim better or higher rights or remedies than
what were available to the insured under section 79(1) of the Marine Insurance Act under which he merely steps
into the shoes of the insured.26. Further, it may be noted that the benefit to which the insurers seek to be subrogated
must be incidental to the subject-matter of the loss. The insurers are not entitled to make a profit by subrogation. In
Yorkshire Insurance Co v Nisbet Shipping Co, it was held that though the insured recovers more from the third
party, the insurers by claim of subrogation cannot claim all that amount and their right is limited to repayment only of
the amount paid by them.27.
21.2.1 Limitations on the Doctrine
(i) Does not apply to life and personal accident policies;
Before the doctrine is applied, there must be indemnity. Since life and personal accident policies are not governed
by strict principle of indemnity the doctrine applies only to fire, marine and other non-life policies;
(ii) Insurer must pay before he claims subrogation;28.

(iii) Assured must have been able to bring action.
For example, where two ships belonging to the same owner collided by fault of one of them, the insurers of the ship
not at fault have been held not to be entitled to make any claim on the owner of the ship at fault, though the insurers
of cargo owned by a third party can claim subrogation.29. Similarly, where the assured and the wrongdoer are co-
assureds the doctrine does not apply.30.
19. Randal v Cockran, (1748) 1 Ves Sen 98, 99.

Page 3 of 3
20. [1962] 2 QB 330, 339.

21. [1882] 7 AC 333 .
22. [1883] 11 QBD 380.
23. Edwards v Motor Union, [1922] 2 KB 249, 254.
24. [1881] 6 QBD 561, the decision may be otherwise after the passing of the married women and Joint Tort Feasor’s Act,
1930.
25. Simpson v Thompson, [1877] 3 AC 279 .
26. AIR 1988 Cal 168.
27. [1962] 2 QB 330.
28. Scottish Union v Davis, [1970] 1 Lloyd’s Rep 1.
29. Simpson v Thompson, [1877] AC 279 .
30. Petrofira v Magnaload, [1983] 2 Lloyd’s Rep 91.
End of Document
21.3 Doctrine of Contribution
DOCTRINES

Like subrogation, contribution is also a corollary to the principle of indemnity. Therefore, contribution generally
arises only in property insurance. The rule is of ancient origin and was recognised by the chancery courts. The
doctrine is defined and explained in North British and Mercantile v Liverpool and London Globe (also known as King
an Queen Granaries) case as: Contribution exists where the thing is done by the same person against the same
loss, and to prevent a man first of all recovering more than the whole loss or if he recovers the whole loss from one
which he could have recovered from the other, then to make the parties contribute rateably. But that only applies
where there is the person insuring the same interests with more than one office.31.
Contribution arises because of the liberty of the assured to insure the same property with more than one insurer
which is called “double insurance.” By mere double insurance also, the right to contribution does not arise unless
there is over insurance. Where there is double insurance and, over insurance, the right of contribution springs up.
To give rise to a right of contribution the following conditions must be satisfied:
(i) All the insurance must relate to the same subject-matter.32.

(ii) The policies concerned must all cover the same interest of the same insured.33.
(iii) The policies concerned must all cover the same peril which caused the loss.34.
(iv) The policies must have been in force35. and all of them should be enforceable at the time of loss.36.
The insurer, who has paid first in full the assured, can claim contribution from the other co-insurers if the above
conditions are satisfied. To avoid this circumlocutory action, continental law makes successive insurers liable in
order of time and courts in USA also generally followed that rule. Where the insurers have to share a loss they
share equally subject to their limits. If insurer A has provided a cover of Rs 10,000 and insurer B of Rs 5,000 and a
loss of Rs 3,000 is sustained, A pays Rs 1,500 and B pays Rs 1,500. In later times in England, in the standard fire
policy Condition 8 is introduced which provides that the liability of each insurer, when there are several co-insurers,
is limited to a rateable proportion only. The object of such a clause is simply to do away with the old practice of the
assured recovering the whole loss from one of the several co-insurers, leaving the paying company to obtain
contribution from the other co-insurers. They are inserted in order that the assured himself should collect from each
insurer a rateable proportion and so it is also called Rateable Proportion Clause. Thus, if a house is insured with
company X for Rs 5,000 and with company Y for Rs 10,000 and the damage amounts to Rs 1,200, company X will
apparently be liable to contribute Rs 400 and company Y to contribute Rs 800. This will be the case in “concurrent”
policies. Where they are differently liable, the contribution differs not according to the proportions of the sums
insured but in proportion of their liabilities under each of their policies and each case, in fact, must depend largely
on its own facts. Lloyds maintain a separate department to advise and solve such difficulties.
31. (1877) 3 Ch D 569 .

Page 2 of 2
32. North British v London, Liverpool and Globe, (1877) 5 Ch D 569.

33. Andrews v Patriotic Assurance of Ireland, (1886) LR lr 355.
34. American Surety Co v Irrighton, (1910) 37 TLR 91.
35. Woods v Co-operative Insurance, 1924, section 692.
36. Jenkines v Deane, (1933)103 LJKB 250, 254, 255.
End of Document
21.4 Differences Between the Doctrines of Contribution and Subrogation
DOCTRINES
21.4 Differences Between the Doctrines of Contribution and Subrogation
(i) In contribution the purpose is to distribute the loss while in subrogation the loss is shifted from one person
to another.
(ii) Contribution is between insurers but subrogation is against third party.
(iii) In contribution there must be more than one insurer but in subrogation there may be one insurer and one
policy.
(iv) In contribution the right of the insurer is claimed but in subrogation the right of the insured is claimed.
In modern fire policies we find the “contribution clause” which enables the insurer to claim contribution from other
co-insurers.
End of Document
22.1 Nature of the Contract
Modern Law of Insurance, 6th ed > PART IV Marine Insurance > CHAPTER 22 NATURE AND
SCOPE OF NURINE INSURANCE CONTRACT
PART IV Marine Insurance
CHAPTER 22 NATURE AND SCOPE OF NURINE INSURANCE CONTRACT
22.1 Nature of the Contract

A contract of marine insurance is a contract whereby the insurer undertakes to indemnifY the assured in the
manner and the extent thereby agreed, against marine losses, that is to say, the losses incidental to a marine
adventure.1. In Lloyd v Fkming, Blackburn J defined a policy of marine insurance as a contract of indemnity against
all losses occurring to the subject-matter of the policy from certain perils during the adventure.2. A contract of
marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against
losses on inland waters or on any land risk which may be incidental to any sea voyage.3. Where a ship in the course
of building or the launch of a ship or any adventure analogous to a marine adventure is covered by a policy, the
relevant provision of the Act are made applicable as if it is a marine policy.4. With the due development of
commerce and civilisation, insurance also developed and now the strict scope of marine insurance, which was
concerned only with the risk incidental to a sea voyage has been expanded and it covets a wide variety of risks
which are of course incidental to or connected direcdy or remotely, with a sea voyage. In modem times, the normal
insurance of goods include a "transit" clause, which covets the goods from the warehouse of the rnanufucturer or
wholesale seller to that of the consigoee or the buyer. These types of insurance policies may be compared to the
"through bills of lading" invented by the modem commerce in the field of the law relating to carriage of goods by
sea. For example, in Hyderabad (Deccan) Co v Wi/Joughby, bullion was insured "at and from Boodim to London,
including all risks of evety description, from the mines by escort to the railway station at Raichur, thence by rail to
Bombay and thence to London".5.
1. The Marine Insurance Act, 1963 {hereinafter in this part called The Indian Act), section 3; The Marine Insurance Act,
1906 (hereinafter called The English Act), section I.
2. (1872) LR 7 QB 299, 302.
3. The Indian Act, section 4(1); The English Act, section 2(1).
5. [1899] 2 QB 530.
End of Document
22.2 The Marine Adventure

The subject of marine insurance is, strictly speaking, different from the subject-matter of insurance. In a contract of
marine insurance, what is insured is not the property exposed to peril but only the risk or adventure of the assured.
For example, in a case of “constructive total loss”6. the subject-matter of the contract, that is goods insured, may
well be there safe, but still the assured may recover their cost, if the costs of recovery are proved to exceed the cost
of goods. In S Chinnaswamy Nadar v Home Insurance Company, Madras where cargo was damaged by sea water
on the sea becoming rough it was held that the insurer is liable to indemnify the cargo owner.7. From this it can be
seen that what is really insured is the risk of adventure, that is the pecuniary interest of the assured in the subject-
matter in or in respect of the property exposed to the peril and not the subject-matter itself. The statute therefore
states that every lawful marine adventure may be the subject-matter of a contract of marine insurance.8. In
particular, there is marine adventure where:
(i) Any insurable property is exposed to maritime perils;

(ii) The earning or acquisition of any freight, passage money, commission, profit or other pecuniary benefit, or
the security for any advances, loan or disbursements, is endangered by the exposure of insurable property
to maritime perils;
(iii) Any liability to a third party may be incurred by the owner of, or other person interested in or responsible
for, insurable property by reason of maritime perils.9.
The section further explains as to what is meant by “maritime perils” as the perils consequent on, or incidental to,
the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures,
seizures, restrains and detainments of princes and peoples, jettisons, barratry and any other perils either of the like
kind, or which may be designated by the policy.10. In this context it may be noted that the Act employs only an
inclusive definition and not an exhaustive one and therefore as the conditions of maritime commerce change, new
matters and perils may be required to be included in a policy. But when such matters or perils are to be insured,
they should be included expressly in the policy as the House of Lords in Thames and Mersey Insurance Co v
Hamilton, Fraser & Co interpreting the words used in the Lloyd’s policy “and of all other perils, losses and
misfortunes” etc observed that these general words have always been interpreted to refer to perils of a like kind with
those already enumerated.11. The rule of ejusdem generis is applied and if a new type of peril is intended to be
covered by the policy it should be enumerated expressly and cannot be taken to have been implied by the general
words. This rule of construction has been given statutory recognition in rule 12 which reads:
The term “all other perils” includes only perils similar in kind to the perils specified in the policy. This leads to the
introduction of a special clause called “Institute Cargo Clause” (All risks), 1951.
Though this “all risks” clause was introduced for the first time in 1951, the practice of insuring against “all risks” is
not new. Courts have held that it covers only losses due to accidental causes incidental to maritime adventure and
so does not include loss caused by inherent vice, or mere wear and tear, or British capture.12. It also does not cover
Page 2 of 2
loss caused by the voluntary acts of the assured as in such cases he has not merely exposed the goods to the
chance of injury, but has injured them himself.
In Home Insurance Co v Ramanath & Co, it was held that though the shipowner is not liable for the loss of cargo
under the contract the insurer may still be liable if loss of cargo is by perils of the sea. In this case, Ramanath & Co
shipped the goods which contained the condition that the goods were “shipped on deck at shipper’s risk, the goods
were washed away; the shipowner disclaimed liability on the ground that they were booked at the owner’s risk and
the court accepted the defence. The insurer contended that when the shipowner is not liable, he is also not liable.
But the court rejected the contention and decreed the suit against the insurer.13.
The subject-matter of a contract of marine insurance should not only be a marine adventure but should also be a
lawful one. An adventure will usually be unlawful when its performance involves a breach of the law of a foreign
country.14.
6. Later dealt with in detail.

7. 1981 ACJ 519 (SC).
8. The English Act, section 3(1); The Indian Act, section 5.
9. The Indian Act, section 2(d); The English Act, section 3(2).
10. The Indian Act, section 2(e); The English Act, section 3, last para.
11. [1877] 12 AC 495.
12. British and Foreign Marine Ins C v Gaunt, [1921] 2 AC 41, 57.
13. AIR 1955 Mad 602.
14. Euro Diam Ltd v Bathurst, [1988] 2 CA 23.
End of Document
22.3 A Slip in Marine Insurance

In marine insurance, generally the broker contacts the parties and takes the particulars on a slip of paper. He takes
them to different insurance companies and the insurance company which is willing to insure makes a mark or
initials of the officer on the slip. From that time it is called a “slip” proper. In this context it is established that the
Lloyd’s Broker is the agent of the assured and not the agent of the underwriter.15. In Queen Insurance Co v
Persons, the Privy Council laid down that the slip contains the heads of the contract. Though invalid at law for want
of certain statutory requirements, in practice it is a complete and final contract between the parties. Section 21 of
the Marine Insurance Act 1906 states that a contract of marine insurance is deemed to be concluded when the
proposal of the assured is accepted by the insurer, whether the policy be then issued or not; and for the purpose of
showing when the proposal was accepted, reference may be made to the slip or covering note or other customary
memorandum of the contract. So a slip is an informal note or memorandum which is drawn up at the time when the
contract is entered into. In Morrison v Universal Marine Insurance Co, the Court of Exchequer observed that “in
effecting marine insurance the matter is considered merely as negotiation till the slip is initialled, but when that is
done the contract is considered to be concluded”.16. Even if anything happens between the issuing of the slip and
that of a stamped policy, it is deemed to be covered by the policy. The reason for this appears to be that the
issuance of policy is only a formality of recording the concluded contract in a proper form and it relates back to the
date of issuing the “slip proper”. It may also be noted that the slip contains all the heads noted in the contract and it
is itself a contract of insurance.
22.3.1 Slip as Evidence
English Law Under English law, where there is a duly stamped policy, reference may be made, to the slip or
covering note in any legal proceeding.17. In Ionides v Pacific Marine Insurance Co, Lord Blackburn said:
As the slip is clearly a contract for marine insurance, and is equally clearly not a policy it is by virtue of these enactments
(the stamp laws) not valid, that is, not enforceable at law or in equity; but it may be given in evidence wherever it is, though
not valid, material.18.
A slip therefore is admissible in evidence not only to prove the contract but also to explain the meaning of any
ambiguous term in the policy. The policy may be rectified if it is contrary to the slip and for such collateral purposes
it can be used in evidence.
22.3.1.1 Indian Law
In India, the practice is to issue “cover notes” which are similar to slips. In Latif Ali v Royal Exchange Corp, it was
held that the “cover note” is not a policy and according to section 7 of the Stamp Act, a contract of sea insurance
should be expressed in a sea policy and duly stamped. As the practice is not to stamp a “cover note” it is admissible
Page 2 of 2
only to prove the agreement. It cannot be used for any purpose except to compel the delivery of a policy in
accordance with its terms. In Bhagawandas v Netherlands Insurance Co, it was laid down that the contract was not
enforceable under a cover note; but an action for specific performance is maintainable for the issue of a policy.19. In
Surajmal v Trefon Insurance Co, the Privy Council laid down that an agreement of sea insurance otherwise than in
a policy is forbidden in public interest and the statutory insistence of a policy is not a mere collateral requirement.
The Stamp Act is prohibitory and mandatory and it cannot be dispensed with by the consent of the parties or by
omission to plead in the lower court.
15. American Airlines v Hope, [1974] 2 Lloyd’s Rep 301, 304 per Lord Diplock: General Insurance v Tanter, The Zephyr,
[1984] 1 Lloyd’s Rep 75 reversed in part on other grounds [1985] 2 Lloyd’s Rep 529.
16. (1873) LR 8 Exch 199.
17. The English Act, section 89.
18. (1872) LR 7 QB 517.
19. (1888) 161 IA 60.
End of Document
22.4 Rules in India Regarding Marine Insurance

22.4.1 Before the Passing of the Marine Insurance Act, 1963
Before the passing of the Marine Insurance Act, sections 7 and 8 of Stamp Act laid down as follows:
20.[(1) No contract of sea insurance (other than such insurance referred to in section 506 of the Merchant
Shipping Act) shall be valid unless the same is expressed in a sea policy.
(2) No sea policy shall be valid for any time exceeding twelve months.
(3) No sea policy shall be valid unless it specifies the particular risk or adventure or the time for which it is
made, the names of the subscribers or underwriters and the amount or amounts insured.]
(4) Where any sea insurance is made on a voyage and also for time or to extend to or cover any time beyond
thirty days after the ship has arrived at her destination and been moored at anchor the policy shall be
charged with duty as a policy for or upon a voyage and also with duty as a policy for time.21.
For purpose of the Stamp Act, a policy of sea insurance or sea policy means:
(i) any insurance made upon a ship whether for marine or inland navigation or upon machinery tackle or
furniture of the ship or on goods or property on board the ship which may be lawfully insured;
(ii) a sea policy includes any insurance on goods, merchandise or property for transit regarding any risk
incidental to the transit upon the ultimate destination.
Where any person in consideration of any sum paid for additional freight agrees to take upon himself any risk or
engages to indemnify the damage such an agreement shall be deemed to be a sea insurance.22.
22.4.1.1 Exceptions
The following insurances covered by section 5 of the Merchant Shipping Act will not be governed by the Stamps
Act.
(a) The loss of life or personal injury to any person carried on in a ship;
(b) Damage caused to goods on board the ship;
(c) Loss of life or injury caused by boats;
(d) Loss or damage caused by improper navigation to any goods or property on board the ship.
Section 6 of the Stamp Act lays down that if any person receives consideration for any contract of insurance and
does not execute a policy duly stamped within a month shall be punished with fine up to rupees two hundred.
Page 2 of 2
22.4.2 Under the Marine Insurance Act, 1963
The Marine Insurance Act in its section 24 lays down that a contract of marine insurance shall not be admitted in
evidence unless it is embodied in a marine policy according to the Act. The policy may be executed and issued
either at the time when contract is concluded or afterwards. Section 25 lays down the contents of the marine policy
and states that a marine policy must specify:
(i) the name of the assured or the person who effects the insurance;
(ii) the subject-matter insured and the risk insured against;
(iii) the voyage or the period of time or both;
(iv) the sum or sums insured and
(v) the name of the insurer or insurers.23.
The policy must be signed by the insurer himself.24. Section 28 states that the subject-matter must be designated
with reasonable certainty. The nature and extent of the interest of the assured need not be specified25. and section
32 provides that the policy may be in the form given in the schedule and subject to the provisions of the Act and
unless the context of the policy otherwise requires, the terms and expressions mentioned in the schedule shall be
construed as having the scope and meaning assigned to them in the schedule.26. In case of ambiguity, the policy
should be construed in favour of the insured and not insurer.27. The schedule attached to the Act gives the form in
which the policy should be made and also provides the “rules for construction of policy”.28.
20. Repealed by Act 11 of 1963, S. 92 (w.e.f. 1-8-1963).

21. The Indian Stamp Act 1899, s 7; but now cll (1), (2) and (3) are repealed.
22. Section 2(20), The Indian Stamp Act 1899.
23. The Indian Act section 26; Corresponding to the English Act, section 23, but cll (b) to (e) re-added.
24. The English Act section 24(1).
25. The English Act, section 26.
27. Peacock Plywood (P) Ltd v The Oriental Insurance Co Ltd, (2006) 12 SCC 673 : JT 2007 (1) SC 191 : 2006 (14) Scale
300: Marine Insurance Act, 1963, section 32.
28. The schedule attached to the Indian Act.
End of Document
23.1 Kinds of Policies
Modern Law of Insurance, 6th ed > PART IV Marine Insurance > CHAPTER 23 CLASSIFICATION
OF MARINE POLICIES
CHAPTER 23 CLASSIFICATION OF MARINE POLICIES

Marine policies may broadly be classified into five types namely:
(i) Valued Policy,

(ii) Unvalued Policy,
(iii) Floating Policy,
(iv) Time Policy, and
(v) Voyage Policy
(i) Valued Policy
A valued policy is a policy which specifies the agreed value of the subject-matter insured.1. In a valued policy, the
value mentioned is conclusive between the parties, unless there is a fraud whether the loss be total or partial.2.
Unless the policy otherwise provides, the value fixed by the policy is not conclusive for the purpose of determining
whether there has been a constructive total loss.3.
A valued policy resembles a wagering contract and on that ground its validity has been challenged for some time.
For example, in Lewis v Rucher, when a similar argument was advanced negativing the contention, Lord Mansfield
pointed out that the effect of the valuation was merely to fix the insurable value of the subject-matter of the policy
“just as the parties admitted it at the trial”.4. The validity of the valued policies since then has not been questioned.
In valuing the subject-matter insured, there may be just valuation or over-valuation or under-valuation. If the
valuation is just and bona fide, ie, if it is not grossly over-valued, the valuation is a valued policy and is deemed to
be conclusive as between the parties. But if there is over-valuation it was thought that it would become a wagering
policy because a contract of marine insurance is a contract of indemnity. But in Thames Mersey Insurance Co v
Gunford, it was held that a valued policy is not a wagering policy just because the value is excessive.5. In order that
it may become a wagering policy, it must be proved that the over-valuation is not only gross over-valuation but it
was fraudulently done.
In such a case, it can be avoided on the ground of misrepresentation or non-disclosure of a material fact.6. The
actual value is to be determined according to the rules laid down in section 18 of the Indian Act.7. In case of over-
valuation the provisions of that section are applied to set aside the policy. The modern practice is to effect only
valued policies, and unvalued policies are very rare being practically confined to goods and in few cases to freight
payable on arrival. All other interests, except on the goods, are valued in the policies. If there is under-valuation,
that is where the assured has insured for an amount less than the insurable value, or in the case of a valued policy,
for an amount less than the policy valuation, he is deemed to be his own insurer in respect of the uninsured
balance.8. This is because of the rule that the subject-matter is to be treated as fully insured in working out the
marine adjustments. For example, where a ship valued at £3000, is insured with A for £1000 and with B for £1000
Page 2 of 4
and if the ship suffers a damage of £300, the assured can recover from A and B £100 each, himself being a loss of
£ 100 being treated as a co-insurer with A and B for the balance £1000. The effect of valuation in such cases is to
give out the amount of prime cost and the insured meant only to have an indemnity for a portion of it and therefore
he is himself the insurer for the surplus value. The valued policy does not prevent an inquiry whether there is an
insurable interest or not.
(ii) Unvalued Policy
An unvalued policy is sometimes spoken of as an “open policy”. Here there is a sharp difference between
mercantile usage and law. In mercantile usage the term “open policy” is generally used to describe floating policies;
but in law and under the statutes an open policy is denoted to describe only an unvalued policy. The Act defines an
unvalued policy as a policy which does not specify the value of the subject-matter insured, but subject to the limit of
the sum insured, leaves the insurable value to be subsequently ascertained in the manner specified in the Act.9.
The Act prescribes the manner of ascertaining or measuring the insurable value by providing; “where the subject-
matter of insurance is the ship, the insurable value is the value of the ship at the commencement of the risk”. The
ship is said to include her outfit, provisions and stores for the officers and crew, and other disbursements (if any)
insured to make the ship fit for the voyage of adventure contemplated by the policy, plus the charges of insurance
upon the whole. In the case of steamships, they are said to include the machinery, boilers and coals and engine
stores if owned by the assured and in the case of a ship engaged in a special trade, the ordinary fittings requisite for
that trade plus the charges of insurance of the whole.10. In Hoshims v Pickersgill, it was held that a policy on a ship
used for the whaling trade does not include the fishing tackle;11. but by the last words in section 16(1), second
paragraph, the decision appears to be no longer good law. In insurance of freight, whether paid in advance or
otherwise, the insurable value is the gross amount of the freight at the risk of the assured plus the charges of
insurance.12. The insurable value of goods or merchandise is the prime cost of the property insured, plus the
expenses of and incidental to shipping and the charges of insurance upon the whole.13. The residuary clause
provides that in the case of any other subject-matter, the insurable value is the amount at the risk of the assured
when the policy attaches, plus the charges of insurance.14. In modern practice, these policies are rare and such
policies are generally effected only to goods and in a few cases to freight payable on arrival. The prime cost of
goods or articles is the invoice price of the goods or articles.
(iii) Floating Policy
This type of policies are generally taken by carriers, factors or warehousemen to cover their limited interests in the
goods they carry or in their possession or by the insured when he does not know by which ship or ships his goods
are dispatched. These policies are taken in general terms and the particulars as filled by subsequent declarations.
Therefore, a floating policy is defined as a policy which describes the insurance in general terms, and leaves the
name of the ship or ships and other particulars to be defined by subsequent declarations.15. The subsequent
declaration or declarations may be made by endorsement on the policy, or in other customary manner. In Union
Insurance Society of Cauton v Wills & Co, a floating policy was effected on goods with a provision that declarations
of interest to be made to insurer’s agents “as soon as possible”. The ship sailed on 21 August. It was destroyed by
fire on 12 September. The assured made declaration on the next day, that is, 13 September. It was held by the
Privy Council that the declaration was too late and that the assured cannot recover.16. It was formerly thought and
held that in a case when two or more floating policies are effected with different insures, the assured has a right to
declare on any of the policies a loss on board any ship at his choice; but now sub-sections 3 of section 31 of the
Indian Act appears to overrule this line of holding.17. It makes clear that unless the policy otherwise provides the
declarations must be made in the order of dispatch or shipment. So, now floating policies are commonly effected “to
follow and succeed”.18. The declarations must, in the case of goods, comprise all consignments within the terms of
the policy and the value of the goods or other property must be honestly stated. Where an assured bona fide makes
an erroneous declaration or omits to make one in regard to the valuation, it may be rectified even after loss or
arrival.19. Unless otherwise provided, if a declaration of value is not made until notice of loss or arrival the policy
should be treated as an unvalued policy.20.
(iv) Time Policy
Where a ship is insured for a particular time “from” a particular date “to” a particular date, the policy is called a time
policy. The period should not exceed one year though it may contain one or several voyages. Section 27(2) of the
Indian Act lays down that a time policy which is made for any time exceeding 12 months is invalid.21. A time policy is
defined as a policy in which the contract is to insure the subject-matter for a definite period of time.22. In Compania
Maritime San Basullia SA v Oceans Mutual Understanding Association the plaintiff insured his ship from noon on 17
February to 20 February 1972 and continued thereafter from year to year until determined. The policy was
Page 3 of 4
terminable by the insured on seven days’ notice at any time and by the insured on at least two months’ notice
ending with the end of a policy year. If not so determined, it would continue automatically at the end of the policy
year. It was held that it was a “time policy” as it was for a “definite period of time” and at the end the fact that it
continued thereafter, did not make it any less a time policy, though it could be terminated by either party on notice
and is renewed automatically.23. Sometimes, time policies give rise to difficult questions as to where the injury or
damage occurs during the currency of policy but the actual loss occurs after the time of the policy. In Mercantile
Marine Insurance Co v Titherington, (1864) 5 B&S 765 the assured took a policy in the ordinary form with the added
provision that the ship was to be covered “during 30 days” stay in her last port of discharge, and the ship arrived on
25 May at 7 pm and was lost on 24 June at 3 pm. It was held that the company is liable as 30 days must be added
to the 24 hours given by the policy as the risk on ship under ordinary form of policy terminates when she has been
“moored for 24 hours in good safety”. In Cornfoot v Royal Exchange Assurance Corporation, [1904] 1 KB 40(CA),
where a ship was to be held covered for “30 days” in port after arrival, it was held that “30 days” meant 30
consecutive periods of 24 hours. As to calculation of time, when the ship’s time differs from our time, the Greenwich
Mean Time applies. Suppose a ship is insured in London with an insurance company A; up to midnight of 31 March,
without any special founders as to time, and from 1 April with insurance company B. The ship founders in West
Indies on 31 March at 10 pm according to the ship’s time. According to London time, the policy with A expired and B
would be liable. In England, according to “Statutes (Definition of Time) Act 1880 which allies to every English Act of
Parliament, deed or other legal instrument” in the absence of any provision to the contrary, the liability must be
determined according to Greenwich Mean Time.24. The rule may be avoided by expressing the cover as
commencing “at”25. or “at and from”26. a specified date or by stipulating that a date is to be inclusive. Insurance
“until” a specified date expires at midnight at the end of that day.27.
In a time policy the contract is treated as an indivisible contract. Therefore, from the minute the policy attaches the
assured is entitled to indemnity for any loss that occurs during that period and the insurer is entitled to full premium.
In Tyrie v Fletcher, it has been held that if the risk has once commenced there shall be no apportionment or return
of premium.28.
Generally in a time policy there is a continuation clause that if the ship at the expiration of the policy is still at sea or
in distress or in a port, she shall be held to be covered by the same policy at pro rata monthly premium until she
reaches safely to her port of destination provided prompt notice to that effect is given to the insurer.
(v) Voyage Policy
Where the contract is to insure the subject-matter “at and from” or from one place to another or others, the policy is
called a “voyage policy”. A contract for both voyage and time may be included in the same policy and such policies
are in mercantile usage called “mixed policies”, eg, a ship may be insured under the same policy, “from Bombay to
London for six months” or “from Madras to New York, and 90 days after arrival”. In a voyage policy the risk
commences at the port of departure and ends at the port of destination. The voyage insured must be accurately
described in a voyage policy, ie, the local limit of the risk must be specified. It is generally done by specifying the
port where the voyage is to commence called terminus quo and the port where the voyage is concluded called
terminus ad quem. As in time policy, it is also a principle of marine insurance that the voyage insured is one and
indivisible and therefore the underwriter is responsible for any loss that may occur in the course of duration of the
voyage.
a) PPI POLICIES
Lastly, before 1909, there were in vogue policies called “PPI” policies. These are also called wager policies. A
“wager” policy is one where either the insured has strictly no insurable interest at stake, or else that the insurer is
willing to dispense with any proof of interest. The letters P, P and I stand for “Policy Proof of Interest” and such
policies are also familiarly called “Interest or no Interest” policies. The Marine Insurance Act expressly says that
every contract of marine insurance by way of gaming or wagering is void.29. Though such policies are useless in the
eye of law, still they are regarded as a record of an obligation not of law but of honour between the parties and are
therefore termed “honour” policies. Such insurances undoubtedly supply a commercial convenience where the
insured has some interest which is either difficult or incapable of actual proof. They were therefore permitted and
became popular. For example, in Anderson v Morice it was held that a policy “without interest” is not necessarily a
wager policy as where the inured bona fide expects to have an interest, but the expectation is not realised, the
policy is not a wager policy. In due course of time the English merchants resorted to these policies as a means of
gambling, pure and simple, and therefore with a view to suppress that tendency the Marine Insurance (Gambling
Policies) Act 1909 was passed. This principle has been restated in the Marine Insurance Act.30.
Page 4 of 4
1. Indians Act section 29(2), corresponding to section 27(2) of the English Act.
2. Ibid, section 29(3), ibid, section 27(3).
3. Ibid, section 29(4), ibid, section 27(4).
4. (1761) 2 Burr 1167.
5. [1911] AC 129 .
6. Inversaviors Manria v Sphere Duke Insurance, The Dover, [1989] 1 Lloyd’s Rep 69.
7. Cf The English Act, section 16.
8. The Indian Act, section 81; corresponding to The English Act, section 81.
9. The Indian Act, section 30; corresponding to The English Act, section 28.
10. Ibid, section 18(1); ibid, section 16(1), in the 2nd para, in the Indian Act mode of valuation of a ship driven by power is
provided to include the cost of the machine.
11. (1783) e Doug 222.
13. Ibid, section 18(3); ibid, section 16(3).
16. [1916] 1 AC 281, 287 (PC).
17. Cf English Act, section 29(3).
18. Arnould, Marine Insurance, p 242.
19. Ibid.
20. The Indian Act, section 31(4); The English Act, section 2 29(4).
23. 1976 (3) CA 243.
24. (English) Interpretation Act 1978, sections 9, 23(3).
25. Balfour v Beaumont, [1984] 1 Lloyd’s Rep 272.
26. Heinrich Hirdes gmbH v Edmund, [1991] 2 Lloyd’s Rep 546.
27. Isaacs v Royal Insurance Co, (1870) LR 5 Ex 296.
28. (1777) 2 Cowp 666.
30. Ibid.
End of Document
24.1 Voyage
Modern Law of Insurance, 6th ed > PART IV Marine Insurance > CHAPTER 24 VOYAGE—
DEVIATION
CHAPTER 24 VOYAGE—DEVIATION
24.1 Voyage
A “Voyage policy” contains a contract to insure the subject-matter “at and from” or “from” one place to another or
others. Sections 44–51 of the Indian Act1. deal with voyage. If the subject-matter is insured by a voyage policy “at
and from” or “from” a particular place, according to the Act it is not necessary that the ship should be at that place
when the contract is concluded,2. and the words “at and from” in common parlance also conveys almost the same
meaning; but when used as preludes to a clause describing the voyage in the policy they have a different import
and effect in law. The legal effect of the expression “at and from” and “from” is stated in the schedule. Where a ship
or chartered freight is insured “at and from” a particular place, and she is at that place in good safety when the
contract is concluded the risk attaches immediately.3. Again, the expression “good safety” has a technical meaning
and it denotes (a) that the ship is in the possession of the assured and not under capture or arrest, and (b) that she
exists as a ship, even though damaged.4. Thus, an insurance “at and from” a port confers cover on the subject-
matter of the insurance even while at the port previous to the vessel’s sailing. If a vessel at her home port is insured
“at and from” that port, the insurance attaches immediately and it is effected, and continues to protect her even
while she is making preparations for the described voyage.5. If she is not at that place when the contract is
concluded, the risk attaches as soon as she arrives there in good safety and unless the policy otherwise provides, it
is immaterial that she is covered by another policy for a specified time after arrival. In other words, if a ship is
insured “at and from” a port which she did not reach, the insurance commences as soon as she reaches that port in
such a condition that she can reasonably be regarded as in a state of good safety. But if she arrives in such a
damaged condition that she cannot lie there safely until repaired, the policy does not attach on such arrival. If the
damage is so slight that it does not render her unsafe to lie in the port unrepaired, the policy attaches on arrival at
the port. If the damage occurs after her arrival and while in port, the insurer is liable.
Haughton v The Marine Insurance Co illustrates that point. In that case, an insurance was effected on the hull of a
vessel “at and from” Havana to Greenock. The vessel arrived at Havana and on entering the limits of the port
engaged a pilot and tug to take her to an anchorage. She was, however, taken to an anchorage where she
subsequently settled down upon the anchor of another vessel, doing serious injury to herself. The next day she was
towed off and taken to another port of the harbour where her cargo was actually discharged. The insurers of the
policy “at and from” Havana declined to pay for the repair of the damage occasioned by the settling down upon the
anchor, contending that when the accident happened the vessel was not “at Havana” within the meaning of the
wording of the policy, because, they alleged, she had never been safely moored at her port of arrival. But it was
held by the court that as the vessel was at Havana in the ordinary sense the policy had attached and the insurers
were therefore liable.6.
If two separate policies are effected with two different insurers one for an onward voyage and another for the return
voyage, the policy for an onward journey not only covers the onward journey till the ship reaches the destination,
but extends over a period varying from 24 hours to 30 days, and the policy on the return journey, if described as “at
and from” commences the moment she arrives in the port of destination in good and safe condition. Therefore the
ship, in such a case, on her safe arrival at the destination, is covered by both the policies, inward and onward and
the difficulty arises as to which insurer will be liable if damage is caused at that time. To avoid this difficulty, usually
Page 2 of 3
24.1 Voyage
a clause is added that “the risk is not to commence before the expiry of previous policy”. The insurance may be “at
and from” a named port or a country. If it is described as “at and from” a port, the above meaning will apply, but if
the voyage is described as “at and from” a country, district or island, the policy commences on the vessel’s arrival in
safety at any one of the ports in such country, district or island.
Where the subject-matter is freight other than chartered freight payable without special conditions like advanced
freight, distance freight etc, the risk attaches pro rata as the goods or merchandise are shipped, but if there is cargo
in readiness which belongs to the shipowner, or which some other person has contracted with him to ship, the risk
attaches as soon as the ship is ready to receive such cargo.
Where the subject-matter is the insured “from” a particular place, the risk does not attach until the ship starts on the
voyage insured.7. A policy covering the risk “from” a port only protects the subject-matter of the insurance from the
time of sailing from the port. Thus an insurance “from a port” is narrower than one “at and from”. It does not cover
the time whilst the vessel is in the port making preparations for the voyage.
The Marine Insurance Act says that where the subject-matter is insured by a voyage policy “at and from” or “from” a
particular place, there is an implied condition that the adventure shall be commenced within a reasonable time, and
that if the adventure be not so commenced the insurer may avoid the contract.8. Before the passing of the Insurance
Act it was doubtful whether this implied condition can be negatived; but now the Act makes it clear that this implied
condition may be negatived by showing that the delay was caused by circumstances known to the insurer before
the contract was concluded, or by showing that he waived the condition.9. “Reasonable time” is again a question of
fact10. and where the language of a contract does not expressly provide for any time for the performance of any
contractual obligation law implies that it shall be performed within a reasonable time and whether the time is
reasonable or not must be decided by the state of things existing at that port.
The blank space following the words “at and from” in the Lloyd’s policy form is intended to describe the voyage or
for specifying the time which the policy is intended to cover. The voyage must be accurately described. When two
ports are mentioned as port of dispatch and port of destination it is always assumed by the insurer that the ship
follows the ordinary track or course of the voyage ordinarily pursued and if it is intended to depart from the usual
route, this fact must be communicated to the insurer. Such intended departure is usually incorporated in the
description of the policy and in the absence of any such provision, it is an implied condition that the route shall not
be deviated. Sections 45 and 49 of the Indian Act lay down two circumstances when risk does not attach to the
policy, namely; (b) where the place of departure is specified by the policy and the ship instead of sailing from that
place sails from any other place;11. and (b) where the destination is specified in the policy, and the ship instead of
sailing for the destination, sails for any other destination.12. She must stick to the terms of the policy and must not
change either her terminus a quo (port of dispatch) or terminus ad quem (destination).
1. English Act, sections 41–52.

2. The English Act, section 42 (1); The Indian Act, section 44(1).
3. The Indian Act, Schedule, rule 3(a).
4. Arnould, Marine Insurance, pp 519–21; Ivamy, Marine Insurance, 1969, pp 128–129.
5. Palmer v Marshall, (1831) 8 Bing 79.
6. (1866) LR 1 Exch 206.
7. Rule 2; Arnould, p 430 and Ivamy, Marine Insurance, 1969, p 119.
10. Ibid, section 18; ibid, section 88.
11. The Indian Act, section 45; The English Act, section 43.
Page 3 of 3
24.1 Voyage
End of Document
24.2 Change of Voyage
DEVIATION
24.2 Change of Voyage

After the commencement of the risk if the destination of the ship is voluntarily changed from the destination
contemplated by the policy, there is said to be a change of voyage. Where there is change of voyage, unless the
policy otherwise provides the insurer is discharged from liability from the time of change. There needs to be a
physical change but it is sufficient if there is a determination to change and it is manifested. From the time there is a
change of voyage, that is from the time the determination to change the voyage is manifested, the insurer is
discharged from liability whether the ship has left on her course of voyage or not by the time of loss. Change of
voyage discharges the insurer as there is no contract to cover the new voyage and the covered voyage under the
policy is deemed to have been abandoned.
End of Document
24.3 Deviation
DEVIATION
24.3 Deviation
The Act provides that there is a deviation from the voyage contemplated by the policy:
(i) if the course of the voyage is specifically designated by the policy and that course is departed from; or
(ii) where the course of voyage is not specifically mentioned in the policy the usual and customary course is
departed from.13. The effect of such a deviation without lawful excuse is that the insurer is discharged from
liability from the time of deviation and it is immaterial that the ship has regained the original route before
any loss occurs.14. Mere intention to deviate is not sufficient but there should be a deviation in fact to
discharge the insurer from his liability under the policy.15. In Reardon Smith Lives Ltd v Black Sea and
Baltic General Insurance Co Ltd, a vessel to sail from Poti in the Black Sea to Sparrow’s Point in the USA
sailed to Constanza which is not on her direct geographical route, to take in oil fuel and was stranded
there; the evidence showed that about a quarter of the oil burning vessels proceeded from the Black Sea
port bunker at Constanza and so it was held that there was no deviation.16. In Middlewood v Blakes, the
ship was to sail from L to J and there are two routes one going north and the another south of an island D.
Sometimes one route is better and at others the other route is better and it is for the master of the ship to
choose the route using his discretion in each case. On that particular occasion, the owners directed the
master to touch a port in the north of the island D and therefore take that route and when the ship was
captured en route, it was held that there was deviation.17. The question whether the insurer is prejudiced or
not is immaterial and the assured who committed deviation cannot plead that the deviation has not
prejudiced the insurer and so cannot claim discharge from liability. Where several ports of discharge are
specified by the policy, the ship may proceed to all or any of them. She must proceed to them or such of
them as she goes to, in the order designated by the policy. Where the policy is to “ports of discharge”
within a given area which are not named the ship must proceed to them or such of them as she goes to in
their geographical order. If she does not follow the order designated in the policy and in the latter case the
geographical order, it amounts to deviation in the absence of any usage or sufficient cause.18. From this it
may be noted that; (a) if a ship sails a voyage not contemplated by the policy the risk does not attach, (b) if
a ship commences the adventure insured, but afterwards changes her destination it amounts to a change
or voyage in which case the risk attaches in the beginning but is afterwards avoided from the moment of
change, and (c) finally, if a ship proceeds from the terminus a quo to the terminus ad quem but sails to that
place (thither) by an improper track it also amounts to deviation and the insurer is discharged unless the
deviation is permitted or excused.
Policies are often effected on the terms that a deviation or a change of voyage shall be held “covered at a premium
to be arranged”. But in such cases notice of a deviation or change must be given within a reasonable time after the
assured comes to know of it and then section 33 is applied in cases where the additional rate of premium is not
fixed.19. It says where an insurance is effected “at a premium to be arranged”, and no arrangement is made,
reasonable premium is payable and clause 2 says where an insurance is effected on the terms that an additional
premium is to be arranged in a given event, and that event happens but no arrangement is made, then a
reasonable additional premium is payable.20.
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24.3 Deviation
According to Arnould, the word deviation is used with reference to space and locality and therefore delay cannot be
included in the word deviation because delay refers to time. But the Marine Insurance Act gives the same effect to
both delay and deviation. The Act provides that in the case of a voyage policy, the voyage insured must be
prosecuted throughout its course with reasonable dispatch, and, without lawful excuse if it is not so prosecuted, the
insurer is discharged from liability as from the time when the delay became unreasonable.21. What is unreasonable
delay is again a question of fact depending upon the circumstances of each case.22.
24.3.1 Excuse for Deviation or Delay
In the following cases the insurer is not discharged from liability even though there is deviation or delay:
If Authorised by a Special Term in the Policy The proposition contained in this clause is self-explanatory and the
reason behind it is self-evident. According to it if a deviation is authorised under the terms of the policy, such
deviation would not render the policy void. This authority is conferred under a clause called “deviation and/or
change of voyage clause”. This clause assumes a variety of forms, of which the most common is as follows: “In the
event of deviation and/or change of voyage, the assured to be held covered at a premium to be arranged, provided
due notice be given on receipt of advices”. By insertion of such a clause the vessel is empowered to deviate or to
change her destination on an agreed rate of enhanced premium. It may be noted that this clause comes into
operation only when the vessel has commenced its described voyage and then changed either the route or the
destination. On the other hand, if the vessel from the beginning has changed the destination, it amounts to an
abandonment of the original voyage which renders the policy inapplicable and the risk does not attach. When the
policy does not attach, there is no question of applying the “deviation and/or change of voyage” clause. In other
words, as the contract itself did not apply in such cases, a fortiori none of the terms of it should apply.23.
If Caused by Circumstances Beyond the Control of the Master or his Employer When a vessel is blown of the
track as in Delaney v Stoddart and thereby deviated from its course off voyage, it comes under this clause. Vis
Major is certainly an excusable cause. In all cases it is not necessary that it must be by the violence of natural
elements. Some circumstances may compel the master to change his course of voyage.24. For example, in Drisol v
Bovil where the crew, fearing the attacks of pirates continued on the voyage, and left the ship and refused to work
unless the master promised to return to the home port. The master returned. The returning of the master under
such circumstances was held an excusable deviation.25.
If it is Reasonably Necessary to Comply with an Express or Implied Warranty For example, in Bouillon v
Lupton, (1863) 3 LJ CP 37 three vessels were insured from Lyons to Galtaz. They had to sail through the river
Rhone up to Marseilles and therefrom undertake a sea voyage. The river Rhone was spanned by low bridges and
so the vessels had to remove their masts and when they reached Marseilles they had to stop there to fit their masts
to make them fit for the sea voyage. After fitting the masts they proceeded with the sea voyage from Marseilles to
Galtaz and en route they were lost. Such cases of delay or deviation come under this clause and the underwriters
cannot avoid their liability where the delay or deviation is made to comply with the implied warranty of
seaworthiness for the voyage.
If it is Reasonably Necessary for the Safety of the Ship or Subject-matter Insured
If it is for the Purpose of Saving Human Life or Aiding a Ship in Distress where Human Life is in Danger
If it is Reasonably Necessary for the Purpose of Obtaining Medical or Surgical Aid for any Person on Board
the Ship
The above three causes again are self-explanatory and self-evident. If the deviation is made for the safety of the
ship or the subject-matter insured, it is for the advantage of the insurer and so excused. The next two causes are
based on the grounds of humanity and on the principle that human life is invaluable and sacred. If property is lost it
can be regained or recouped but if human life is lost it is irreparable. So, where deviation is made for saving human
life, or to provide medical facilities for any person on board the ship it is made excusable. But where deviation is
made to save the property, however valuable it may be, deviation is not excused.26.
If it is due to the Barratrous Conduct of the Master or Crew if Barratry be one of the Perils Insured
Against.27. This is the seventh and last exception. In this clause “barratrous conduct” means any wrongful act
wilfully committed by the master or crew of a vessel in violation of their duty to the shipowner, and without his
connivance. If deviation is caused due to such act, the deviation is excusable.
Page 3 of 3
24.3 Deviation
Under the Act, deviation is permitted to the extent and as long as the cause exists. Therefore the ship is bound to
resume her course and must prosecute her scheduled voyage with reasonable dispatch as soon as the cause
excusing the deviation ceases to operate. For example, when ship strays or is stopped in a port of refuge due to a
violent storm, as soon as the storm stops the ship must resume her contracted voyage and proceed with
reasonable dispatch. Where there is unreasonable delay in resuming the voyage or catching the scheduled route
the insurers may be discharged from their liability due to such delay even though the original deviation or delay is
justified.28. An unjustifiable deviation is to a marine policy what a material alteration is to a negotiable instrument.
From the time such a deviation is made, the contract is breached and the insurer will be discharged from liability.
13. The Indian Act, section 48(2);The English Act, section 46(2).
16. The Indian City, [1939] 3 All ER 444 (HL).
17. (1797) 7 TR 162.
23. Simon Israel & Co v Sedgwick, (1892) 8 Asp MLC 245(CA).
24. (1780) LTR 22.
25. (1798) 1 B&P 313.
26. Scaramanga v Stamp, (1880) 4 Asp MLC 295.
27. The Indian Act, section 51(1); The English Act, section 49(1); Enumerates the 7 cases of permissible deviation.
End of Document
25.1 Definition
Modern Law of Insurance, 6th ed > PART IV Marine Insurance > CHAPTER 25 THE PERILS OF
THE SEA
CHAPTER 25 THE PERILS OF THE SEA
25.1 Definition
Chalmers observes that it is unsafe to attempt a complete definition of the expression “perils of the sea” because in
practice the question “what is a peril of the sea?” is inextricably woven up with the further question “was the loss
proximately caused by the sea peril?”1. Broadly speaking a “peril of the sea” may be defined to cover everything that
happens to the ship in the course of a voyage by the immediate act of God without the intervention of human
agency. It refers only to fortuitous accidents or casualties not attributable to the free will and desire of a human
being. Even in acts of God it does not include the natural and ordinary action of the winds and waves. Cufley
defines a peril of the sea as some accident or misfortune due to something more than the simple action of wind and
waves, but it does include loss or damage caused by the violence of the wind or waves, not restricted to an
extraordinary violence.2. Whatever may be the definition of the term the following points may be noted to determine
its scope:
First, the term “peril of the sea” refers only to fortuitous accidents or casualties of the sea and it does not include the
ordinary action of the winds and waves. The main point to be noted is that it must be a peril which denotes that it is
accidental or fortuitous. As Lord Herschell observed in the Xantho:
It is well settled that it is not every loss or damage of which the sea is the immediate cause that is covered by these words.
They do not protect, for example, against that natural and inevitable action of the winds and waves which results in what
may be described as wear and tear. There must be some casualty, something which could not be foreseen as one of the
necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may
happen but not against events which just happen.3.
Secondly, it may be noted that the expression is “perils of the sea” but not “perils on the seas”. All the “perils of the
sea” are “maritime perils” but all “maritime perils” are not “perils of the sea”. The term “maritime perils” is wider in its
scope and is defined as to include “perils of the seas”, fire, war perils, pirates, rovers, thieves, captures, seizures,
restraints, detainments of princes and peoples, jettisons, barratry and any other peril either of the like kind, or which
may be designated by the policy.4. The list of maritime perils set out in the Act has been held not to be exhaustive,
although the concluding words “or which may be designated by the policy,” do not permit the insurance of non-
marine risks to be marine risks.5. Every marine adventure involves some risk and as Lord Herschell put it in Thames
and Mersey Insurance Co v Hamilton, Fraser & Co it not only means damage which has been caused by the seas
but includes damage of a character to which a marine adventure is subject, and the object of a marine insurance
contract as noted earlier is to secure an indemnity against both types of damage.6.
Thirdly, the expression “perils of the sea” has the same meaning in a marine policy as it has in a bill of lading or
charter party, though its application to the contract is different.7.
The term peril or accident involves the idea of something unexpected and unforeseen and Lord Halsbury expressed
Page 2 of 3
25.1 Definition
this in Hamilton v Pendroff, where the cargo was damaged by sea water which entered through a hole caused by
the rats in the galvanising pipe. The House of Lords held that the loss was caused by the “perils of the sea.”8. In
Sasson v Western Assurance Co, the plaintiffs were the owners of a wooden hulk which was used to carry opium. It
was insured under a time policy. There was a leak due to the rotten condition of the wood and the opium was
spoiled due to water entering through the wood. It was held that it was not a peril of the sea because there was
nothing fortuitous or unexpected as naturally opium in such an old wooden hulk is likely to be spoiled. On the other
hand if damage is caused in an unexpected way, though the immediate cause of it is a voluntary act necessary to
protect the goods from an expected peril it would be a peril of the sea.9.
In Canada Rice Mills Ltd v Union Marine and General Insurance Co Ltd, the ventilators of a ship were closed to
prevent the entry of sea water and rain coming in during heavy weather and this closing of the ventilators damaged
the rice due to excessive heat. It was held that the incursion of the sea water through the ventilators would have
been within the definition of the perils of the sea and that the damage, being in fact caused by an action taken
necessarily and reasonably to prevent the perils of the sea affecting the goods, was itself a loss due to perils of the
sea. Lord Wright observed that when there is an accidental incursion of sea water which is not expected in the
ordinary course of things and if there is a consequential damage it is a loss by the perils of the sea.10.
The burden of proving a loss by perils of the sea lies on the insured. The reason for placing the burden of proof on
the shipowners in such a case is that they are likely to have all the relevant information and the insurers are likely to
have virtually no information initially.11. The same principle was reaffirmed by the House of Lords in Rhesa Shipping
Co v Edmands, [1985] 2 All ER 712 (HL).
25.1.1 Examples of “The Perils of the Sea”
25.1.1.1 Foundering at Sea
If the ship is missing and after a reasonable time no news has been received, the loss may be presumed to be by
the “perils of the sea”.
25.1.1.2 Shipwreck
It is a loss caused by the peril of the sea when it happens by the ship striking against the rock or driven to the shore
by the violence of winds. According to Arnould, a shipwreck may occur in various ways, eg, the ship may be so
shattered that it becomes a mere collection of planks or it is unable to navigate except at a great cost.
25.1.1.3 Stranding
This is a peril of the sea and it happens when a ship by an accident gets out of the ordinary course of her voyage
and gets stuck up in shallow regions of sand and receives injury.
25.1.1.4 Collision
Collision is regarded as a peril of the sea and it may arise by the ship striking against another ship or any other
subject-matter. In De vaux v Salvador, (1836) 4 Ad&E 420, Lord Denman held that if a ship collides with another
ship due to its negligence though it will be liable to pay damages (now under the Maritime Conventions Act, 1911),
the insurer will not be liable to pay this amount as such a loss or liability is due to a provision of law and not due to
perils of the sea. To avoid this rule, the marine policies generally contain a “collision clause” or “a running down
clause” under which the underwriter will be liable to pay three-fourths of the amount payable under the Maritime
Conventions Act, 1911.
1. Chalmers, Marine Insurance, seventh edn, p 152.

2. CFG Cuffley, Ocean Freights and Chartering, 1970.
3. [1887] 12 AC 509.
Page 3 of 3
25.1 Definition
4. The Indian Act, section 2(e); The English Act, section 3(2).
5. Continental Illinois National Bank v Bathurst, The Captain Panagos DP, [1985] 1 Lloyd’s Rep 625.
6. [1887] 12 AC 498.
7. Hamilton v Pandorf, [1887] 12 AC 325.
8. [1887] 12 AC 523.
9. [1912] AC 561 (PC).
10. [1940] 4 All ER 169(PC).
11. Compania Naviera Samiti SA v Indemnity Marine Insurance, (1960) 92 Lloyd’s Rep 469 : [1957] 1 QB 247 and [1924]
AC 840 referred to.
End of Document
25.2 Excluded Losses
THE SEA

25.2.1 Losses not Regarded as Perils of the Sea
As noted earlier, “perils of the sea” are not all “perils on the sea” and as such the following perils are not held as
perils of the sea. Section 55(2) (c) of the English Act says:
Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary, leakage and breakage,
inherent vice or nature of the subject-matter insured, or for any loss proximately caused by rats or vermin, or for any injury
to machinery not proximately caused by maritime perils.
25.2.2 Wear and Tear
This term is used to denote the natural decay and deterioration, which invariably happens to a ship or any portion of
a ship due to the action of the winds and waves.12. In the case of a ship, it means decay of the body of the ship and
its appurtenances, eg, splitting of a sail, breakage or anchor, rope or cable, and in cases of cargo of perishable
nature like fruits, hides etc, their decay or deterioration on account of their natural qualities, weakness or defects. In
the case of live animals, the policy does not cover cases of progress of disease of “proper vice” in the animals or
restiveness on the part of the animals of an extraordinary kind.13.
In Rehesa Shipping Co, SA v Edmands, The Poppi M, the bull and machinery of the ship “The Poppi M” built in
1952 were insured against perils of the sea with the defendants. By 1976 the ship had become very seriously run-
down, the shell-plating in particular being in a generally wasted condition. In August 1978, in a voyage through the
Mediterranean, the ship sank in good weather and calm sea as a result of water entering through a hole in the shell
plating and flooding the engine room.
The shipowners claimed for a total loss of the ship by perils of the sea waging that collision with a submerged
submarine was the proximate cause of the loss. The defendants disclaimed liability contending that prolonged wear
and tear of the ship’s hull resulted in her shell-plating opening up under the ordinary action of the wind and waves.
As the ship had sunk in deep waters whether the ship was seaworthy or not could not be found out. The trial judge
ruled out the explanation of the underwriters for the loss and regarded the explanation of the shipowners extremely
improbable, but decreed the claim on the balance of probabilities. The appeal to the court of appeal was dismissed.
In the underwriters appeal to the House of Lords it was held that perils of the sea was the real cause of the loss and
was and remained throughout on the shipowner, even if the insurer chose to put forward another explanation for the
loss and failed to substantiate it. In the circumstances of the case the correct conclusion was that the true cause of
the loss was in doubt and that the shipowners had failed to discharge the burden of proof which lay on them and
Page 2 of 3
allowed the appeal.14.
25.2.3 Springing a Leak
If a ship develops a leak, it is not a peril of the sea unless it is due to an accident.
25.2.4 Breakage of Goods
If the goods are broken or damaged during the voyage due to movement of the ship it is not a peril of the sea; but if
it is due to violent action of the waves and consequent labouring of the ship, it is a peril of the sea.
25.2.5 Inherent Vice
The insurer will not be liable for any loss caused due to the defect in the goods, eg, if the fruits become rotten or
wine becomes bad due to inherent decomposition. In Overseas Commodities Ltd v Style, tins of canned pork were
insured under an all risks policy including inherent vice and when it spoiled by inherent vice it was held that having
regard to the peculiar nature of the subject-matter, ie pasteurised and not wholly sterilised pig product, it was
inconceivable that the underwriters should, with their eyes open, have accepted liability for loss by inherent vice
developing at any time in future, since such a product must inevitably, if not consumed within a limited period, suffer
loss from inherent vice, for, being perishable, it necessarily contained the seeds of its own ultimate destruction.15.
25.2.6 Death of Animals etc due to Nature’s Causes
For similar reasons, it may be noted that death of animals, etc due to natural causes is not a peril of the sea.
25.2.7 Loss by Rats and Vermin
If loss is caused by rats, etc, it will not be deemed to be a peril of the sea.16. In Hamilton v Pandorf, where the rats
gnawed a hole in a pipe and sea water entered damaging the cargo of rice and there was no negligence on the part
of the carrier it was held that the insurer was not liable.17.
25.2.8 Loss by Delay
Section 55(2) (b) of the English Marine Insurance Act reads:
Unless the policy otherwise provides, the insurer of ship or goods is not liable for any loss proximately caused by delay,
although the delay is caused by a peril insured against.
The section enunciates the rule that an insurer is not liable for damage caused by delay, though the delay results
from a peril insured against. At present, special clauses are often inserted to protect the insurer or the assured, as
the case may be, from the consequences of delay. The uncertainty regarding loss of freight is now cleared by
inserting these clauses.18.
12. The Xantho, [1887] 12 AC 509; Sassoon v Western Assn Co, [1912] AC 561(PC).
13. Blower v Great Western Rly, (1827) LR 76, 655.
14. 1985 (2) HL 712.
15. [1958] 1 Lloyd’s Rep, 546(QB).
16. Hunter v Potts, (1815) 4 Camp 203.
17. [1887] 12 AC 518.
18. Cf The Institute Time Clause (Freight)—1-10-70 Chalmers, Marine Insurance p 211.
Page 3 of 3
End of Document
25.3 Other Perils Insured in a Marine Policy
THE SEA

25.3.1 Loss by Fire
If fire is caused on board the ship and if the goods or ship is damaged, the insurance company will be liable. But it
will not include a loss caused by the explosion of steam, nor a fire caused by the inherent vice of the subject-matter
insured. It covers also a fire voluntarily caused in order to avoid capture by an enemy. Insurer is liable for the loss
caused by fire which was caused even by the negligence.
25.3.2 Loss by Capture, Seizure or Taking at Sea
The term capture will include not only taking by an enemy but by revenue and statutory authorities.19.
Where the shipowner sold away the cargo without authority whether the insurer was liable under the peril “tanking
at sea”, the court of appeal held that it would come under “tanking at sea” and made the insurer have.20. But in Shell
International Petroleum Co v Gibbs, The Salem, one Pontoil SF chartered a huge oil tanker “The Salem” to carry
1,96,231 metric tonnes of crude oil from Kuwait to Italy via the Cape, in December 1979. Pontoil took a Lloyds SG
policy covering the cargo. Soon after she left Kuwait Pontoil sold the Cargo to Shell International, the plaintiffs on
CIF terms. “The Salem” followed the normal routes until she was off Durban. At Durban most of the cargo, some
1,80,000 tonnes of oil, was discharged and delivered to the South African consortium who had contracted to
purchase it from the shipowners (the crooks, whom Pontoil did not know as crooks). After this sale, they scuttled the
ship in a calm sea off Daker and Senegal with the remaining 15,000 tonnes of oil. Following the scuttling, the
plaintiff claimed from the insurers contending that the unloading off Durban was “taking at sea”. This, the trial judge
accepted reluctantly as he was bound by the above decision of the court of appeal. The court of appeal
disappointed and in further appeal the House of Lords over-ruled it. The court held that the standard Lloyd’s SG
policy does not cover wrongful misappropriation of cargo by a shipowner. If cargo interests require that cover, they
must either seek an all risks policy or other appropriate form of cover; but as regards the 15,000 tonnes of oil
scuttled by the shipowners, they were held liable under the saving clause in the policy; the scuttling was not to
prejudice the insured’s regret “if recovery”.21.
25.3.3 Loss by Arrest, Detention, etc
Loss due to any restraint by political or executive acts generally called “Restraint of Princes, Kings, etc” will be
included under the marine policy; but does not include loss by a mob in a riot, or arrest by a judicial process or
embargo, ie, order of the government prohibiting a ship or goods from a port.22. The policy did not exclude risk of
loading goods in vessel which is unseaworthy. When the vessel was detained due to carrying unseaworthy goods, it
was held that the insured’s claim for the loss was not maintainable as the loss was not caused due to maritime
peril.23.
25.3.4 War Risks and FCS Clause
Under a marine policy risks due to war are included. The standard form of English Marine policy covers these risks
Page 2 of 3
and also risks of capture and seizure, and other similar risks. But generally we find the FC&S clause ie “Free from
capture and seizure”, etc clauses under which loss due to hostilities and war-like operations will be excluded from
the ordinary policy.24. Now these war risks are normally dealt with by special arrangement and a special premium
quoted. So if the parties desire to include these risks, this is normally done by deleting the usual “FC&S clause” and
attach the then current institute war clause. Commenting on this method of insuring against war risk, Mocatta J in
Panamasbin Oriental SS Co v Wright observed:
It is probably too late to make an effective plea that the traditional methods of insuring against ordinary marine risk and
what are called war risks should be radically overhauled. The present method, certainly as regards war risks insurance, is
tortuous and complex in the extreme. It cannot be beyond the wit of underwriters and those who advise them in this age of
law reform to device more straight forward and easily comprehended terms of cover.25.
25.3.5 Loss Caused by Pirates and Thieves
The rules under the English Marine Insurance Act chose to give the former an inclusive and the latter an exclusive
definition. Rule 8 says that the term “Pirates” includes passengers who mutiny, and rioters who attack the ship from
the shore. Piracy is the offence of causing depredation on the seas without being authorised by any sovereign
state. The word piracy is one capable of various shades of meaning. Even in a technical sense it may be held to
cover different subject-matter either according to national or international law. Carver says:
Piracy is forcible robbery at sea, whether committed by marauders from outside the ship or by mariners or passengers
within it. The essential element is that they violently dispossess the master and afterwards carry away the ship itself or any
of the goods, with a felonous intent.26.
The Privy Council in Re Piracy Jure Gentium expressed the view that actual robbery is not an essential element in
the crime of piracy jure gentium and that a frustrated attempt to commit piratical robbery is equally piracy jure
gentium.27. Rule 9 gives an exclusive definition of the term “thieves”. In that it says that it does not cover clandestine
theft, or a theft committed by any one of the ship’s company whether crew or passenger.
25.3.6 Barratry
Arnould defines the expression as:
Barratry, then, in English law comprehends not only every species of fraud and knavery covetously committed by the
master with the intention of benefiting himself at the expense of his owners, but every wilful act on his part of known
illegality, gross malversation, or criminal negligence, by whatever motive induced, whereby the owners or the charters of
the ship (in cases where the latter are considered owners pro tempore) are, in fact, damnified.
Rule 11 (the English Marine Act, Schecule) defines it as to:
Include every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be,
the ‘charterer’.
Master’s scuttling the ship or fraudulently selling the cargo, running away with the ship, fraudulent deviation of the
ship, crew’s wrongful refusal to discharge the cargo, etc have been held to be acts of “Barratry”.28. It includes every
wrongful act wilfully committed by the master and or the crew to the prejudice of the owner and every kind of fraud
committed by them with the intention of benefiting themselves at kind of fraud committed by them with the intention
of benefiting themselves at the expense of the owner, and the latter must amount to some kind of breach of trust.
25.3.7 All Other Perils
The object of the inclusion of these words is only to prevent a narrow and technical construction being placed upon
the perils specifically enumerated. If the assured wants to go further than this, he must cover his risk by special
terms. Rule 12 says: “The term “all other perils” includes only perils similar in kind to the perils specifically
mentioned in the policy”. This is nothing but to give statutory effect to one of the cardinal rules of construction called
Page 3 of 3
the ejusdem generis rule which says that the general words that follow must be interpreted in the light of the
preceding specific expressions.29.
Examples:
(i) Inchmaree Clause In Thames and Mersey Inc Co v Hamilton, a policy is taken on ship and machinery,
including donkey engine. Owing to a valve being kept closed, which ought to have been kept open water is
forced in, and splits open the chamber of the donkey pump. The House of Lords held that the bursting of
the donkey engine due to the entrance of sea water as a result of closing a valve will not be included under
an ordinary form of policy as a “peril of the sea” and hence the insurer is not liable.30. After this case the
practice is to include in marine policies a clause called “Inchmaree clause” which will cover such causes.
This clause takes its name from the name of the ship involved in the above case before the House of
Lords. It was held in that case that in the general words of the policy “all other perils” include losses and
misfortunes that have or shall come to the hurt, detriment or damage of the subject-matter or insurance.31.
(ii) Other Losses and Misfortunes The words “other losses” will include loss which is generally recoverable,
for example salvage charges “sue and labour clause” or “particular charges or particular average loss” or
general average loss or contributions.32.
19. For further details see Arnould, Marine Insurance, p 820.

20. Vishira Trading Co v Chriyoda “The Mandarin Staircase” [1969] 2 All ER 776(CA).
21. (1983) 1 HL 745.
22. Arnould Marine Insurance, pp 823–32; Carver, Carriage of Goods by Sea, pp 173–79.
23. Oriental Insurance Co Ltd v Peacock Plywood (P) Ltd, AIR 2005 Cal 97 (DB).
24. It is called as the Institute War Clause dt 1 July 1971—refer Chalmer’s Marine Insurance, p 180.
25. [1970] 2 Lloyds Rep 365.
26. Carver, Carriage of Goods by Sea, fourth edn, p11.
27. [1934] AC 586, 600 (PC).
28. For further examples refer to—Carver, Carriage of Goods by Sea, p 185–187.
29. For a useful discussion of the rule in general, Tillmans v Knutsford, (1908) 13 Com Cas 244, 249, 255(CA); Chandris v
Isbrandtsen Moller Co Ins, [1951] 1 KB 240, 243–47 (Devlin J).
30. [1887] 12 AC 484, 494.
31. For details on this clause refer to Arnould Marie Insurance, p 854 and Ivamy, Marine Insurance, 1969, pp 198–202.
32. See the Institute Clause.
End of Document
26.1 Nature and Definition of Warranty
Modern Law of Insurance, 6th ed > PART IV Marine Insurance > CHAPTER 26 WARRANTIES IN
MARINE INSURANCE
CHAPTER 26 WARRANTIES IN MARINE INSURANCE
26.1 Nature and Definition of Warranty1.

The term “warranty” is used in a peculiar sense in marine insurance and is not used in the same sense as it has
been in other areas of law. For example, in a contract of sale of goods it is used in the sense of a stipulation made
by the parties to a contract of sale which is collateral to the contract, the breach of which does not give rise to the
other party a right to avoid the contract altogether but only a remedy to claim damages; while the other stipulations
of similar nature which go to the root of the contract and the breach of which gives rise to the other party a right to
avoid the contract altogether are called “conditions”. The term “condition” is not used in marine insurance. A breach
of warranty in insurance law appears to have the same effect as a breach of condition in other branches of law. The
effect of its breach is stated in section 35(3) of the Indian Act that a warranty is a condition which must be exactly
complied with, whether it be material to the risk or not and if it be not so complied with then, subject to any express
provision in the policy, the insurer is discharged from further liability without and prejudice to any liability incurred by
him before that breach.2.
Further, in insurance law the warranty may be either a condition precedent or a condition subsequent.3. The Marine
Insurance Act defines it to mean a promissory warranty, that is to say, a warranty by which the assured undertakes
that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms
or negatives the existence of a particular state of facts.4. In short, the term warranty is used in two different senses,
namely, one is in the sense of a condition to mean the breach of which gives rise to a right to avoid the contract and
secondly, to denote a mere limitation on, or an exception from, the general tenor of the policy. For example, in the
case of a promissory warranty that the ship shall sail with “50 hands or upwards” and she starts to sail with a crew
of 46 only, but later en route she takes six more hands, the insurer can avoid his liability,5. on the other hand, in the
case of warranty “free from capture and seizure” the assured does not undertake that the ship or cargo shall not be
captured but it merely means that in case the loss is due to capture of seizure the policy shall not apply to such a
loss, and the provisions of the Act are inapplicable.6.
Section 35(2) says that a warranty may be express or implied; section 37 states that an express warranty may be in
any form or words from which the intention to warranty is to be inferred.7. It must be included in or written upon the
policy or must be contained in some document incorporated by reference into the policy. If warranty is contained in
a separate document, and if the parties to the policy refer to that document in the policy it is deemed to have been
incorporated. Simply because some express warranties are provided in the policy it cannot be said that they
exclude an implied warranty. The express warranty excludes an implied warranty only when both cannot co-exist.
Section 37(3)8. provides that an express warranty does not exclude an implied warranty, unless it be inconsistent
therewith.
1. Indian Act, sections 35–37; English Act, sections 33–35.

Page 2 of 2
26.1 Nature and Definition of Warranty
3. Union Insurance Society of Canada v Will & Co, (1916) AC 281 .

4. Indian Act, section 35(1); English Act, section 33(1).
5. De Hahn v Hartley, (1786) 1 TR 343.
6. Indian Act, sections 35(3) and 36; English Act, sections 33(3) and 34.
7. Indian Act, section 37(1); ibid, section 35(1).
8. Cf The English Act section 35(3).
End of Document
26.2 Effect of Breach of a Warranty
MARINE INSURANCE
26.2 Effect of Breach of a Warranty

A breach of warranty has the same effect as a breach of condition in other branches of law.9. The assured is
discharged from further liability on proof of breach of warranty. Section 36(2)10. provides that is no defense for the
assured that the breach has been remedied and the warranty complied with before loss. But the assured may prove
that a breach of warranty is waived,11. or that by reason of change of circumstances, the warranty ceases to be
applicable to the circumstances of the contract, eg when a ship during war is warranted to sail with a convoy, but if
peace is made, the warranty becomes inapplicable, or the compliance with the warranty is rendered unlawful by any
subsequent law. These are the circumstances when a breach of warranty is excused by law.12. It is common
practice in modern contracts to include a special clause that in case a particular warranty is covered the assured
can still be covered in spite of its breach if he pays an additional premium to be arranged.13. The effects of breach
are the same whether it is an express warranty or an implied one. The insurer is the person who alleges the breach
of warranty and the burden of proof lies on him to prove the breach.14.
9. Bank of Nova Scotia v Hallenic Mutual War Risks Association (Bermuda) [The Good Luck], [1992[ I A C 233: Photo
Production Ltd v Securicor Transport Ltd, [1980] AC 827; CTN Cash and Carry Ltd v General Accident, Fire & Life
Assurance Corp PLC, [1989] 1 Lloyd’s Rep 299.
10. Cf The English Act section 34(2).
13. Blower v Great Western Rly, (1872) LR 7 CP 655.
14. Simons v Gale, the Cap Tarifa, [1957] 2 Lloyds Rep 485 affirmed in Enebeca.
End of Document
26.3 Warranties Dealt with Under the Act
MARINE INSURANCE

The warranties expressly dealt with under the Act may be grouped under three heads viz, (a) warranties implied in
every contract,15. (b) warranties implied only when certain other warranties are specified16. and (c) warranties not
implied.17. Therefore, the implied warranties in a marine insurance contract are contained in the first two types.
26.3.1 Implied Warranties
As noted above, there are certain warranties always implied in marine insurance policies of certain types and some
others implied in policies containing certain express warranties:
(a) Implied in Every Case
(i) Warranty of Seaworthiness of Ship There is an implied warranty of seaworthiness of the ship while there is no
implied warranty that the goods are seaworthy.18. The section starts with the words “in a voyage policy” which
suggests that there is no implied warranty of seaworthiness in a time policy; although under sub-section (5) the
assured is precluded from recovering when the vessel is sent to sea in an unseaworthy condition and the proximate
cause of the loss was unseaworthiness, of which the assured has neither actual or constructive knowledge.19. Even
with regard to the ship, she, to be seaworthy, need not be absolutely seaworthy. It may be noted that the state of
seaworthiness is a relative and not an absolute one. Section 41(3) says that a ship is seaworthy when she is
reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.20. The
seaworthiness of a vessel includes the crew, in terms of both numbers and competence with reference to
foreseeable circumstances of the voyage.21. The vessel was held to be unseaworthy by reason of defects in the fire-
fighting equipment, and the master’s massive ignorance with reference to its operation.22.
A ship may be seaworthy for one port and may not be for another, may be seaworthy only for a river but not for
ocean or sea, may be seaworthy for a particular route of voyage but not for another, may be seaworthy for a calm
deep sea, but not a whaling voyage etc. So what is to be determined for the purposes of this implied warranty is—Is
the ship fit for the voyage insured? The ship may not be seaworthy for other voyages or adventures but it is
sufficient if it is seaworthy enough to encounter the ordinary perils of the particular adventure that is insured. She
need not be seaworthy again throughout the voyage. What is required is that she should be seaworthy for a
particular adventure insured at the commencement of the voyage. Section 41(1) says that in a voyage policy there
is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the
particular adventure insured.23. But where the voyage is performed in different stages, during which the ship
requires different kinds of or further preparation or equipment, at the commencement of each such stage there is an
implied warranty of seaworthiness of the ship for that stage in respect of such preparation or equipment for the
purposes of that stage. For example, in Quebec Marine Insurance Co v Commercial Bank of Canada the policy was
taken on a ship on a journey from Montreal to Halifax. At the time the ship sailed there was a defect in her boiler
which did not appear in the river until she got into the sea. She was put back to port, repaired and then proceeded
on her voyage but was lost in bad weather. It was held that the ship was not seaworthy for the adventure at the
Page 2 of 5
commencement of the voyage though she was made seaworthy later and hence it was held that the insurer was not
liable.24. This case also illustrates the point that it is no defense to say that the breach has been remedied and the
warranty complied with before loss.25. Greenock Steamship Co v Maritime Insurance Co illustrates the voyage at
stages. In that case, the policy was on a ship on a round voyage from England to port or ports in South America
with liberty to call at any port. The ship called at Montevideo and her next port was St Vincent. At Montevideo she
neglected to take sufficient coal to reach the next port and as a consequence she had to burn some of her fittings
and cargo as fuel and claimed the loss. It was held that for coaling purposes the voyage is divided into “stages” and
as to her coaling equipment at Montevideo she was not seaworthy and hence the insurer was not liable for the loss
incurred by burning the fittings and cargo.26. The insurer is liable to the extent the ship is seaworthy. In Bicard v
Shapard, the policy was on copper at and from port H and port N to S at H 150 tonnes and at N 250 tonnes, were
loaded which was too heavy for the ship, and the copper was lost. It was held by the Privy Council that the insurer
were liable for the loss of first 150 tonnes and not for the rest treating the policy “at stages”.27.
Even if the ship is seaworthy in itself, she may not be seaworthy for the particular adventure. Again if the ship is not
seaworthy at any stage of the adventure if the assured is privy to the act of sending an unseaworthy ship the insurer
is not liable for any loss attributable to that act.28. In Thomas v Tyne and Wear Insurance Ass, Lord Atkin observed
that where a ship is sent to sea in a state of unseaworthiness in two respects, the assured being privy to the one
and not privy to the other, the insurer is only protected if the loss was attributable to the particular unseaworthiness
to which the assured was privy.29. In Compania Maritima San Bassils SA v Oceans Mutual Underwriting Ass
(Bermuda), the meaning of the word “privy” in section 39(5) Marine Insurance Act (Comparable to section 41 of the
Indian Act) is clarified. When insured goods were lost, in a claim against the insurer, the insurer refused to
indemnify on the ground that the ship was sent to sea in an unseaworthy condition with the privity of the assured.
The court held that if the ship is sent to sea in an unseaworthy condition with the knowledge and concurrence of the
assured personally, the insurer is not liable for any loss attributable to unseaworthiness,that is to unseaworthiness
of which he knew, actually or constructively, and in which he concurred. The court also observed that:
If the shipowner satisfied the court that he did not know the fact or did not realise that they rendered the ship unseaworthy,
then he ought not to be held privy to it, even though he was negligent in not knowing.30.
The burden of proving that a ship is unseaworthy, at the relevant time lies on the insurer to protect himself normally
except in cases where the maxim res ipsa loquitur applies. In those cases, where the maxim applies, he is relieved
of the burden because the thing speaks for itself.
(ii) Warranty of Legality31. The Act says that there is an implied warranty that the adventure insured is a lawful
one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner.32.
An adventure will usually be unlawful when its performance involves a breach either of local or of foreign law.
Broadly speaking, an adventure is illegal if it is prohibited by statute or contrary to good morals or public policy.33.
Illegality of part of an adventure renders the whole adventure void if the illegal part is not severable from and forms
an integral part of the whole adventure. Not only the adventure insured must be lawful, but the way in which it is
carried out should also be lawful unless the assured can say that the illegality crept in in the manner of carrying out
the adventure for reasons beyond his comprehension and control. For example, in Pipon v Cope, where the ship is
arrested in England for the smuggling operations of the master with the connivance of the owner, it was held that
the insurer is not liable.34. On the other hand in Wilson v Ranking, the master stowed a part of the cargo (timber) on
deck and sailed without a certificate from the clearing office which is required by the Customs Consolidation Act
1853. The master did this without the knowledge of the owner. The timber was lost due to perils of the sea. It was
held that the insurer is liable as the owner was unaware of the illegal way in which the master acted.35. Where a
voyage is unlawful an insurance upon such voyage is invalid. Mistake of law is no excuse and therefore a contract
to do an unlawful act is void, whether the parties know the law or not. This warranty applies only to Marine
Insurance.
In Euro-Diam Ltd v Batherst, the plaintiffs, diamond merchants in London, as desired by their customer insured their
goods in the form of Lloyd’s slip and sent the diamonds to a German firm, on sale or return basis with an
understated invoice which would enable the customer to avoid German custom duty. One of the objections of the
insurer was that the implied warranty in section 41 that the “adventure” would be carried out lawfully was broken.
But the court rejected the contentions on the ground that this section does not apply to non-marine policies and
policy in question is of non-marine nature. Section 41 of the English Act is adopted in India as section 43 of the
Marine Insurance Act 1963.36. But where goods illegally imported without declaration or paying the excise duty were
Page 3 of 5
insured against theft, the insurer not being aware that they are uncustomed articles liable to be forfeited, though the
policy is not tainted with illegality, it has been held that it is against public policy to indemnify the insured against
their loss as it helps him to derive profit from his deliberate breach of law.37. In Waugh v Morris, it was held that
where a contract can be performed in more than one way and only one or some of the ways of doing it is unlawful,
the contract cannot be avoided by the insurer unless it can be shown that the parties intended to carry out the
contract in an illegal way.38.
(iii) Supervening Illegality by Subsequent Hostility
A declaration of war by England operates as an Act of Parliament prohibiting all trading and business intercourse
with the enemy. So when a policy is taken on a voyage to a port and war is declared and the destination port
becomes an enemy port, the voyage becomes illegal and must be abandoned.39.
(b) Warranties Implied from an Express Warranty
Where there is an express warranty of (i) neutrality or (ii) good safety, certain warranties are implied from those
express warranties.
(i) Warranty of Neutrality: Section 36(1) says where insurable property, whether ship or goods, is expressly
warranted neutral, there is an implied condition that the property shall have a neutral character at the
commencement of the risk, and that so far as the assured can control the matter, its neutral character shall be
preserved during the risk. This clause deals with the cases where the subject-matter of the policy is either a ship or
goods. The next clause deals with the cases where the subject-matter of the policy is a ship and it is expressly
warranted to be “neutral” in which case section 36(2) says that there is an implied condition that so far as the
assured can control the matter, she shall be properly documented. A ship is said to be properly documented when
she carries the necessary papers to establish her neutrality and that she shall not falsify or suppress her papers, or
use simulated papers. The clause further provides that if any loss occurs through breach of this condition the
insurer may avoid the contract.40.
(ii) Warranty of Good Safety41. When the assured knows the condition of the subject-matter of insurance or but for
his wilful abstention from inquiry which he ought to have made or gross negligence he would have known it is his
duty to disclose that fact under his “duty of disclosure” dealt with under section 18, and if he fails to do it in spite of
his knowledge, actual or constructive, the insurer can avoid the contract. If he does not know the condition, he may
insert the clause “lost or not lost”.42. If either party knows that the goods are safe or destroyed and suppresses the
fact, the other can avoid the contract. When the assured genuinely believes that the subject- matter of the policy is
“well” or “in good safety” then only section 40 comes into play. It must therefore be read subject to section 20 as to
disclosure of facts known to the assured before the contract is concluded. Section 40 reads:
Where the subject-matter insured is warranted “well” or “in good safety” on a particular day, it is sufficient if it be
safe at any time during that day.43.
Where the insurance policy required the insured vessel, when not in use, to be safely anchored or moored or
secured with proper watch and ward, held, temporary withdrawal of watch and ward from the vessel for shelter
against wind and rain for a few hours did not amount to violation of warranty clause.44.
The vessel owned by the plaintiff went down with 27 people on board. The events surrounding the sinking were
unknown. The plaintiff sought a declaration that the defendant insurer was obliged to indemnify the plaintiff in
respect of the loss. The vessel was insured for loss due to “perils of the sea”. It was held that non-disclosure of
material facts will void insurance coverage where the non-disclosure of the material fact has induced the insurer to
assume the risk. In this case, the vessel had taken on water and there had been substantial work done to the hull
after the issuance of the safety certificate which the insured has supplied to the insurer and before the issuance of
insurance. The insured had also applied to increase the facts which had not been disclosed to the insurer and
would have avoided the coverage. The court also found that the insured had breached express warranties in the
policy. The express warranties must exactly comply with whether material to the risk or not. In this case, the
plaintiffs had not complied with the strict manning of vessel requirements.45.
(c) No Implied Warranty

Page 4 of 5
The statute makes it clear that there is no implied warranty (a) of nationality46. and (b) that the goods are
seaworthy.47. Section 39 states that there is no implied warranty as to the nationality of a ship, not even that her
nationality shall not be changed during the risk.48. In cases where the assured voluntarily changes the nationality of
the ship and exposes the ship to risk of hostile capture and if the ship is captured, possible, the loss would be
attributed to the act of the assured rather than to the capture and the insurer may avoid his liability.49.
Again, section 42(1) says that “in a policy on goods or other movables there is no implied condition that the goods
or movables are seaworthy”.50. In this context, it may be noted that the meaning and scope of seaworthiness differs
in a conflict between the shipper and shipowner from that in a conflict between the assured and the insurer. A ship
may be seaworthy as between the shipper and shipowner and yet may not be seaworthy as between the insurer
and the insured. Further, the time when the seaworthiness is required also may be different in the two cases. In a
contract of insurance it is sufficient if the ship is seaworthy at the commencement of the voyage51. while in a
contract of affreightment between the shipper and the shipowner the seaworthiness must exist with reference to
goods shipped at the intermediate port at the time when the goods are shipped. Section 42(2) says that in a voyage
policy on goods or other movables there is an implied warranty that the ship is not only seaworthy at the
commencement of the voyage as a ship but also that she is reasonably fit to carry those goods or other movables
to that particular destination contemplated by the policy.52.
The maritime losses are restricted to losses arising from maritime perils and do not extend to losses on inland
waters or any land risk incidental to a sea voyage. However, the same can be extended to those losses in case of
express contract or trade usage.53.
15. The Indian Act, sections 41 and 43; The English Act, sections 39 and 41.
16. Ibid, sections 39 and 42; ibid, sections 37 and 40.
17. Ibid, sections 38 and 40; ibid, sections 36 and 38.
19. Compania Maritima San Bassils v Oceans Mutual, The Eurgsthenes, [1976] 2 Lloyd’s Rep 171.
20. Cf The English Act, section 41(3).
21. Wood v Associated National Insurance Co, (1984) 1 Od R 507 : (1985) 1 Od R 297.
22. Manifest Shipping Co Ltd v Uni-Polario Insurance Co Ltd (The Star Sea), [1995] 1 Lloyd’s Rep 651.
23. Cf English Act, section 39.
24. (1870) LR 3 PC 234.
25. The Indian Act, section 36(2); English Act, section 34(2).
26. [1903] 1 KB 367, affirmed in [1903] 2 KB 657(CA ).
27. (1861) 14 Moore PC 471.
29. [1917] 1 KB 938.
30. [1976] 3 CA 243.
32. Ibid.
33. Gedge v Royal Exchange Assn Co, [1900] 2 KB 220 .
34. (1808) 1 Camp 434.
35. (1865) LR 1 QB 162.
36. (1988) 2 CA 23.
37. Geismar v Sum Alliance of London Insurance, [1977] 3 QBD 570 ; Mackender v Feldia AG, [1966] 3 QB 847
quoted and relied on.
Page 5 of 5
38. (1873) LR 8 QB 202.

39. British and Foreign Marine Insurance Co v Sandy (Samuel) & Co, [1916] 1 AC 650, 673 (HL).
40. Arnould, Marine Insurance, pp 660–84.
42. Refer rule 1 in the First Sch.
44. See Syed Mohd v New India Assurance Co Ltd, (2003) 11 SCC 744.
45. Laho Ltd, v QBE Insurance (Vanuatu) Ltd, (2001) VUSC 130 : Civil Case 24 of 2000 (2 April 2001).
49. Chalmer’s Marine Insurance, 17th edn, p 53.
53. New India Assurance Co Ltd v Hira Lal Ramesh Chand, (2008) 10 SCC 626 : AIR 2008 SC 2620.
End of Document
27.1 Preliminary
Modern Law of Insurance, 6th ed > PART IV Marine Insurance > CHAPTER 27 LOSS
CHAPTER 27 LOSS
27.1 Preliminary
The very object of a marine insurance contract and as a matter of fact of any insurance contract is to indemnify the
assured of any loss in the manner and to the extent thereby agreed. In marine insurance, loss means losses
incidental to marine adventure. The term “loss” includes damages or detriment as well as the actual loss of the
property. We have noted earlier that an insurer is liable only to indemnify loss which is proximately caused by a peril
insured against.1. In this chapter the kinds of losses are discussed.
1. The Indian Act, section 55; The English Act, section 55; the section numbers of both the Indian and English Acts are
the same in this chapter.
End of Document
27.2 Kinds of Losses
Modern Law of Insurance, 6th ed > PART IV Marine Insurance > CHAPTER 27 LOSS
CHAPTER 27 LOSS

Broadly speaking, all losses may be classified as either: (1) total or (2) partial and any loss other than a total loss is
a partial loss.2. A total loss of a part is a partial loss. A total loss may again be divided as either (a) an actual total
loss or (b) a constructive total loss.3. Section 56(3) provides that unless a different intention appears from the terms
of a policy, an insurance against total loss includes a contractive as well as actual total loss.4. In an action for total
loss where the evidence proves only a partial loss, unless the policy otherwise provides, recovery for a partial loss
may be made. Sub-sections 4 and 5 of section 56 state that where goods reach their destination in specie, but by
reason of obliteration of marks or otherwise, they are incapable of identification, the loss, if any, is partial and not
total.5. In Kunjuraman v United India Finance and General Insurance, a fishing vessel was covered by a policy for a
total and/or contractive total loss as per the institute standard TLD clause (Hull) which precluded recovery of any
partial loss. It was involved in a fire accident in which there was a constructive total loss in respect of the hull and as
regards the engine and machinery there was only a partial loss. The combined effect of the clause and the
operation of sections 56(4) and 57 of the Marine Insurance Act, 1963 is that there can be no recovery for any partial
loss. As it was found that in respect of the hull there was constructive total loss the claim was decreed and as
regards engine and machinery there was only partial loss and the claim was rejected.6. Similarly, in Hajee Habib v
Commercial Union Assurance Co, where a policy is taken against total loss only when a cargo of yarn was
damaged in water and the insured dried the cargo and sold it and claimed balance of the insured amount the court
held that the insurer was not liable as that was a case of partial loss.7.
27.2.1 Total Loss
As noted earlier, total loss may be either (a): actual total loss or (b) constructive total loss.
(a) Actual Total Loss Where the subject-matter insured is destroyed, or so damaged as to cease to be a thing of
the kind insured, or where the assured is irretrievably deprived of it, there is an actual total loss. It is not necessary
to constitute actual total loss that things should be actually destroyed; it is sufficient if they are so damaged that
they cannot be used as things originally insured or the owner is permanently deprived of them.8. For example,
where the ship concerned in the adventure is missing and after the lapse of a reasonable time no news of her has
been received, an actual total loss may be presumed.9. Reasonable time is a question of fact and it varies with the
facts of each case. In such cases, if the insurer pays for a total loss and if the ship is found afterwards, it belongs to
the insurer. Further, it is provided in section 59 that whereby in a peril insured against, the voyage is interrupted at
an intermediate port or place, under such circumstances as apart from any special stipulation in the contract of
affreightment, to justify the master in landing and reshipping the goods or other movables, or in transhipping them
and sending them on to their destination, there is no total loss of the goods. The liability of the insurer continues in
such cases, notwithstanding the landing or transhipment. It may be noted in this context that the English rules as to
transhipment are not very well settled while in some other foreign countries like USA, it is the duty of the master to
tranship wherever it is reasonable and feasible to do so. The extent of the master’s power to tranship is determined
by the law of the flag.
(b) Constructive Total Loss Section 60(1) lays down the general rule as to what is constructive total loss and it
states:
Page 2 of 9
Subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is
reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved
from actual total loss without an expenditure which would exceed its value when the expenditure has been incurred.
Section 60(2) formulates some of the more important deductions from the above general rule as:
In particular, there is a constructive total loss:—
(i) Where the assured is deprived of the possession of his ship or goods by a peril insured against, and
(a) it is unlikely that he can recover the ship or goods as the case may be, or
(b) the cost of recovering the ship or goods, as the case may be, would exceed their value when
recovered; or
(ii) In the case of damage to a ship, where she is so damaged by a peril insured against, the cost of repairing
the damage would exceed the value of the ship when repaired.
In estimating the cost of repairs, no deduction is to be made in respect of general average

contributions to those repairs payable by other interests, but account is to be taken of the expense of
future salvage operations and of any future general average contributions to which the ship would be
liable if repaired; or
(iii) In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their
destination would exceed their value on arrival.
From this it can be seen that when there is no total loss, and simply stated when the value of the things remaining is
so thin that to bring the subject-matter to its original value and utility would involve an expenditure exceeding its
original value, it is prudent to abandon the thing and replace it by a new thing. It lies in state between actual total
loss on the one hand and partial loss on the other. In Moss v Smith, Maule J gives a nice illustration of constructive
total loss as “A man may be said to have lost a shilling when he has dropped it into deep water, though it might be
possible by some very expensive contrivance, to recover it”.10. The shilling exists and it is also possible to recover it
but at what cost is the question? If the cost involved is more than a shilling, it amounts to a “constructive total loss”.
In such cases, the insured can treat the factual partial loss as constructive total loss and marine insurance being a
contract of indemnity, the insured cannot retain the damaged thing and ask for the value of a new substitute. When
he is placed in such a state, he should give a notice of abandonment of the thing damaged or lost and then only
can he claim the full value.11. So in every case of “constructive total loss” notice of abandonment should be given.
The time at which the classification of a loss as an actual or constructive total loss is to be made, is when the notice
of abandonment has been accepted or rejected by the insurer.12. A Marine Insurance Policy was also covering the
risk of the vessel being stranded. The Policy also extended to cover risk of non-delivery of goods by taking
additional premium. When the ship was stranded at one port, the insured started taking steps to recover the value
of the cargo by way of sale to minimise its total loss due to its non-delivery. The insured informed the insurer that
the costs of recovering and bringing cargo to the destination would cost more than if sale was effected at a port
where the ship was stranded. The Supreme Court observed that the High Court was erred in holding that the
contract of carriage had terminated on accounted of seaworthiness of the ship and it also held that the insured is
entitled to claim the whole loss treating it as “constructive total loss”.13.
27.2.1.1 Abandonment
When damage occurs to the subject-matter of insurance and it amounts to a constructive total loss, the assured
may either treat the loss as a partial loss, or abandon the subject-matter insured to the insurer and treat the loss as
if it were an actual total loss.14. When he elects to treat it as a constructive total loss, it is always incumbent on the
assured to give to the insurer a notice of abandonment to enable himself to recover total loss. This notice is
unnecessary in three cases, namely, (a) the circumstances of the case are such as render the giving of such notice
unnecessary for the reason that “at the time when the assured received information of the loss there would be no
possibility of benefit to the insurer if notice were given to him”15. or (b) where notice of abandonment is waived by
the insurer16. or (c) where an insurer has reinsured his risk. Barring these three cases, in all other cases he must
Page 3 of 9
give notice of abandonment. No particular form is prescribed. It may be given in writing, or by word of mouth, or
partly in writing and partly orally.17.
The next vexed question is about the time when the notice of abandonment should be given, if the assured elects to
abandon the subject-matter. If he simply comes to know that some damage was caused, he cannot give the notice.
He must have knowledge of all the details necessary to exercise his option. But once he receives the full
information he must not delay. It must be given with reasonable diligence after the receipt of reasonable information
of the loss, but where the information is of doubtful character the assured is entitled to a reasonable time, to make
inquiry.18. Reasonable diligence, again like reasonable time, is a question of fact. If the insured fails to abandon at a
proper time, the right to abandon may cease, unless the right to give such notice may revive by a change of
circumstances.19. Though notice of abandonment is necessary on treating the loss as constructive total loss, the
mere giving of notice does not entitle the assured to recover the full amount unless the damage to the property is to
be legally regarded as a constructive total loss. That means, in spite of receiving a notice of abandonment, the
insurer may reject the notice as damage to property cannot be legally regarded as a constructive total loss. But if he
accepts the abandonment, the extent of damage, its sufficiency and the other circumstances need not be gone into.
In such cases the insurer pays a total loss and realises what he can, with the property which has been or left
abandoned to him. The acceptance of an abandonment may be either express or implied from the conduct of the
insurer and it is further provided that mere silence of the insurer after notice is not an acceptance.20. Where notice
of abandonment is accepted the abandonment is irrevocable. The acceptance of the notice conclusively admits
liability for the loss and the sufficiency of the notice.
In cases where the notice of abandonment is declined, a difficult situation may arise in the matter of taking
measures to prevent further loss and preserving the property. The assured is afraid to take steps as it may lead to
an inference of waiver of abandonment and if the underwriter takes steps he may be presumed to have made an
acceptance of the notice and so both may not take steps. To avoid this situation, the waiver clause is introduced
into the policy which reads:
It is expressly declared and agreed that no acts of the insurer or insured in recovering, saving or preserving the property
insured shall be considered as a waiver or acceptance of abandonment.
The effect of abandonment is provided in section 63 of the Act as where there is a valid abandonment, the insurer is
entitled to take over the interest of the assured in whatever may remain of the subject-matter insured and all
proprietary right incidental thereto.21. If further provides that upon the abandonment of a ship the insurer thereof is
entitled to any freight in course of being earned, and which is earned by her subsequent to the casualty causing the
loss, less the expenses of earning it incurred after the casualty; and where the ship is carrying the goods of the
owner the insurer is entitled to a reasonable remuneration for the carriage of them subsequent to the casualty
causing the loss.22. No better explanation about the effect of abandonment can be given than to quote the
observation of Scrutton LJ in Allegemeine Versicharugs-Gessellshaft Helvetial v Administrator of German Property,
[1913] 1 KB 672 (CA), pp 687–88, which runs thus:
What is the effect of abandonment under English or German Law, which are assumed to be the same? When the total loss
of a thing insured is not actual but constructive, that is, where the thing insured is in specie, but the cost of preserving and
repairing it would be more than its value when preserved or repaired,23. the insured must give a notice of abandonment.
This in itself does not pass any property or rights in the thing insured to the underwriter. If the underwriter then pays the
assured a total loss, it used to be thought that the payment passed the property and rights incidental to it to the underwriter,
as benefit of salvage.
Lord Blackburn in 1877, before the Marine Insurance Act 1906, in Simpson v Thompson, [1877] 3 AC 279 , 292
said:
I do not doubt at all that where the owners of an insured ship have claimed or been paid as for a total loss, the property in
what remain of the ship and all right incident to the property, are transferred to the underwriter as from the time of the
disaster in respect of which the total loss is claimed for and paid.
He distinguished the case from subrogation to a right to recover damages against a third party in respect of the
thing insured, which he says follows on payment for a total loss, but must be exercised in the name of the assured
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and in respect of his right…But before the Marine Insurance Act was passed in 1906, circumstances arose which
rendered it necessary to consider whether an underwriter, merely, by paying, necessarily became the “owner of the
thing injured”. For it might be a “dannosa hereditas”, whose ownership only imposed liabilities which the underwriter
did not want. The owner of the ship wrecked in a harbour might be liable to the labour authority for the cost of
buoying and removing the wreck. The case of River Wear Commissioners v Adamson, [1877] 2 AC 743 as
explained in The Mostyn24. shows the difficulties of deciding the liability of the owner in such a case, and in 1894, in
Arrow Shipping Co v Tyne Improvement Commissioners, [1894] AC 508 the question was raised whether
underwriters who had paid a total loss were not “owners” liable for the expense of raising the wreck, and Lord
Herschell declined to decide the question. Probably in consequence of this decision when the Marine Insurance Act
1906, was passed, section 63 was worded as above. As to the effect of abandonment on the ownership of the
remainder after the casualty there were conflicting views. One view was that if notice of abandonment is given but
not accepted the property becomes res nullius.25. While in a later case it was held:
It does not follow that because notice of abandonment is given to an insurer, therefore the vessel which may have some
value, is abandoned to all the world, so that it has no owner at all, and becomes what lawyers prefer to describe using the
Latin language, as res mullius.26.
Cohen LJ said that the latter view may be preferred to the former.27.
The fact that the ship was abandoned by its owners as estimate of repair cost was higher than its insured value,
held, cannot have the effect of their being adjudged insolvents. Further, no question of un seaworthiness arose in
this case so as to exclude loss and damage suffered by insured from purview of insurance cover as contemplated
by clause 5.1 of Institute of Cargo Clauses, which formed part of insurance agreement. It was held that the
insurance amount should be paid with interest at 18% per annum.28.
27.2.2 Partial Losses
A loss which is not total, either actual or constructive, is called a “partial loss”. Partial loss may be anything short of
total loss, actual or constructive and may include; (a) general average, (b) particular average and (c) salvage
charges.
(a) General Average The term “general average” is used indiscriminately. Sometimes it is used referring to the loss
and at others to denote contributions. In Birkeley v Presgrave, the definition given by Lawrence LJ still remains a
standard definition. It states:
All loss which arises in consequence of extraordinary sacrifices made, or expenses incurred for the preservation of
the ship and cargo come within general average, and must be borne proportionately by all who are interested.29.
Sub-sections 1–3 of section 66 of both the Indian and the English Acts deal with the law of general average. It may
be noted that the right to general average compensation and liability for general average contribution are matters
absolutely and entirely independent of marine insurance. In the Brigella, Barnes J clearly states that the obligation
to contribute in general average exists between the parties to the adventure, whether they are insured or not.30. The
principles of general average were recognised long before the marine insurance law was known.31. The first three
sub-sections 1–3 of section 66 deal with these general principles. They state:
(1) A general average loss is a loss caused by or directly consequential on a general average act. It includes a
general average expenditure as well as a general average sacrifice.
(2) There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and
reasonably made or incurred in time of peril for the purpose of preserving the property imperiled in the
common adventure.
(3) Where there is a general average loss, the party on whom it falls is entitled, subject to the conditions
imposed by maritime law, to a rateable contribution from the other parties, and such contribution is called a
general average contribution.
Conditions for General Average Contribution In order to give rise to general average contribution the following
conditions should exist, namely:
Page 5 of 9
(i) The loss must be voluntarily incurred for general safety;

(ii) There must be real and imminent danger;
(iii) The motive must be for general safety;
(iv) Sacrifice or expenditure must be of extraordinary nature;
(v) It must have been judiciously incurred;
(vi) There must be saving of imperiled property and
(vii) The danger must not be attributable to the default of the person claiming contribution.
From the foregoing it may be seen that a general average loss arises either due to sacrifices or due to expenditure
incurred and this sacrifice or expenditure is called the “general average act” and the loss caused by it is called the
“general average loss”.
Sacrifice This may be a sacrifice of (a) ship, (b) cargo and/or (c) freight. In considering sacrifices of ship’s materials
it is always necessary to carefully ascertain whether the loss is caused by the ordinary and usual manner of using
the vessel or its appurtenances in which case it will not amount to a general average loss even though there is
excessive use. It must be an extraordinary use.32. If a master in times of peril puts any of her appliances or
appurtenances to a use for which they are not intended, eg, using a sail in order to stop a leak or voluntarily
destroying any part of the ship, say by cutting away the masts, spars and sails when the vessel is on her beam
ends in order to right her or the settling of a vessel in order to admit water to extinguish a fire, it amounts to a
general average loss. In the matter of sacrifice of cargo and freight, jettison provides the best example of general
average sacrifice. Jettison is throwing overboard of cargo, or the cutting or casting away of masts, spares, ragging
or sails, for the purpose of lightening the ship where the master feels that the ship is not worthy to carry the entire
burden. But jettison is normally used in signifying the throwing of cargo for the said purpose. Sometimes cargo may
have to be used as fuel when by extraordinary circumstances, the ship runs short of fuel in which case it amounts to
a general average sacrifice of cargo. Loss of cargo may also involve loss of freight and that also amounts to a
general average sacrifice.
Expenditure Another item for general average contribution is the extraordinary expenditure reasonably incurred for
the joint preservation of the common adventure in time of peril. There is a sharp difference between the English
common law of “general average” and the Continental law on the point. The English law treats only the expenditure
incurred for the attainment of safety while Continental law includes all expenditure incurred at the completion of the
adventure and thereby the English law is narrower than the rule which prevails in nearly all foreign countries. This is
also one of the reasons for the comment that the English law of general average is in a somewhat unsatisfactory
condition.33. The inconvenience is avoided by the inclusion of the foreign adjustment clause which makes either
some foreign law or the York-Antwerp Rules apply.34. The common examples of general average expenditure are
the amount paid for towage to a safe port, expenses incurred in entering into a port of refuge. The cost of salvage
operations also form general average expenditure where the expenses are necessarily incurred to complete the
adventure.
For incurring these extraordinary expenses, the master has been given a right to sell the cargo which is called
forced sale of cargo or by pledging the ship or/and cargo under a bottomry, or cargo only, under respondentia bond,
moneys under which are repayable to the lender after a certain agreed number of days after the safe arrival of the
vessel. If the vessel is lost before arrival at the destination, the lender loses his money and so the rate of interest is
generally high and the right to raise the money on respondentia is justified only when all the other means of
obtaining it, except by a forced sale of cargo, have been exhausted and in exercising this power the master is called
an agent of necessity. Such expenses when incurred become general average expenses but a forced sale of cargo
or raising funds by respondentia or bottomry do not arise in modern times after the invention of the cable.
Adjustment of General Average So far, we noted the losses and expenditure which give rise to general average
contribution. The party who suffers this loss of expenditure is entitled to a contribution from the others interested in
the adventure. It is the duty of the shipowner to arrange for the preparation of the adjustment and he generally
engages a professional average adjuster. The shipowner has a lien on the cargo for the contributions due in respect
of the general average. Generally he obtains a general average bond before he delivers the cargo. All the interests
which have been saved from destruction on the common adventure by the general average act contribute to
general average. The ship contributes on her value as saved by the sacrifice; the freight contributes on the net
amount of freight saved by the sacrifice and the cargo also contributes on its actual net arrived value at the port of
destination, after deduction of freight, if any, payable on delivery, and of such other expenses as must be payable
Page 6 of 9
by the cargo owner on delivery and which he would escape in the event of total loss. By this principle of general
average, the loss caused by sacrifice or expenditure must be so adjusted that the particular loser, may be ship,
freight or cargo must neither lose nor gain. In this respect it was held in The Brigella that if all the contributing
interests belonged to the same person there cannot be general average contribution;35. but this has been overruled
by the court of appeal in The Airlie36. and the Marine Insurance Act gave statutory recognition to this principle by
providing in its sub-section 7 of section 66 that where ship, freight and cargo or any two of those where the interest
is owned by the same assured, the liability of the insurer in respect of general average losses or contribution is to
be determined as if those subjects were owned by different persons.37.
Application to Insurance Whether insurance or no insurance the above principles of law apply when there is a
general average act. General average exists independently of marine insurance and its application to marine
insurance is governed by sub-sections 4–6 of section 66 of the Marine Insurance Act. There it is provided that in the
absence of express stipulation, the insurer is not liable for any general average loss or contribution where the loss
was not incurred for the purpose of avoiding, or in connection with the avoidance of, a peril insured against.38. If the
general average act is not one done with the object of avoiding a peril not insured against, though the assured may
be liable for the general average still the insurer will not be liable. Sub-section 4 provides that where the assured
has incurred a general average expenditure, he may recover from the insurer in respect of the proportion of the loss
which falls upon him and in the case of a general average sacrifice he may recover from the insurer in respect of
the whole loss without having enforced his right of contribution from the other parties liable to contribute. Sub-
section 5 provides that where the assured has paid or is liable to pay a general average contribution in respect of
the subject insured, he may recover therefor from the insurer. The two sub-sections are made subject to any
express provision in the policy. Thus, the party who suffered the loss is entitled to contribution from the others
interested in the adventure and the general average contribution may be recovered from the insurer if the loss has
been suffered in connection with the peril insured against. If the same person has more than one interest, the
contribution has to be calculated as though the different properties are owned by different persons.
(b) Particular Average Particular average, as distinguished from general average and total loss, is another type of
partial loss and is defined in the Marine Insurance Act as:
(1) A particular average loss is a partial loss of the subject-matter insured, caused by a peril insured against,
and which is not a general average loss.
(2) Expenses incurred by or on behalf of the assured for the safety or preservation of the subject-matter
insured, other than general average and salvage charges, are called particular charges. Particular charges
are not included in particular average.39.
A general average differs from a particular average in its nature and incidence. The former is a partial loss
voluntarily incurred for the common safety and made good proportionately by all parties concerned in adventure;
the latter is a partial loss, fortuitously caused by a marine peril, and which has to be borne by the party upon whom
it falls.40. The particular average loss may be on; (a) the ship, (b) the cargo and (c) the freight. If a vessel meets with
violent weather and damages the ship, it is particular average on ship. If sea water enters into the hold due to the
violent weather and damages the cargo, it is particular average of cargo. Again, if the cargo were to be sugar and
the sea water has caused a part of the sugar to dissolve, it results in loss of a proportionate part of freight to the
shipowner, it amounts to particular average on freight. Particular average loss is a partial loss of the subject-matter
insured where the loss is caused by a peril of the sea.
Partial Loss of a Ship In case of damage caused to the ship (but not the total loss), subject to any express
provision in the policy, the measure of indemnity is as follows:
(i) Where the ship is repaired, the assured is entitled to the reasonable cost of the repairs, less the customary
deductions, but not exceeding the sum insured in respect of any one casualty.
(ii) Where the ship has been only partially repaired, the assured is entitled to the reasonable cost of such
repairs, measured as above, and also to be indemnified for the reasonable depreciation, if any, arising
from the unrepaired damage, provided that the aggregated amount shall not exceed the cost of repairing
the whole damage, computed as above.
(iii) Where the ship has not been repaired and has not been sold in her damaged state during the risk, the
assured is entitled to be indemnified for the reasonable depreciation arising from the unrepaired damage,
but not exceeding the reasonable cost of repairing such damage computed as above.41.
Page 7 of 9
The Act provides for situations where the ship is repaired wholly or partially or where the ship is neither repaired nor
sold but the English Act provides for a case where the ship is not repaired but is sold in her damaged state during
the risk. The amount recoverable in such a case is ordinarily computed on the basis of the estimated reasonable
cost of repairs provided, however, that such estimated cost of repairs do not exceed the amount of loss as actually
ascertained by the sale, a factor which must necessarily be taken into consideration in determining the underwriter’s
liability.42. In India, section 69(4) of the Marine Insurance Act 1963, provides the same.
Partial Loss of Goods or Merchandise The Act provides that where there is a partial loss of goods, merchandise
or other movable property the measure of indemnity, unless otherwise provided in the policy, is as follows:
(i) Where part of the goods merchandise or other movables insured by a valued policy is totally lost, the
measure of indemnity is such proportion of the sum fixed by the policy as the insurable value of the part
lost bears to the insurable value of the whole, ascertained as in the case of an unvalued policy.
(ii) In the case of an unvalued policy, the measure of indemnity is the insurable value of the part lost,
ascertained as in the case of total loss.
(iii) Where the whole or any part of the goods or merchandise insured has been delivered in damaged
condition at its destination, the measure of indemnity is such proportion of the sum fixed by the policy in
case of a valued policy or of the insurable value in the case of an unvalued policy, as the difference
between gross sound and damaged values at the place of arrival bears to the gross sound value.
The “Gross value” is defined by section 71(4), as the wholesale price, or if there be no such price, the estimated
value, and in either case freight, landing charges and duty paid beforehand are to be added to arrive at it; in the
case of goods or merchandise customarily sold in bond, the bonded price is deemed to be the gross value. “Gross
proceeds” means the actual price obtained at a sale where all charges on sale are paid by the sellers.
Section 72 provides that where different species of property are insured under a single valuation, the valuation must
be apportioned over the different species in proportion to their respective values, as in the case of an unvalued
policy. The insured value of any part of a species is such proportion of the total insured value of the same as the
insurable value of the part bears to the insurable value of the whole ascertained in both cases as provided by the
Act. Section 18(3) of the Indian Act43. defined “insurable value” and the method of ascertaining the value is as
provided in section 71(1) read with section 18. Where a valuation has to be apportioned, and particulars of the
prime costs of each separate species, or description of goods cannot be ascertained, the division of the valuation
may be made over the net arrived sound values of the different species, qualities or descriptions of goods.
In adjustment of the particular average on cargo and calculating the liability of the insurer, two rules are laid down;
(a) only the prime cost or value has to be taken into consideration and (b) comparison must be made regarding
gross values and not the net values, that is, between the market value of the goods in sound condition and the
market value in the damaged condition without deducting transportation or any other charges. These rules are laid
down in Johnson v Sheddon, (1802) 2 East 58.
Partial Loss of Freight Freight is defined as the reward in money payable either for the hire of a vessel or for the
safe conveyance of cargo from one port to another. In either case, usually it becomes payable only on delivery to
the consignee in a merchantable condition. In order to earn freight not only goods must be delivered but they must
be delivered in a merchantable condition. Under the Marine Insurance Act subject to any express provision in the
policy, the measure of indemnity in case of partial loss of freight is such proportion of the sum fixed by the policy in
the case of a valued policy, or of the insurable value in the case of an unvalued policy, as the proportion of freight
lost by the assured bears to the whole freight at the risk of the assured under the policy. Arnould observed:
The rule for adjusting a partial loss on freight is very simple, namely that where the sum insured is less than the insurable
value of the interest at risk, the underwriter pays the same proportional part of the loss that the sum insured is of the
insurable value of the freight; if the sum insured equals the insurable value of the interest, then he pays the whole of the
loss.44.
Particular average is different from particular charges because particular charges are incurred in recovering or
preserving the subject-matter of insurance which can be recovered from the insurance company under “sue and
labour” clause.
FPA Clause Sometimes insurance is effected on FPA terms, that is, Free from Particular Average. In such cases
Page 8 of 9
the insurers will not be liable for particular average. But there is generally a clause laying down that the insurer will
be liable if the ship is stranded or sunk or burnt or in the case of goods if they are totally lost in loading or
transhipment or due to collision.
(c) Salvage Charges Salvage Charges are amounts paid to protect the vessel against additional loss. This could
be as simple as adding a barrier to a broken window or as complicated as a salvage company protecting the vessel
if grounded. For example when fire erupts in the ship to extinguish fire, the owner of the ship incurs certain
expenditure. This expenditure is called salvage charges. Insurer takes over the damaged property to reduce its loss
after paying the claim. Insurers receive salvage over property on which they have paid claims, such as badly-
damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures.

5. Cf The English Act, same sections.
6. 1987 ACJ 1095 (DB).
7. AIR 1952 Tra 58.
10. (1845) 9 CB 94, 103.
11. Section 62 of the Indian and English Acts.
12. Re The Bamburi, [1982] 1 Lloyd’s Rep 312.
13. Peacock Plywood (P) Ltd v Oriental Insurance Co Ltd, (2006) 12 SCC 673 : 2007 (4) ALT 12 (SC) : 2007 (1) CTLJ 53
(SC),
14. Section 61 of both the Acts.
15. Section 67(7) of both the Acts.
19. Stringer v Eng Marine Insurance Co, (1869) LR 4 QB 676 : (1870) LR 5 QB 599, 604.
24. GW Ry Co v Owners of SS Mostyn, [1928] AC 57.
25. Bihache J in Boston Corp v France Fenwick & Co Ltd, (1923) 28 Comp Cas 367.
26. Green LJ in Oceanic Steam Navigation Co Ltd v Evans, (1934) 40 Comp 111 Cas (CA).
27. Blane Steamships Ltd v Minister of Transport, [1951] 2 KB 965, 991(CA).
28. Metal Powder Co, Ltd, v Oriental Insurance Co, Ltd, (2014) 5 SCC771 : 2014 (4) Scale 641.
29. (1801) 1 East, p 228.
30. (1893) 8 Asp MLL 403Q.
31. Lord Blackburn in Aitchison v Lohre, (1879) 4 Asp MLC 169.
32. Wilson v Bank of Victorial, [1867] 2 QB 203.
33. Generally KS Selmer, The Survival of General Average, (1958).
Page 9 of 9
34. The present York-Antwerp Rules are of those of 1950. See also for this practice Australian Coastal Shipping
Commission v Green, (1971) 1 All ER 353 (CA).
35. (1893) 8 Asp MLC 403.
36. (1902) 8 Comp Cas 120.
37. The Indian Act, section 66.
38. Sub-section 6 of section 66 of both the Acts.
40. McArthur, The Contract of Marine Insurance, second edn, 1890, p 163.
42. Pitmand v Universal Marine Insurance Co, [1882] QBD 192, 218–19 (CA).
43. The English Act, section 16(3).
44. Arnould, Marine Insurance, pp 44, 101.
End of Document
28.1 Nature and Scope of Miscellaneous Insurance
Modern Law of Insurance, 6th ed > PART V Miscellaneous or Liability Insurance > CHAPTER 28
NATURE AND SCOPE OF MISCELLANEOUS INSURANCE
PART V Miscellaneous or Liability Insurance
CHAPTER 28 NATURE AND SCOPE OF MISCELLANEOUS INSURANCE
28.1 Nature and Scope of Miscellaneous Insurance

So far the classical and conventional types of insurance have been discussed in outline, namely, life, fire and
marine insurances. As has been noted earlier, the categories of insurance is not a dosed list and with the progress
of civilisation new types of insurance are emerging. In India, the Controller of Insurance publishes insurance data
according to the classification adopted by the Indian Insurance Act, 1938 as life, fire, marine and general or
miscellaneous insurance. "Miscellaneous Insurance business" is defined as:
The Business of effecting contracts of Insurance which is not principally or wholly of any kind or kinds included in clauses
(6-A), (ii) and (13-A).1.
This miscellaneous insurance is in England called "accident insurance" and in USA it is named as "casualty
insurance". Though this branch is of recent origin, as it covers a multifarious and varied variety of risks, with rapid
development and progress of civilisation) it has an enormous growth. The risks covered under this category can
further be broadly classified into three main categories, namely, risks concerning: (a) person (b) property and (c)
liability. The first two heads correspond to the classical classification of (a) life and (b) non-life or property or "fire
and man.n e ".m surance.
1. The Insurance Act, 1938, section 2 (13-B).
End of Document
28.2 Personal Accident Insurance

"Lifu insurance" and "insurance of the person" both deal with the persons only but wirh the difference that life
insurance involves death or attainment of a particular age of rhe person and any injuty short of dearh does not
entitle the insured to recover anything. But "insurance of the person" means insurance for individuals and groups of
persons against any personal accident or illness. In this type of insurance in India, the insurer is always the General
Insurance Corporation, while Life Insurance is the exclusive business of the Life Insurance Corporation. The risk
insured in “personal accident insurance” is the bodily injury resulting solely and directly from accident caused by
violent, external and visible means.
The liability of the insurer is to pay the capital sum insured stated in the Schedule of the policy, if such injury within
six small calendar months of its occurrence be the sole and direct cause of (a) death of the insured (b) total loss of
sight of both eyes or (c) of actual loss by physical separation of two entire hands or two entire feet, or of one entire
foot and one entire hand or (d) of such loss of sight of one eye and such loss of one entire hand or one entire foot.
The insurer has to pay 50 percent of the capital sum insured if such injury shall within six months of the occurrence,
be the sole and direct cause of the total and irrecoverable loss of (a) the sight of one eye or of the actual loss by
physical separation of one entire foot or one entire hand or (b) total and irrecoverable loss of use of a hand or foot
without physical separation. The policy also spells out the percentage of the injury resulting in loss to different parts
of the body like loss of all toes—20 percent; loss of hearing of one ear—15 percent; loss of hearing of both ears—
50 percent, etc. If the injury results in temporary disablement payment at a particular percentage of the sum
assured per week is provided. This is similar to the scheme provided by the Workmen’s Compensation Act, 1923.
Deceased employee was a truck driver. While driving the vehicle for long distance he felt uneasy and he parked the
vehicle safely and died soon after parking the vehicle. It was held that stress and strain involved in the nature of
employment being material contributory factor accelerating his unexpected death and an accident arising out of and
in the course of his employment and the insurer was liable.2. The liability of the insurer is restricted to the
employees of the insured and not to the employees of the hirer of the goods vehicle.3.
In such policies what is covered is the injury by accident. So if the insured dies a natural death due to disease or old
age or due to his intentional act like suicide he is not entitled to recover anything under the policy. Where an act
produces unintended, enforceable, and fortuitous consequences it is said to be an accident. The “Personal Accident
Policies” also contain exceptions like death, injury or disablement, directly or indirectly caused by, arising out of or
resulting from or traceable to (a) intentional self-injury, suicide, insanity or influence of intoxicating drink or drugs or
(b) in the case of women, by child-birth, pregnancy, etc.
28.2.1 Janatha Personal Accident Insurance Policy
The General Insurance Corporation recently introduced this scheme of Janatha Personal Accident Insurance
covering death or personal injury by accident for all persons within the age groups of 16–60 but has since raised it
to 10–65. It is similar to the Personal Accident Insurance Policy in regard to the types of compensation except that
the maximum limit for death or total disablement is set at Rs 15,000.
Page 2 of 2
2. Param Pal Sinngh through Father v National Insurance Co, AIR 2013 SC 974 : 2013(3) SCC 409.
3. Sanjeev Kumar Samrat v National Insurance Co, AIR 2013 SC 1125 : 2012 (12) Scale 77.
End of Document
28.3 Property Insurance

Property risks in the accident branch relate to burglary, house breaking, crop insurance, etc. Any property,
moveable or immoveable, present or future, vested or contingent can be insured from any losses by accidents other
than fire and marine adventure. A recent act covered by insurance is loss due to terrorist activities. The policy
covered risk of damage caused by act of terrorism. “Terrorism” means “an act having backing of organisation”
(Ejusdem generis). The insured suffered loss of goods due to robbery and it was held that it cannot be construed to
be an act of terrorism and the insured was not entitled to claim the loss.4. The most popular form of insurance in this
branch is “burglary insurance”.
28.3.1 Burglary Insurance
In this policy the risk of loss or damage in private dwelling houses by house-breaking and burglary and sometimes
by theft too is covered; and in business premises by house-breaking and burglary only is covered. When the
definition of the word “burglary” has been defined in the policy then the cause should fall within that definition. Once
a party has agreed to a particular definition, he is bound by it and the definition of criminal law will be of no avail.5.
The insured is liable to pay only when the moveable property insured is lost while it is in the premises described in
the Schedule. It may however be extended to the cases where the insured moveable property is temporarily
removed to some other premises. Cases of theft are not to be included in this type of policies when the insured
property is not in the dwelling houses but in business premises because these are generally within easy access of
the public. Insured had taken policy for his business in jewellery. The policy covered the risk of theft but in case the
jewellery is entrusted to any person by the insured and the jewellery is lost thereby then the insurer is not liable.
When the jewellery was entrusted to the customer who was an unknown person to the insured and when he
committed theft then the exclusion clause would not apply. When a customer enters into a jewellery shop the owner
or his agent may allow him to inspect the goods. For the said purpose, possession in the legal sense is not
handover and the owner or his agent does not lose complete control on the goods handed over to the customer and
hence exclusion clause was not applicable and the insurer was liable.6. Articles possessing sentimental value or
fancy value, sculptures, plans, models, etc, money and securities for money like bills of exchange, promissory notes
and cheques and documents of title are not included in the cover. The owner is entitled to insure his goods for full
value or a portion thereof. When he chooses the latter method he is deemed to be insurer for the balance and he
must bear the first portion of the loss and such a policy is called “First Loss Policy”. The rates of premium are higher
in this case than in a policy to cover the full value of the goods. He must also take a fire policy.
The complainant/respondent, who had taken a jeweller’s block policy, lodged a claim with the opposite party insurer
for loss of gold ornaments. The insurer repudiated the claim on the ground that the loss occurred when the gold
was in the custody of an apprentice, who was not an employee (because the policy stipulated that for
indemnification of the loss, the property insured had to be “in the custody of the insured, his partner or his
employee”). The National Commission allowed the complaint holding that an apprentice was an “employee” since
section 2(6) of the Kerala Shops and Commercial Establishment’s Act defined an “employee” to include an
“apprentice”. The Supreme Court, however, held that the word “employee” in the contract of insurance mentioned
Page 2 of 2
had to be given the meaning in common parlance. The definition in the local Act, including an “Apprentice” in the
category of “employee”, was only a “legal fiction”, which is a concept in law and could not be applied to an
insurance contract. The Court, there, allowed the appeal.7.
Ruling of National Commission that insured should give intimation to the insurer within 24 hours or 48 hours or 72
hours was held, is too narrow an interpretation. The “reasonable period” within which the insured should inform the
insurer about loss of goods would depend upon facts and circumstances of each case and no straight jacket
formula can be laid down to determine as to what would constitute “prompt notice” within contemplation of clause 9
of ICC. In the present case, long time gap of almost three months between the date when the appellant had been
informed about discharge of cargo at port other than the destination port due to leakage of insured barrels and the
intimation given by the appellant in respect thereof to the insurer was unreasonable and, by no stretch of
imagination, could it be construed as “prompt notice”. It was held that, conclusion recorded by the National
Commission that insurer was not liable to indemnify the appellant for alleged loss of cargo does not suffer from any
legal error.8.
4. Naqash Royal Arts v United India Insurance Co, AIR 2010 J&K 79 (DB).
5. United India Insurance Co Ltd v Harchand Rai Chandan Lal, (2004) 8 SCC 644 : 2004 (8) Scale 161.
6. National Insurance Co Ltd v Ishar Das Madan Lal, (2007) 4 SCC 105 : 2007 (4) JT 21 : 2007 (3) Scale 336.
7. New India Assurance Co Ltd, v Abhilash Jewellery, (III (2009) CPJ 2 (SC) : AIR 2009 SC 1827 : 2009 (2) Scale 1.
8. Silversons v Oriental Insurance Co, Ltd, (2013) 2 SCC (Civ) 383.
End of Document
28.4 Liability Insurance

Just as a person can insure himself against the risk of death and personal injury, or damage, deterioration or
destruction of property, it was realised that he can insure himself against the risk of incurring liability to third parties.
The liability to third parties may arise by his own conduct or in using his property, but still the risk of liability arising
out of the use of the property is not covered by an insurance of that property. Liability policies are generally
expressed as providing indemnity against “liability in law”. This phrase “liability at law” is invariably understood and
primarily used to cover liability arising out of negligence. The Court of Appeal held in A Swan Engg v Iron Traders
Mutual, [1989] 1 Lloyd’s Rep 289 that term covered besides liability in tort, the liability in contract under the Sale of
Goods Act. The liability of a building contractor to a third party arising out of the faulty design of a structure was held
covered though there is no negligence.9. In Mills v Smith, [1964] 1 QB 30 Paul J, held that the word “accident” in a
householders’ comprehensive insurance policy covered nuisance liability which had occurred without any
negligence on the part of the assured. This risk must be separately and specifically insured and that type of
insurance comes within the category of what is commonly called “liability insurance”. In this category come:
(i) public liability insurance,

(ii) liability arising in connection with professional negligence,
(iii) compulsory insurance,
(iv) employer’s liability insurance,
(v) guarantee insurance.
28.4.1 Public Liability Insurance
“Public Liability” here does not mean liability of the state or its agencies but means liability imposed by law as
opposed to self-imposed liability as in contract. The Public Liability Insurance Act, 1991, is intended to provide
immediate relief to the persons affected by accidents occurring while handling any hazardous substance and for
matters connected therewith and incidental thereto. This appears to be a sequel to the famous Bhopal Gas leak
case10.. Lloyds Standard policy generally covers liability arising from injury to body or damage to property. Again,
there may be occupier’s liability to invitees and licensees and these may be insured and these are included in
“Householder’s comprehensive policies”.11.
28.4.2 Professional Negligence
Lloyd’s have standard policies for professional indemnity cover for accountants, insurance agents, solicitors and
other lawyers abroad. Though there are no standard forms of policies, Lloyds and other British insurers cover all
other professional men also from risk to loss by their negligence. This type of insurance gained strength and
developed in view of the decision of the House of Lords in Hedley Byne v Heller, [1964] AC 465. Before this
decision, it was thought that a negligent statement made by a professional man to a stranger would not make him
liable in tort even if the statement was untrue and the stranger suffered damage by such negligent statement. The
Page 2 of 4
House of Lords in the above case negatived that idea and thus imposed a heavy liability on bankers, solicitors and
other professional men. In M Veerappa v Evelyn Sequevis, the Supreme Court took the opportunity, though the
matter did not yet directly arise in this case, to clarify some of the rights and liabilities of legal practitioners as
compared to that of the barristers in England. Speaking about Indian advocates the court observed:
No legal practitioner who has acted or agreed to act shall merely by reason of his status as a legal practitioner be exempt
from liability to be sued in respect of any loss or injury due to any negligence in the conduct of his professional duties.12.
This induced them to take insurance against this type of new liability. Lloyds were ready to provide cover for such
liability.13.
28.4.3 Compulsory Insurance
For the welfare of employees social welfare legislations have been passed both in England and in India making it
compulsory for employers to insure the safety of the workmen.14. The English Insurance Act, 1958 defines
“employers” liability insurance business as:
The issue of, or the undertaking of liability to pay compensation or damages to workmen in their employment but does not
include any business carried on as incidental only to marine, aviation and transit insurance business.15.
The English Act requires employers, with certain exceptions to insure with an authorised insurer or insurers their
liability for personal injuries sustained by employees arising from their employment.
The Indian Act16. makes it compulsory for the employer to insure his workmen by providing certain benefits to them
in the event of their sickness, maternity and employment insurance. Under this Act, a corporation is constituted to
administer the scheme under it. The corporation has a central board, a standing committee, a medical benefit
council and a court of its own. The Central Board consists of representatives of Central and state governments, and
of employers, workers and of medical profession. The Standing Committee acts as the executive of the Board and
in matters of administration of medical benefits, the medical benefit council gives advice. Employees state
insurance courts decide disputes and adjudicate on claims.
The employees insured under the Act with the corporation shall be entitled to: (a) sickness benefit, (b) maternity
benefit and (c) disablement and dependent’s benefit.
The funds for providing these benefits and for the administration of the scheme under the Act are derived mainly
from contributions from employers and workmen in the nature of premiums for their insurance.
28.4.4 Employer’s Liability
Though in olden days, the liability of the employer has been extended in law of torts by vicarious liability, in regard
to their liability towards the employees number of defences were recognised substantially reducing his liability
towards his employee. For example, the doctrine of common employment, the defence of volenti non fit injuria were
vital defences. But in due course of time, with the due development of industrial and labour welfare measures and
legislations, the liability of an employer was considerably extended. The employers are tempted to take out
insurances against such liabilities. A contract of insurance is to be construed in the first place from the terms used
in it. On a construction of the contract in question it is clear that the insurer had not undertaken the liability for
interest and penalty, but had undertaken to indemnify the employer only to reimburse the compensation and so the
insurer cannot be made liable to pay interest and penalty to the workmen unless there is a special contract between
the parties to that effect.17. The details of these Acts or even of Acts like the Employees State Insurance Act, 1948
in India fall beyond the scope of this book.
28.4.5 Guarantee Insurance
Guarantee business of insurance companies assumed great importance in modern times. Formerly this was done
by contracts of guarantee by which a friend or relative of the promisor or employee used to stand as a surety for the
due performance of the promise by the principal debtor or for the honesty of an employee. As the number of
contracts requiring guarantee increased, the promisor or employees were placed in a situation where it was easy to
secure a contract of business or employment but was difficult to find a surety. For lack of sureties, chances of
Page 3 of 4
business and employment had to be lost. In such a case insurance companies and Lloyds underwriters came
forward and, developed for themselves considerable amount of “guarantee business”. There are two methods by
which this guarantee was given, namely, (i) the insurance company or underwriter stands a surety for the due
completion of a contract or fidelity of an employee and (ii) or the underwriter insures the promisee or employer
against the loss arising by non-performance of the obligor or the dishonesty of the employee. The first type of
contracts are simple contracts of guarantee which have nothing to do with the law of insurance. It is only the latter
type of arrangements with which we are concerned. The chief types of policies included in guarantee insurance are:
(a) insurance for performance of contract, (b) insurance of debts and (c) fidelity policies.
Before dealing with these special types of guarantee policies, we have to distinguish an ordinary contract of
guarantee from a contract in a guarantee policy. A contract of guarantee is a contract to perform the promise, or
discharge the liability of a third person in case of his default, while a contract of guarantee insurance is a contract
whereby the insurer undertakes to indemnify the insured from the loss caused as a result of the breach of contract
or infidelity. The distinction between the two contracts is subtle. An insurance against liability is a contract of
indemnity. A surety promises a creditor that he will be paid while an insurer promises to indemnify him if he is not
paid. Payment by a surety discharges the principal debt while payment by an insurer does not effect it. Another
point of distinction in English law is that a contract of guarantee falls within the scope of section 4 of the Statute of
Frauds 1677 and therefore required to be in writing while contracts of insurance may be oral. The distinction
between the two is well stated in Seaton v Heath by Romer LJ as:
Contracts of insurance are generally matters of speculation, where the person describing to be insured has means of
knowledge as to the risk, and the insurer has not the same means. The insured generally puts the risk before the insurer as
a business transaction, and the insurer on the risk stated fixes a proper price to remunerate him for the risk to be
undertaken; and the insurer engages to pay the loss incurred by the insured in the event of certain specified contingencies
occurring. On the other hand...the creditor (in a contract of guarantee) does not himself go to the surety, or represent, or
explain to the surety, the risk to be run. The surety often takes the position from motives of friendship, and generally not as
the result of any direct bargaining between him and the creditor, or in consideration of any remuneration passing to him
from the creditor.18.
The learned judge also made it clear that the difference between the two contracts does not depend on the
nomenclature used by the parties to the contract but depends on their intention.19. Re Danton’s Estate20. in which
Romer LJ’s above statement has been approved by Vaughan Williams LJ provides an instance to show that though
the parties expressed the contract to be one of insurance it was held to be a contract of guarantee. The House of
Lords in Trade Indemnity Co v Workington Harbour Board where an insurance company executed a bond for the
performance of a contract for a money consideration held the contract to be a guarantee and not an insurance
policy.21.
Insurance for Completion of Contract The subject-matter of such contract is due performance of a contract. A
enters into a contract with B but doubts whether B would complete the contract. In such a case A may insure B’s
due performance of a contract. These are generally taken in cases of contracts of employment.
Insurance for Repayment of Debt A creditor may insure the repayment of a debt which he advanced or will
advance in future. Such policies sometimes cover non-payments from specified causes only and in such cases only
the causes for non-payment become relevant. When the creditor insures the repayment of a debt, on default by the
debtor, the creditor can straight claim the money from the insurer. The insurance being a contract of indemnity the
insurer will be subrogated, on payment to the insured, to all the rights of the creditor against the debtor. When a
bank took insurance policy and pays the premiums on behalf of the card holders, in case of accident and delayed
payment to the cardholder, it was held that the bank was liable to cardholder but not the insurance company, as
there was no privity of contract between the card holder and the insurance company.22.
Fidelity Policies These are the most common type of guarantee policies and are usually made for a term of one or
more years. These generally arise out of contracts of employment where the employee has an opportunity to be
dishonest. The risk covered is generally restricted to losses occurring while the employee is engaged in a specified
capacity. Even in the employment, the risk covered may vary according to the specific terms of the policy in each
case. For example, some are restricted to losses arising by “embezzlement” or “fraud”. These policies may be
combined with liability policies which are normally restricted to liability incurred through the negligence of the
employee while these policies are mainly intended to cover losses caused to the employer by the employee’s theft
or embezzlement of money or securities. For example, in Wasterman v Blackburn the plaintiff took a Lloyd’s policy
Page 4 of 4
of insurance by which he was insured against “loss or deprivation of bonds, debentures, stocks, scrips, shares,
transfers, certificates, coupons, warrants or other securities, cash, cheques, bank notes, bills of exchange,
promissory notes, or any documents of value by robbery, theft, fire, explosion, embezzlement, burglary or
abstraction, whether with or without violence, or any other loss whatsoever through theft or any other dishonesty”.
The plaintiff was induced by the employee by false representation to discount certain bills. The bills were
subsequently dishonoured and the plaintiff claimed the money loss caused by that dishonour from the insurers The
insurers were held liable as the policy covered losses by dishonesty.23.
Further, it may be noted that it is not necessary that the employee must be first prosecuted for embezzlement
before the insured can claim the money under the policy unless the policy expressly states so. Even if a declaration
is made that a periodic check of accounts will be there, it will not absolve the insurer from his liability simply
because there is a lapse in conducting such a periodic check; as such a declaration merely relates to his intention
at the time when it is made. A fidelity insurer like a fidelity guarantor is entitled to subrogation.
Health Insurance The insurer was entitled not to renew the policy when there was a pre-existing disease when the
cover was incepted for the first time ie, before taking the policy. During the currency of the policy in case the insured
had contacted or come to suffer a disease then the insurer should not exclude that disease and should not deny
renewing the policy”.24.
Mediclaim Policies The insurer refused to renew the policy on the ground that the insured was undergoing the
medical treatment. It was held that once policy was taken and it was being renewed from time to time then it
becomes a continuous phenomenon and the insured was entitled for renewal of the policy.25.
9. Wimpey Construction v Poole, [1984] 2 Lloyd’s Rep 499.

10. MC Mehta v UOI, AIR 1987 SC 1086.
11. Lloyd’s Calendar, 1970, p 60.
12. AIR 1988 SC 506.
13. Lloyd’s Calendar, 1970, p 56.
14. In England: National Insurance and National Insurance (Industrial Injuries) Act 1965; Employers Liability (Compulsory
Insurance) Act 1969; and in India: Employees State Insurance Act 1948.
15. The Insurance Act 1958, section 33(1).
16. The Employees State Insurance Act 1948, hereinafter called the Act.
17. New India Assurance Co Ltd v Harshadbhai Amrutbhai Modhiya, (2006) 5 SCC 192 : AIR 2006 SC 1926.
18. [1899] 1 QB 782.
19. Ibid.
20. [1904] 2 Ch 178(CA).
21. [1937] AC 1.
22. Sandhya Sah v New India Assurance Co, AIR 2004 Pat 42 : 2004 (2) PLJR 183.
23. (1926) 43 TLR 95.
24. United India Insurance Co Ltd v Manubhai Dharmasinbhai Gajera, (2008) 10 SCC 404 : AIR 2009 SC 446.
25. Dr T Suresh S/o Late T Muddukrishnaiah v The Oriental Insurance Co Ltd, AIR 2010 AP 86 : 2010 (1) ALD 536 : 2011
(2) ACJ 763.
End of Document
29.1 Nature and Scope
MOTOR VEHICLE INSURANCE
CHAPTER 29 MOTOR VEHICLE INSURANCE

A policy of motor vehicle insurance is, in the ordinary course, a combined insurance. It insures the damage to the
motor vehicle and its accessories, liability for damage to property, death of, or injury to, the assured himself or
spouse and it also insures the motor vehicle against the risk of liability for injury to, or the death of third parties
caused by the driver’s negligence. The last type of motor policies concerning “third party liability” or compulsory
insurance are discussed in the next chapter. The policies covering other types of risk or liability are similar to any
other property or life insurance policies.
This chapter deals with “the Property Accident Aspect”, that is, policies covering the damage to the motor vehicle
and its accessories and “personal accident aspect”, ie, policies providing indemnity for the death or injury to the
assured himself or spouse and his driver.
End of Document
29.2 Property Accident Aspect

In motor vehicle insurance, if the motor vehicle is insured, the owner will be indemnified for any loss or damage
caused to it by accident. Motor vehicle insurance being a contract of indemnity the insured is entitled to indemnity
only, and that too, in the manner stated in the policy. Medical expenses up to a limit are also payable. If the insured
car suffers damage the insurer is entitled at his option to repair or replace the car or any part thereof or pay the
amount of the loss or damage in cash not exceeding the sum insured or the value at the time of loss whichever is
less. It is not often easy to replace parts or accessories especially if it is a foreign vehicle or an outdated and out-
modelled vehicle. If the part is not locally available or is exorbitantly cosdy to obtain from abroad, the insurer often
limits the liability to paying in cash the catalogue price issued by the manufacturer or his agent in India together with
the cost of fitting such part.
The terms of the policy define the nature and extent of the indemnity provided by the policy. There are two types of
policies namely (i) the third party liability policy which is compulsory under the Motor Vehicles Act or (ii) a
comprehensive policy. It is said that “a motor car policy is a unique combination of several types of General
Insurance”. For example, a private motor car comprehensive policy indemnifies the assured against loss or damage
to the insured car by accidental external means, by fire, self-ignition, external explosion, lighting, frost, burglary,
house-breaking or theft, by malicious act.
Loss of a motor car means loss to the owner of the car. In Eisinger v GAFL, the owner sold his car and received a
cheque for its price and when the cheque could not be encashed he claimed indemnity from the insurer for the loss
of the car. The court held that the loss is only loss of the sale proceeds and not loss of the car and so the insurer is
not liable.1. On the other hand in Webster v General Accident Fire and Life Assurance Corpn, the insured gave it to
an auctioneer for selling it who put it for auction with a reserve price. It could not fetch that price. Taylor, a director
of the auction company falsely represented that he had a private offer for £335. The insured agreed for the price
and allowed the possession of the car with the company or Taylor. Taylor sent it to another auction signing the entry
form in his own name where it was sold for £285 to one Mr. Allis and eventually came into possession of one Mr
Fry. Taylor issued various cheques, to the insured which were returned marked “Account Closed”. Then the insured
tried to get the assistance of the Police there to get the car but in vain was and advised that it was hopeless for him
to try to get the car. Then the insured claimed under the policy. The court held, that when he has taken all
reasonable steps for recovery and failed to recover it amounts to a loss and the insurer is liable.2. In Moore v Evans,
Banks LJ said.
Mere temporary deprivation would not under ordinary circumstances constitute a loss. On the other hand, complete
deprivation amounting to a certainty that the goods could never be recovered, is not necessary to constitute a loss. It lies
somewhere in between these two extreme cases.
Commenting on this observation Parker J observed in Websters’ case:

Page 2 of 2
Every case depends on its own facts. An assured is not entitled to sit by and do nothing. Equally he is not bound to launch
into legal proceedings nor is it necessary to carry them to the House of Lords.3.
This reasoning may be assimilated to a situation of “constructive total loss” in marine insurance.
1. [1955] 2 All ER 897; contrast Dobson v General Accident, [1989] 3 All ER 927 where the same was held to constitute
“loss by theft”.
2. [1953] 1 QBD 665 .
3. [1971] 1 KB 458 , 468.
End of Document
29.3 Personal Accident Aspect

Besides ensuring his personal safety under an ordinary policy, the extension clause indemnifies the assured for the
injury caused to him whilst he is driving a motor car not belonging to him or hired to him and also any person driving
the insured car on the insured’s order or with his permission. Further, by paying extra premium he may get extra
cover over and above the general cover under the standard policy like, (a) accidents to his wife and other specified
relatives or friends and (b) loss or damage due to earthquake, flood, etc. The policy indemnifies the insured to the
use of the insured car. However, it is extended in two ways, namely; it extends to the insured not only when he is
driving his own insured car but also when he is driving a private motor car (but not a motor cycle) not belonging to
him nor hired to him.
The benefit of this extension is available only so long as he continues to be the owner of the insured car. In
Tattersall v Drysdale, where the insured sold away the insured car and thereafter while driving another car met with
an accident and claimed indemnity from the insurer. It was held that the policy ceased to have effect on the sale of
the insured car and he could no longer get any benefit of insurance under the policy.4.
It extends also to any driver, driving the vehicle on the insured’s order or with his permission.
By the extension clause, the insurer purports to indemnify the authorised driver. The indemnity is however, subject
to the terms, exceptions and conditions of the policy in so far as it they can be applied.5. The owner of an insured
car while giving it for servicing authorised the garage employee to drive the car at his convenience for the purpose
of warming the oil so that it could be drained out easily. After doing that, the employee took his family for a joy ride
and was involved in an accident. He claimed indemnity under the policy as a driver with permission, but the court
dismissed his claim because the permission did not extend to the driver when the accident occurred.6. In Kelly v
Cornill Insurance Co, a person insured his car in April 1959 and allowed his son to drive it. He died in June 1959.
The son continued to drive the car and caused an accident in 1960 and claimed indemnity under his father’s policy.
The insurance company contended that the permission lapsed automatically with the death of the father. The
House of Lords, allowing the claim, observed that in the absence of any express provision in the policy, there was
no reason to hold as a matter of law that permission should automatically cease on the death of the owner granting
the permission. Permission continues until it was proved that it is terminated.7. The authorised driver is also deemed
to be an insured and in such cases the owner of the car is the primary insured and the driver also is insured. This
became important in the interpretation of an exception in the policy. The owner of the car insured it with the usual
extension clause extending the cover to the authorised driver. The policy excluded liability to persons in the
employment of the insured. When an employee of the owners was riding in the car driven by an authorised driver,
she was injured by negligence of the driver. She obtained damages against the driver. The driver claimed indemnity
from the insurer and the court decreed the claim on the ground that the victim is not an employee of the driver.
Some of the usual conditions in a motor vehicle policy to make the insurer liable are; (a) the insured will maintain
the vehicle in a good state of repair and efficient condition; (b) he takes all reasonable steps and precautions to
avoid accidents and to select competent and sober drivers etc; and (3) he takes all reasonable steps to safeguard
Page 2 of 2
the car from loss or damage. In Liverpool Corpn v Marsh Granthvaite, where accident was due to defective brakes
the insurer was held not liable;8. similarly when the loss was due to want of foot brakes9. or the front tyres were
devoid of any trace of tread when the vehicle was taken on icy ground10. or the vehicle was unroadworthy and in a
dangerous condition11. it was held that the insured did not maintain the vehicle in a good state of repair and
effective condition. When any condition of the policy is breached by the insured, the insurer is absolved from his
liability to indemnify such an insured.
4. [1935] 2 KB 174.
5. See for words, terms, conditions and exemptions—Standard form of comprehensive policy—Appendix.
6. Browning v Pliaxis Insurance Co, [1960] 2 Lloyd’s Rep 360.
7. [1964] 1 All ER 321 (HL).
8. Richards v Cax (1942) 2 CA 624.
9. [1964] 2 Lloyds Rep 219.
10. Jones v Provincial Insurance Co, 32 LIR 135.
11. Brown v Jurich General Accident, [1954] 2 Lloyd’s Rep 243.
End of Document
30.1 Introduction
MOTOR VEHICLE INSURANCE ABSOLUTE OR NO FAULT LIABILITY
CHAPTER 30 MOTOR VEHICLE INSURANCE ABSOLUTE OR NO FAULT LIABILITY
30.1 Introduction
A comprehensive motor policy covers not only the above two types of risks but also liability to third parties
discussed in the next chapter. With regard to all types of liability, the following two principles namely, knock for
knock agreements (kk) and no fault liability apply.
End of Document
30.2 Knock for Knock Agreements
MOTOR VEHICLE INSURANCE ABSOLUTE OR NO FAULT LIABILITY
CHAPTER 30 MOTOR VEHICLE INSURANCE ABSOLUTE OR NO FAULT LIABILITY

If there are other insurances on the same vehicle, the insurer is liable to pay only a rateable proportion. Similarly,
when two motorists, insured under comprehensive policies, are involved in a motor accident, both may be liable.
Both cases involve doctrines of subrogation and contribution involving costs and multifarious litigation. To avoid this
complication, the insurers enter into agreements known as “knock for knock” agreements. The knock for knock
agreement is meant to simplify the settlement of such claims. It is an agreement between both the insurers that
irrespective of whoever was responsible for the accident, provided the liability is covered under the policy, each
insurer will indemnify his insured in respect of the damage to the vehicle insured by it and will not enforce
subrogation rights. In Hobbs v Morlowe, approving Morley v Moore it was stated that the existence of a knock for
knock agreement between insurers does not deprive the insured of his rights of action against the wrongdoer for the
full amount of the damage suffered by him.1. The wrongdoer cannot urge that the plaintiff has already been
indemnified by the insurer.
On similar lines “third party sharing agreements” are entered into under which each will share equally the third party
costs and damages. But their “knock for knock” and “third party sharing” agreements have lost their relevance in
India, to a large extent by the nationalisation of general insurance in 1972.
30.2.1 No Fault Liability
The Motor Vehicles Act, 1939 provided for compulsory insurance for the loss or damage to the person on property
of the third person when the owner of a motor vehicle is made liable for the accidents, caused by their drivers on
the principle of vicarious liability. The Act was amended from time to time, and by the Amendment Act 47 of 1982
which came into effect from 1 October 1982 a new chapter was introduced, Chapter (sections 92A–92E) creating
no fault liability. Later when the original Act was repealed and replaced by the Motor Vehicles Act, 1988 the same
provisions have been re-enacted under Chapter 10 (sections 140–44) under the head “liability without fault in
certain cases”.
The original Motor Vehicles Act, 1939 was intended to secure speedy and certain remedy for a third party who
suffers loss or damage by an accident on a public road. In all types of motor policies there is a recital that the
insurers promise to indemnify the assured, subject to the terms, exceptions and conditions in the policy. Though
Chapter 8 of the original Act, 1939 makes motor insurance compulsory and imposes certain conditions, in other
respects it leaves the law of liability and the parties to make their own bargain. What is covered by the policy is only
the liability of the owner to third party. The liability of the owner is again left to be determined by the general law. In
law of torts, which deals with cases of negligence, the plaintiff to make the defendant liable must show that there is
a breach of duty to take care and even in such cases defences like common employment, volenti non fit injuria,
contributory negligence are provided which involve technicalities. Except in the cases covered by rule in Rylands v
Fletcher called a case of “absolute or strict liability” in all other areas the above defences which involve technical
difficulties like evidentiary difficulty are accepted. To avoid these difficulties in the liability of an employer to his
employee victim, the Workmen’s Compensation Act was passed abolishing the above defences making the liability
of the master, the employer, a strict liability case thus rendering him almost an insurer for the safety of his workmen.
Based on that principle, a similar advantage is conferred on the motor vehicle victim. It also provides a speedier
Page 2 of 4
remedy than the one provided in original Chapter 8 of the Motor Vehicles Act, 1939 which itself is intended to
provide a speedier remedy than a remedy in an ordinary civil court. Civil proceedings in ordinary civil courts, as is
known, are proverbially legally, dilatory and cumbrous, and the path of litigant is strewn with pitfalls and he is lucky
if he touches the goal.
The substitution of the claims tribunal in place of civil courts though intended to provide an immediate and instant
remedy was also, equally time taking and there was inordinate delay in granting compensation to the motor vehicle
victims. In a large number of cases the time taken for passing a final award was over a decade and another decade
was spent in execution. In Gobald Motor Service v Veeraswamy, AIR 1962 SC 1, the accident was in 1947 and the
final decision of the Supreme Court was in 1961 and for execution some more time must have been taken. In Delhi
Municipal Corporation v Subhagavanti, 1966 ACJ 57 (SC), the accident was in 1951 and the decision of the
Supreme Court was after 14 years, in 1965. Jogendra Kumar v Punjab State, 1969 ACJ 28 highlights the pitiable
plight of the helpless dependants when the breadwinner of the family is killed or permanently disabled. In this case
the victim who died was 23 years of age and the dependants on him were his destitute woeful wife of 21 years age
and a helpless child 8 months old who had to litigate for a decree against odds. The Supreme Court repeated its
warning in Motor Owners Insurance Co v Modi, AIR 1981 SC 2059 that the time is ripe for serious consideration of
creating “no fault liability” by echoing the observation in Manjursri Raha v BL Gupta, AIR 1977 SC 1158 referred in
AIR 1994 Ori 17.
The motor vehicle in a public place has become a lethal weapon on the road covering unmitigated dangers to the
public. The unending erosion of population and ever increasing number of motor vehicles emerged an ultra-modern
age which has led to strides of progress in all spheres of life, and we have switched from fast to faster vehicular
traffic witnessing the incidence of death toll per 1000 vehicles in India 10–5 times more than that of UK or USA
according to a WHO report published even in October 1975 and now it must have increased beyond believable
limits. So the legislature rightly thought to provide an immediate remedy without any discussion about fault of the
owners of the motor vehicle and so provided this absolute liability.
It is provided that where death or permanent disablement of any person has resulted from an accident arising out of
the use of a motor vehicle or motor vehicles, the owner of the motor vehicle shall, or, as the case may be, the
owners of the vehicles shall, jointly and severally, be liable to pay compensation provided in the Act in respect of
such death or disablement.2. The expression use of motor vehicle applies when the vehicle is in motion or is static.3.
A static vehicle car may also be the cause of an accident. The amount of compensation payable under section
140(2) in respect of death of any person is Rs 25,000 and that in respect of total disablement shall be a fixed sum
of Rs 12,000.4. The wording used in this section and section 168 is distinct under this section and the amount
mentioned must be paid. It cannot be dismissed on the ground that the deceased were stealing petrol at the time of
the accident.5.
The amount of compensation fixed in the 1982 Amendment under section 92-A is only Rs 25,000 for death and Rs
12,000 for permanent disability. But by an amendment by Act 54 of 1994 the amount has been raised to Rs 50,000
and Rs 25,000 respectively with effect from 14 November 1994. There is a conflict of judicial opinion as to whether
it is retrospective. Section 92A now section 140, is a substantive law and not merely procedural and so, has no
retrospective effect.6.
On the other hand, some courts held that the benefit of an amendment applies to pending cases being a beneficial
provision;7. the new Act applies to cases which are in force on the date of the decision though the accident occurred
before amendment. Where there is change in law during the pendency of appeal, the changed law applies.8. In a
claim under section 92A (now section 140) in view of the overriding effect of section 92E (now section 144) the only
defence available was that the vehicle is not insured.9.
In fixing these amounts, the Act departs from that adopted in the Workmen’s Compensation Act. In the latter Act,
the amount of compensation payable is higher than that for death. The rationale behind the Workmen’s
Compensation Act seems to be that the amount so received is to maintain the victim permanently disabled and his
dependants while in case of death, the amount is only for the benefit of the dependants of the victim who may have
other sources of income. Sub-section (3) provides that the claimant shall not be required to plead and establish that
the death or disablement in respect of which the claim is made was due to any wrongful act, neglect or default of
the owner or owners of the vehicle or vehicles concerned or of any other person. This section makes the liability
imposed under sub-section (1) absolute; whether fault or no fault, the owner of the vehicle is made liable to pay this
amount. Thus, this liability is made strict liability. In such cases, the rule in Rylands v Fletcher will apply.10. The
claim under this section is made indefeasible. Even if proper parties are not added and even if a passenger is taken
gratuitously, the claim must be allowed.11. The liability to pay is made “a joint and several” one for the advantage of
Page 3 of 4
the victim. He can demand from any one or some or all of them where there are more than one vehicle owners
involved. Further, it is stated that this claim for compensation is indefeasible and irreducible by reason of any
wrongful act, neglect or default of the claimant.12. The payment of compensation is made certain, expedient and
expeditious by dispensing with the necessity of proving any fault on the part of the payer and by providing immunity
debarring any defences against the receiver of the compensation. The claimant is favoured both ways.
A separate application is not referred for granting the amount under section 140. When an application under section
66 is pending, the Tribunal suo motu can grant this compensation.13. No trial is necessary if it is satisfied prima facie
that death or permanent disablement was caused due to an accident by a motor vehicle, the Tribunal has to grant
this compensation immediately.14. A medical certificate from a doctor that the injury amounts to permanent disability
is sufficient. There is no necessity of detailed inquiry.15. If no permanent disability is caused an order granting relief
under section 92A is not valid.16. Minimum amount payable for loss of life in the absence of other evidence is that
amount fixed by the Parliament.17. The Tribunal is not rectified in rejecting appeal on the ground that deceased was
travelling unauthorisedly which must be decided at a fixed hearing.18.
The amount provided as compensation either for death or disablements is comparatively small; but it may be noted
that it is an interim, immediate and expeditious remedy tentatively provided before the claimant can recover the
exact compensation receivable by him under any other law.
This is made clear by providing that the right to claim this fixed amount shall be in addition to, but not in substitution
of any other right to claim compensation in respect thereof under any other provision of the Motor Vehicles Act or
any other law for the time being in force.19. The victim is advised to claim the two reliefs in the interim provided in
section 140 of the Motor Vehicles Act called the “Right of the principle on fault” or no fault and the general relief
provided in any provision of the Motor Vehicles Act or any other law for the time being in force called the “right on
the principle of fault”. When both claims are preferred it is provided that the former under section 140 Motor
Vehicles Act, 1988 shall be disposed of as expeditiously as possible in the first place.20. When the general claim is
preferred and it is decided to award a larger sum than that provided in section 140 the balance only is to be paid
and if the amount is equal to or less than the said amount the owner having paid the fixed amount need not pay
anything nor can he claim refund from the said amount.21. In case the insurer insists that the cheque should be
given by the insured and not by any third party, then the cheque should be issued by the insured only, otherwise the
insurer can refuse to accept the cheque. In these circumstances when the accident occurred it was held that the
Insurer should pay the compensation to the third party and recover the same from the vehicle owner.22.
“Permanent disablement” for this purpose is defined as:
(a) permanent privation of the sight of either eye or the hearing of either ear, or privation of any member or
joint; or
(b) destruction or permanent impairing of the powers of any member or joint; or
(c) permanent disfiguration of the head or face.23.
For arriving at a finding of permanent disability, percentages of injuries need not be counted. It has been held that
where it is proved that a person lost two teeth, it is sufficient to grant Rs 15000, under section 140.24. These
provisions shall have effect notwithstanding anything contained in any other provision of the Motor Vehicles Act or
any other law for the time being in force.25. When any death or permanent disablement occurs in cases coming
under the Workmen’s Compensation Act, the provisions of that Act with the necessary modifications be deemed to
form part of that Act.
The High Court cannot issue an order in writ against an order of the Tribunal.26. If the claimant claims both under
“faulty liability” and under “no fault liability” if the amount due under the former court is greater, the order is liable to
pay the balance.27.
A claimant who is a woman has a right to choose to approach for compensation either the commissioner under the
Workmen’s Compensation Act, 1923 or the claims tribunal under this Act.28. Section 143 (section 93D under the Old
Act) makes it clear that this chapter applies to claims under the Workmen’s Compensation Act, 1923 also.29.
1. [1977] 2 AC 241 (HL).

Page 4 of 4
2. Motor Vehicles Act 1988, section 140.

3. Shivaji Dayanu Patil v Vatschala Uttam More, AIR 1991 Bom 436; State of Assam v Pravesh Debrath, 1993 ACJ 22
(Gau), followed AIR 1991 SC 1769 : 1991 ACJ 777(SC).
4. Motor Vehicles Act 1988; section 140(2).
5. Shivaji Dayanu Patil v Vatschala Uttam More, AIR 1991 Bom 436.
6. Bhagwandas v National Insurance Co Ltd, AIR 1991 MP 323; Shaffia Bee v B Sattar, AIR 2000 Mad 167; Prakash
Chandramal Khatri v Suresh Pahilaji Rai Mahya, AIR 1991 Bom 165; Rammurthy Gupta v MS Ibrahim, 1985 ACJ 476
(All); Arunkumar Rustogi v Chandra Kumar, 1987 ACJ 149 (All); United India Insurance Co Ltd v Ghamu Bai, 1993 ACJ
324 (KP); New India Insurance Co Ltd v Nafis Begum, AIR 1991 MP 302 (DB); Oriental Insurance Co Ltd v
Lakshmaiah, 1997 (3) All LT 813; G Saramma v Md Gabbar Sharif, 1997 (1) All LT 299; New India Insurance Co Ltd v
Janaki Devi, 2000 ACJ 587; DM New India Insurance Co Ltd v Nandara Baura, AIR 1996 Ori 54; National Insurance Co
Ltd v Usha Devi, 1993 (2) ACC 80; APSRTC, Hyderabad v Aziz Unnissa Begum, 1993 (3) Andh LT 154.
7. TY Sreenivasulu Reddy v E Govardhan Reddy, AIR 1990 AP 289(DB).
8. Rajasthan SRTC v Igam, AIR 1992 Raj 61; Oriental Fire Insurance Co Ltd v Shantabai S Dhone, AIR 1987 Bom 52
(relied on Lakshminarayan Gauri v Narayan Modar, AIR 1985 SC 111).
9. Divisional Manager, New India Insurance Co Ltd v Nandara Bawa, AIR 1996 Ori 54.
10. Kausumanu Smt v New India Assurance Co Ltd, (2000) 1 SCJ 1.
11. Samathi Dev Varma v State of Tripura, 1987 ACJ 205 (Guj); Ravikumar v Rama Prakash, AIR 1989 Del 261.
12. Mano Devi v Chander Singh, (1993) 2 ACC 574 (Pand H); New India Insurance Co Ltd v Sarada Devi, AIR 1989 Pat
203.
13. Mashila Ram Devi v Nanda Kumar, AIR 1988 MP 98.
14. Vimala S v Chikka Hanumanthiah, AIR 1999 Kant 150; Harishbhai Chamanlal Panchal v Dayavan Gayantilal Panchal,
AIR 1999 Guj 33; United India Insurance Co Ltd v Marie Sharigarthi, 2000 ACJ 182 (Kant); New India Assurance Co
Ltd v Dayali, 2000 ACJ 295 (MP); Lata Jain v Shyamlal, 1986 Raj LW 49; Baban Tiwari v Ushan Ranjan Chakravarthy,
1987 (2) Gau LR 155; National Insurance Co v H Anjali Mathe, (1993) 2 ACC 543 (Cal) (DB); Sivju Dayanu Patel v
Vatschala, AIR 1991 Bom 436.
15. Ashok v Ashok Singh, AIR 1995 MP 201; Krishna Pillai v Galeel Ahmed, AIR 1989 Ker 283 (DB); Dwarika v Buss, AIR
1990 MP 258.
16. Surabh Kumar Shifala v Hukumchand, AIR 1998 MP 144 (DB); Rajesh v Dalip, AIR 1999 MP 66; Suresh Babunath v
Hargovinda Bathan, AIR 1985 MP 82.
17. Devji v Anwar Khan, 1989 ACJ 567; Bhagwandas v National Assurance Co Ltd, AIR 1991 MP 135.
18. Md Ilias v Bodhini Bai, AIR 1991 MP 5; Bhagwandas v New India Insurance Co Ltd, 1993 ACJ 257.
19. Motor Vehicles Act 1988, section 141(1).
22. National Insurance Co Ltd Yellamma, (2008) 7 SCC 526 : AIR 2008 SC 3145.
23. Motor Vehicles Act 1988, section 142.
24. Santosh Kumar v Sanjay More, AIR 1999 MP 62; National Insurance Co v Sasilatha, 2000 ACJ 661; Nagappa Manohar
v New India Insurance Co Ltd, 1999 ACJ 1128 (SC); Karnataka SRTC v R Sethuram, 1999 ACJ 1278(SC); KR Tandon
(Mrs) v Om Prakash, 1999 ACJ 1299(SC);Jamunabai v Deepak Automobiles, 1999 ACJ 1330 (SC); Nandakumar
Vishnu Narka v Maharashtra SRTC, 1999 ACJ 1388(SC); K Narayanaswamy v Mukund, 1999 ACJ 1599(SC); Sneha
Dutta v HP Road Transport Corpn, 1999 ACJ 1589(SC).
25. Motor Vehicles Act 1988, section 144; GSRT Corp Ahmedabad v Rukmabai, AIR 1987 SC 1690.
26. New India Assurance Co Ltd v Motor Accident Claims Tribunal, 1993 ACJ 413 (J&K); contra Renuka Bai v Jay Prakash
Shetty, 1993 ACJ 339 (MP).
27. Cherukury Venkateraju v Pareesa Reddy, 1994 (2) ALT 653.
28. Oriental Insurance Co Ltd v Guru Charan Singh, AIR 1991 Ori 294.
29. Divisional Manager, New India Assurance Co v Narendra Bahra, AIR 1996 Ori 54.
End of Document
THIRD PARTY OR COMPULSORY INSURANCE OF MOTOR VEHICLES
CHAPTER 31 THIRD PARTY OR COMPULSORY INSURANCE OF MOTOR VEHICLES

In law of torts, if a person negligently drives his vehicle and causes injury or death to a third party, the driver whose
negligence caused the damage is liable to the third party. The driver is a servant of the owner of the vehicle and the
actual delinquent, the driver is often a person of no means and so common law recognised vicarious liability of the
owner of the motor car. The master is liable for the tortious acts of the servant provided the servant does such act in
the course of his employment. In Pushpabai Sudershin v Ranjit G and P Co, it was held that the determining factor
so far as the liability of the master for the act of his servant is concerned in whether the act was committed by the
driver “in the course of his employment” or not and that it does not depend on the lawful or unlawful nature of his act
or whether or not he acted against the express instructions of his master or in violation of the rules framed under
the statute.1. This rule of the Supreme Court was applied in Prithi Singh v Brindaram where the driver has carried a
passenger in contravention of rule 4.60 of the Punjab Motor Vehicles Rules, 1940.2. In the following case the driver
acted in violation of the instructions but still the master is made liable.3. In Imperial Chemical Industries v Shotwill,
Lord Pearce observed:
The doctrine of vicarious liability has not grown from any very clear logical or legal principle, but from social convenience
and rough justice.4.
The policies dealt with in this chapter are those concerned with liability of the owner to third parties for causing them
injury or death by the use of the motor vehicle. The Motor Vehicles Act, 1939, in its Chapter 8 deals with this branch
of liability insurance. This is another important branch of liability insurance and is made compulsory. It is regulated
by the Motor Vehicles Act, 1939, Chapter 8 containing sections 93–111A. This Act has largely reproduced the
provisions of the English law embodied in the Road Traffic Acts, 1930 and 1934, the Road Transport Lighting Act of
1937 and the Third Parties (Right Against Insurance) Act of 1930, which were consolidated in the Road Traffic Act,
1960, now replaced by the Board Traffic Act, 1972. A new chapter, Chapter 7A was introduced providing for
“Liability without fault in certain cases” (sections 92A–92E) under the Amending Act of 1982, which came into force
on 1 October 1982. The entire Act was repealed and replaced by the present Motor Vehicles Act, 1988. The
present Act, 1988 splits Chapter 7 of the old Act into two chapters, namely “Insurance of Motor Vehicles Against
Third Party Risks”, Chapter 9 (sections 145–63) and “Claims Tribunals” (sections 165–76). The old Chapter 7A is
now numbered as Chapter 10 (sections 140–44) under the head “Liability to pay compensation on the principle of
no fault”. The purpose of this chapter is to protect the public.5.
The contract in this type of policy also, like any other contract of insurance, is one of indemnity. The object of this
type of policy is to protect the insured against his liability to third parties arising out of an accident caused by the
use of a motor vehicle on a public road and it is also made compulsory. The general effect of the Act is that every
person who runs a motor vehicle is under a duty not to use or to cause or permit any other person to use it on a
road unless any liability, which may be incurred thereby in respect of the death or bodily injury to any person
caused by or arising out of this user is covered by a policy of insurance. Section 146 of the Motor Vehicles Act,
1938 says that no person shall use except as a passenger or cause or allow any other person to use a motor
vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or other person,
Page 2 of 11
as the case may be, a policy of insurance complying with the requirements of that chapter. Third party insurance is
a must for running a motor vehicle in a public place.6.
Persons required to be insured are: (a) who uses a motor vehicle except as a passenger, ie, the driver of the
vehicle and (b) one who causes or allows any other person to use a motor vehicle. Under the second category
come not only the permanent owner of the vehicle but even one in possession of the vehicle under a contract of
loan or hiring, or even owner for the time being and they are required to insure the vehicle under this section.7.
Section 125 of the Act provides a punishment for driving an uninsured motor vehicle by stating that whoever drives
a motor vehicle or causes or allows a motor vehicle to be driven in contravention of the provisions of section 146
shall be punished with imprisonment which may extend to three months or with fine which may extend to Rs 1000
or with both. Explanation of sub-section 1 of section 146 provides that a person driving an uninsured motor vehicle
merely as a paid employee, shall not be deemed to act in contravention of the sub-section unless he knows or has
reason to believe that there is no such policy in force. A public vehicle cannot ply without a permit and the rules
framed by the state governments prescribe in the insurance certificate a condition precedent for the insurance of a
permit. The section enjoining a refusal of a permit or providing conviction of a driver contains the following
ingredients:
(i) It applies to any person other than a passenger;

(ii) What is prohibited is the user by himself or allowing another person to use;
(iii) Such use should be a motor vehicle;
(iv) Such vehicles should be used in a public place;
(v) The using or causing of use by the other person should be without a policy of insurance;
(vi) The policy of insurance should comply with the provisions of the Act.
31.1.1 Persons Governed
It applies to all persons. It includes any company or association or body of individuals, whether incorporated or not.
The duty imposed under the section is absolute, it does not matter whether such person has knowledge or not of
the fact of having a valid licence. The only category of persons exempted from this duty are the passengers. Then
again an explanation is added according to which a qualified exemption is provided in favour of a paid employee
who drives the vehicle. The explanation states that a driver should not drive an uninsured vehicle with the
knowledge that the vehicle is not insured. If he has no knowledge he is not liable. Further clause 2 of section 146
exempts the government vehicles from being insured, when used for state government purposes unconnected with
any commercial enterprise. The appropriate state governments are empowered to grant exemption with certain
conditions in the case of government vehicles used obviously for non-governmental functions.8. Normally the duty
imposed by the section is on the owner of a vehicle; because generally an owner uses his vehicle or causes or
allows it to be used on a public road.
31.1.2 He Shall not use or Allow any Other Person to use a Motor Vehicle
This section uses the word “use” while section 125 uses the word “drives”. The expression “use of a motor vehicle”
includes driving of a motor vehicle and so “user” here is of a wider connotation. The word “use” indicates that the
vehicle need not be capable of being driven as such a vehicle, if it is on public road, and can be moved around is
also a potential danger to the public.9. A person may send his vehicle for fetching something for him and in such a
case he uses the vehicle though he is not within the vehicle. The word “allows” is also used in a wider sense. This
permission need not be by the owner alone. It can be granted by any person who has even care, management or
control of a vehicle.
31.1.3 The Vehicle must be a Motor Vehicle
The Act defines a motor vehicle as any mechanically propelled vehicle adopted for use upon roads whether the
power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a
body has not been attached and a trailer, but does not include a vehicle running upon fixed rails or a vehicle of
special type adopted for use only in a factory or in any other enclosed premises.10. The manner of propulsion
determines whether a vehicle is a motor vehicle or not. If it is propelled by human or animal force it is not a motor
vehicle; but a vehicle which is ordinarily propelled or intended or adapted for non-mechanical propulsion becomes a
motor vehicle if in any circumstance it is in fact mechanically propelled.11. The Act refers to many types of motor
Page 3 of 11
vehicles such as goods vehicles,12. heavy transport vehicles,13. invalid carriages,14. light transport vehicles,15.
locomotives,16. motor cabs,17. motor cars,18. motor cycles,19. public service vehicles,20. state carriage tractors,21.
trailers22. and transport vehicles.23. All these are included in the definition of a “motor vehicle” unless any item is
expressly excluded. The question whether a bicycle fitted with an auxiliary engine used as a pedal cycle requires
third party insurance is subtle. It was held that when it was used as a pedal cycle after removal of the cylinder
piston and connecting though there was some petrol in the tank does not come within the definition of a motor
vehicle.24. On the other hand though the rider was only using the pedal system if its attached engine is in a working
condition it required licence and third party insurance.25. Auto rickshaw falls within the definition of motor cab as it is
a vehicle with a limitation of carrying two passengers only.26. The definition of “motor vehicle” expressly includes a
chassis and a trailer but expressly excludes two types of vehicles namely, vehicles which run on fixed rails, eg, a
train or a railway trolley and vehicles adapted for use only in a factory or in any other enclosed premises. A vehicle,
otherwise a motor vehicle, when used upon the owner’s premises, which is not a public place will not attract section
94(1).
31.1.4 The Use Must be in a Public Place
Public place has been defined as a road, street, way or other place whether a thoroughfare or not, to which the
public have a right of access, and includes any place or stand at which passengers are picked up or set down by a
stage carriage.27. The Indian definition includes a bus-stand, a taxi-stand, etc, whether they are private or public
sites. It is its user that makes it a public place. In Pandurang v New India Life Insurance Co, the question whether a
private road or a private place to which the public have a permissive access would be a “public place” within the
meaning of section 2(24) as well as section 95 (new section 2 (34) and section 147 of the 1988 Act), was answered
in the affirmative. The court held:
The right of access may be permissive, limited or restricted or regulated by oral or written permission or on payment of
fee...what is necessary is that the place must be accessible to the members of the public and be available for their use,
enjoyment, allocation or other purposes.
In this case, the accident happened within the compound of the Tata Electric and Locomotive Company factory
within which are situated various structures, open spaces and roads constantly used by the public having business
with the company. Persons and vehicles entering are supposed to possess permission or authority to enter. It was
held that the accident took place at a “public place”.28. In Bugge v Taylor, where a motor vehicle was left unattended
during hours of darkness on the forecourt of a hotel to which the public has access, the defendant was held to have
been properly convicted of leaving an unattended vehicle on a road even though the place where it was left was the
private property.29.
31.1.5 A Policy of Insurance should be in Force
There must be a policy of insurance. Whether the policy was in force was not whether the insurance company
considered itself on risk, but whether the insurance company was in law liable to indemnify the user if damage and
injury has resulted from the vehicle at a time when no side car was permanently attached.30. In Taylor v Allon, the
insurer insured a policy covering the appellant’s motor car against third party risk which expired on 5 April 1964.
The appellant did not want to renew the policy with that insurer. He obtained a cover note from another insurer for
30 days from 16 April 1964. The previous insurer sent him a temporary cover note for 15 days from 6 June 1964;
which the appellant did not then cease to accept. On 15 April 1964 when he was using the car he was charged with
the offence of driving an uninsured car. The cover note from the second insurer commenced from 16 April 1964 and
the cover note issued by the first was not accepted and so it was held that no policy was in force on 15 April 1964
and so convicted him.31. Issuance of a cover note is sufficient as it is covered in the definition of certificate of
insurance,32. where a cover note is issued to be valid for 15 days or until notice is issued declaring the proposal for
insurance, cover note covers insurance after the expiry of 15 days.33. The insurance company is not liable if the
accident occurred before the policy came into effect.34.
Section 147(1)(b) mentioned the classes of persons for whose damage an insured is liable under the Act policy.
The Act policy covering only “third party risk” does not make the insurer ipso facto liable for the harm suffered by a
passenger travelling in a private car,35. neither for hire nor for reward. Similarly, a pillion rider on a scooter is not
covered. In K Gopalkrishnan v Narayanan, it was observed that the owner of a scooter is not bound to take a policy
in respect of third party risks to cover claim of pillion rider carried gratuitously, and therefore the insurance company
is not liable for injuries to a pillion rider unless the owner of the scooter had taken a policy covering such a risk.36. In
Subash Chander v State of Haryana, it had been held that risk to a gratuitous passenger in a private car is not
Page 4 of 11
required to be covered by section 95(1)(b) and therefore, if a gratuitous passenger travelling in a jeep dies, the
insurer cannot be made liable for the same.37. Similarly when the owner of the goods is travelling along with the
goods and dies in an accident, the insurer cannot be made liable because such a case is not covered by a policy
issued under section 95(1)(b).38. The policy required under this section must be one complying with the
requirements of this chapter.
In Mandidas v Ramadevi, it has been held that when the insured is liable to the third party, the insurance company
also will be liable.39. It was also held that relying on the observations of the Supreme Court in Skandia Insurance Co
Ltd v Kokilaben Chandravadan, AIR 1987 SC 1184 which considering a plea relating to a defence available under
section 96(2) of the old Act corresponding to section 149 of the new Act observed that the said section extends
immunity to the insurance company if a breach is committed of the conditions in the licence which means that the
insurer to get immunity will have to establish that the insured is guilty of an infringement or violation of a promise of
providing a duly licensed driver for the vehicle. In this case it was in evidence that the insurer appointed a licensed
driver and his unauthorised delegation to an unlicensed person does not make it a breach and hence the insurer is
liable. The driver should have a valid licence on the date of the accident.40. The burden lies on the insurance
company to prove that there is no valid licence.41. The scope of section 147 and conditions to be satisfied for its
application are elucidated in a few cases.42.
What type of policy and to what amount must be taken “to comply with the requirements of the chapter” are stated
in section 147:
Requirements of the policy:
(i) It should be a policy issued by an authorised insurer.

(ii) It should cover the person or persons specified in the policy to the extent specified in sub-section 2 of
section 95.43.
(iii) It need not cover liability in respect of the driver or conductor of the vehicle or other persons carried on the
vehicle other than the passengers carried for hire or reward or in pursuance of a contract or to cover any
contractual liability.44. Even though the vehicle is transferred and the same was not informed to the insurer,
still the insurer was liable to the third party even under the new Act.45.
The liability is enlarged by the amendment Act (54 of 1994) of section 147(b) after which the above line of decisions
are no longer good law. After 14 November 1994 an insurance company is liable to compensate the victim or
injured persons travelling in the goods vehicle as owner of goods.46.
An explanation is added by the Amending Act 56 of 1969 which came into effect from 2 March 1970 which says:
For the removal of doubts, it is hereby declared that the death of or bodily injury to any person or damage to any
property of a third party shall be deemed to have been caused by or to have arisen out of, the use of a vehicle in a
public place notwithstanding that the person who is dead or injured or the property which is damaged was not in a
public place at the time of the accident, if the act or omission which led to the accident occurred in a public place.
This explanation is reiterated in the 1988 Act also without any change. So the place where the act causing the
death, injury or damage only occurs, is material but not the place of damage. It is not sufficient if the policy is issued
by the required insurer covering the persons mentioned in section 95(1) but also should extend to the extent of
liability limited in sub-section (2) of section 147.
Under section 147(1) the policy should have been issued by an “authorised insurer”. Such an insurer on and from 1
January 1973 is only the General Insurance Corporation of India or any of its four subsidiary companies. The
cooperative society of transport vehicle owners permitted to issue this type of policy under section 108 of the
repealed Motor Vehicles Act, 1939 has been dropped in the present Motor Vehicles Act, 1988. Now that insurance
is privatised, policy can be issued even by a private insurance company authorised to do general insurance
business.
The policy should cover the person or persons mentioned in the policy.
This sub-section in determining the required limits of liability divides the vehicles into two classes, namely, those
which are intended to carry goods and those intended to carry passengers. With respect to the first category it
states that a policy of insurance shall cover any liability incurred in respect of any one accident up to a limit of Rs
Page 5 of 11
50,000 in all including the liabilities, if any, arising under the Workmen’s Compensation Act, 1923, in respect of the
death of, or bodily injury to, employees (other than driver), not exceeding six in number, being carried in the vehicle
and in respect of the vehicles in which passengers are carried for hire or reward or by reason of, or in pursuance of
a contract of employment...
(i) In respect of persons other than passengers carried for hire or reward a limit of Rs 50,000 in all.
(ii) In respect of passengers:
(a) a limit of Rs 50,000 in all where the vehicle is registered to carry not more than thirty passengers;
(b) a limit of Rs 75,000 in all where the vehicle is registered to carry more than 30 but not more than 60
passengers;
(c) a limit of Rs 1 lakh in all where the vehicle is registered to carry more than 60 passengers and
(d) subject to the aforesaid limits, Rs 10,000 for each individual passenger where the vehicle is a motor
cab, and five thousand rupees for each individual passenger in any other case.
In all other classes of vehicles, they must be insured to cover the amount of liability subject to a minimum of Rs
2,000 in respect of damage to any property of a third party. These limits have been fixed by the Amendment (Act 56
of 1969) which came into effect from 2 March 1970. But all these limits provided above are omitted in the Motor
Vehicles Act, 1988 and it provides unlimited liability ie, the entire liability incurred by the owner in respect of injury or
death to a third party and in respect of damage to any property of such third party to an extent of Rs 6,000. Further
a proviso has been added to the effect that any policy issued with any limited liability and in force, immediately
before the commencement of the Act ie, the Motor Vehicles Act, 1988 shall continue to be effective for a period of
four months after such commencement or till the date of expiry of the policy whichever is earlier. Four months’ time
is given for the vehicle owners to replace their policies with limited liability. The prohibition in section 146(1) applies
where the policy is taken covering the entire liability to the third parties. Further the insurer can be made liable to
indemnify the assured only if the above conditions are satisfied. This clause which was clause 4A is now retained in
the present Motor Vehicles Act, 1988 as clause (4). Further, it was made clear by the Supreme Court that there is
no basis either in the legislative history or in the provisions of the Motor Vehicles Act for the view that proof of
negligence on the part of the driver is not necessary to make the owner or insurer liable for the payment of
compensation in a motor accident claim. But to this rule an exception has been provided in the Motor Vehicles Act,
1988 creating; “No fault liability” discussed earlier.
A further condition laid down by section 147(4) to make a policy comply with the requirements of the chapter is that
the insurer should have issued a “certificate of insurance”. Before giving an insurance policy, a cover note is
commonly issued by the insurers. When a cover note is issued it is also treated as a policy of insurance. A special
duty is cast on the insurers who issue a cover note and the Amending (Act 100 of 1956) says that where a cover
note issued by an insurer under provisions of this chapter or the rules made thereunder is not followed by the
issuance of a policy of insurance within the prescribed time, the insurer shall within seven days of the expiry of the
period of the validity of the cover note, notify the fact to the registering authority in whose records the vehicle to
which the cover note relates has been registered, or to such other authority as the state government may prescribe.
Then it will be deemed again to be an uninsured vehicle. The insurer’s liability is stated in section 147(5).
Statutory Contract Between Insurer and Driver Section 147(5) says that notwithstanding anything contained in
any law for the time being in force, an insurer issuing a policy of insurance under this section shall be liable to
indemnify the person or classes of persons specified in the policy in respect of any liability which the policy purports
to cover in the case of that person or those classes of persons.47. This provision is in pari materia with section
206(3) of the Road Traffic Act, 1960 in England which replaced section 36(4) of the Road Traffic Act, 1930.
Speaking about the effect of the provision it has been said that the insurer may by virtue of this provision be made
liable to indemnify any specified class of driver, but is not thereby liable to the injured third party himself.48. Atkinson
J in Sutch v Burns observed that the effect of this provision, in fact, is to create a contract, between the insurers and
any driver of the vehicle who is of a class covered by the policy.49. This section gives statutory recognition to the
practice of extensions to the policy. A satisfactory form of policy therefore not only covers the liability of the policy
holder while driving his own car but also extends to indemnify; (a) the policy holder while driving another’s car;50.
and (b) other persons while driving the policy holder’s car. In Tattersall’s case, a doctor by the name Tattersall
insured in his own name in respect of a standard car, disposed of the car to a firm of motor car dealers on 15
August 1934. On August 17 he made an arrangement whereby he could drive a Riley car belonging to and insured
in the name of a director of the firm with the permission of that director pending his purchase of another car. While
driving the Riley, he injured a third person in a motor accident and brought this action against the insurer of the
Page 6 of 11
owner of the Riley as being entitled to sue him direct by virtue of the usual extension clause in the policy covering
the Riley car. The court held that Dr Tattersall was not covered by his own policy as he had sold his car and lost
interest in it but was found that he was covered by the policy taken by the owner of the Riley car directly.51. Similarly
for the second proposition Digby v General Accident, Fire and Assurance Corporation Ltd is in point. In that case
Miss Marley Oberon took out a policy with extensions. She was injured when driven negligently in her own car, and
obtained judgment against her driver and the question arose whether the driver was entitled to recover under the
owner’s policy. The policy holder, the owner, was considered as a third person in respect of the cover granted to the
authorised driver under the policy holder’s policy. In Lord Porter’s words; “Miss Marley Oberon was a third party in
reference to her authorised driver.”52. This case also settled that the effect of the clause extending cover to the
permitted driver was to bring into existence a second contract of insurance between the insurer and the permitted
driver. This is the second statutory contract which runs subsidiary to the main contract and it stands or falls with the
main contract. If the owner sells away his vehicle, his contract comes to an end and along with it the second
contract also disappears.
In Shantilal v Aler Bharadwaj, the insured transferred the insured vehicle on 2 March 1978 without intimation to the
insurer and the accident occurred on 5 March 1978. It was held that the motor insurance policy being a personal
contract, the insured cannot transfer the benefits under the policy so long as such benefits are contingent without
the consent of the insurer and that the insured liability ceases on transfer unless there is an express stipulation to
the contrary in the policy or the benefit conferred by section 103A of the Motor Vehicles Act is available.53. In
Kondaiah v Yaseam Fatima, the lorry insured by a comprehensive policy was sold and the vehicle delivered to the
purchaser; but the insurer was not informed of the sale, nor was an application under section 31 of the Motor
Vehicles Act, 1939 made to transfer the registration certificate in favour of the purchaser. The purchaser used the
lorry without obtaining fresh insurance cover for using the vehicle and caused the death of a third party. It was held
that regarding third party liability, the comprehensive policy of the seller continued to be effective until the
registration certificate was transferred to the purchaser’s name and that therefore the insurer was liable under the
policy. It must be deemed that the transfer allowed the purchaser to use the vehicle in the transitional period as far
as the third party liability is concerned.54. On the other hand in an earlier case in BP Venkatappa v BL Lakshmayya,
A who was the owner of a car and had taken an insurance policy in respect of the car, transferred the car to B on 11
September 1966. On 26 October 1966 while B was negligent in driving the car, there was an accident resulting in
the death of a 16 year old girl. One of the questions which has arisen was, whether the insurance company could
be made liable in respect of the policy issued to A even after A transferred the vehicle to B. It was held that since
there was no transfer of insurance policy to B with the consent of the insurer when the car was transferred the
insurance company cannot be made liable.55.
The recent decision of the Kerala High Court in New India Assurance Co v EK Muhummad is also to the similar
effect. In this case there was transfer of a motor vehicle from one person to another without information to the
insurer. It was held that on such transfer, the insurance company cannot be made liable, only the driver and the
transfers were held liable.56. Assignment or mere handing over the policy is not sufficient. The transfer of policy
must be made with the consent of the insurer. This consent may be express or implied. 57.Further when the
permitted driver is covered by two or more policies issued by two or more insurers both the insurers will be liable to
contribute rateably towards the loss notwithstanding a restriction in the policies restricting the extension to persons
who are not protected against liability by any other insurance. During currency of the insurance, the motor vehicle
met with an accident. The vehicle owner and driver claimed that the licence was issued by the licensing authority.
On evidence it was found that the licence was not issued by the competent authority. It was held that in such
circumstances, notwithstanding renewal of the said driving licence, the insurer will not incur any liability.58.
Insurance company was not liable to the insured when the driver of the vehicle was holding fake driving licence at
the time of the accident.59. Even though the insurer was not liable to pay compensation to gratuitous passenger the
Supreme Court permitted the claimant to withdraw the amount deposited by the insurer and permitted the insurer to
recover the same from the vehicle owner.60. Liability of the insurer commences from the date of issuance of the
cheque and accepted by the insurer but not from the date of encashment.61.
Rights of Third Parties: The statutory rights, as against the insurers of the injured third party are now governed by
sections 149 and 150 of the Motor Vehicles Act, 1988. By section 149 a duty is cast on the insurers to satisfy
judgments against persons insured in respect of third party risks. Before this duty is imposed, the following
essentials must be satisfied:
(i) A certificate of insurance must have been delivered to the policy holder under sub-section (4) of section
148.
Page 7 of 11
(ii) Judgment must have been obtained against any person insured in respect of any such liability as is
required to be covered by a policy under section 148. If no claim is made and no decree is passed against
the insured, the insurance company is not liable as the insurer is a branch and insured is the trunk of the
tree and a branch cannot stand unless there is a trunk.62.
(iii) Subject to section 149(2) such liability must be covered by the policy.
(iv) The fact that the insurer is entitled to avoid or cancel, or may have avoided or cancelled the policy is no
defense against the third party;
But in such a case the insurer will be able to recover from the person insured the amount paid to the third party.
Claimant was travelling as a spare driver in goods vehicle and was not driving the vehicle. He was travelling in the
vehicle on the instructions of the employer to visit the work site and was a gratuitous passenger. It was held that the
insurer was not liable to pay to the spare driver. The court further observed that the claimant met with the accident
when he was 28 years old and was permanently disabled and also he did not receive any compensation for 20
years. The insurer had already deposited the amount in the court. The claimant was allowed to withdraw the
amount already deposited by the insurance company. However, the insurance company was also allowed to
recover the said amount from the owner. In these circumstances, it was held that giving directions to the insurer to
give the compensation to the insured first and claim the same from the latter is valid.63. The insurer also cannot
avoid the liability on the ground that the driver was not holding valid driving licence at the time of accident because
he failed to renew it.64.
On the third party satisfying the above conditions the insurer is bound to pay the third party:
(i) any sum payable under the judgment in respect of the assured’s liability;
(ii) any amount payable in respect of costs; and
(iii) any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on
judgments.
Under section 96(4) if the policy restricts the liability to a part of the loss only, the third party will be entitled to the
whole by virtue of the provision, but the insurer will be entitled to recover the excess from the assured. At the time
of committing the accident, even though the driver was not holding valid driving licence, the third party can claim the
compensation from the insurance company. The issue whether the driver was holding valid licence or not is
between the insurer and the owner of the vehicle. After paying the compensation to the third party, the insurer can
proceed against the owner of the vehicle to claim the amount whatever it paid to the third party.65.
The Supreme Court in Usha Devi v Pawan Kumar,66. has held that the victims of motor vehicle accidents where the
vehicles are not insured for third party insurance in India would be compensated in accordance with any of the
mechanisms suggested by the Supreme Court herein and as adopted by various State Governments in India. It has
been argued by the appellants that the State has the obligation to check that no uninsured motor vehicles are
allowed to be driven on the road. Failing which, the victims of such accidents should be compensated by the State
itself. But the Supreme Court in this case vide Order dated 26 March 2018 made the following suggestions:
“To enact a comprehensive statute dealing with the motor vehicle accidents including those which vehicles are not
insured for third party insurance, so that victims and/or their families do not have to unnecessarily suffer.
To create and manage road accident funds, in place of third party insurance, which would enable payment of
compensation to all accident victims, without exception.
Alternatively, to collect a one-time (Life-Time) third party insurance premium by a central insurance agency with
respect to all vehicles at the time of their sale, in a manner similar to the collection of life time road tax. In addition to
the fund created by collection of one-time third party insurance premium, an appropriate road accident
cess/surcharge may be levied on the price of petrol/diesel sold across the country.
Limitation on Third Party’s Rights The extensive rights conferred on the injured or deceased third party by
section 149(1) are curtailed by its sub-sections (2) to (4).
(1) By section 149(2) the insurer is not made liable to pay any money under such judgment where;
Page 8 of 11
(i) he had not been given notice, before or after the commencement of the proceedings in which judgment is
given, of the bringing of the proceedings; or
(ii) execution on the judgment is stayed pending an appeal.
(2) By the same sub-section it is provided that when the insurer is given notice of the proceedings he shall be
entitled to be made a party thereto. The right of the insurer to be made a party is created by the Act.67. When he is
made a party he can defend the action on any of the following grounds:
(a) that there has been a breach of a specified condition of the policy, being one of the following conditions,
namely;
(i) A condition excluding the use of the vehicle:
(a) for hire or reward, where the vehicle is on the date of the contract of insurance a vehicle not
covered by a permit to ply for hire to reward; or
(b) for organised racing and speed testing; or
(c) for a purpose not allowed by the permit under which the vehicle is used, where the vehicle is a
transport vehicle; or
(d) without a side-car being attached, where the vehicle is a motorcycle; or
(ii) A condition excluding driving by a named person or persons or by any person who is not duly licensed,
or by any person who has been disqualified for holding or obtaining a driving licence during the period
of disqualification; or
(iii) A condition excluding liability for injury caused or contributed to by condition of war, civil war, riot or
civil commotion; or
(b) that the policy is void on the ground that it was obtained by the non-disclosure of a material fact or by a
representation of a fact which was false in some material particulars.
The conditions mentioned in clause (2)(b) can be availed of by the insurer in his defence only if they have been
incorporated in the policy and not otherwise.68.
In Bhoopathy v Vijayalakshmi, it was held that the fact that an insurer has been given notice of action, the grounds
of defence in the action are limited to those specified by sub-section 2 of section 149 and it is not open to an insurer
to avoid liability under a policy on any other ground.69. In South India Insurance Co v Lakshmi, speaking about the
scope of the above defences Ramanujam J observed that it is true that the provisions of section 149 set out the
defences that are open to the insurer in a claim made by third parties based on the contract of insurance; but they
cannot avoid the liability under the policy in relation to claims made by third parties.70.
The defence mentioned in section 96(2)(a) of Motor Vehicles Act, 1939 is omitted in the present Motor Vehicles Act,
1988 as it permitted cancellation of policy by mutual consent to the prejudice of the third party, when a condition in
a policy is breached by the insured, the insurer can avoid his liability under the policy. If any of the conditions
mentioned in section 96(2)(b) and mentioned in the policy are breached, then alone the insurer can raise the breach
of that condition as a defence, even if the insured has broken other conditions not mentioned in section 96(2)(b),
the insurer is liable to satisfy the decree in favour of the third party.71. In New Asiatic Co v Pessimal one of the
conditions of a policy issued to the owner Aswani was that “the Company will indemnify any driver who is driving the
insured car on the insurer’s order or with his permission, provided that such driver is not entitled to indemnity under
any other policy”. Pessimal owned a car which was insured and when he was driving Aswani’s car with his
permission an accident occurred and the insurer contended that as Pessimal was covered by his own policy they
are not liable. It was held that the insurer was liable as their ground of defence was not one of the conditions
coming within section 96(2)(b).72. Though the insurer pays the third party under such circumstances under section
96(2)(b) he can recover it by virtue of proviso to section 96(3) which is now section 149(4) of the Motor Vehicles
Act, 1988.73.
Insurer not statutorily required to cover liability of unauthorised passengers under section 147 of the Act.74.
Deceased was travelling on the top of the bus and there was no evidence to show that the owner of the bus gave
directions to the driver or conductor to allow the passengers on the top of the bus. In these circumstances it was
held that the insurer was liable to pay compensation to the deceased-passenger.75.
Page 9 of 11
Duty to Inform Third Party Section 151 of the Motor Vehicles Act imposes a statutory duty on the persons against
whom a claim is made in respect of any liability referred to in section 147(1)(b) to give the third party the necessary
information as to their insurance.
The transport vehicle plying without permit gets involved in an accident, the insurer will not be liable, as absence of
permit is a statutory breach.76.
The above deals with claims before courts.
1. AIR 1977 SC 1735.

2. AIR 1987 P&H 56(FB).
3. Ryata v Gowrawa, AIR 1987 Kant 107(DB); Dhalumal v Vimal, 1987 ACJ 378(DB); Oriental Finance and General
Insurance v Parvatamma, AIR 1986 Kant 63 (DB).
4. [1964] 2 All ER 999(HL).
5. Hazi Zakaria v Nooshar Cama, AIR 1976 AP 171; G Govindan v New India Assurance Co Ltd, 1999 ACJ 781(SC).
6. Mangilal v Parasram, AIR 1971 MP 5.
7. The Motor Vehicles Act, 1939, section 94(3); Motor Vehicles Act, 1988, section 146(3).
8. Lloyd v Singleton, [1953] 1 QBD 291.
9. Elliot v Greeje, 1960 (1) QB 367.
10. Motor Vehicles Act, 1939, section 2(18).
11. Shawcross on Motor Insurance, second edn, p 176.
12. The Motor Vehicles Act, 1939, section 2(8).
13. Ibid, section 2(9).
17. Ibid, section 2(15)
24. Lawrence v Homlette, [1952[ 2 QBD 74 .
25. Floyd v Bush, [1953] 1 QBD 265 .
26. Saumitra Auto Rickshaw Sahakar Sangh v Director of Transport Bombay, AIR 1967 Bom 402 (DB).
27. Motor Vehicles Act, 1939, section 2(24).
28. AIR 1988 Bom 248(FB).
29. (1941) 1 B 198.
30. Carnill v Roseland, [1953] 1 QBD 486 .
31. [1965] 1 QBD 557 .
32. Divisional Manager, United India Insurance Co Ltd v Lavanya Sahu, AIR 1999 Ori 193.
Page 10 of 11
33. Bhagwandas v Kasturilal, 1974 ACJ 64; Prakaswati v Gian Singh, 1974 ACJ 131.
34. Oriental Insurance Co Ltd v Sunitha Rathi, AIR 1998 SC 257.
35. Subhash Chandar v State of Haryana, 1975 ACJ 164; Choice Insurance Co v Joginder Singh, 1972 ACJ 295.
36. AIR 1968 Mad 438; Unique Motor and General Insurance v Kishna Kishore, 1968 ACJ 318.
37. 1975 ACJ 164; Choice Insurance Co v Joginder Singh, 1972 ACJ 295.
38. Hindusthan Ideal Insurance Corp v Ramachisperamma, AIR 1974 AP 120; Oriental Fire and General Insurance Co v
Gambhir Singh, 1967 ACJ 158.
39. AIR 1994 Ori 17.
40. United India Insurance Co Ltd v Sarada Adyanathaya, AIR 1998 Kant 141(FB).
41. Rajendra Prasad v Dhakanwar, AIR 1998 Raj 121; United India Insurance Co Ltd v Gangaram, 200 ACJ 115(AP);
Oriental Insurance Company Ltd Tuticorin v Petchi Maithu Ansare, AIR 1999 Mad 413.
42. Municipal Corporation of Delhi v Susheela Devi, 1999 ACJ 801(SC); State of Karnataka v Sathish, 1999 ACJ 1378(SC);
Jamnabai v Deepak Automobiles, 1999 ACJ 1330(SC); Donoi Louis Machada v Ravindra, 1999 ACJ 1400(SC);
Rukmini Amma v KG Haridas Kannathalai, 1984 ACJ 492(Mad); Pushpabai Purushottam v Ranjit Spinning and
Pressing Mills (P) Ltd, AIR 1979 SC 1735; G Sreeharan v Hindustan Ideal Insurance Ltd, (1975) 1 APLJ 1313(DB);
New Asiatic Insurance Co Ltd v Pessumal Dhanmal, AIR 1964 SC 1736.
43. Section 147, Motor Vehicles Act, 1988.
44. Hindusthan Ideal Insurance Corporation v Ramachisperamma, AIR 1974 AP 120; Oriental Fire and General Insurance
Co v Gambhir Singh, 1967 ACJ 158.
45. United India Insurance Co Ltd Shimla v Tilak Singh, AIR 2006 SC 1576 : (2006) 4 SCC 404.
46. Oriental Insurance Co Ltd v Puni Devi, 1995 ACJ 486(DB); National Insurance Co Ltd v Bhag Devi, 1998 ACJ 235(DB);
Oriental Insurance Co Ltd v Sukhpal, AIR 1999 HP 98(DB); New India Assurance Co Ltd v Sripal Singh, 2000 ACJ
1(SC).
47. Section 147(5), Motor Vehicles Act, 1988.
48. McConnick v National Motor Insurance, (1934) 40 Comp Cas 76.
49. (1943) 60 TLR 1, 2.
50. Tattersall v Drysda, [1935] 2 KB 174; Austin v Zurich General Accident and Liability Insurance Co Ltd, [1944] 2 All ER
243; affirmed in [1945] 1 All ER 316.
51. Tattersall v Drysdale, supra.
52. [1943] AC 121.
53. AIR 1985 Guj 164. (FB)
54. AIR 1986 AP 62 (FB); contra Labhsingh v Sumohni Devi, AIR 1988 P&H 145.
55. AIR 1973 Mys 350; Oriental Fire and General Insurance Co v Meena Sarma, (1975) 77 PWR 522; Jamshed Hormiji v
Vilas Govind, (1976) 2 Kant LJ 84; Govind Singh v AS Kailash, AIR 1965 Mad 65; South India Insurance Co Ltd v
Purna Chandra Misra, 1973 ACJ 46; M Bhoopathy v Vinaya Lakshmi Ammal, AIR 1966 Mad 244; South India
Insurance Co Ltd v Lakshmi, AIR 1971 Mad 147; Nanumal v Inder Singh, 1971 ACJ 88.
56. 1985 ACJ 109 (Ker).
57. AIR 1963 MP 164; Galab Bai v Peter K Sundar, 1975 ACJ 100(Bom); Yaswantraj v Mohanlal, 1985 ACJ 23(Raj);
Oriental Fire and General Insurance Co Ltd v Binod Roy, AIR 1973 Del 115.
58. Oriental Insurance Co Lt v Prithvi Raj, (2008) 2 SCC 338 : AIR 2008 SC 1408; Motors Vehicles Act, 1988, sections
149(2), 147 and 173.
59. National Insurance Co Ltd v Om Prakash Jain, (2010) 15 SCC 527.
60. Manager, National Insurance Co Ltd v Saju P Paul, (2013) 2 SCC 41 : AIR 2013 SC 1064.
61. Yellamma v Sukhdev Singh, AIR 2006 Kant 240 : 2007 (6) Kar LJ 486.
62. Chanchalaben v Sailesh Kumar, AIR 1974 Guj 145; Chavali Motaiah v Alla Ramaiah, (1962) 2 AWR 232; IG
Sreedharan v Hindustan Ideal Insurance Corp Ltd, (1975) 1 APLJ 313(DB); Abdul Gafoor v New India Insurance Co
Ltd, 1981 ACJ 340.
63. Manager, National Insurance Co Ltd v Saju P Paul, AIR 2013 SC 1064 : 2013 (2) SCC 41.
64. United India Insurance Co Ltd v Yusuf Hasansab Gokak, AIR 2006 Kant 237 : 2006 (4) Kar LJ 167.
Page 11 of 11
65. Chenna Jyothirmayi v Third Motor Accident Claims Tribunal, Bhubaneswarand, AIR 2001 Ori 108 : 2002 ACJ 1411 :
2000 (2) OLR 643.
66. (Civil Appeals No 9936-9937/2016 and its order dated 13 September 2018 by the Supreme Court of India.
67. AIR 1959 SC 1331.
68. Srinivas Roadways v Saroja, AIR 1975 Mad 126; National Insurance Co v Nathibhai Chatturabhej, 1982 ACJ 153 (FB).
69. AIR 1966 Mad 244; Machineni Kondiah v Yaseen Fathima, 1986 ACJ 1(FB).
70. AIR 1971 Mad 347, 352.
71. BIG Insurance Co v Itbar Singh, AIR 1959 SC 1331; Bamanji Rusthumjiv Ibrahim Vali Master, AIR 1982 Guj 112.
72. AIR 1964 SC 1736.
73. Harker v Caledonian Insurance Co, [1979] 2 Lloyd’s Rep 193.
74. AIR 2012 (NOC) (Supp) 234 Mad
75. AIR 2012 (Supp) 269 (P&H)
76. Amrit Paul Singh v Tata AIG General Insurance Co, Ltd, Civil Appeal No 2253 of 2018 vide order dated 17 May 2018
by the Supreme Court.
End of Document
31.2 Effect of Insolvency or Death on Claims
THIRD PARTY OR COMPULSORY INSURANCE OF MOTOR VEHICLES
CHAPTER 31 THIRD PARTY OR COMPULSORY INSURANCE OF MOTOR VEHICLES

31.2.2 Insolvency
Section 154 protects the rights of the third party against insolvency of the assured. The broad effect of that section
is that all rights and liabilities arising between the insured and the insurers in the case of compulsory motor
insurance shall remain unaffected, notwithstanding that a third party has been given larger rights against the
insurers than the assured himself had. In this context sections 150–53 also may be read all of which are intended
for the above purpose. Section 150 creates a statutory provision that the rights of the third party against the insurers
are not affected on insolvency of the insured.77.
31.2.2 Death of Parties
The general principle of actio personalis moritur cum persona does not apply to accidents under this Act. Section
102 provides that notwithstanding anything contained in section 306 of the Indian Succession Act, 1925, the death
of a person in whose favour a certificate of insurance had been issued, if it occurs after the happening of an event
which has given rise to a claim under the provisions of this chapter, shall not be a bar to the survival of any cause of
action arising out of the said event against his estate or against the insurer. From this the following rules may be
laid down:
(i) where the owner of the motor vehicles dies in the accident and the injured third party is alive, the injured
third party can make his claim against the estate of the deceased owner unless he died before the
accident;
(ii) where the third party dies as a result of the accident his legal representative can make a claim for the
compensation before the appropriate tribunal;
(iii) where both the owner of the motor vehicle and third party die in the accident, the estate of the deceased
owner of the motor vehicle will be liable to the estate of the dead third party and
(iv) where the third party is not dead in the accident, he can himself make the claim within six months of the
accident, in such a case it does not matter whether the motor vehicle owner is alive or dead in the
accident.
Where the insurance is running, death of the insured after an accident does not relieve the insurer.78. The effect of
death of the transferor is discussed in a few cases.79. It may be noted here that where the death of the third party is
deliberately caused by the motor vehicle owner or driver it is not an accident. The liability to the third party under the
policy arises only if there is an accident. The word accident means an unlooked for and unanticipated event, eg, if a
pedestrian is chased and knocked down by a motor vehicle it will not be an accident although it may amount to a
crime of manslaughter. Similarly where the third party deliberately with an intention to commit suicide throws himself
under a motor vehicle, then also there is no accident. The tribunal refuses compensation to such a third party
whether he is alive or dead.
Page 2 of 5
The battery of the tractor was used to power a blasting machine in a field. During the blasting operation, a rock fell
on a passerby, causing his death. The Supreme Court held that the accident had causal link with “use of vehicle”,
and held the Motor Accident Claims Tribunal decision to be maintainable. To incur liability under MV Act, it is not
necessary that the vehicle was moving. As per section 165 of the Act, to give rise to a claim for compensation, the
accident needs to “arise out of the use of the vehicle”. The word “use” has a wider connotation to cover the period
when the vehicle not moving and is stationary”, observed the Supreme Court, while sustaining the claim in relation
to the accident caused by a stationary tractor.80.
31.2.3 Certificate of Insurance
It is defined as a certificate issued by an authorised insurer in pursuance of sub-section 4 of section 95; and
includes a cover note complying with such requirements as may be prescribed and where more than one certificate
has been issued, in connection with a policy, or where a copy of a certificate has been issued, all those certificates
or that copy, as the case may be.81. A policy is of no effect for the purposes of the Act unless and until the insurer
delivers a “certificate of insurance” to the person by whom the policy is effected. This is a very important document
as without it the owner is unable to obtain a licence for his vehicle.
The Five Judges Bench was constituted to consider the correctness of decision of a three judges’ bench in
Augustine v Ayyappankutty, (2015) (2) KLT 139 : 2015 (2) KLJ 392 which held that lack of fitness certificate was
only a technical breach and that insurer cannot seek exoneration from liability on that ground.
31.2.4 Effect of the Certificate
Even though the policy is not issued but a certificate of insurance has been issued by the insurer, the insurer will
still be liable as there is a policy on the same terms as given in the certificate.82. If the insurer has issued to the
insured a policy described in the certificate, but the actual terms of the policy are less favourable to the person
claiming under or by virtue of the policy against the insurer either directly or through the insured, than the particulars
of the policy as stated in the certificate, the policy shall, as between the insurer and the other person except the
insured, be deemed to be in terms conforming in all respects with the particulars stated in the certificate.83. The
issuance of the certificate under the Act does not stop the insurers from subsequently pleading, either against the
insured or third parties, that the policy was obtained by fraud.84.
31.2.5 Transfer of Certificate of Insurance
The provisions relating to transfer of certificate have been introduced by the Amending (Act 56 of 1969) under
section 103A. Under that section where a person in whose favour a certificate of insurance is issued proposes to
transfer to another person the ownership of the motor in respect of which such insurance was taken, he may
transfer the certificate to the purchaser with the consent of the insurer. At the time of transfer he must apply to the
insurer for such transfer and if the insurer does not refuse the transfer it will be deemed to have been transferred
with the consent of the insurer.85. The insurer, may refuse to transfer the policy and the certificate of insurance to
the purchaser, if he considers it necessary so to do, having regard to:
(a) the previous conduct of the other person:

(i) as a driver of motor vehicle; or
(ii) as a holder of the policy of insurance in respect of any motor vehicle; or
(b) any conditions which may have been imposed in relation to any such policy held by the applicant; or
(c) the relation of any proposal made by such other person the issue of a policy of insurance in respect of any
motor vehicle owned or possessed by him.86.
If the insurer refused the transfer he shall refund to such transferee the amount, if any, which under the terms of the
policy, he would have had to refund to the insured for the unexpired term of such policy.87.
The Supreme Court held that, if an accident occurs within the period prescribed for reporting transfer of a vehicle,
the transferor is not absolved of the liability, so long as his name continues in RTO records. These timelines and
obligations are only to facilitate the reporting of the transfer. It is not if as if that an accident occurs within the period
prescribed for reporting said transfer, the transferor is absolved of the liability.88.
Page 3 of 5
The Supreme Court reiterated that the legal position is that the registered owner of the vehicle as per RTO records
who is liable for accident caused by the vehicle. Therefore, even if the ownership of vehicle is transferred, if the
transfer is not recorded in the RTO records, the original owner will continue to be liable.89.
Cancellation or Suspension of Policy: Wherever a policy of insurance is cancelled or suspended by the insurer
he shall within seven days notify such cancellation or suspension to the registering authority or to such authority as
the state government may prescribe.90. Whenever the period of cover under a policy is terminated or suspended by
any means before its expiration by efflux of time, it is the duty of the insured person to surrender, to the insurer the
latest certificate of insurance within seven days after such termination or suspension. If such certificate is lost or
destroyed, he must make an affidavit to that effect.91. The failure to surrender is made a continuing offence
punishable with fine of Rs 15 for every day’s default subject to a maximum of Rs 500.92.
31.2.6 Production of Certificate
The certificate must be produced for inspection at the request of the traffic authority.93. The tax on a motor vehicle
covered by section 94 will not be received by the taxing authorities unless the certificate of insurance is produced.94.
Section 108 of the Motor Vehicles Act, 1939 dealt with cooperative insurance and this is abolished with the
establishment of the General Insurance Corporation which alone has the exclusive right to issue the Motor Vehicle
Policies. So the provisions are omitted in the Motor Vehicles Act, 1988.
Section 160 is a new section imposing duty on the registering officer and the officer in charge of a police station to
furnish particulars of a vehicle on requisition by the insurer against whom a claim for compensation is made or the
third party who alleges that he is entitled to a compensation in respect of an accident arising out of the use of the
motor vehicle on payment of a prescribed fees.95.
31.2.7 “Hit and Run” Motor Accident
Sections 161–63 are sections introduced by the Motor Vehicles Act, 1988. A “hit and run” motor accident means an
accident arising out of the use of a motor vehicle or motor vehicles the identity whereof cannot be ascertained in
spite of reasonable efforts for the purpose.96. The Central Government is authorised to make a scheme, by notifying
in the official gazette, specifying the manner in which the scheme for payment of compensation in case of “hit and
run motor accidents” shall be administered by the General Insurance Corporation. It is made incumbent on the
insurer to pay compensation to third parties in respect of the death of any person; (a) fixed sum of Rs 8,500 and (b)
in respect of grievous hurt a fixed sum of Rs 2,000. The provisions of section 166(1) dealing with filing of
applications for compensation to the claims tribunal mutatis mutandis apply to these applications also; section 162
provides that payments made under this section shall be deducted out of the regular compensation paid, if any, at a
future time. Section 163 provides that the Central Government may, by notification in the official gazette, make a
scheme specifying the manner in which the scheme shall be administered by the General Insurance Corporation,
the form, manner and the time within which applications for compensation may be made, the procedure to be
followed by such officers or authorities for considering and passing orders on such applications, and all other
matters connected with or incidental to, the administration of the scheme and the payment of compensation. This is
a welcome feature. Before this provision, where the wrongdoer is not identified, which is very common in a case
where a vehicle driver hits a poor pedestrian, though the victim has a statutory right to get compensation, he is
denied it on the ground that his respondent is unidentified. It is but just, that the General Insurance Corporation, a
state instrumentality, should come forward and pay the full compensation for such victims. The amount provided in
this section is too meager, but still it must be said that a good beginning is made as something is better than
nothing.
A welcome change has been made by the amending Act,97. by introducing sections 163A and 163B fixing the
amounts of compensation by adding Schedule II which have come into effect from 14 January 1994. Section 163B
gives the claimant an option to file a petition under section 140 or under section 163A and not under both. The
calculation of compensation based on the hitherto multiplier system ranging from 5–16 has been replaced by the
Schedule making the amount certain. The maximum multiplier adopted by the Schedule is 18 depending upon the
age group to which the victim belonged.98. The operation of section 163A is only prospective.99.
The introduction of the Schedule quantifying the compensation payable to the victim-claimants commensurate with
the current cost of living index breathing certainty which is the prime merit of law is a further welcome change.
Page 4 of 5
Recognising this merit, still it is criticised on the ground that it may at once be pointed out that the calculation of
compensation and the amount worked out in the Schedule suffers from several defects.100.
Further, it is a matter of great relief to the claimant that section 163A(3) empowers the Central Government to
amend the second Schedule from time to time keeping in view the cost of living.
The appellants were parents of deceased driver who died in a road accident. Earlier, appellants had filed a claim
petition seeking compensation under section 163-A of the Motor Vehicles Act, 1988. The Tribunal (Belgaum), by its
award, allowed a claim of Rs. 4,60,800/-. The respondent-insurer preferred an appeal, against the award of the
Tribunal, before the High Court. The High Court, vide impugned Order herein, held that the deceased driver was a
tortfeasor and responsible for causing the accident and allowed the insurer’s appeal and set aside the order of the
Tribunal. Aggrieved thus, the appellants filed the present appeal. The Supreme Court at the outset, observed that
the matter that arose for consideration was no longer res integra and was covered by the Supreme Court decision
in United India Insurance Co, Ltd, v Sunil Kumar, (2017) SCC OnLine SC 1443, wherein it was held that to permit
the insurer’s defense of negligence on the part of the victim, and/or to understand that section 163-A allows such a
defense, would be inconsistent with the legislative object behind introduction of the provision. Further, the object of
the provision is to provide a final compensation within a limited time frame on the basis of structured formula, to
overcome situations where the claims of compensation on the basis of fault liability were taking an unduly long time.
Basing its judgment on the decision referred, the present Bench held that in a proceeding under section 163-A of
MV Act, the insurer cannot raise any defense of negligence on the part of the victim to counter a claim of
compensation. Accordingly, the appeal was allowed.101.
77. Gulabbai Damodar Tapse v Peter K Sunder, 1975 ACJ 100.

78. Hazi Zakaria v Nousher Cama, AIR 1976 AP 171.
79. Gulabbai Damodar Tapse v Peter K Sundar, 1975 ACJ 100 (Bom); Oriental Fire and General Insurance Co Ltd v Vimal
Roy, AIR 1973 Del 115; South India Insurance Co Ltd v Purnachandra Misra, AIR 1973 Ori 166; Balwant Singh v
Jamunabai, 1980 ACC 126(MP); Oriental Fire and General Insurance Co Ltd v cont Meena Sharma, 1975 ACJ 335
(P&H); Hema Ramaswamy v KM Susheela, 1999 ACJ 801(SC); Rajamani v Oriental Insurance Co Ltd, 1999 ACJ
943(SC).
80. Kalim Khan v Fimidabee, Civil Appeal No 8785-8786 of 2015, vide order dated 3 July 2018 by the Supreme Court of
India.
81. The Motor Vehicles Act, 1939, section 93(b); section 145(b) of the Motor Vehicles Act, 1988.
82. Ibid, section 10(a), section 15(b) of the Motor Vehicles Act, 1988.
83. Ibid, section 103(2), section 156(2), Motor Vehicles Act, 1988.
84. McCormic v National Motor Insurance, (1934) 40 Comp Cas 76.
85. The Motor Vehicles Act, 1939, section 103A(1), section 157, Motor Vehicles Act, 1988.
86. Ibid, section 103A(2), section 157(1), Motor Vehicles Act, 1988.
87. Ibid, section 103A(3), omitted in section 157, Motor Vehicles Act 1988.
88. Prakash Chand Daga v Saveta Sharma, SC Civil Appeal No 11369 of 2018 vide order dated 6 February 2018 by the
Supreme Court of India.
89. Civil Appeal No 1427 of 2018 of Supreme Court vide order dated 14 December 2018.
90. Ibid, section 105; omitted in New Act.
93. Ibid, section 106, section 158 Motor Vehicles Act, 1988.
94. Ibid, section 107, section 159 Motor Vehicles Act, 1988.
95. Section 161(b) Motor Vehicles Act, 1988.
96. Section 163, Motor Vehicles Act, 1988.
97. Inserted by Act 54 of 1994.
Page 5 of 5
98. UPSRTC v Trilokchandra, 1966 SCJ 447.

99. United India Insurance Co Ltd v Mehtab Bai, AIR 1999 Raj 293.
100.UPSRTC v Trilokchandra, 1996 SCJ 447.
101.Shivaji v United India Insurance Co, (2018) SCC ONLine SC 877.
End of Document
32.1 Introduction
CLAIMS TRIBUNAL
CHAPTER 32 CLAIMS TRIBUNAL
32.1 Introduction
Sections 110–11 OF of the Motor Vehicles Act, 1939 which came into force from 16 February 1957 provided for the
establishment of motor claims tribunals with the object of providing an expeditious and cheap mode of enforcing the
liability of the persons who caused motor accidents.1. These sections provided for the constitution and functions of
the tribunals as an alternative forum with a self-contained code and complete machinery for the purpose. The
Supreme Court held that the change in law under sections 110-110F was merely a change of forum.2. It is a change
of procedural but not of substantive law. As noted earlier, the substitution of the claims tribunals in the place of civil
courts intended to provide quick relief also failed and hence a change in the substantive law also is made by the
Motor Vehicles Act, 1988 by providing “no fault liability” discussed earlier. The Motor Vehicles Act, 1988 re-enacted
the provisions in sections 110–110F of the Motor Vehicles Act, 1939 in a separate chapter under sections 165-176.
1. Jayendra Singh Kashuwala v MP Electricity Board, AIR 1978 MP 18; Swarnalata Dutha Barua v National Transport
India (P) Ltd, AIR 1974 Gau 31 (DB).
2. New India Insurance Co, v Shanti Mishra, AIR 1976 SC, 237; Kamala Devi v Krishna Chand, AIR 1970 MP 168;
Keshavmurthy v Amireshammal, 1977 (1) Mad LJ 464 (DB); Manjushri Shah v BL Gupta, AIR 1977 SC 1158.
End of Document
32.2 Constitution of the Claims Tribunals
CLAIMS TRIBUNAL
32.2 Constitution of the Claims Tribunals

The state government may, by notification in the official gazette, constitute one or more motor accidents claims
tribunals for such area as may be specified in the notification.3. This tribunal has exclusive jurisdiction to the
exclusion of the civil courts” jurisdiction and it also insured against an injunction from a civil court while exercising its
jurisdiction.4. The 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.5. Where
two or more tribunals are constituted for any area, the state government may by general or special order regulate
the distribution of business among them.6. A person shall not be qualified as a member of a claims tribunal unless
he;
(a) is, or has been judge of a High Court, or

(b) is, or has been a District Judge; or
(c) is qualified for appointment as a judge of the High Court.7.
In New India Insurance Co v Molia Delhi, it has been held that there is no bar for the appointment of a person
designate by official designation as per section 15 of the General Clauses Act, 1897 and so the appointment of an
additional District Judge as a motor accidents claims tribunal by official designation is not invalid in all cases except
where the additional district judge is not qualified to be appointed as judge of a High Court.8.
3. Ibid, section 110(1), section 165(1), Motor Vehicles Act, 1988.

4. Ibid, section 110(A), section 175, Motor Vehicles Act, 1988.
5. Ibid, section 110(2), section 165(2), ibid.
8. AIR 1969 MP 190.
End of Document
32.3 Functions of the Tribunal
CLAIMS TRIBUNAL

The tribunals are constituted to adjudicate upon claims made by the injured or aggrieved party for compensation in
respect of accidents which (a) involved fatal injury or (b) bodily injury to persons and (c) loss or damage to property
of the third party arising in the course of the use of the motor vehicles.
It is provided that in cases where such claim includes a claim for compensation in respect of damage to property
exceeding Rs 2000, the claimant may, at his option, refer the claim to a civil court for adjudication and where a
reference is so made, the claims tribunal shall have no jurisdiction to entertain any question relating to such a
claim.9. This proviso has been omitted in the new Act. The claimant is given the right of election of the forum where
the claim is above Rs 2000. In Iswar Devi v UOI it has been observed that sections 110–110F of the Motor Vehicles
Act were intended to provide a cheaper and speedier remedy by way of an application before a claims tribunal
instead of the remedy of a suit in a civil court as provided in the Fatal Accidents Act and thus this Act is a self-
contained Act, and as such, an application filed under section 110A is governed by the provisions of the Motor
Vehicles Act and not by the Fatal Accidents Act.10.
In M Ayyappan v Moktar Singh, the word “compensation” in section 110 has been held to be a very comprehensive
term and it includes a claim for damages made in a suit by parents of a child who died in an accident.11. Further
section 110B of the Motor Vehicles Act states that on receipt of an application for compensation under section
110A, the “Tribunal...shall specify the amount which shall be paid by the insurer or owner or driver of the vehicle...”
Hence, in Orissa in RJC v Uma Kanta Singh, AIR 1987 Ori 110 (DB) and Rajapal Singh v UIO12. where railway
trains dashed against motor vehicles on the track killing and injuring the persons in the vehicles, claims against the
railways were held not maintainable before the tribunals. In Ellammal v Govt of Tamil Nadu, for a similar reason
where the police threw nailed wooden planks to stop a lorry carrying illegally rice bags from Kanchipuram to
Sriparambudur which caused the vehicle to dash against a tree killing three passengers, the claim against the TN
Government was held not maintainable before the tribunal.13. Further, a claimant is also given an option to make a
claim under this Act or the Workmen’s Compensation Act but not under both.14.
9. The Motor Vehicles Act, 1939, section 110(1), Proviso; omitted in Motor Vehicles Act, 1985.
10. AIR 1969 Del 183.
11. AIR 1970 Mys 67.
12. AIR 1988 P&H 239(FB); UOI v United India Insurance Co Ltd, AIR 1998 SC 440; General Manager, North Frontier
Railway, Gauhati v Jitender Singh, 2000 ACJ 317 (SC).
13. AIR 1987 Mad 80 (DB).
Page 2 of 2
14. The Motor Vehicles Act 1939, section 110 (A); section 166, Motor Vehicles Act, 1988; Gothi Peddaranganna v Zulekha
Bee, AIR 1970 AP 124; Oriental Fire and General Insurance Co Ltd v UOI, AIR 1975 AP 222; Premier Insurance Co Ltd
v Gambhirsingh Gulabsingh, AIR 1975 Guj 133.
End of Document
32.4 Application for Compensation
CLAIMS TRIBUNAL

An application for compensation under this Act must be in a prescribed form and shall contain such particulars as
may be prescribed.15. The application shall be filed within six months of the occurrence of the accident; but the
delay in filing an application may be condoned by the tribunal provided the applicant can prove to its satisfaction
that he was prevented by a sufficient cause.16. Section 166(3) prescribing limitation for filing a claim petition is
omitted by Act 54 of 1994 with effect from 14 January 1994. It is a welcome change for a claimant but is
uncharitable for the wrongdoer to have the Damocles word hanging on his head without a limit of time. The
legislature should have prescribed a longer time with the benefit of section 5 of the Limitation Act.
32.4.1 Who Can Apply
An application for compensation can be made:
(a) by the person who has sustained the injury; or

(b) by the owner of the property; or
(c) where death has resulted from the accident, by all or any or the legal representatives of the deceased; or
(d) by any agent duly authorised by the person injured or all of any of the legal representatives of the
deceased, as the case may be.17.
The Supreme Court held that in a case where a parent has lost their minor child, or unmarried son or daughter, the
parents are entitled to compensation for loss of consortium under the of filial consortium. An accident leading to the
death of a child causes great shock and agony to the parents and family of the deceased. The greatest agony for a
parent is to lose their child during their lifetime. Children are valued for their love, affection, companionship and their
role in the family unit observed the Bench. The Bench further said the amount of compensation to be awarded as
consortium would be governed by the principles of awarding compensation under loss of consortium as was laid
down by the Constitution Bench in Pranay Sethi Case.18.
In Binodchandra Goswami v Dr Anandiram Barua, the application was filed by the brother of the injured not duly
authorised by him under section 166(1)(d); the application was to be made by any agent after being duly authorised
and hence the petition was dismissed. On a revision petition filed, the court reversing the impugned order observed
that in such cases the only course for the tribunal may not be to reject the application. The learned tribunal may
treat the application as if it was preferred by the person entitled, if subsequent to the filing of such claim application,
the real claimant appears before the tribunal and indorses the action taken by the authorised person claiming
compensation. Legislative intendment to provide immediate relief to the injured person as contemplated under
section 140 cannot be allowed to be sacrificed at the altar of technicality.19.
If all the legal representatives are not available or not willing, still the legal representatives filing the application
should file on behalf of all the legal representatives and if some of them are not willing to join the application they
should be added as respondents.20. In MPSRT Corp v Jabhiram, it was held that where a claim for compensation is
Page 2 of 2
made in respect of an accident involving death or bodily injury to persons where there is a policy of insurance
against third party risk, the insurer must be made a party to the proceedings.21. In the above referred Mysore case22.
it has been held that the term “legal representative” includes the persons referred to as “representatives” in section
1–A of the Fatal Accidents Act namely, the wife, husband, parent or child of the deceased. It has been further made
clear that the right that can be exercised under this section cannot be confined only to persons who come within the
term “legal representative” as defined under section 2(11) of the code of Civil Procedure. The right of
“representatives of the deceased” as defined in the Code of Civil Procedure to put forward a claim under this
section cannot be taken away by means of a rule framed under the rule-making power. The married sister of a
deceased who died a bachelor was held entitled to claim compensation under the Act.23.
The right to sue for recovery of damages for personal injuries will not die with the death of the injured where there is
loss to estate of the deceased and the maxim “actio personalis moritur cum persona” has no application in such
circumstances.24.
The Supreme Court reiterated that when an owner-cum driver of a vehicle is himself responsible for the accident
caused, in which no other vehicle is involved, no claim petition will be maintainable under Motor Vehicles Act.25.
15. Ibid, section 110A(2).

16. The Motor Vehicles Act, 1939, section 110(A) (3); section 166(3), Motor Vehicles Act, 1988.
17. Ibid, section 110(A)(1); section 166(1), Motor Vehicles Act, 1988.
18. Magma General Insurance Co, v Nanu Ram Alias Churhu Ram, Supreme Court Order dt 18 September 2018.
19. AIR 1993 Gau 8, 9; Subrahmanyeswara Rao v B Manikya Sarma, 1981 ACJ 29 AP(DB); Fakirappa v Hanumanthappa,
(1976) 2 Kant LJ 157(DB).
20. Ibid, section 110(A) (1) Proviso; section 166 (1), Motor Vehicles Act, 1988.
21. AIR 1969 MP 89.
22. M Ayyappan v Moktar Singh, supra.
23. Mohammed Mabibullah v Seethammal, AIR 1967 Mad 123.
24. Neorami Jamal Potter v Narain Srinavasan Pandit, AIR 1994 AP 6.
25. National Insurance Co, Ltd, v Ashalata Bhowmik, Civil Appeal No 9100 Of 2018 of the Supreme Court vide order dated
31 August 2018.
End of Document
32.5 Procedure and Powers of the Claims Tribunal
CLAIMS TRIBUNAL
32.5 Procedure and Powers of the Claims Tribunal

On receipt of an application, the claims tribunal shall follow the procedure fixed by the rules framed for this purpose.
The state governments are empowered to make rules providing form of application, fees to be paid thereon, the
procedure to be followed, the powers vested in a civil court exercisable by the tribunal, the form of appeal and any
other matter which is to be or may be prescribed.26. It shall have all the powers of a regular court, subject to any
rules that may be made in this behalf. Proceedings before the tribunal are summary in nature. Strict compliance
with rules of evidence and pleadings are not required to be followed. Any document of probative value can be
looked into while fixing liability.27. The claims tribunal, for the purpose of adjudicating upon any claim for
compensation, is empowered to choose one or more persons possessing special knowledge of any matter relating
to the inquiry to assist it in holding an inquiry.28.
Where in the course of any inquiry, the claims tribunal is satisfied that:
(i) there is collusion between the person making the claims and the person against whom the claim is made,
or
(ii) the person against whom the claim is made has failed to contest the claim,
it may, for reasons to be recorded in writing direct that the insurer who may be liable in respect of such claim shall
be impleaded as a party to the proceedings and the insurer so impleaded shall thereupon have the right to contest
the claim on all or any of the grounds that are available to the person against whom the claim has been made.29.
Motor Vehicles Act is a beneficial legislation, and procedural lapses in conduct of case should not result in denial of
compensation. The Act is designed in a manner, which relieves the victims from ensuring strict compliance provided
in law, which are otherwise applicable to the suits and other proceedings while prosecuting the claim petition lied
under the Act for claiming compensation for the loss sustained by them in the accident.30.
26. The Motor Vehicles Act, 1939, section 111A.

27. New India Assurance Co v Hurmata Begum, AIR 1994 J&K 1.
28. Ibid, section 110C(2A), section 171, Motor Vehicles Act, 1988.
29. The Motor Vehicles Act, 1939, section 110C (2A).
30. Vimala Devi v National Insurance Co, Ltd,, SC Civil Appeal No 11042 of 2018 vide order dated 16 November 2018.
End of Document
32.6 Award of the Claims Tribunal
CLAIMS TRIBUNAL

After making a proper inquiry the tribunal is empowered to make an award determining the amount of compensation
which appears to it to be just and specifying the person or persons to whom compensation shall be paid and also
shall specify the amount which shall be paid by the insurer, or owner or driver of the vehicle in the accident or by all
or any of them, as the case may be.31. In passing the award the tribunal has to apply the general law of torts and
also the crucial rules of evidence which are founded on principles of natural justice.32. It has also been held that the
word award does not take away the tribunal from the scope of the definition of court contained in section 3 of the
Indian Evidence Act.33. The claims tribunal has to pass its award in accordance with the principles of natural justice,
ie;
(i) the parties must be given an opportunity of being heard;

(ii) take evidence on oath;
(iii) must give opportunity to the adversary to cross-examine; and34.
(iv) can award damages when negligence on the part of the driver of the vehicle concerned is established.35.
The tribunal in awarding damages in personal injury cases should determine under different heads, pecuniary and
non-pecuniary damages, if any, because unless this is done the High Court cannot determine whether it has made
an entirely erroneous estimate of damages and the very purpose of the appeal would be defeated.36.
A full bench of the Rajasthan High Court tabulated the heads on which compensation is admissible in cases of fatal
accidents which includes the following:
(i) Loss of love and affection of spouse/children/parents.

(ii) Consortium.
(iii) Loss of future happy life of deceased.
(iv) Mental shock.
(v) Mental and physical agony, pain and suffering.37.
In estimating damages, the tribunal need not strictly follow and apply the basis of the assessment of compensation
indicated in the various decisions under Fatal Accidents Act and under English Law but has to estimate and assess
the damages which it deems just compensation on the facts and circumstances before it.38. Bhagavathi CJ
observed:
We cannot allow our judicial thinking to be constructed by reference to the law as it prevails in England or any other foreign
country. We no longer need the crutches of a foreign legal order. We are certainly prepared to receive light from whatever
source it comes but we have to build our own jurisprudence.39.
Page 2 of 3
Chinnappareddy J of the Supreme Court also concurred with him and said:
The time has perhaps arrived to discourage uninhibited reference to and extravagant use of foreign precedents, though
indeed we welcome such precedents when they explored virgin territory and expand the horizons of legal thought.40.
In passing the award the tribunal may also direct payment of surplus interest at some reasonable rate on
compensation awarded from such date not earlier than the date of making the claim.41. Determination of rate of
interest depends upon facts and circumstances of each case. Claim for each in cases where it is satisfied for
reasons to be recorded in writing that:
(i) the policy of insurance is void on the ground that it was obtained by representation of a fact which was
false in any material particular; or
(ii) any party or insurer has put forward a false or vexatious claim or defence, the court or tribunal may award
as compensatory costs to the aggrieved party an amount not exceeding Rs 1000; this amount need not be
taken into account in any subsequent civil or criminal litigation that will be taken up subsequently for the
fraud committed by the party.42.
Tripura High Court while upholding the MACT Order awarding compensation to a student who suffered accident,
the court has observed that academic qualification cannot be the sole criteria to determine the merits of a person
and there should not be any discrimination in determining the loss of earning capacity on account of disability
occurred due to road traffic accident particularly, when claimant-victims are students. The court observed that “in
our country there are so many instances that a person with less academic career has become a successful
industrialist and even participated in generating the economic growth of the nation”, observed the High Court.43.
The Supreme Court in United India Insurance Co, Ltd, v Indiro Devi has held that salary certificate need not be the
only bias to assess income of the deceased for arriving at a just and fair compensation to be paid to the claimants
for the loss of life. The Supreme Court upheld a Punjab & Haryana High Court Judgment that had taken the income
of the deceased as found in the income tax assessment and increased the compensation awarded by the
tribunal.44.
32.6.1 Appeals Against Award
No appeal lies against the award of the claims tribunal if the amount in dispute in the appeal is less than Rs 2000.
In all other cases, an appeal lies to the High Court. The appeal shall be filed within 90 days; but the High Court is
empowered to condone delay if it is satisfied that the party is prevented by sufficient cause from preferring the
appeal in time.45.
If there is delay it may be condoned under section 5 of the Limitation Act if sufficient cause is shown. It may be
condoned even if there is delay in filing the claim petition. Where a military vehicle was damaged in an accident with
a civil truck, time taken in obtaining sanction from Army Headquarters by the Union of India was held not to
constitute sufficient cause; more so in the present case where it was intended to file a claim from day one.46.
A new proviso has been added by the 1988 Act to the effect that no appeal by a person who is required to pay any
amount in terms of such award shall be entertained by the High Court unless he has deposited with it Rs 25,000 or
50 per cent of the amount so awarded, whichever is less, in the manner directed by the High Court. This is a
welcome feature and does quicker justice to the needy motor vehicle victims.
It was held by the Supreme Court that there was no restriction to award compensation exceeding the amount
claimed by the claimants, as the “function of the Tribunal or Court under section 168 of Motor Vehicles Act, 1988 is
to award “just compensation”.47.
The Supreme Court reiterated that the High Court while sitting in appeal above MACT order, should assign the
reasons for not granting enhancement of compensation and/or its reduction.48.
32.6.2 Execution of the Awards
The person entitled to any money under an award can make an application to the claims tribunal which passed
Page 3 of 3
awards for recovery of money due to him. On such an application, the tribunal is empowered to issue a certificate to
the collector for the amount and the collector proceeds to recover the same in the same manner as an arrear of
land revenue.49.
This is another welcome addition as it eliminates the expensive and dilatory execution in a civil court and provides
an expeditious and less expensive procedure in realising the amounts of compensation awarded by the tribunal to
the victims of motor accidents.
31. Ibid, section 110B, section 168, Motor Vehicles Act, 1988.
32. Jullandhar Municipality v Ramesh Saggi, AIR 1970 P&H 137.
33. Ibid.
34. K Gopalakrishnan v Sankara Narayanan, AIR 1970 Mad 436.
35. State v VK Kalia, AIR 1969 Punj 173.
36. MPSRTC v Johiram, AIR 1969 MP 89.
37. Rajasthan SRTC v Kistoori Devi, AIR 1986 Raj 192 (FB) quoted and followed in DD Upadhyaya v UPSRTC, AIR 1993
Del 57; Irla Nagiah v Rajkamal Transport, 1993 (3) ALT 169.
38. Ishwar Devi v UOI, AIR 1969 Del 183.
39. MC Mehta v UOI, AIR 1987 SC 1086.
40. General Electric Co v Ramasagar Power Co, 1987 SCC 137.
41. The Motor Vehicle Act, 1939, section 110CC; section 171, Motor Vehicles Act, 1988; Iqbal Kaur v Chief of Army Staff,
AIR 1978 All 417; Joharilal v PCH Reddy, AIR 1975 Raj 232; Ramesh Chandra v Randhir Singh, AIR 1977 All 330(DB);
Shanti Devi v Charchal Singh Chada, AIR 1993 Del 373; M Bapaniah v Y Malleswaram, 1977 (2) ALT 646;
Dharamsingh v Praveen Singh AIR, 1992 Del 347; New India Assurance Co Ltd v Anokhilal, 1993 ACJ 216 (MP);
Hardeo Kaur v Rajasthan SRTC, AIR 1992 SC 1261; National Interest Insurance Co v Manjula Ben, 1993 ACJ 157.
42. The Motor Vehicles Act, 1939, section 110CCC; The Motor Vehicles Act, 1988, section 172.
43. New India Assurance Co, Ltd, v Sri Bapi Debbarama s, Tripura High Court Order dated 23 July 2018.
44. Civil Appeal No 7104-7105 of 2016 decided by the Supreme Court on 3 July 2018.
45. Ibid, section 110D; ibid, section 173.
46. UOI v Swaran Singh, AIR 1994 J&K 15.
47. Ramla v National Insurance Co, Ltd, SC Civil Appeal No 11495 of 2018 decided by the Supreme Court on 30
November 2018.
48. Sudarsan Puhan v Jayanta Kumar Mohanty, Supreme Court Order dated 20 September 2018.
49. The Motor Vehicles Act, 1939, section 110E; section 174, Motor Vehicles Act, 1988; HN Desai v State of Gujarat, 1992
(1) Civ LJ 122 (Guj); Hirabhai Nanubhai Desai v State of Gujarat, AIR 1991 Guj 1(DB); Prabha Devi v Bhoop Singh,
AIR 1991 All 288.
End of Document
33.1 Introduction
INSURANCE OMBUDSMAN
CHAPTER 33 INSURANCE OMBUDSMAN
33.1 Introduction
The word “Ombudsman” is a Swedish word which literally means the right of individuals against public authority.
Ombudsman in its country of origin is a position created to control public authorities while exercising powers
invested in them. In India a similar institution was created and called Lok Pal in the Center and Lok Ayukta in the
states. In the insurance sector, the Malhotra Committee recommended setting up of the institution of Ombudsman
with a view to reduce litigation and to protect a consumer’s interest in the backdrop of privatisation of the insurance
sector.
The Central Government, in exercise of the powers conferred on it by the Insurance Act, 1938, by notification,
framed the Redressal of Public Grievances Rules, 1998. It is provided in these rules that there should be a
governing body of the insurance council and it shall appoint one or more persons as Ombudsman who may be
selected from a wider circle including those who have experience or have been exposed to the industry, civil
service, administrative services etc, in addition to those from the judicial service. He shall be appointed for three
years and their emoluments are equivalent to those of a High Court judge. The Ombudsman appointed will have
jurisdiction on both life and general insurance claims, and his office shall be located at such place as may be
specified by the Insurance Council from time to time and the governing body shall specify his territorial jurisdiction
and he may hold his sittings in his area for expeditious disposal of the cases. The government reserves power to
exempt any company from the provisions of the Redressal of Public Grievances Rules if it is satisfied that such
insurance company has a grievance redressal cell which fulfills the requirement of those rules. An Ombudsman
scheme has been set up in several centres in India. (The centres having the scheme are Delhi, Mumbai, Chennai,
Calcutta, Lucknow, Hyderabad, Bhopal, Kanpur, Bhubaneshwar, Bangalore and Chandigarh).
End of Document
33.2 Complaints
INSURANCE OMBUDSMAN
33.2 Complaints
33.2.1 When and Who can Present a Complaint
(i) The complainant must first make a written representation to the insurer and if the insurer had:
(a) rejected the claim of the complainant or
(b) the complainant had not received any reply written one month after receipt of the complaint by the
insurer.
(ii) The complainant may himself or through his legal heirs make a complaint in writing to the Ombudsman
within whose jurisdiction the branch or office of the insurer complained against, is located.
33.2.2 Manner of Complaint
The complaint shall be in writing duly signed by the complainant or through his legal heirs. It shall clearly state the
name and address of the complainant, the name of the branch or office of the insurer against which the complaint is
made, the facts giving rise to the complaint supported by documents, if any, relief claimed by the complainant, the
nature and extent of the loss caused to the complainant and the relied sought from the Ombudsman. The complaint
should not be on the same subject matter for which any proceedings are pending before any court, arbitrator or
consumer forum.
33.2.3 Subject-matter of Complaint
Regulation 121. says that the Ombudsman may receive and consider complaints in respect of:
(i) Any partial or total repudiation of any claims by an insurer.

(ii) Any dispute regarding the 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; or
(v) Non-insurance of any insurable document to customers after receipt of premium.
33.2.4 Complaints by Mutual Consent
Besides the unilateral complaint by the policy holder regulation 152. provides for a bilateral reference by mutual
agreement. Both the insurer and insured may agree to refer a dispute of the above nature to the Ombudsman.
When such a bilateral reference is made, the Ombudsman shall act as a mediator or counselor. In such a reference
the Ombudsman then makes his recommendation and if it is acceptable to the insured, it shall be satisfied by the
insurer.
Page 2 of 2
33.2 Complaints
In case of unilateral complaints, the Ombudsman shall pass an award within three months of the filing of complaint.
Here also the insurer has to satisfy the award, if it is acceptable to the insured.
1. Rule 12, Redressal of Public Grievances Rules, 1998.

2. Rule 15, Redressal of Public Grievances Rules, 1998.
End of Document
33.3 Duties and powers of Ombudsman
INSURANCE OMBUDSMAN
33.3 Duties and powers of Ombudsman
(i) The Ombudsman may ask the parties for necessary papers in support of the respective claims of the
parties.
(ii) He may also collect the factual information available with the insurer if necessary.
(iii) He shall dispose of the complaint fastly and equitably.
(iv) He shall not pass an award giving any compensation in excess of the actual amount of losses suffered by
the complainant by an insured peril subject to a limit of Rs 20 lakhs including ex-gratia payments.
(v) The Ombudsman shall furnish a report every year to the Central Government containing a general review
of his activities.
End of Document
33.4 Award
INSURANCE OMBUDSMAN
33.4 Award
(i) Where the complaint is not settled by mutual agreement under rule 15, the Ombudsman shall pass an
award which he thinks fit in the facts and circumstances of a claim.
(ii) An award shall be in writing and shall state the amount awarded to the claimant.
(iii) The award must be passed within three months from the date of receipt of the complaint.
(iv) A copy of the award shall be sent to both the parties.
33.4.1 Effect of Award
The award becomes binding on the insurer only if it is accepted by the claimant and for that it is provided that the
complainant shall furnish to the insurer within one month from the date of receipt of the award, a letter of
acceptance that the award is in full and final settlement of his claim.
In receipt of the acceptance letter from the complainant the insurer shall comply with the award within 15 days and
it shall intimate the compliance to the Ombudsman.
If the complainant does not intimate his acceptance, the award is not binding on the insurer.
End of Document
33.5 Assessment of his Performance
INSURANCE OMBUDSMAN
33.5 Assessment of his Performance

The Insurance Regulatory Development Authority (IRDA) can review the performance of the Ombudsman from time
to time in consultation with the governing body.
End of Document
34.1 Preliminary
POLICY HOLDER AS CONSUMER
CHAPTER 34 POLICY HOLDER AS CONSUMER
34.1 Preliminary
In the beginning, before industrialisation, the consumer was a king and he controlled the market. But with
industrialisation and advancement of civilisation, introduction of quicker modes of transportation and
communication, establishment of multinational companies running huge industries dumping a variety of
sophisticated goods, globalisation of the market converted the buyer’s market into a seller’s market where the king
consumer was dethroned. Now the consumer is a pathetic observer ready to be swindled by the big businessmen–
both suppliers of goods and service providers. Thanks to Ralph Nadar who started the consumer movement in USA
demanding consumer protection, it spread like wildfire and entered the international sphere of law. As a result, 15
March every year is observed as “World Consumer Day”.
In India in the history of socio-economic legislation, the Consumer Protection Act, 1986 is recognised as a
milestone and is mainly intended to ameliorate the position of the Indian consumer.
End of Document
34.2 Object of the Act
34.2 Object of the Act

The Preamble of the Act declares its main objective as to provide for the better protection of consumers which
suggests that there are earlier legislations designed to protect the consumer. This Act does not provide any
substantive rights but is mainly intended to provide cheap, simple and speedy redressai to consumer grievances. It
provided a four-tier redressai system, namely the Consumer Redressai, District Forum, the State Commission and
the National Commission empowered to redress the grievance of the applicant consumer with reliefs of a suitable
specific nature and award compensation in other cases. The Act was amended in 1993 enhancing the powers of
the redressai agencies and also extended the scope and coverage of the Act.
End of Document
34.3 Complaint of Policy Holders
34.3 Complaint of Policy Holders

The first question that arises is whether a policy holder can be a complainant before the redressal agencies. Under
the Consumer Protection Act, 1986 the following can file a complaint before the appropriate redressal agency:
(i) a consumer; or
(ii) any voluntary consumer organisation registered under the Societies Registration Act, 1860 or under the
Companies Act, 1956 or under any other law for the time being in force; or
(iii) the Central or state governments or administration of the Union Territories; or
(iv) one or more consumers on behalf of numerous consumers who have the same interest.1.
1. Section 12(1), Consumer Protection Act, 1986
End of Document
34.3 Is a Policy Holder a Consumer
34.3 Is a Policy Holder a Consumer

From this definition it is clear that one or more consumers or a registered consumer association can file a
complaint.
So, the next question that arises is who is a consumer and whether a policy holder comes within the concept of a
consumer under the Consumer Protection Act, 1986. The definition of a consumer can be seen below.
End of Document
34.4 Who is a Consumer

For the purpose of the Consumer Protection Act, the word consumer has been defined separately as “consumer of
goods” and “consumer of services”.2. The insurer agrees to indemnify the policy holder from a contingent loss and
the policy cannot be called goods in any sense; but the insurer may be called the provider of service and the policy
holder comes under “consumer of services,” in this context we may examine the definitions of the relevant words in
the interpretation clause of the Consumer Protection Act.
34.4.1 Consumer
The definition given in section 2(1)(d) of the Consumer Protection Act defines consumer, as noted earlier, under two
heads and in that the policy holder comes under consumer of service and the relevant part reads thus:
Consumer means any person who
(i) ...or
(ii) hires or avails of any services for a consideration which has been paid or partly paid and partly promised,
or under any system of deferred payment and includes any beneficiary of such services other than the
person who hires or avails of the services for consideration, paid or promised or partly paid and partly
promised, or under any system of deferred payment, when such services are availed of with the approval
of the first mentioned person...
From an analysis of this portion of the definition emerges the following:
(i) a consumer means any person;

(ii) he must have hired or availed of any services for a consideration;
(iii) the consideration may be paid or promised or partly paid and partly promised or under any system of
deferred payment;
(iv) it includes any beneficiary of such services where he uses or avails the benefits of services with the
approval of the original hirer.
In this sense any person who hires or avails the service of another person for consideration is a consumer. Thus,
the Act makes an assault on the citadel of priority provided in the general principles of contract law. The insurance
policy covers loss of property insured in the custody of the insured, his partner or his employee. The gold
ornaments were lost when they were in the possession of the “apprentice”. The insurance company repudiated the
claim on the ground that the ornaments were not lost when they were in the possession of the partner or employee
and it also claimed that “apprentice” does not come under the definition of the employee. National Commission held
the term “employee” includes “apprentice” and hence the company was liable. On appeal, the Supreme Court held
Page 2 of 5
that “apprentice” is a trainee but not “employee” and hence the claim was not maintainable.3.
34.4.2 Service
Then the question arises as to what is meant by “service”. “Service” is defined as services of any description but
does not include service under “contract of personal service”. Section 2(1)(o) reads:
Service means service of any description which is made available to potential users and includes the provision of facilities,
in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or
lodging or both, housing construction, entertainment, amusement, or the purveying of news or other information, but does
not include the rendering of any service free of charge or under a contract of personal service.
The above definition of the word “service” specifically includes within its scope the provision of facilities in
connection with insurance and a policy holder thus is included in the concept of consumer.
Deficiency of Service A “consumer of service” can file a complaint seeking any of the reliefs specified in the
Consumer Protection Act if there is any “deficiency of service”. Deficiency in service is defined in section 2(1)(g) of
the Act as:
Deficiency’ means any fault, imperfection, shortcoming, or inadequacy in the quality, nature and manner of performance
which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed
by a person in pursuance of a contract or otherwise in relation to any service.
The deficiency in service must be alleged specifically in the complaint and if it is not done but the same allegations
are raised in rejoinder, the same does not amount to an allegation in deficiency of service.4.
A fact mentioned in the complaint that has not been controverted in the written statement was held to be deficiency
in service and the complainant was entitled to the relief.5.
Failure to perform duty imposed by law or under contract amounts to deficiency. Under law an insurer may pay the
amount due under the policy within a reasonable time and so unexplained inordinate delay in settlement of
insurance claims was held to constitute deficiency in service.6.
Though the claim is based on deficiency of service if prima facie the insurer has done what he has to do and found
that insured has no claim and the insured is not satisfied with the decision of the insurer a complaint is not
maintainable before a consumer tribunal. This is not a case where the insurance company did not take prompt
action. Having regard to the facts and circumstances of the case and the nature of the controversy, it is a matter fit
to be adjudicated before a civil court, where the parties will have ample opportunities to examine witnesses at
length, take out a commission for local inspection and also the complaint is dismissed without prejudice to take
resort to the remedy by way of civil suit before the proper court.7.
Where proper steps are not taken and the insurance makes a delay in payment, it is a deficiency of services.8.
Repudiation of policy and refusal of an Insurance company to pay the policy money to the wife of a policy holder
when the policy holder committed suicide does not come under “deficiency of service” under the Consumer
Protection Act, 1996.9. Where the insured suppressed material facts and on the ground that the insurance company
refused the claim, it held that it is not a deficiency in service.10. In these cases the burden lies on the insurer to
establish that the policy holder has made a statement fraudulently knowing that the statement is false.11. Failure to
pay money to the nominee or insistence of production of succession certificate by the widow when her name
already appears in the policy as assignee constituted deficiency of service.12.
Where the insurance company is negligent in setting the claim, it amounts to deficiency in service and the claimant
is entitled to compensation not only for financial loss but also mental stress.13. When an insurance claim is
repudiated by the insurance company after proper investigation on reasonable grounds there is no deficiency in
service.14. Insurance Policy did not cover parts of machinery which were required to be replaced by normal wear
and tear and it was held that the insurance company was entitled to exclude the value of those parts while
assessing the claim.15. The insurance company rejected the claim of the insured on the ground that the driver of the
vehicle did not possess valid driving licence at the time of accident and the vehicle which was a private vehicle and
Page 3 of 5
insured should use for personal use, but was being used as a taxi for carrying marriage parties. The District forum
rejected the claim, but on appeal the State Commission allowed the claim on the ground that there was no
fundamental breach of the terms of the policy. On revision, the National Commission also supported the State
Commission’s decision. On appeal, the Supreme Court set aside National Commission’s order on the ground that
National Commission failed to give any reason for coming to the conclusion that there was no fundamental breach
of the terms of the policy and hence it set aside the orders of the State Commission and National Commission.16.
Where the insurance company erroneously repudiated the claim it was held that it amounted to deficiency of
service.17. In Praveen Kumar v New India Assurance Co Ltd, (1994) 1 CPR 341(Har), where the vehicle was
insured for Rs 2 lakhs and due to accident and fire, the vehicle was destroyed, the rejection of complaint was
arbitrary and clearly a deficiency of service. The insurance company was directed to pay Rs 1,74,500 with interest
at 18 per cent and further observed that that order in no way precludes the complainant from claiming the balance
of Rs 25,500 in a civil court. When the insurance company in an insurance for theft of goods tendered the amount
assessed by its surveyors it was held that there is no deficiency of service.18. In a contract of insurance, rights and
obligations are strictly governed by the policy of insurance and the courts cannot make any exceptions or
relaxations on the ground of equity.19. Refusal to pay a claim on a lapsed policy does not constitute deficiency of
service.20. Any service which is paid for by a scheme of insurance will fall within the definition of service in section
2(1)(0) and the insurer is liable.21.
In Vadodara Municipal Corporation v Purushottam, (2015) 3 SCC (Civ) 397 : AIR (2015) the insurance company
issued the policy dt 1 November 1992 covering loss to the extent Rs 20 Lakhs per accident with Rs 80 Lakhs as
maximum per year. During the period in question, the contract for plying the boats was given to Ripple Aqua Sports
Club at the Lake for purposes of entertainment. The agreement, inter alia, provided that the facility of boating was to
be given to the public. It was necessary that the contractor shall be taking insurance policies to cover the risk
liability of all persons using the equipment of the club. The corporation had the right to supervise the boating club.
On 11 August 1993, against the capacity of 20 persons, 38 passengers were allowed to ride in the boat which
capsized resulting in the death of 22 passengers. The victims approached the State Commission on 30 March 1994
and around under the provisions of Consumer Protection Act, 1986 claiming compensation alleging deficiency of
service on the part of the contractor and the corporation. The victims claimed that the insurance policy covered the
claim to the extent of Rs 20 lakhs per passenger with maximum of Rs 80 lakhs in year. Under the Bombay
Provincial Municipal Corporation Act, 1949, the corporation had the duty to maintain the safety of the passengers
and in case of negligence, the Corporation had the tortuous liability under the law. The corporation was also liable
for tortious acts of the contractor. The passenger had taken tickets for the boat ride but on account of deficiency in
service the passengers drowned on capsizing of the boat was overloaded. The occurrence took place on account of
negligence of the contractor as well as failure of the corporation to exercise due care. No life guards were provided,
no life-saving jackets were provided and if suitable safety measures would have been taken, the lives of the victims
could be saved. The insurance company contested the case and submitted that as per the insurance policy given,
the liability was limited to Rs 1 lakh per person. Stand of the corporation was that complainants were not consumers
and had remedy under the Indian Vessels Act, 1917. The contractor was independent licensee without any control
of the corporation. The stand of the contractor was that it was not liable as the claimants were not consumers and
the liability was of the corporation. The insurance company also opposed the claim and also submitted that its
liability did not exceed Rs 20 lakhs. The State Commission allowed the claim by observing that even a public
authority exercising statutory power was not exempt from liability for negligent actions. When the corporation
exercised the control over the contractor, it was vicariously responsible for the negligence of the contractor. As
regards the liability of the insurance company, it was held that its liability under the policy was Rs 20 lakhs for each
or one incident which meant one death in view of Motor Owner’s Insurance Co, Ltd, v Jadivji Keshavji, (1981) 7
SCC 660. The policy was covered by Public Liability Insurance Act, 1991. It was also held that contractor could not
escape its liability in the given circumstances when deficiency in service was patent in view of violation of Indian
Vessels Act, 1917. Negligence in operating the boat amounted to deficiency in service as held in Ravneet Singh
Bagga v KLM Royal Dutch Airlines, (2000) 1 SCC 66. Accordingly, the State Commission held the Aqua Sports and
the corporation to be jointly and severally liable. The State Commission awarded total compensation of Rs
30,18,900/- with interest @ 10% per annum from the date of the incident till the date of payment. The State
Commission determined the quantum of compensation ranging from Rs 50,000/- to Rs 10,76,000/- in respect of
claims for death of 22 passengers. The decision of State Commission was upheld by the National Commission with
the enhancement in quantum of compensation in some of the cases keeping in mind the principles for determining
compensation under the Motor Vehicles Act, 1988. In appeal, the Supreme Court upheld the decisions of State
Commission and National Commission by observing that the Insurance Company was bound by the IRDA
(Protection of Policy Holders’ interest) Regulation, 2002.
It was undisputed that the accident occurred because of rash and negligent driving of driver of offending vehicle.
The said fact was not taken into consideration either by the State Commission or National Commission while setting
Page 4 of 5
aside the order of the District forum directing respondent company to settle the claim on non-standard basis up to
75% along with interest 9% per annum from the date of lodging the complaint and to pay Rs 2,000/- for rendering
deficient service, causing mental agony and harassment, and litigation costs. The Supreme Court set aside the
National and State Commission Order and restored the District Forum’s Order.22.
In the absence of the Insurance Company failing to provide any reason suggesting that the report was tainted,
reliance upon the same by the National Commission upheld.23.
Under Insurance and Averaging Out: The Two Judge Bench of the Supreme Court broadly discussed the points
“Under-Insurance” and “Averaging Out” under Law of Insurance. In IC Sharma v Oriental Insurance Co, Ltd, 10
January 2018 the appellant had purchased household Insurance from the Respondent Insurance Company.
The policy in question was renewed till 22 December 2005. As per the policy the coverage articles/items in the
appellant’s house was “as per the list”. Pursuant to the expiry of the policy on 22 December 2005 a fresh policy was
registered as per new scheme on 19 January 2006 and renewed from time to time. Meanwhile, the appellant went
to the United Kingdom and burglary took place inside the appellant’s house.
In the alleged burglary, the appellant’s household items were stolen for which the appellant claimed the loss from
the respondent. However, the appellant was dissatisfied with the National Commission’s Order where in the
Commission was observed that appellant had supplied a list of articles for the first policy, if there was any change,
he should have filed a fresh list and since a large number of articles were not mentioned in claimant list and so he
was not entitled to the amount claimed by him. While deciding the case, the Supreme Court deliberated on Under
Insurance and Averaging Out to decide the amount of claim. What is Averaging Out? When the value of the goods
is more than the sum for which they are insured then it is presumed that the holder has not taken out insurance
policy for the un-insured value of the goods. Applying the principle of averaging out, ie, the insured is paid an
amount proportionate to the extent of insurance as compared to the actual value of the goods, then the insured is
entitled to claim the loss proportionately.
In KP Desai v United India Insurance Co, Ltd2. KP Desai took a health insurance policy from Insurance Company in
1990, which he renewed in every year. In 1997, he underwent corrective lasik, or laser eye surgery, for one eye and
the hospital bill came to Rs. 50,000/-. However, his claim for reimbursement was rejected by the insurer, which said
that the surgery was purely cosmetic and, hence, not covered by the policy. Desai filed a complaint with the District
Forum, Mumbai in, 1997. It ruled in his favour on 19 April 2004. The Insurance Company preferred an appeal
before the Maharashtra State Commission, which upheld the District Forum ruling. Earlier, health insurers clearly
stated that laser eye surgery was cosmetic and excluded it from the policy. However, the ruling questions the
assumption of the surgery being cosmetic. As a person opts for it only to correct his vision, it cannot be said that the
surgery is only to enhance his appearance.
In New India Assurance Co, v Ashok Kumar,25. on 30 November 2006, Ashok Kumar purchased a used car, which
was insured by the New India Assurance. However, he did not inform the company about the transfer of
registration, or ask it to shift the policy in his name. On 12 March 2007, the car was stolen and Kumar filed a claim.
However, it was rejected on the ground that the policy was not in his name. The District Forum, Delhi State
Commission, Delhi ruled in favor of the Kumar. However, the National Commission ruled in favor of the Insurance
Company stating that according to IRDA Regulation, it is mandatory to inform the insurance company about the
transfer of vehicle within 14 days, failing which the company is not liable to reimburse a claim.
In Consumer Education and Research Society, IFFCO-Tokio General Insurance Company,26. the society, paid a
premium of Rs 38, 250/0 for a fire policy of Rs 2.25 lakh stock bought from IFFCO-Tokio General Insurance Co, in
2003. During the validity of the policy, a portion of the stock got burnt due to spontaneous combustion. The insurer
rejected the company’s claim stating that since the stock was not burnt due to an actual fire, it was not liable to pay.
However, the National Commission ruled that this amounted to deficiency of service on the part of the company and
it was liable to pay damages amounting to Rs 1.14 lakh, along with 10% interest per year from 2003 onwards.
2. Section 2(1)(d), Consumer Protection Act, 1986.

3. New India Assurance Co Ltd v Abhilash Jewellery, (2009) 2 SCC 661 : AIR 2009 SC 1827.
4. Tamil Nadu Industrial Investment Corporation v IR David III, (1995) CPJ37 (NC); Kisan Cold Storage v National
Insurance Co Ltd, 1993 CCJ 2(g) (Har).
Page 5 of 5
5. Manager, North Eastern Carrying Corp v Gitane Exports I, (1996)CPJ 166 (Pun).
6. National Insurance Co Ltd v Lalchand Jain and Sons, 1997(1) CPR 108 (NC).
7. Janta Machine Tools v Oriental Insurance Co Ltd, (1991) II CPJ 18 (NC).
8. Premjibhai Ranchodbhai Hodar v National Insurance Co Ltd, (1994) 1 CPR 197 (Guj); Manoranjan Sahu v DM New
India Assurance Co Ltd, (1993) 1 CPR 488 (Ori); Kusumaben J Badiani v United India Insurance Co Ltd, (1993) 1 CPR
38 (Guj); RK Industries v New India Assurance Co, (1996) CCJ 1209 (NC); Rajeshwaribai Upendra Kumar Shah v The
Oriental Insurance Co Ltd, (1997) (1) CLT 210 (NC); Barun Mandal v Branch Manager, Oriental Insurance Co Ltd,
(1997) 1 CPR 67 (WB).
9. LIC of India v Shanta, (2004) 13 SCC 748.
10. Life Insurance Corpn of India v Chandrawati Devi, (1992) CJJ 255 (NC); Divisional Manager, LIC of India v Sunita
Sharma, (1941) 1 CPJ 3 (NC); Padma Rani v LIC, (1994) 1 CPR 477 (Punj).
11. Life Insurance Corpn of India v S Hymawati, (1996) I CPJ 13 (NC); Draupadi Devi v United India Insurance Co Ltd,
(1993) CCJ 402.
12. Life Insurance Corpn of India v Chatur Behari Lal, (1991) 1 CPR 156 (Raj); Sulochana Thora v Oriental Insurance Co,
(1993) 1 CPR 297 (Bihar).
13. Birendra Mohan Pol Sinha v New India Assurance Co, (1993) 1 CPR 297.
14. Vellithody Ramakrishan Vazikkadellu v Divisional Manager New Delhi Assurance Co Ltd, (1993) 1 CPR 245 (Ker);
Jadadish Prasad Dagar v Senior Divisional Manager, LIC of India, (1993) CCJ 543; Ghanshyam Bhai Bahecharbhai
Patel v New India Insurance Co Ltd, (1993) 2 CPJ 1227 (Guj).
15. Sikka Papers Ltd v National Insurance Co Ltd, (2009) 7 SCC 777 : (2009) 3 CPJ 90 (SC); The Consumer Protection
Act, 1986, sections. 2(1) (g) and (o).
16. National Insurance Co Ltd v Meena Aggarwal, (2009) 2 SCC 523 : 2009 (1) JT 612 : 2009 (1) Scale 8.
17. S Vijaya v Marketing Manager, Divisional Office, LIC of India, (1994) CPR 316 (Kant).
18. New India Assurance Co Ltd v New Gulmarg Restaurant, (1996) CCJ 1311(Har).
19. Deokar Exports (P) Ltd v New India Assurance Co Ltd, (2008) 14 SCC 598 : AIR 2009 SC 2026 : (2009) CPJ 6 (SC).
20. LIC of India v Sushma Singh, (1994) 1 CPJ 143(NC).
21. Kishore Lal v Chairman, ESI Corpn, (2007) 4 SCC 579 : AIR 2007 SC 1819.
22. Lakhmi Chand v Reliance General Insurance, (2016) 3 SCC 100.
23. National Insurance Co, Ltd, v Hindustan Safety Glass Works Ltd, (2017) 5 SCC : (2017) 2 CPR 1.
2. Maharashtra State Commission dt 31 January 2013.
25. National Commission Order Dt 19 March 2013.
26. National Commission Order Dt 19 March 2013
End of Document
34.5 Complaint
34.5 Complaint
The next relevant definition in the Consumer Protection Act to a policy holder consumer is “complaint”. It is by filling
a complaint a consumer can set a consumer redressal agency in motion to obtain the desired relief. This is defined
in section 2(1)(C) and the relevant portion runs thus:
Complaint means any allegation in writing made by a complainant that:
(i) an unfair trade practice or a restrictive trade practice has been adopted by any trader or service provider;
(ii) ...
(iii) the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any
respect
(iv) ...
(v) ...
(vi) ...
From this it can be seen that a policy holder can file a complaint that the services hired or availed of or agreed to be
hired or availed of by him suffers from deficiency in any respect and can seek any relief which the consumer
redressal agencies can grant. The reliefs that can be granted by the district forum are given in section 14 and
identical powers are granted to the state commission under section 18 of the Consumer Protection section 22 of the
Act confers similar powers on the National Commission.
End of Document
34.6 Reliefs
34.6 Reliefs
The relevant portion of section 14 granting relief reads as:
Finding of the District Forum:
(1) if after the proceeding conducted under section 13, the District Forum is satisfied...that any of the
allegations contained in the complaint about the services are proved, it shall issue an order to the opposite
party directing him to do one or more of the following things, namely—
(a) ...
(b) ...
(c) To return to the complainant...the charges paid by the complainant;
(d) To pay such amount as may be awarded by it as compensation to the consumer for any loss or injury
suffered by the consumer due to the negligence of the opposite party;….
(e) To remove the...deficiencies in the services in question
(f) To discontinue the unfair trade practice or the restrictive trade practice...
(g) ...
(h) ...
(ha) ...
(hb) .
(hc) .
(i) to provide for adequate costs to the parties.
The tribunals under the Consumer Protection Act can grant only these reliefs.27.
In general, as noted earlier the policy holder can have a grievance for deficiency of service by the insurer. The
deficiency for service is when the insurer does not do the duty undertaken by him under the contract contained in
the policy. The relief claimed by the policy holder is to direct the opposite party to do his duty under the contract,
namely to settle the claim and pay the amount due under the policy. If there is unreasonable delay in payment or
unreasonable repudiation of the claim, it may cause mental stress and the tribunals are expressly authorised to pay
compensation under section 14(d) of the Act. The tribunals are also empowered to pay costs under section 14(c).
Though granting of interest for delayed payment is not expressly provided, as a part of compensation it may be
granted and in practice, interest has been granted by the tribunals in a number of cases.
There is no power to these tribunals to grant interim reliefs while exercising their original jurisdiction.28.
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34.6 Reliefs
27. Superintending Engineer Rajasthan SEB v Natiorlal, (1992) 1 CPR 168 (Raj); District Telecoms Engineer, Udaipur v
Dharmesh Kumar Jain, (1992) 1 CPR 122 (Raj).
28. Swapana Kumar Babu v Suniti Chatterji, (1997) 1 CPR 86 (NC); Bank of Baroda v Arvind Modern, (1996) 1 CPR 43
(Del).
End of Document
34.7 Tribunals
34.7 Tribunals
To provide speedy, simple and inexpensive redressal to consumer disputes, a quasijudicial machinery is set up at
the district, state and national levels. They are intended to relieve the over-burdened conventional courts. Under
section 9, a consumer redressal forum known as “district forum” is to be established by the state government with
the prior approval of the Central Government in each district of the state. Similarly, at the state level, the Consumer
Redressal Commission is to be established under section 9 (b) and is to be known as the “state commission”. The
National Consumer Dispute Redressal Commission is to be established by the Central Government under section 9
(c) and is to be known as the “national commission”. These quasi-judicial bodies observe the principles of natural
justice and have been empowered to give reliefs of a specific nature and to award, wherever appropriate,
compensation to consumers.
34.7.1 Their Jurisdiction
District forums have jurisdiction up to the value of rupees five lakhs, the state commission up to the value of Rs 20
lakhs and the national commission to deal with cases of the value above Rs 20 lakhs. A complaint has to be filed in
that district forum or state commission within whose territorial jurisdiction the cause of action has wholly or partly
arisen or where the opposite party resides or carries on business or has a branch office or personally works for
gain. All the tribunals have original jurisdiction and the state commissions and national commission have appellate
jurisdiction also.
End of Document
34.8 Bird’s Eye View of the Rest of the Act

Section 12 provides for the manner in which a complaint has to be filed and section 13 deals with the procedure to
be followed on receiving the complaint. Section 14 referred above deals with the types of findings that can be given
by the district forums. Sections 18 and 22 provide for the procedure to be followed by the state commission and
national commission respectively by providing that sections 12–14 apply to them also. Section 15 provides for an
appeal against the findings of the district forum to the state commission. The appeal is to be filed within 30 days
with power to the state commission to condone delay by proving a sufficient cause for delay. Section 19 provides
for a further appeal to the National Commission on its original orders as well as appellate orders. The limitation is
the same as above. Section 23 provides that any person aggrieved by an order made by the National Commission
in exercise of the powers conferred under section 21(i)(a), ie, orders of the national commission under its original
jurisdiction, may prefer an appeal against such an order to the Supreme Court within a period of 30 days with power
to condone the delay on proving sufficient cause. The National Commission’s order should not be cryptic and
unreasoned and it should not summarily dismiss the appeal.29. In order to determine the extent of liability of insurer,
terms of insurance contract have to be strictly construed. It was held that on the date of issuing the policy only six
houses were there and so only those six were covered by the policy and it was also held that the surveyor’s report
would not be relevant for construction of insurance policy.30. Section 24 provides that all orders of all the three
tribunals shall be final if no appeal is filed against such order.
34.8.1 Execution
Section 25 specifically provides for enforcements of the orders passed by the three tribunals by providing that they
are all to be treated as if they were decrees or orders made in a suit by a civil court.31.
Section 26 provides for dismissal of frivolous and vexatious complaints.32. Section 27 provides for penalties and
states that where a trader or a person against whom a complaint is made fails or omits to comply with any order
made by the three tribunals, each trader or person shall be punishable with imprisonment for a term which shall not
be less than one month and which may extend to three years or with fine which shall not be less than Rs 2000 but
which may extend to Rs 10,000 or with both.33.
34.8.2 Limitation
Section 30 empowers the Central and state governments to make rules and in fact rules have been made by all
states and they have the force of law.34.
In Om Prakash v Reliance General Insurance Co, Ltd, (2017) (9) SCC 724 : 2016 (5) SCJ 363 : 2016 (1) Scale 213,
the Supreme Court held that, in the context of a vehicle insurance policy, the mere failure of the vehicle owner to
intimate the insurer immediately after the theft of the vehicle should not bar the settlement of genuine claims,
particularly when the delay in intimation or submission of documents was due to unavoidable circumstances. The
Page 2 of 2
Supreme Court further held that an insurer’s decision to reject a claim should be made on valid ground but not on
technical grounds.
29. National Insurance Co Ltd v Dinesh, (2001) 10 SCC 39.

30. Vikram Greentech (I) Ltd v New India Assurance Co Ltd, (2009) 5 SCC 599 : (2009) 2 CPJ 34 (SC); Also see sections
14, 18, 22 and 23 of the Consumer Protection Act, 1986.
31. Section 25, Consumer Protection Act, 1986.
End of Document
34.9 Provisions to achieve speedy disposal
34.9 Provisions to achieve speedy disposal

The very purpose in making this social welfare legislation is to give simple, cheap and speedy redressal to the
needy consumer who was king at one time but now has been dethroned and made a passive and pathetic onlooker
in the market place by the transformation of the buyers’ market to the sellers’ market. For providing speedy reliefs
separate tribunals were established and they are ordained to decide complaints, as far as possible, within a period
of 90 days from the date of notice received by the opposite party where complaint does not require analysis or
testing of the commodities and within five months if it requires analysis or testing of commodities. So far as
insurance claims are concerned, no analysis or testing of commodities is involved and so every policy holder—
consumer of service—is expected to have redressal within a short span of three months. In the actual working of
this Act with pious intention this rule is observed more in breach than compliance. One-and-half decades is not a
short period for evaluating the success of the Act but we can hope that it will achieve that success of giving relief
within time in the near future.
End of Document
34.10 Limitation
34.10 Limitation
When a policy provides that the insured shall not have the right to sue after 12 months of repudiation of claim, such
a provision is not void under the law of limitation or under the law of contact. The claim filed after 12 months was
held not maintainable.35.
Curtailment of limitation is not permissible in view of section 28 of the Contract Act, but provision for extinction of
right unless exercised within a specified time is held valid.36.
Originally in the Consumer Protection Act, 1986 no limitation was fixed. So at that time, Article 113, the residuary
article, was applied.37. But by the Amendment Act, 1963, section 24A was introduced where it is provided that the
three tribunals shall not admit a complaint unless it is filed within 2 years from the date on which the cause of action
has arisen with a power to condone delay as in the case of appeals.
The Supreme Court in National Insurance Co, Ltd, v Hindustan Safety Glass Works Ltd, Civil Appeal No 3883/2007
: (2017) 5 SCC 776 while considering section 24-A of the Consumer Protection Act, 1986, held that the courts
should take a pragmatic view of consumers’ rights considering their relative disadvantage with regard to suppliers of
goods or services. It was further held that the provision of limitation in the 1986 Act could not be strictly construed to
the disadvantage of a consumer where the supplier of goods or services was itself instrumental in causing a delay
in the settlement of the consumer’s claim.
35. Paras Textiles v New India Assurance Co Ltd, (1993)1 CPR 713 (NC).
36. National Insurance Co Ltd v Sujar Ganesh Nayar & Co, AIR 1997 SC 2049; reversed AIR 1996 Ker 49.
37. A Prabhakar v SMN Consumer Protection Council, (1993) CCJ 523 (NC).
End of Document
CHAPTER 35 INSURANCE PRODUCTS: NEW DEVELOPMENTS
INSURANCE PRODUCTS: NEW DEVELOPMENTS
The nature of risk is dynamic and subject to changes connected to contemporary developments around the world.
New ways of doing business, tensions in world politics and threats to the natural world have created new risks. The
result is a host of non-traditional insurance products all of which require regulation. In this chapter we examine a
few insurance products and risks which are either, new, uncommon, or unorthodox.
Insurance policies have been devised to cover risks such as uncertainty in Agricultural Crop produce, legal liability
arising in clinical trials, environmental liability. These types of insurances go beyond being a contract between the
insurer and the insured. This insurance policy’s impact goes beyond simply addressing the risks of the insured and
to making a difference to the society in which it operates. Thus, in these areas government intervention is common -
either the government creates its own insurance schemes, or makes it mandatory to procure insurance, or creates
conditions which makes the market ripe for such insurance products. A sample of such policies has been
presented.
Second, some insurance policies developed due to changing world conditions such as kidnapping and ransom
insurance, terrorism insurance, etc are looked at.
Third, it is examined how changing market conditions and commercial scenarios have given rise to unorthodox
products like unit linked insurance policies, where the insurance policy plays the dual role of insurance and an
investment mechanism. Policies such as advanced loss of profits have been devised to address changing
commercial risks, to cover the risk of doing business. Businesses inherently carry with them a risk and a
corresponding reward. However, today, when high finance costs, interest costs affect the profitability of an
enterprise, insurance products have been devised to mitigate such business risk. The increasing use of technology
in commercial spaces has introduced new types risks cyber-attacks, which results in heavy losses, often of
information. An attempt to present a few of this type of insurance products has been made.
End of Document
35.1 Insurance in areas of high societal impact

35.1.1 Agriculture, Crop and Plantation Insurance
The insurance need for agriculture cannot be over emphasised, as it is a highly risky economic activity, on account
of its critical dependence on weather conditions. In India, agricultural risks are exacerbated by a variety of factors,
ranging from climate variability, frequent natural disasters, uncertainties in yields and prices, weak rural
infrastructure, imperfect markets, attack of pests, diseases and lack of financial services. One of the tragic
consequences of crop destruction is farmers’ suicides.
Given, the variables stated above, to design and implement an appropriate insurance programme for agriculture is
a complex and challenging task. Crop insurance is a financial mechanism to protect farmers, against financial loss
from the uncertainties of crop production, due to natural factors, beyond farmer’s control.
The fact that India is a primarily agrarian economy has further intensified the need to protect our farmers. The first
ever crop insurance scheme was implemented in 1972 in India by the “General Insurance” Department of Life
Insurance Corporation of India on H-4 cotton in Gujarat. Subsequently the scheme was broadened to other crops
and states. The scheme continued till 1978-79. Later the task of implementing agricultural schemes was undertaken
by the General Insurance Corporation of India.
35.1.2 Agriculture Insurance schemes in India
The Agriculture Insurance Company of India Limited (AIC)1. was formed by Government of India, “to subserve
the needs of farmers better and to move towards a sustainable actuarial regime, it was proposed to set up a new
Corporation for Agriculture Insurance”.2. The National Agriculture Policy was announced in July, 2000 states
specifically the need and importance of crop insurance. The policy states: “Despite technological and economic
advancements, the condition of farmers continues to be unstable due to natural calamities and price fluctuations.
National Agriculture Insurance Scheme covering all farmers and all crops throughout the country with built-in
provisions for insulating farmers from financial distress caused by natural disasters and making agriculture
financially viable will be made more farmer-specific and effective. Endeavour will be made to provide a package
insurance policy for farmers, right from sowing of crops to post-harvest operations, including market fluctuations in
the prices of agricultural produce.”3.
Generally speaking, there are two types of insurance coverage available in India: single and multi-peril coverage.
Single peril coverage offers protection from single hazard while multi-peril provides protection from several
hazards.4. Some agricultural insurance schemes are discussed below:
35.1.3 National Agricultural Insurance Scheme (NAIS)
The Government of India introduced many agricultural schemes throughout the country, beginning with a
Comprehensive Crop Insurance scheme in the early 90s, followed by other experimental schemes in the late 90s.
In 1999-2000, the Government introduced new scheme titled “National Agricultural Insurance Scheme” (NAIS) or
Page 2 of 4
“Rashtriya Krishi Bima Yojana” (RKBY).5. This scheme operates on the basis of area (defined areas for notified
crops for widespread calamities) and on individual basis (for localised calamities such as hailstorms, landslides,
cyclones and floods.) The scheme covers mandatorily all farmers who avail loans for agricultural operations from
defined financial institutions. It also covers other farmers growing notified crops, who can voluntarily opt for the
scheme.
The scheme, while a good financial mechanism to mitigate risk and to bring stability to the country’s economy has
been criticised as being in effective due to imperfect implementation.
35.1.4 Pilot Modified National Agricultural Insurance Scheme (MNAIS)6.
The aim of this scheme was to improve further on the previous model of the scheme and to make the scheme more
farmers friendly. Agriculture Insurance Company of India Ltd and approved private sector insurance companies
mainly engaged in agriculture insurance business have been empanelled by the Government for implementation of
pilot MNAIS. The scheme has been approved for implementation on pilot basis in 50 districts. The scheme has
coverage of food crops, oil seeds, and annual commercial/horticulture crops. The objective of the scheme is to
provide financial support and coverage to “the farmers in the event of prevented sowing & failure of any of the
notified crop as a result of natural calamities, pests & diseases.”7.
35.1.5 Pilot Weather Based Crop Insurance Scheme (WBCIS)
Private insurance companies have also developed insurance schemes specific to crops, sometimes specific to
weather. These are often pilot projects developed with the assistance of Agricultural and Rural Development
Department of the World Bank. One such scheme is the WBCIS. The scheme is being implemented by Agricultural
Insurance Company of India Ltd. However, to provide competitive service to the farmers, private insurance
companies ie ICICI-Lombard, IFFCO-TOKIO and MS Cholamandalam General Insurance Companies have also
been involved for implementation besides Agriculture Insurance Company of India (AIC). This scheme aims to
mitigate the hardship of the insured farmers against the likelihood of financial loss on account of anticipated crop
loss resulting from incidence of adverse conditions of weather parameters like rainfall, temperature, frost, humidity,
etc. The basic premise on which this insurance is build is that weather conditions have a major impact on
agriculture in India. The coverage includes Kharif and Rabi crops.8.
35.1.6 Livestock Insurance
Cattle insurance is another facet of agricultural insurance which is being implemented. Under the various Livestock
Insurance Policies, cover is provided for the sum insured or the market value of the animal at the time of death,
whichever is less. The Cattle Insurance Policy has been introduced by the Insurance Regulatory and Development
Authority (IRDA).9. The insurance basically provides protection to rural people from financial loss due to the death of
the cattle.
35.1.7 Clinical Trial Liability Insurance
Clinical trials are tests conducted in the course of medical research and drug development. These trials help to
judge the efficacy and safety of a drug or pharmaceutical product. These tests are often conducted on human
volunteers. Clinical trials, while they hold enormous potential for benefiting patients, they also carry a risk.
“Clinical trial liability insurance” is a product developed by the companies in insurance sector to protect themselves
from the risks arising from bodily/physical injury caused to the individual during the process of clinical trials. India
has been a preferred option for global companies for clinical trials for multiple reasons:- the most important of them
being the large population of our country, availability of cost effective and at the same time good quality of medical
resource, technology which is at par with the global world and also the fact that India has a largely English-speaking
population. Criticism has arisen in the country due to government’s failure to take note of legal and ethical
ramifications of clinical trials.10.
In India, clinical trials are regulated by Schedule Y of the Drug and Cosmetics Rules, 1945. In addition, Rule 122-
DAB in the Drugs and Cosmetics Rule, 1945 lays down the requirement of providing free medical management as
long as required, in the case of an injury occurring to a clinical trial subject. Further it provides that if the injury
suffered by the subject is related to the clinical trial conducted on such subject, he or she shall also be entitled for
financial compensation.
Page 3 of 4
The growth in the industry and the legislative measures has led to an increased awareness amongst stakeholders
about the severity of the risks associated and the possible financial impact on organisations. This in turn has led to
a requirement for the right insurance cover. Initially, demand for such a product was primarily driven by the
insistence of an international sponsor. However today, all key stakeholders in the chain are aware that conducting a
clinical trial without an insurance cover in place would not be a wise and prudent business decision. On one hand, it
is imperative to ensure the welfare of a volunteer; however, there is also an urgent need to safeguard the industry
from collapsing all of a sudden. Therefore, an insurance instrument that could help in mitigating this risk would
ensure that stringent compensation measures can be put in place and at the same time the industry is protected
from this burden.
Such policies generally cover legal liability. The insurance company will indemnify the insured against all sums in
excess of the deductible costs, that the insured shall become liable to pay as damages or financial compensation
and claimants’ costs and expenses in respect of any claim made by the research subjects for bodily injury caused
by an occurrence happening after the retroactive date within the policy scheme and arising out of the business of
the insurers depending on the schedules annexed to the specific policy document. Certain schemes also cover
post-trial risks of up to two months. However, effects such as failure of drugs and nuclear chemical risks are usually
excluded from coverage.
35.1.8 Environmental Liability Insurance
In the current legal climate, business owners have greater responsibility for the environment. The “polluter pays”
principle could make the owner of the business liable for the costs of environmental remedies. Environmental
liability can be serious threat to the financial health of many companies. Companies also run the risk of storing,
producing or emitting hazardous waste which may damage the environment. Companies faced with such liability
have turned to their insurance policies for protection. Environmental liability insurance could help mitigate the losses
caused by these associated costs. The insurance may also have the additional advantage of encouraging
companies to remove risks to human health and restore the condition of wildlife and habitats, air quality and water.
In India, the Public Liability Insurance Act, 1991was enacted making it mandatory “to provide for public liability
insurance for installations handling hazardous substances to provide minimum relief to the victims. Such an
insurance, apart from safeguarding the interests of the victims of accidents, would also provide cover and enable
the industry to discharge its liability to settle large claims arising out of major accidents.”11. In addition, Indian Courts
have not been shying away from imposing high penalties on polluting companies.12. This has given rise to insurance
products that address this risk. While insurance products alone will not give us the desired outcomes, in respect to
protecting the environment, pollution abatement policies have advocated the need for combining regulatory
instruments with market-based instruments and other supportive measures to deal with environmental protection.13.
The term “environmental insurance” is used in a general sense to denote both firstparty (property) and third party
(liability) insurance policies, whose primary purpose is to manage pollution-related loss exposures. Environmental
liability losses can be incurred through torts, contractual obligations, or violations of statutes. In additional to these
traditional sources of liability, there is a unique legal aspect to environmental liability that makes these risks more
difficult to manage. This aspect is, legislated retroactive, strict liability for clean-up costs, where there is the violation
of a law designed to protect human health and environment, or becoming responsible to pay environmental
remediation expenses. Pollution exclusions in general liability, automobile liability, and property insurance policies
create coverage void for many industrial and commercial insured bodies. To fill this gap in insurance coverage, a
number of specialised environmental insurance policies have been developed to address a wide range of loss
exposures. Environment insurance coverage extends to:
(i) Third party claims for damage or bodily injury;

(ii) Mandated clean-up costs;
(iii) Legal defence costs;14.
1. Available at http://www.aicofindia.com/AICEng/Pages/Default.aspx (last accessed in September 2013).

Page 4 of 4
2. As announced by the then Hon’ble Union Finance Minister in his General Budget Speech of 2002-03, Available at
http://www.aicofindia.com/AICEng/Pages/AICAboutUs.aspx (last accessed in July, 2019).
3. Available at http://rrtd.nic.in/agriculture.html (last accessed in September 2013).
4. “Agricultural Insurance in India Problems and Prospects”, SS Raju and Ramesh Chand, National Centre for Agricultural
Economics and Policy research Working paper.
5. Available at http://www.indg.in/agriculture/schemes/nationalagriculturalinsurancescheme (last accessed in September
2013).
6. Available at http://agricoop.nic.in/mnaiso29910.pdf (last accessed in September 2013).
7. Available at http://agricoop.nic.in/MNAIS%20Scheme.pdf (last accessed in September 2013).
8. Available at http://agricoop.nic.in/Credit/Progress%20of%20WBCIS%2021.pdf (last accessed in September 2013).
9. Available at http://www.irda.gov.in/ADMINCMS/cms/Uploadedfiles/94-31.%20Cattle%20Insurance%20Policy%20-
ALL.pdf (last accessed in September 2013).
10. Non-governmental organisations like “Swathya Adhikar Manch”, have taken up the matter with the judiciary. For further
information, see- Tuli N and Jenkins. C, “India: Clinical Trials: Waking From Slumber?”, Available at
http://www.mondaq.com/india/x/234200/Patent/Clinical+Trials+Waking+ From+ Slumber (lastaccessed in September
2013).
11. Statement of Objects and Reasons of the Public Liability Insurance Act, 1991.
12. For instance, in the case of Sterlite Industries (India) Ltd Etc Etc v UOI. Etc Etc, 2013 (4) ABR 858, the Apex Court
directed Sterlite Industries, a subsidiary of the UK-based Vedanta Group, to pay Rs 100 crore as compensation for
polluting the environment through its copper smelting plant based in Tamil Nadu
13. Government of India (Ministry of Environment & Forests), 1992. Policy Statement for Abatement of Pollution, New
Delhi. Available at http://envfor.nic.in/sites/default/files/introduction-psap.pdf (last accessed in July, 2019).
14. “Environmental and Pollution Laws in India”, Justice T S Doabia, vol 1, Edn 2005, Wadhwa and Company Nagpur, p
574.
End of Document
35.2 Personal Safety Insurances

35.2.1 Kidnapping and Ransom Insurance
As a result of alarming increase in pirate attacks on high seas and the growth of the Naxal menace, Kidnapping and
ransom insurance have become a buzz word in the insurance sector. Kidnapping and ransom insurance, more
popularly known as the K&R insurance, is designed to protect individuals and corporations operating in high-risk
areas around the world. Companies that usually avail these services are those that have employees based in high
risk areas, those that travel a lot, those who have access to sensitive information and those that handle large
amount of money. There has been a dramatic increase in the rate of kidnapping and extortion cases in recent
times. Kidnapping and ransom insurance policies typically cover the perils of kidnap, extortion, wrongful detention
and hijacking. These are indemnity policies and the insurer reimburses the loss incurred by the insured. In these
policies, in case the insured pay the ransom and then he can seek reimbursement under the policy. These policies
are especially popular amongst the corporates functioning in the Maoist infested areas. Also, in order to counter the
threat of piracy, many shipping companies take the protection of K&R policies.15.
General coverage of K&R is inclusive of:
(i) Ransom/extortion money

(ii) Expenses associated with the crises (outlined in the policy/approved by the insurer)
(iii) Loss of ransom money in transit
(iv) Legal liability for alleged negligence in not preventing a kidnapping or incompetence in handling the crisis
(v) Negotiation services
(vi) Psychiatric care
(vii) Death or dismemberment, medical cost, etc
(viii) Interest on loan for ransom payment16.
Kidnapping and ransom insurance for business now comes up in three categories. Firstly, as a part of
comprehensive business insurance package, secondly, as a stand-alone policy for people and lastly some of the
insurance companies provide it as a part of their home owners’ insurance policy. Corporate policies normally cover
most kidnapping – related expenses like hostage negotiation fees, lost wages and the ransom amount.
35.2.2 Terrorism Risk Insurance
The term “terrorism” comes from the French word, “terrorisme,” which means to frighten. In modern times
“terrorism” usually refers to the killing of people by nongovernment political activists for political reasons, often as a
public statement.17. Terrorism has been defined by the UN Security Council Resolution 1566 (2004) as below:
Page 2 of 2
Criminal acts, including against civilians, committed with the intent to cause death or serious bodily injury, or taking of
hostages, with the purpose to provoke a state of terror in the general public or in a group of persons or particular persons,
intimidate a population or compel a government or an international organisation to do or abstain from doing any act.18.
Incidents of terrorism have become more common and frequent. The Indian general insurance industry, had set up
its own independent terrorism pool, soon after the 9/11 attacks on the US at the behest of the IRDA. The terrorism
pool is essentially a corpus of funds collected from all insurers to offset possible future losses arising out of such
violence. The India Market Terrorism Risk Insurance Pool (IMTRIP) is a domestic pool administered by India’s
reinsurer, General Insurance Corporation Re, under Regulation 8 of the Insurance Regulatory Development
Authority (General insurance-Re-insurance) Regulations, 2002.
15. Available at http://www.financialexpress.com/news/kidnap-ransom-insurance-new-buzzword-among-cos/853690 (last

accessed in September 2013).
16. “Kidnap & Ransom Insurance”, Paper by R Qaiser, National Insurance Academy Pune, in 2007.
17. “Terrorism Insurance” by Carrie E Cope, New Appleman Insurance Law Library Edition, vol. 2; p 10.7.
18. Available at http://daccess-dds-ny.un.org/doc/UNDOC/GEN/N04/542/82/PDF/N0454282.pdf?OpenElement (last
accessed in September 2013).
End of Document
35.3 Market Conditions Driven Insurance Products

35.3.1 Advance Loss of Profits Insurance
Advance Loss of profits Insurance, also referred as delayed completion cover or delay in start-up cover, intends to
cover losses incurred because of delay in a project. This loss could be anticipated income loss or simply expenses
incurred that remain unrecouped, eg interest charges, advertising expenses. This kind of policy is typically used in
the real estate segment to cover risks undertaken by builders. Real Estate projects require heavy investments. In
addition, they involve expenses such as advertising and publicity costs. Most real estate projects rely on debt
financing. Thus, even before the project is completed, the real estate company incurs heavy expenses. Therefore
when the project is delayed, the cost of financing also increases, with mounting interest rates. There is also an
anticipated loss of profits. Therefore, it becomes critical that construction projects begin to generate revenue
immediately after the scheduled completion date. However, when the project is delayed, then the costs begin to
increase and even when the project is successfully launches, the entire enterprise may have lost its profitability.
Insurance products have been developed to mitigate this risk. The complexities in creating such an insurance
product are in identifying the losses, the quantum of losses, assessment of reasons of delay to properly enquire into
whether this is within the control of the insured or caused by the insured, developing a method for quantifying
insurance coverage.
Most such insurances will cover: a) advance loss of profit and standing Charges or b) Loss of Gross Earnings
calculated as the turnover excluding the specified working expenses or c) Fixed Operation and Management Costs
(it includes debt service charges, increased cost of working, special expenses ie, penalties.
Such policies shall usually pay for the actual loss of gross profit incurred during the period of delay, commencing
from the scheduled date of commencement of commercial operation up to the actual date of commencement of
commercial operation subject to a time excess and indemnity period selected.
The policies will generally exclude delay due to: a) inventory losses b) delay in shipment of supplies c) normal
project schedule slippages d) non-availability of funds for repairs/replacement to damaged items e) cancellation of
licence or Government restrictions, etc.
35.3.2 Unit linked Insurance Policies
Insurance has traditionally been understood as a risk mitigating mechanism. However, Unit Linked Insurance
Policies (ULIPs) provide not just a risk mitigation mechanism, but also an investment mechanism. ULIPs are
policies that provide life insurance, and also an instrument of investment.
Working of ULIPs:
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Insurance and investment are two different needs. Unit Linked Insurance Plan is a Scheme combining benefits of
Life Insurance as well as Investment in the equity market. In ULIPs, part of the premium amount is paid towards Life
Insurance while the rest is invested in the stock market. Therefore, ULIP provides the financial safety as well as
opportunity for wealth creation.
When the insured decides the amount of premium to be paid and the amount of life cover the insured wants from
the ULIP, the insurer deducts some portion of the ULIP premium upfront for the Life Insurance. This portion is
known as the premium allocation charge, and varies from product to product. The rest of the premium is invested in
the equities, ie in one fund or mixture of funds chosen by the insured. Thus, the policy document also carries some
risk with it, ie the money insured with a fund can appreciate or deteriorate based on market fluctuations.
What makes ULIPS Controversial?
The Insurance Companies use the combined funds to invest it in the equity market and administers it like a Mutual
Fund. The value of the funds could fluctuate based on market fluctuations. Therefore, for some part of the premium
invested there are no assured returns. The IRDA monitors these policies and has taken several initiatives to ensure
that policyholders understand the nature of risk involved and the nature of the policy.19.
Secondly, the investment in stock market or equity market is regulated by Securities and Exchange Board of India
(SEBI). SEBI Regulations require registration and approval of each such scheme. ULIPs were not registered with
SEBI. SEBI issued show-cause notices to insurers asking why action should not be taken against them for selling
ULIPs without its approval. The Insurance Regulatory and Development Authority (IRDA) issued clarifications that
insurers need not take permission from SEBI to issue ULIPs and SEBI has no jurisdiction over the issue. Further
IRDA directed the insurance companies to ignore SEBI’s directions.20. The Ministry of Finance asked both the
Regulators to refer the matter to the Court. However, before the issue could be resolved by the Court, the President
signed an ordinance—The Securities and Insurance Laws (Amendment and Validation) Act, 2010 that would settle
the dispute. This Act makes it clear that ULIPs cannot be regulated by SEBI and places them within the jurisdiction
of IRDA. The ordinance also tries to prevent further disputes by setting up a joint committee to address future
conflicts. This is not necessarily a satisfactory solution, since new types of securities are constantly being
developed, this joint committee would need frequent legislative interventions to be operable. This approach to settle
the conflict between SEBI and IRDA is only illustrative of one small piece of a larger problem of financial sector
legislation that is fragmented, at times duplicative and at times inadequate. In any event, the Parliament can revisit
this matter in a more thorough fashion, either independently or through the efforts of the Financial Sector Legislative
Reforms Commission (FSLRC) (included in the Appendix).
35.3.3 Directors’ and Officers’ liability insurance
Directors’ and Officers’ liability insurance (D&O insurance) is liability insurance payable to the directors and officers
of a company, or to the organisations itself, as indemnification for losses or advancement of defence costs in the
event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity
as a directors and officers. Such coverage can extend to defence costs arising out of criminal and regulatory
investigations/trials, often civil and criminal actions brought against directors/officers simultaneously.21.
35.3.4 Electronic Equipment Insurance
The term electronic equipment insurance is used for all systems which generally require very low voltage and
power. These equipment are generally quiet in their operation. Thus it is differentiated from machinery. EEI policy
protects the owner, lessor or hirer of electronic equipment’s. The value of software can be covered under this
policy.
35.3.5 IT & ITeS Professional Indemnity Insurance
The rise in incidents of online data theft and cybercrime has forced corporates to make efforts to tighten online
security. It is also prompting them to look for precautionary measures and risk mitigation measures to prevent high
liability caused by these incidents. Cyber liability insurance hence has been in demand. This would cover third-party
claims arising due to negligent transmission of a computer virus, misrepresentation, defamation, confidentiality
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breach, Intellectual Property infringement and related exposures. Cybercrimes caused by the insured’s employees
also get covered under the policy but would exclude the actual perpetrator. Cybercrime liability refers to risks arising
from fraudulent behaviour by a party online that can cause financial and reputational loss to a company and its
clients. Cyber liability is a new age cover, which can be offered as an extension under Errors and Omissions Policy
or as a standalone cyber liability policy. Globally, cyber liability policies cover privacy breach liability, cyber
extortion, business interruption losses, liability from multimedia and PR costs, legal expenses and data theft liability.
The distribution of unsolicited email, wiretapping, eavesdropping, fraudulent acts and failure to maintain standard
computer security are major exclusions under this policy.
19. Available at http://www.policyholder.gov.in/Unit_Linked_Products.aspx# (last accessed in September 2013).

20. See articles outlining the controversy at Suneeti Kohli, SEBI v IRDA, Indian Express. 12 April 2010 and IRDA wins
ULIP Battle: Govt to amend laws to revive sales, Economic Times, 10 June 2010.
21. See greater discussion in the article P Umesh, “Directors and Officers: Are you covered” IRDA journal, Feb 07
Available at http://www.irdaonline.org/irdacontent/journals/irda_feb07.pdf (last accessed in September 2013).
End of Document
Modern Law of Insurance, 6th ed > APPENDICES
APPENDICES
APPENDIX–I HIGHLIGHTS OF INSURANCE LAWS (AMENDMENT) ACT, 2015
The Insurance Laws (Amendment) Bill, 2015 was passed by the Lok Sabha on 4 March 2015 and by the Rajya
Sabha on 12 March 2015. The passage of the Bill thus paved the way for major reform related amendments in the
Insurance Act, 1938, the General Insurance Business (Nationalisation) Act, 1972 and the Insurance Regulatory and
Development Authority (IRDA) Act, 1999. The Insurance Laws (Amendment) Act, 2015 replaced the Insurance
Laws (Amendment) Ordinance, 2014.
(a) It provides for enhancement of the Foreign Investment Cap in an Indian Insurance Company from 26% to
49% with the safeguard of Indian ownership and control.
(b) It provides the IRDAI with flexibility to discharge its functions more effectively and efficiently among others.
(c) In addition to the provisions for enhanced foreign equity, the amended law will enable capital raising
through new and innovative instruments under the regulatory supervision of IRDAI.
(d) Further, the amendments to the laws will enable the interests of consumers to be better served through
provisions like those enabling penalties on intermediaries/insurance companies for misconduct and
disallowing multilevel marketing of insurance products in order to curtail the practice of mis-selling.
(e) The Act will entrust responsibility of appointing insurance agents to insurers and provides for IRDAI to
regulate their eligibility, qualifications and other aspects. IRDAI is also empowered to regulate key aspects
of Insurance Company operations in areas like solvency, investments, expenses and commissions and to
formulate regulations for payment of commission and control of management expenses. It also empowers
the Authority to regulate the functions, code of conduct, etc, of surveyors and loss assessors.
(f) Now properties in India can now be insured with a foreign insurer with prior permission of IRDAI; which
was earlier to be done with the approval of the Central Government.
(g) The Amendment Act defines “health insurance business” inclusive of travel and personal accident cover
and discourages non-serious plays by retaining capital requirements for health insurers at the level of Rs.
100 crore, thereby paving the way for promotion of health insurance as a separate vertical.
(h) The Amendment Act, enables foreign reinsurers to set up branches in India and defines “re-insurance” to
mean “the insurance of part of one insurer’s risk by another insurer who accepts the risk for a mutually
acceptable premium,” and thereby excludes the possibility of 100% ceding of risk to a re-insurer, which
could lead to companies acting as front companies for other insurers.
(i) The Life Insurance Council and General Insurance Council have now been made self-regulating bodies by
empowering them to frame bye-laws for elections, meetings, etc,
(j) Appeals against the orders of IRDAI are to be preferred to Securities Appellate Tribunal.
(k) The joint ventures must be controlled by IRDAI only.
(l) It permits insurance companies to issue preference shares or debentures which do not carry voting rights.
(m) The Government has now dispensed with the requirement for reinsurance business to be conducted only
through a company incorporated in India.
(n) No insurance agent or intermediary shall be eligible to be or remain a director of insurance company.
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APPENDIX–II THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT,

1999
[Act No 41 of 1999]
An Act to provide for the establishment of an Authority to protect the interests of holders of insurance policies, to
regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or
incidental thereto and further to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the
General Insurance Business (Nationalisation) Act, 1972.
Be it enacted by the Parliament in the Fiftieth Year of the Republic of India as follows:
CHAPTER I
PRELIMINARY
1. Short title, extent and commencement—(1) This Act may be called the Insurance Regulatory and
Development Authority Act 1999.
(2) It extends to the whole of India.

(3) It shall come into force on such date1. as the Central Government may, by notification in the Official
Gazette, appoint.
Provided that different dates may be appointed for different provisions of this Act and any reference in any such
provision to the commencement of this Act shall be construed as a reference to the coming into force of that
provision.
2. Definitions—(1) In this Act, unless the context otherwise requires—
(a) ‘appointed day’ means the date on which the Authority is established under sub-section (1) of section 3;
(b) ‘Authority’ means the Insurance Regulatory and Development Authority established under sub-section (1)
of section 3;
(c) ‘Chairperson’ means the Chairperson of the Authority;
(d) ‘Fund’ means the Insurance Regulatory and Development Authority Fund constituted under sub-section (1)
of section 16;
(e) ‘Interim Insurance Regulatory Authority’ means the Insurance Regulatory Authority set up by the Central
Government through Resolution No. 17(2)/94-Ins V, dated the 23 January 1996;
(f) ‘intermediary or insurance intermediary’ includes insurance brokers, re-insurance brokers, insurance
consultants, surveyors and loss assessors;
(g) ‘member’ means a whole-time or a part-time member of the Authority and includes the Chairperson;
(h) ‘notification’ means a notification published in the Official Gazette;
(i) ‘prescribed’ means prescribed by rules made under this Act;
(j) ‘regulations’ means the regulations made by the Authority.
(2) Words and expressions used and not defined in this Act but defined in the Insurance Act, 1938 (4 of 1938) or
the Life Insurance Corporation Act, 1956 (31 of 1956) or the General Insurance Business (Nationalisation) Act,
1972 (57 of 1972) shall have the meanings respectively assigned to them in those Acts.
CHAPTER II
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
3. Establishment and incorporation of authority—(1) With effect from such date as the Central Government
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may, by notification, appoint, there shall be established for the purposes of this Act, an Authority to be called “the
Insurance Regulatory and Development Authority of India”.
(2) The Authority shall be a body corporate by the name aforesaid having perpetual succession and a common seal
with power, subject to the provisions of this Act, to acquire, hold and dispose of property, both movable and
immovable, and to contract and shall, by the said name, sue or be sued.
(3) The head office of the Authority shall be at such place as the Central Government may decide from time to time.
(4) The Authority may establish offices at other places in India.
4. Composition of authority—The Authority shall consist of the following members, namely:
(a) a Chairperson;
(b) not more than five whole-time members;
(c) not more than four part-time members;
to be appointed by the Central Government from amongst persons of ability, integrity and standing who have
knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law,
accountancy administration or any other discipline which would in the opinion of the Central Government, be useful
to the Authority:
Provided that the Central Government shall, while appointing the Chairperson and the whole-time members, ensure
that at least one person each is a person having knowledge or experience in life insurance, general insurance or
actuarial science, respectively.
5. Tenure of office of chairperson and other members—(1) The Chairperson and every other whole-time
member shall hold office for a term of five years from the date on which he enters upon his office and shall be
eligible for reappointment:
Provided that no person shall hold office as a Chairperson after he has attained the age of sixty-five years:
Provided further that no person shall hold office as a whole-time member after he has attained the age of sixty-two
years.
(2) A part-time member shall hold office for a term not exceeding five years from the date on which he enters upon
his office.
(3) Notwithstanding anything contained in sub-section (1) or sub-section (2), a member may:
(a) relinquish his office by giving in writing to the Central Government notice of not less than three months; or
(b) be removed from his office in accordance with the provisions of section 6.
6. Removal from office—(1) The Central Government may remove from office any member who:
(a) is, or at any time has been, adjudged as an insolvent; or

(b) has become physically or mentally incapable of acting as a member; or
(c) has been convicted of any offence which, in the opinion of the Central Government, involves moral
turpitude; or
(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a member; or
(e) has so abused his position as to render his continuation in office detrimental to the public interest.
(2) No such member shall be removed under clause (d) or clause (e) of sub-section (1) unless he has been given a
reasonable opportunity of being heard in the matter.
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7. Salary and allowances of chairperson and members—(1) The salary and allowances payable to, and other
terms and conditions of service of, the members other than part-time members shall be such as may be prescribed.
(2) The part-time members shall receive such allowances as may be prescribed.
(3) The Salary, allowances and other conditions of service of a member shall not be varied to his disadvantage after
appointment.
8. Bar on future employment of members—The Chairperson and the whole-time members shall not, for a period
of two years from the date on which they cease to hold office as such, except with the previous approval of the
Central Government, accept:
(a) any employment either under the Central Government or under any State Government; or
(b) any appointment in any company in the insurance sector.
9. Administrative powers of chairperson—The Chairperson shall have the powers of general superintendence
and direction in respect of all administrative matters of the Authority.
10. Meetings of authority—(1) The Authority shall meet at such times and places and shall observe such rules
and procedures in regard to transaction of business at its meetings (including quorum at such meetings) as may be
determined by the regulations.
(2) The Chairperson, or if for any reason he is unable to attend a meeting of the Authority, any other member
chosen by the members present from amongst themselves at the meeting shall preside at the meeting.
(3) All questions which come up before any meeting of the Authority shall be decided by a majority of votes by the
members present and voting, and in the event of an equality of votes, the Chairperson, or in this absence, the
person presiding shall have a second or casting vote.
(4) The Authority may make regulations for the transaction of business at its meetings.
11. Vacancies etc, not to invalidate proceedings of authority—No act or proceeding of the Authority shall be
invalid merely by reason of:
(a) any vacancy in, or any defect in the constitution of the Authority; or
(b) any defect in the appointment of a person acting as a member of the Authority; or
(c) any irregularity in the procedure of the Authority not affecting the merits of the case.
12. Officers and employees of authority—(1) The Authority may appoint officers and such other employees as it
considers necessary for the efficient discharge of its function under this Act.
(2) The terms and other conditions of service of officers and other employees of the Authority appointed under sub-
section (1) shall be governed by regulations made under this Act.
CHAPTER III
TRANSFER OF ASSETS, LIABILITIES, ETC, OF INTERIM INSURANCE REGULATORY AUTHORITY
13. Transfer of assets, liabilities, etc, of interim insurance regulatory authority—On the appointed day,—
(a) all the assets and liabilities of the Interim Insurance Regulatory Authority shall stand transferred to, and
vested in, the Authority.
Explanation. The assets of the Interim Insurance Regulatory Authority shall be deemed to include all
rights and powers, and all properties, whether movable or immovable, including in particular; cash
balances, deposits and all other interests and right in, or arising out of, such properties as may be in
the possession of the Interim Insurance Regulatory Authority and all books of account and other
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documents relating to the same; and liabilities shall be deemed to include all debts, liabilities and
obligations of whatever kind;
(b) without prejudice to the provisions of clause (a), all debts, obligations and liabilities incurred, all contracts
entered into and all matters and things engaged to be done by, with or for the Interim Insurance Regulatory
Authority immediately before that day, for or in connection with the purpose of the said Regulatory
Authority, shall be deemed to have been incurred, entered into or engaged to be done by, with or for, the
Authority;
(c) all sums of money due to the Interim Insurance Regulatory Authority immediately before that day shall be
deemed to be due to the Authority; and
(d) all suits and other legal proceedings instituted or which could have been instituted by or against the Interim
Insurance Regulatory Authority immediately before that day may be continued or may be instituted by or
against the Authority.
CHAPTER IV
DUTIES, POWERS AND FUNCTIONS OF AUTHORITY
14. Duties, powers and functions of authority—(1) Subject to the provisions of this Act and any other law for the
time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the
insurance business and re-insurance business.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the
Authority shall include:
(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such
registration;
(b) protection of the interests of the policy-holders in matters concerning assigning of policy, nomination by
policy-holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms
and conditions of contracts of insurance;
(c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance
intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;
(e) promoting efficiency in the conduct of insurance business;
(f) promoting and regulating professional organisations connected with the insurance and re-insurance
business;
(g) levying fees and other charges for carrying out the purposes of this Act;
(h) calling for information from, undertaking inspection of, conducting enquiries and investigations including
audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the
insurance business;
(i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in
respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee
under section 64U of the Insurance Act, 1938 (4 of 1938);
(j) specifying the form and manner in which books of account shall be maintained and statement of accounts
shall be rendered by insurers and other insurance intermediaries;
(k) regulating investment of funds by insurance companies;
(l) regulating maintenance of margin of solvency;
(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;
(n) supervising the functioning of the Tariff Advisory Committee;
(o) specifying the percentage of premium income of the insurer to finance schemes for promoting and
regulating professional organisations referred to in clause (f);
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(p) specifying the percentage of life insurance business and general insurance business to be undertaken by
the insurer in the rural or social sector; and
(q) exercising such other powers as may be prescribed.
CHAPTER V
FINANCE, ACCOUNTS AND AUDIT
15. Grants by central government—The Central Government may, after due appropriation made by Parliament by
law in this behalf, make to the Authority grants of such sums of money as the Government may think fit for being
utilised for the purposes of this Act.
16. Constitution of funds—(1) There shall be constituted a fund to be called ‘the Insurance Regulatory and
Development Authority Fund’ and there shall be credited thereto—
(a) all Government grants, fees and charges received by the Authority;
(b) all sums received by the Authority from such other source as may be decided upon by the Central
Government;
(c) the percentage of prescribed premium income received from the insurer.
(2) The Fund shall be applied for meeting—
(a) the salaries, allowances and other remuneration of the members, officers and other employees of the
Authority;
(b) the other expenses of the Authority in connection with the discharge of its functions and for the purposes of
this Act.
17. Accounts and audit—(1) The Authority shall maintain proper accounts and other relevant records and prepare
an annual statement of accounts in such form as may be prescribed by the Central Government in consultation with
the Comptroller and Auditor-General of India.
(2) The accounts of the Authority shall be audited by the Comptroller and Auditor-General of India at such intervals
as may be specified by him and any expenditure incurred in connection with such audit shall be payable by the
Authority to the Comptroller and Auditor-General.
(3) The Comptroller and Auditor-General of India and any other person appointed by him in connection with the
audit of the accounts of the Authority shall have the same rights, privileges and authority in connection with such
audit as the Comptroller and Auditor-General generally has in connection with the audit of the Government
accounts and, in particular, shall have the right to demand the production of books of account, connected vouchers
and other documents and papers and to inspect any of the offices of the Authority.
(4) The accounts of the Authority as certified by the Comptroller and Auditor-General of India or any other person
appointed by him in this behalf together with the audit report thereon shall be forwarded annually to the Central
Government and that Government shall cause the same to be laid before each House of Parliament.
CHAPTER VI
MISCELLANEOUS
18. Power of central government to issue directions—(1) Without prejudice to the foregoing provisions of this
Act, the Authority shall, in exercise of its powers or the performance of its functions under this Act, be bound by
such directions on questions of policy, other than those relating to technical and administrative matters, as the
Central Government may give in writing to it from time to time.
Provided that the Authority shall, as far as practicable, be given an opportunity to express its views before any
direction is given under this sub-section.
(2) The decision of the Central Government, whether a question is one of policy or not, shall be final.
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19. Power of central government to supersede authority—(1) If, at any time the Central Government is of the
opinion:
(a) that, on account of circumstances beyond the control of the Authority, it is unable to discharge the
functions or perform the duties imposed on it by or under the provisions of this Act; or
(b) that the Authority has persistently defaulted in complying with any direction given by the Central
Government under this Act or in the discharge of the functions or performance of the duties imposed on it
by or under the provisions of this Act and as a result of such default the financial position of the Authority or
the administration of the Authority has suffered; or
(c) that circumstances exist which render it necessary in the public interest so to do,
the Central Government may, by notification and for reasons to be specified therein, supersede the Authority for
such period, not exceeding six months, as may be specified in the notification and appoint a person to be the
Controller of Insurance under section 2B of the Insurance Act, 1938 if not already done:
Provided that before issuing any such notification, the Central Government shall give a reasonable opportunity to
the Authority to make representations against the proposed supersession and shall consider the representations, if
any, of the Authority.
(2) Upon the publication of a notification under sub-section (1) superseding the Authority:
(a) the Chairperson and other members shall, as from the date of supersession, vacate their offices as such;
(b) all the powers, functions and duties which may, by or under the provisions of this Act, be exercised or
discharged by or on behalf of the Authority shall, until the Authority is reconstituted under sub-section (3),
be exercised and discharged by the Controller of Insurance; and
(c) all properties owned or controlled by the Authority shall, until the Authority is reconstituted under sub-
section (3), vest in the Central Government.
(3) On or before the expiration of the period of supersession specified in the notification issued under sub-section
(1), the Central Government shall reconstitute the Authority by a fresh appointment of its Chairperson and other
members and in such case any person who had vacated his office under clause (a) of sub-section (2) shall not be
deemed to be disqualified for reappointment.
(4) The Central Government shall cause a copy of the notification issued under sub-section (1) and a full report of
any action taken under this section and the circumstances leading to such action to be laid before each House of
Parliament at the earliest.
20. Furnishing of returns, etc, to central government—(1) The Authority shall furnish to the Central Government
at such time and in such form and manner as may be prescribed, or as the Central Government may direct to
furnish such returns, statements and other particulars in regard to any proposed or existing programme for the
promotion and development of the insurance industry as the Central Government may, from time to time, require.
(2) Without prejudice to the provisions of sub-section (1), the Authority shall, within nine months after the close of
each financial year, submit to the Central Government a report giving a true and full account of its activities
including the activities for promotion and development of the insurance business during the previous financial year.
(3) Copies of the reports received under sub-section (2) shall be laid, as soon as may be after they are received,
before each House of Parliament.
21. Chairperson, members, officers and other employees of authority to be public servants—The
Chairperson, members, officers and other employees of the Authority shall be deemed, when acting or purporting to
act in pursuance of any of the provisions of this Act, to be public servants within the meaning of section 21 of the
Indian Penal Code (45 of 1860).
22. Protection of action taken in good faith—No suit, prosecution or other legal proceedings shall lie against the
Central Government or any officer of the Central Government or any member, officer or other employee of the
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Authority for anything which is in good faith done or intended to be done under this Act or the rules or regulations
made thereunder:
Provided that nothing in this Act shall exempt any person from any suit or other proceedings which might, apart
from this Act, be brought against him.
23. Delegation of powers—(1) The Authority may, by general or special order in writing, delegate to the
Chairperson or any other member or officer of the Authority subject to such conditions, if any, as may be specified
in the order such of its powers and functions under this Act as it may deem necessary.
(2) The Authority may, by a general or special order in writing, also from committees of the members and delegate
to them of powers and functions of the Authority as may be specified by the regulations.
24. Power to make rules—(1) The Central Government may, by notification, make rules for carrying out the
provisions of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any
of the following matters, namely:—
(a) the salary and allowances payable to, and other terms and conditions of service of the members other than
part-time members under sub-section (1) of section 7;
(b) the allowances to be paid to the part-time members under sub-section (2) of section 7;
(c) such other powers that may be exercised by the Authority under clause (q) of sub-section (2) of section 14;
(d) the form of annual statement of accounts to be maintained by the Authority under sub-section (1) of section
17;
(e) the form and the manner in which and the time within which returns and statements and particulars are to
be furnished to the Central Government under sub-section (1) of section 20;
(f) the matters under sub-section (5) of section 25 on which the Insurance Advisory Committee shall advise
the Authority;
(g) any other matter which is required to be, or may be, prescribed, or in respect of which provision is to be or
may be made by rules.
25. Establishment of Insurance Advisory Committee—(1) The Authority may, by notification, establish with
effect from such date as it may specify in such notification, a Committee to be known as the Insurance Advisory
Committee.
(2) The Insurance Advisory Committee shall consist of not more than 25 members excluding ex-officio members to
represent the interests of commerce, industry, transport, agriculture, consumer fora, surveyors, agents,
intermediaries, organisations engaged in safety and loss prevention, research bodies and employees association in
the insurance sector.
(3) The Chairperson and the members of the Authority shall be the ex-officio Chairperson and ex-officio members of
the Insurance Advisory Committee.
(4) The objects of the Insurance Advisory Committee shall be to advise the Authority on matters relating to the
making of the regulations under section 26.
(5) Without prejudice to the provisions of sub-section (4), the Insurance Advisory Committee may advise the
Authority on such other matters as may be prescribed.
26. Power to make regulations—(1) The Authority may, in consultation with the Insurance Advisory Committee, by
notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of
this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all
or any of the following matters, namely:
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(a) the times and places of meetings of the Authority and the procedure to be followed at such meetings
including the quorum necessary for the transaction of business under sub-section (1) of section10;
(b) the transactions of business as its meetings under sub-section (4) of section 10;
(c) the terms and other conditions of service of officers and other employees of the Authority under sub-
section (2) of section 12;
(d) the powers and functions which may be delegated to Committees of the members under sub-section (2) of
section 23; and
(e) any other matter which is required to be, or may be, specified by regulations or in respect of which
provision is to be or may be made by regulations.
27. Rules and regulations to be laid before parliament—Every rule and every regulation made under this Act
shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total
period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before
the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses
agree in making any modification in the rule or regulation or both Houses agree that the rule or regulation should
not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the
case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of
anything previously done under that rule or regulation.
28. Application of other laws not barred—The provisions of this Act shall be in addition to, and not in derogation
of, the provisions of any other law for the time being in force.
29. Power to remove difficulties—(1) If any difficulty arises in giving effect to the provisions of this Act, the Central
Government may, by order published in the Official Gazette, make such provisions not inconsistent with the
provisions of this Act as may appear to be necessary to removing the difficulty:
Provided that no order shall be made under this section after the expiry of two years from the appointed day.
(2) Every order made under this section shall be laid, as soon as may be, after it is made, before each House of
Parliament.
30. Amendment of act 4 of 1938—The Insurance Act, 1938 shall be amended in the manner specified in the First
Schedule to this Act.
31. Amendment of act 31 of 1956—The Life Insurance Corporation Act, 1956 shall be amended in the manner
specified in the Second Schedule to this Act.
32. Amendment of act 57 of 1972—The General Insurance Business (Nationalisation) Act, 1972 shall be
amended in the manner specified in the Third Schedule to this Act.
APPENDIX–III INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(REGISTRATION OF INDIAN INSURANCE COMPANIES) REGULATIONS, 2000
In exercise of the powers conferred by section 114A of the Insurance Act 1938 (4 of 1938) read with section 26 of
the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), the Authority, in consultation with the
Insurance Advisory Committee, hereby makes the following regulations, namely:
Page 10 of 339
CHAPTER I
1. Short title and commencement—(1) These regulations may be called the Insurance Regulatory and
Development Authority (Registration of Indian Insurance Companies) Regulations 2000.
(2) They shall come into force on the date1. of their publication in the Official Gazette.
2. Definitions—In these regulations, unless the context otherwise requires:-
(a) ‘Act’ means the Insurance Act 1938 (4 of 1938);

of section 3 of the Insurance Regulatory and Development Authority Act 1999 (41 of 1999);
(c) ‘certificate’ means a certificate of registration granted or renewed by the Authority under these regulations;
(d) ‘enquiry officer’ means an officer of the Authority or any person specifically appointed by it to conduct an
enquiry for purposes of these regulations;
(e) ‘general annuity business’ means the business of effecting contracts to pay annuities on human life but
does not include contracts under pension business;
(f) ‘health insurance business’ or ‘health cover’ means the effecting of contracts which provide sickness
benefits or medical, surgical or hospital expense benefit, whether in-patient or out-patient, on an indemnity,
reimbursement, service, pre-paid, hospital or other plans basis, including assured benefits and long-term
care;
2.[(g) ‘Indian promoter’ means and includes—
(i) a company formed under the Companies Act, 1956 (1 of 1956), which is not a subsidiary as defined in
section 4 of that Act;
(ii) a banking company as defined in sub-section (4A) of section 2 of the Act but does not include a foreign
bank or branch thereof functioning in India;
(iii) a Public financial institution as defined in section 4A of the Companies Act, 1956 (1 of 1956);
(iv) a co-operative society registered under any relevant law for the time being in force;
(v) a person, who is an Indian citizen or a combination of persons who are Indian citizens;
(vi) a limited liability partnership formed under the Limited Liability Partnership, Act, 2008 (6 of 2009) with
no partner being a non-resident entity/person resident outside India as defined in clause (w) of section
2 of the Foreign Exchange Management Act, 1999 (42 of 1999) FEMA; and not being a foreign limited
liability partnership registered thereunder;
(h) ‘infrastructure facility’ means:
3.(i) a road, including toll road, a bridge or a rail system;
(ii) a highway project including other activities being an integral part of the highway project;
(iii) a port, airport, inland waterway or inland port;
(iv) a water supply project, irrigation project, water treatment system, sanitation and sewerage system or
solid waste management system;
(v) telecommunication services whether basic or cellular, including radio paging, domestic satellite service
(i.e., a satellite owned and operated by an Indian company for providing telecommunication service),
network of trunking, broadband network and internet services;
(vi) an industrial park or special economic zone;
(vii) generation or generation and distribution of power;
(viii) Transmission or distribution of power by laying a network of new transmission or distribution lines;
(ix) construction relating to projects involving agro-processing and supply of inputs of agriculture;
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(x) construction for preservation and storage of processed agro-products, perishable goods such as fruits,
vegetables and flowers including testing facilities for quality;
(xi) construction of educational institutions and hospitals;
(xii) any other public facility of similar nature as may be notified by the Authority in this behalf in the Official
Gazette].
(i) ‘linked business’ means life insurance contracts or health insurance contracts under which benefits are
wholly or partly to be determined by reference to the value of underlying assets or any approved index;
(j) ‘non-linked business’ means life insurance contracts or health insurance contracts which are not linked
business;
(k) ‘pension business’ includes business of effecting contracts to manage investments of pension funds or
superannuation schemes or contracts to pay annuities that may be approved by the Authority in this behalf;
(l) ‘principal officer’ means any person connected with the management of the applicant or any other person
upon whom the Authority has served notice of its intention of treating him as the principal officer thereof;
(m) all words and expressions used herein and not defined in but defined in the Insurance Act, 1938 (4 of
1938), or in the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall have the
meanings respectively assigned to them in those Acts.
CHAPTER II
3. Procedure for registration—(1) An applicant desiring to carry on insurance business in India shall make a
requisition for registration application in Form IRDA/R1.
(2) An applicant, whose requisition for registration application has been accepted by the Authority, shall make an
application in Form IRDA/R2 for grant of a certificate of registration.
4. Classes of insurance business for which requisition for registration application may be made—(1) An
applicant shall make a separate requisition for registration application under regulation 3 for each class of business
of insurance.
(2) The classes of business of insurance for which requisition for registration application may be made are:
(a) life insurance; or

(b) general insurance business including health insurance business (or health cover).
5. Requisition for registration application—(1) An applicant shall be eligible to apply for requisition referred to in
sub-regulation (1) of regulation 3, if such applicant upon registration will be an Indian insurance company as defined
in section 2 (7A) of the Act:
Provided that the applicant whose—
(i) requisition for registration application has been rejected by the Authority at any time during the preceding
five financial years on the date of requisition for registration application; or
(ii) application for registration has been rejected by the Authority at any time during the preceding five financial
years on the date or requisition for registration application; or
(iii) certificate of registration has been cancelled or withdrawn by the Authority; or
(iv) name does not contain the words ‘insurance company’ or ‘assurance company’;
shall not be eligible to make a requisition for registration application under this regulation.
(2) Every requisition for registration application shall be accompanied by—
(a) a certified copy of the memorandum of association and articles of association, where the applicant is a
company and incorporated under Companies Act, 1956 (1 of 1956);
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(b) the name, address and the occupation of the directors and principal officer;
(c) a statement of the class of insurance business proposed to be carried on;
(d) a statement indicating the sources that will contribute the share capital required under section 6 of the Act.
6. Furnishing of further information and clarification, etc—(1) The Authority may require the applicant, which
makes a requisition under regulation 3, to furnish further information or clarification regarding the matters relevant to
consider the requisition for registration application.
(2) The applicant referred to in sub-regulation (1) of Regulation 5, if so required, may appear before the Authority
through its principal officer.
7. Consideration of requisition for registration application—The Authority on being satisfied that—
(a) the requisition in Form IRDA/R1 is complete in all respects and is accompanied by all documents required
therein;
(b) all information given in the Form IRDA/R1 is correct;
(c) the applicant will carry on all functions in respect of the insurance business including management of
investments within its own organisation;
(d) the applicant submitting requisition for registration application:
(i) is a bonafide applicant for registration under section 3 of the Act;
(ii) will be in a position to comply with all the requirements for grant of certificate;
may accept the requisition and direct supply of the application for registration to the applicant.
8. Rejection of requisition for registration application—(1) Where the requirements under regulation 7 are not
complied with, the Authority may, after giving the applicant a reasonable opportunity of being heard, reject the
application.
(2) The order rejecting the application under sub-regulation (1) shall be communicated by the Authority within thirty
days of such rejection to the applicant in writing stating therein the ground on which the application has been
rejected.
(3) An applicant aggrieved by the decision of the Authority under sub-regulation (2) may, within a period of thirty
days from the date of such communication, apply to the Authority for reconsideration of its decision.
(4) The Authority shall consider the application made under sub-regulation (3) and communicate its decision, as
soon as possible, in writing to the applicant.
9. Action upon rejection of application for requisition—An applicant, whose requisition for registration
application has been rejected, may approach the Authority with a fresh request for registration application after a
period of two years from the date of rejection, with a new set of promoters and or for a class of insurance business
other than the originally proposed one.
CHAPTER III
10. Application for registration—(1) An applicant, whose requisition has been accepted, may make an application
in Form IRDA/R2 for grant of certificate of registration.
(2) Every application shall be accompanied by—
(a) documentary proof evidencing the making of deposit required under section 7 of the Act;
(b) evidence of having rupees one hundred crore or more paid up equity share capital, in case the application
for grant of certificate is for life insurance business or general insurance business;
(c) evidence of having rupees two hundred crore or more paid up equity share capital, in case the application
for grant of certificate is for re-insurance business;
Page 13 of 339
(d) an affidavit by the principal officer and the promoters of the applicant certifying that the requirements of the
first proviso the section 6 of the Act to the effect that paid up share capital is adequate after excluding any
preliminary expenses incurred in the formation and registration of the company and the deposit required to
be made under section 7 of the Act have been satisfied;
(e) a statement indicating the distinctive numbers of shares issued to each promoter and shareholder in
respect of share capital of the applicant;
(f) an affidavit by the principal officer and the promoters of the application certifying that the paid up equity
capital referred to in sub-clause(b) of clause (7A) of section 2 of the Act, calculated is in accordance with
regulation 11 does not exceed twenty-six per cent;
(g) a certified copy of the published prospectus, if any;
(h) a certified copy of the standard forms of the insurer and statements of the assured rates, advantages,
terms and conditions to be offered in connection with insurance policies together with a certificate by an
actuary in case of life insurance business that such rates, advantages, terms and conditions are workable
and sound;
(i) a certified copy of the memorandum of understanding entered into between the Indian promoter and the
foreign promoter, if any, or amongst the promoters as a whole including details of the support comfort
letters exchanged between the parties;
(j) the original receipt showing payment of the fee of rupees fifty thousand for a class of business;
(k) a certificate from a practising chartered accountant or a practising company secretary certifying that all the
requirements relating to registration fees, share capital deposits, and other requirements of the Act have
been complied with by the applicant;
(l) any other information required by the Authority during the processing of the application for registration.
4.11. Manner of calculation of twenty six per cent equity capital held by a foreign company—(1) For the
purposes of the Act and these Regulations, the calculation of the holding of equity shares by a foreign company
either by itself or through its subsidiary companies or its nominees (hereafter referred to as foreign investor) in the
applicant company, shall be made as under and shall be aggregate of—
(i) the quantum of paid up equity share capital held by the foreign company either by itself or through its
subsidiary companies or nominees in the applicant company;
(ii) the quantum of paid up equity share capital held by other foreign investors, non-resident Indians, overseas
corporate bodies and multinational agencies in the applicant company; and
(iii) the quantum represented by that proportion of the paid up equity share capital to the total issued equity
capital of an Indian promoter company mentioned in sub-clause (i) or sub-clause (vi) of clause (g) of
regulation 2 held or controlled by the category of persons mentioned in sub-clauses (i) and (ii) of this sub-
regulation.
Explanation. For purposes of calculation referred to above, account need not be taken of the holdings
of equity in an Indian promoter company held by foreign institutional investors, other than the foreign
promoters of the applicant and their subsidiaries and nominees, and Indian mutual funds to the extent
the investment of foreign institutional investors and Indian mutual funds are within the approved limits
laid down by the Securities and Exchange Board of India under its rules, regulations or guidelines
issued from time to time.
(2) Every insurer who has been granted registration under the Act shall, within 15 days of the end of every quarter,
furnish to the Authority a statement indicating changes exceeding 1 % of the issued capital in the holding of the
shares in his company and those of the promoter.
(3) Interpretation: The interpretation of this regulation will be that of the Authority, whose decision on all issues will
be binding on all applicants/insurers and will be final.
12. Consideration of application—(1) The Authority shall take into account for considering the grant of certificate,
all matters relating to carrying on the business of insurance by the applicant.
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(2) In particular and without prejudice to the generality of the foregoing without in any manner affecting its freedom,
the Authority shall consider the following matters for grant of certificate to the applicant, namely:-
(a) the record of performance of each of the promoters in the fields of business/profession they are engaged
in;
(b) the record of performance of the directors and persons in management of the promoters and the applicant;
(c) the capital structure of the applicant company;
(d) the extent of obligation to provide life insurance or general insurance policies to the persons residing in the
rural sector, workers in the unorganised sector or informal sector or for economically vulnerable or
backward classes of the society and other categories of persons specified by the Authority;
(e) the nature of insurance products;
(f) the planned infrastructure of the applicant company, including branches in rural areas, to effectively carry
out the insurance business;
(g) the level of actuarial and other professional expertise within the management of the applicant company;
(h) the organisation structure of the applicant to meet the requirements of regulation 7(c);
(i) other relevant matters for carrying out of provisions of the Act.
(3) The Authority shall give preference in grant of certificate of registration to those applicants who propose to carry
on the business of providing health covers to individuals or groups of individuals.
13. Rejection of application for registration—(1) Where an application for registration is not complete in all
respects and does not conform to the regulations or instructions specified in Form IRDA/R2, and after considering
matters referred to in regulations 12 and 16 and on being satisfied that it is not desirable to grant a certificate by the
Authority, by an order, may reject the application.
(2) The order rejecting the application under sub-regulation (1) shall be communicated by the Authority within thirty
days of such rejection to the applicant in writing stating therein the ground on which the application has been
rejected.
(3) An applicant aggrieved by the decision of the Authority under sub-regulation (2) may, within a period of thirty
days from the date of such communication, appeal to the Central Government in accordance with sub-section (2C)
of section 3 of the Act, for reconsideration of such decision.
(4) The decision of the Central Government on such appeal shall be final and shall not be questioned before any
Court.
(5) The fees, referred to in clause (j) of sub-regulation (2) of regulation 10, shall not be refunded.
14. Effect of rejection of application for registration—An applicant, whose application for registration has been
rejected shall not be entitled to a certificate:
An applicant may approach the Authority with a fresh request for registration after a period of two years from the
date of rejection, with a new set of promoters and or for a class of insurance business other than the originally
proposed one.
15. Manner of payment of fee for registration—The fee of rupees fifty thousand for each class of business for
registration shall be remitted by a bank draft issued by any Scheduled bank in favour of the Insurance Regulatory
and Development Authority payable at New Delhi.
16. Grant of certificate of registration—The Authority, after making such inquiry as it deems fit and on being
satisfied that—
(a) the applicant is eligible, and in its opinion, is likely to meet effectively its obligations imposed under the Act;
(b) the financial condition and the general character of management of the applicant are sound;
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(c) the volume of business likely to be available to, and the capital structure and earning prospects of, the
applicant will be adequate;
(d) the interests of the general public will be served if the certificate is granted to the applicant in respect of the
class of insurance business specified in the application; and
(e) the applicant has complied with the provisions of sections 2C, 5, 31A, 32 and 32A has fulfilled all the
requirements of these sections applicable to him,
may register the applicant as an insurer for class of business for which the applicant is found suitable and grant him
a certificate in Form IRDA/R3.
17. An applicant granted a certificate of registration under the Regulations shall commence insurance business for
which he has been authorised within 12 months of the date of registration:
Provided, however, that if the company feels that it will not be able to commence the insurance business within the
specified period of 12 months, it can before the time limit expires, seek an extension, by a proper written
application, to the Authority.
18. The Authority on receipt of the request referred to in Regulation 17 will examine it and communicate its decision
in writing either rejecting the request or granting it.
19. No extension of time shall be granted by the Authority beyond 24 months from the date of grant of registration
under Regulation 16.
CHAPTER VI
20. Manner of renewal of certificate—5.(1) An insurer, who has been granted a certificate under section 3 of the
Act, shall make an application in Form IRDA/R5 for the renewal of the certificate in Form IRDA/R6 to the Authority
before the 31st day of December each year, and such application shall be accompanied by evidence of the
payment of the fee which shall be the higher of.-
(a) fifty thousand rupees for each class of insurance business, and
(b) 6.one-tenth of one per cent of total gross premium written direct by an insurer in India during the financial
year preceding the year in which the application for renewal of certificate is required to be made, or rupees
five crores, whichever is less; (and in the case of an insurer carrying on solely re-insurance business,
instead of the total gross premium written direct in India, the total premium in respect of facultative re-
insurance accepted by him in India shall be taken into account).
(2) If the insurer fails to apply for the renewal or registration before the date specified in sub-regulation (1), the
authority may accept an application for renewal or registration on receipt of the fee payable with the application
along with an additional fee by way of penalty of ten per cent of the fee payable with the application.
21. Manner of payment of fee for renewal of certificate—The fee for renewal of certificate shall be paid to the
account of Insurance Regulatory and Development Authority with the Reserve Bank of India.
22. Issue of duplicate certificate—The Authority may, on receipt of fee of rupees five thousand, issue a duplicate
certificate to an insurer, if the insurer makes an application to the Authority in Form IRDA/R4.
CHAPTER V
PROCEDURE FOR ACTION IN CASE OF DEFAULT
23. Suspension of certificate—Without prejudice to any penalty which may be imposed or any action taken under
the provisions of the Act, the registration of an Indian insurance company or insurer who—
(a) conducts its business in a manner prejudicial to the interests of the policy holders;
(b) fails to furnish any information as required by the Authority relating of its insurance business;
(c) does not submit periodical returns as required under the Act or by the Authority;
Page 16 of 339
(d) does not cooperate in any inquiry conducted by the Authority;

(e) indulges in manipulating the insurance business;
(f) indulges in unfair trade practices;
(g) fails to make investment in the infrastructure or social sector specified under sub-section (1A) of section
27D of the Act;
may be suspended for a class or classes of insurance business for such period as may be specified by the
Authority by an order:
Provided that the Authority for reasons to be recorded in writing may, in case of repeated defaults of the type
mentioned above, impose a penalty of cancellation of certificate.
24. Manner of making order of suspension or cancellation of certificate—No order of suspension or

cancellation shall be imposed except after holding an enquiry in accordance with the procedure specified in these
regulations.
25. Manner of holding inquiry before suspension or cancellation—(1) For the purpose of holding an inquiry
under regulation 24, the Authority may appoint an enquiry officer.
(2) The enquiry officer shall issue to the insurer a notice at the registered office or the principal place of business of
the insurer.
(3) The insurer may, within thirty days from the date of receipt of such notice, furnish to the enquiry officer a reply,
together with copies of documentary or other evidence relied on by it or sought by the Authority from the insurer.
(4) The enquiry officer shall give a reasonable opportunity of hearing to the insurer to enable it to make submissions
in support of its reply made under sub-regulation (3).
(5) Before the enquiry officer, the insurer may either appear in person or through any person duly authorised by the
insurer:
Provided that no advocate shall be permitted to represent the insurer at the enquiry.
Provided further that where an advocate has been appointed by the Authority as the presenting officer under sub-
regulation (6), it shall be lawful for the insurer to present its case through an advocate.
(6) If it is considered necessary, the enquiry officer may ask the Authority to appoint a presenting officer to present
its case.
(7) The enquiry officer shall, after taking into account all relevant facts and submissions made by the insurer, submit
a report to the Authority and recommend the penalty to be awarded as also the justification of the penalty proposed.
26. Show-cause notice and order—(1) On receipt of the report from the enquiry officer, the Authority shall
consider the same and if considered necessary by it, issue a show-cause notice as to why a penalty as it considers
appropriate should not be imposed.
(2) The insurer shall, within twenty-one days of the date of receipt of the show-cause notice, send a reply to the
Authority.
(3) The Authority after considering the reply to the show-cause notice, if received, shall as soon as possible but not
later than thirty days from the receipt of the reply, if any, pass such orders as it deems fit. If no reply is furnished to
the Authority by the insurer within 90 days of the service of the notice, the Authority can proceed to decide the issue
it.
(4) An order passed under sub-regulation (3) shall give reasons therefor including justification of the penalty
imposed by that order.
(5) The Authority shall send a copy of the order made under sub-regulation (3) to the insurer.
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27. Effect of suspension or cancellation of certificate—On and from the date of suspension or cancellation of
the certificate, the insurer shall cease to transact new insurance business.
28. Publication of order—The order of the Authority passed under sub-regulation (3) of regulation 26, shall be
published in at least two daily newspapers in the area where the insurer has his principal place of business.
CHAPTER VII
PROVISIONS APPLICABLE TO EXISTING INSURERS
29. Registration of existing insurers—(1) Every insurer carrying on insurance business in India before the
commencement of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) and requiring
registration under the Act, shall make an application, in Form IRDA/R2 for grant of certificate of registration, within
three months from the commencement of the Insurance Regulatory and Development Authority Act, 1999 (41 of
1999).
(2) Every application shall be accompanied by—
(a) original certificate or registration;

(b) a confirmation that the requirements of section 7 of the Act have been met;
(c) evidence of having rupees one hundred core or more paid up share capital, in case the application for
grant of certificate of registration if for life insurance business or general insurance business;
(d) evidence of having rupees two hundred crore or more paid up share capital, in case of an application for
grant of certificate of registration for re-insurance business;
(e) an affidavit by the principal officer of the applicant certifying that the requirements of section 6 of the Act
have been complied with;
(f) a certified copy of the standard forms of the insurer and statements of the assured rates, advantages,
terms and conditions to be offered in connection with insurance policies together with a certificate in case
of life insurance business by an actuary that such rates, advantages, terms and conditions are workable
and sound;
(g) the original receipt showing payment of fee of rupees fifty thousand for each class of business;
(h) any other information required by the Authority during the processing of the application for registration.
(3) The Authority shall register every applicant, who submits an application in accordance with sub-regulation (2),
and grant a certificate in Form IRDA/R3.
30. Transitory Provisions—Every existing insurer shall be required to comply with all the Regulations made by the
Authority from the date of their notification.
Provided that the Regulations made by the Authority on the following subjects, viz.—
(i) Accounts;
(ii) Assets, liabilities and solvency margin;
(iii) Reinsurance;
may, at the choice of an existing insurer, be complied with within a period of twelve months from the
commencement of those regulations.
Provided, however, the Authority may, on an application made to it by an existing insurer, for valid reasons, grant a
further period of time to comply with the above regulations so, however, that the total time taken by an existing
insurer to comply with regulations in the areas mentioned above does not extend beyond twenty-four months from
the date(s) of commencement of those regulations.
Provided further that where an existing insurer does not conform to the regulations in the areas mentioned above
Page 18 of 339
within the time allowed to him under this regulation, the Authority shall proceed against him for failure to comply
with its directions.
Notwithstanding the above, nothing prevents the Authority from seeking information from an existing insurer on the
subjects mentioned in the first proviso to this regulation and issue direction to an insurer, wherever necessary.
Form IRDA/R1
Requisition for Registration Application
[Please see regulation 5 of Insurance Regulatory and Development Authority (Registration of Indian insurance
Companies) Regulations, 2000]
(This form is supplied free of cost to the applicants by the Insurance Regulatory and Development Authority. Please
fill in the application carefully. Should you require any clarifications, please write to the Authority specifically
mentioning your query or call on us personally subject to prior appointment)
1. Name of the applicant.

2. Address.
3. Date of incorporation as a Company. [DD/MM/YYYY]
4. Registration No. (issued by the Registrar of the companies).
5. State the classes of insurance business for which registration is sought.
6. Amount of Authorised capital and face value of shares and their numbers.
7. Amount of Paid up Capital and Number of equity shares.
8. Classification of Shares.
9. Voting Rights of each class of Shareholders.
10. Details of shareholders. [Please give full name, address, percentage of holding in the paid-up capital of the
insurer, Occupation, Qualification and Experience, Number of shares held and Percentage of share capital
in the company]. Please attach separate sheets if necessary. Details of persons holding more than 1% of
the issued capital of the applicant and promoters are to be given in separate statements.
Page 19 of 339
Full Name Date of Birth Address with Qualification Experience Present No. of equity Remarks
[First, Middle, Telephone Nos, occupation (voting rights)
surname] Fax Nos, E-mail shares and
percentage of
total holding
(1) (2) (3) (4) (5) (6) (7) (8)
Mr/Ms
Page 20 of 339
Note: If the promoter is a company or a body corporate registered in Indian or in a foreign country, give the name of
the company or body corporate in column (1), the country of incorporation and the date of registration in column (2),
mention the areas of operation of the company in column (5), leaving the columns 4 and 6 blank; particulars
indicating the countries of operation, nature of business enclosing statements of accounts of the company or body
corporate for the last 5 years are to be given. If there are more than one promote in information may kindly be
furnished in such a manner as to indicate clearly the inter relationship, if any, of parties. If a promoter is a nominee
of another, details of the principal in the above areas are to be given. Adequate care may be taken to furnish full
and complete information truthfully. Any misrepresentation found later will lead to disqualification of the applicant, its
promoters and others connected thereto.
If the total required capital has not yet been issued, please provide information on the expected subscriptions to
shares and whether the potential shareholders have given any commitment or assurance to subscribe to the
capital.
11. Applicant—This section should set out the background information. Following information should be included:
• Particulars of the partners in the joint venture (eg: company name, address, names of directors, etc).
• Constitution of the promoter companies details of shareholders holding in excess of 1% of the paid up
capital.
• Nature of business, years in business of promoter companies.
• Past record to regulatory interventions/restrictive directions in respect of promoter companies.
• The applicant’s reasons for entering the insurance market.
• Financial statements for the last five years. Strengths of the partners.
• Indication of the degree of commitment to the Indian market place displayed by the applicant.
• The Agreement among the shareholders promoting the company.
• The obligations undertaken by the foreign promoters.
• The obligations of the applicant company to the foreign promoters.
• Sources for meeting the initial and future capital needs.
• In cases of non-corporate promoters, information on the above lines, suitably modified, may be given.
Promoters (Separate statements for Indian promoters and foreign promoters, if any, are to be given).
Details of promoters: [Please give full name, address, percentage of holding in the paid up capital, Occupation,
Qualification and Experience, Number and Percentage of share capital in company]
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Full Name Date of Birth Address with Qualification Experience Present No. of equity Remarks
[First, Middle, Telephone Nos, occupation (voting rights)
surname] Fax Nos, E-mail shares and
percentage of
total holding
(1) (2) (3) (4) (5) (6) (7) (8)
Mr/Ms
Page 22 of 339
Note: If the promoter is a company or a body corporate registered in India or in a foreign country, give the name of
the company or body corporate in column (1), furnish the date or registration in column (2), mention the areas of
operation of the company in column (5), leaving the columns 4 and 6 blank. The particulars of persons nominated
by such promoter in the above proforma; and particulars indicating the countries of operation, nature of business
enclosing statements of accounts of the company or body corporate for the last 5 years should also be provided.
12. The Applicant Company—This section should provide the key aspects of the Company. This will cover the
following:
• Name of the applicant Company:

• Date of Registration: [DD/MM/YYYY]: (As per Companies Act, 1956):
• Registration Number:
• Registered Office Address:
• Head Office Address:
• Address for Communications (state the name of the Company Secretary, telephone numbers, fax
numbers, mobile number, e-mail address and such other details):
• Key aspects of the promoters (eg, respective shareholdings, roles and responsibilities, directorships, inter-
relationships, etc).
• Particulars of the Board of Directors:
• State of operation. Branch locations (proposed):
• Company’s Mission Statement:
• Senior management (key persons) and allocation of responsibilities (Proposed):
• Organisational structure, Reporting relationships:
[Enclose four certified copies of Memorandum and Articles of Association of the registered company]
13. Capital structure
• Amount of Authorised capital & No. of Shares:

• Classification of Shares:
• Amount of Issued Capital and No. of Shares:
• Amount of Paid up Capital and No. of Shares:
• Voting Rights attached to each class of Shares:
• Nominal/Face value of Each Equity Share/Other Share:
14. Directors and key persons—For each director and key Directors and key persons, furnish the particulars in
the proforma given below:
• Name (and any previous names)

• Private and Business Address (including any other private address within the last 15 years), current
Telephone, Fax and E-mail Addresses:
• Date and Place of Birth
• Nationality (and any previous Nationality)
• Passport/Identity Card:
— Number
— Date and Place of Issue
— Date of expiry
Page 23 of 339
— Issuing Authority
• Name and Address of Bank:
— Account Numbers and Type of Account;
— Details of any loans or guarantees issued to or on behalf of the company in which the Directors and
key persons have a management or shareholding interest.
• Family Status
• Details and Dates of Academic Qualification:
• Details and Dates of Professional Qualification:
• Description of the prospective position (including responsibilities) and proposed date of commencement:
• Working Experience:
— Existing and Previous Employers (covering last 15 years)
— Details of whether the Directors and key persons and/or their Employers have been formally
supervised or regulated.
— Nature of Employer’s Business
— Designation (including duties and responsibilities):
— Date of Appointment
— Date of Resignation/Departure
— Details of Other Business interests in the last 15 years where the Directors and key persons have been
a working shareholder, director or controller;
• Relationship with the Company or related Companies or other third parties:
— Details of shareholdings or voting powers in the company, or related Companies or third parties:
— Details of any Business relationships with the company or related Companies or third parties;
— Details of any Business relationships between the Directors and key persons, former employers and
the company or related Companies or third parties;
• Full details on the Directors and key persons, reputation and character:
— whether the applicant has ever been declared bankrupt;
— any convictions of any offence involving fraud or other dishonesty;
— any disqualification of the Directors and key persons from acting as a director or in the management of
any company of organisation;
— whether the Directors and key persons have ever been refused (or had revoked) a licence or
authorisation to carry on any regulated financial business;
• Any censure or disciplinary action initiated by any government, regulatory or professional body;
• Any dismissals from office or employment, subjection to disciplinary proceedings by the Directors and key
persons employer or been refused entry to any profession or occupation;
• Any litigation with which the Directors and key persons have been involved over the last 5 years;
• Whether any governmental, regulatory or professional body has ever investigated any employer, company
or organisation with which the Directors and key persons have been associated as a director, officer,
manager or shareholder;
• Whether any company or organisation with which the Directors and key persons were associated as a
director, officer, manager, shareholder or controller has ever been wound up, gone into receivership or
ceased trading either whilst the Directors and key persons was associated with it or within one year after
the Directors and key persons so ceased to be associated.
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In the Remarks column, please mention whether any director is an agent, broker, intermediary, director or
employee of any other insurance company (or reinsurer) in India or in any foreign country or director of any other
company in India or in any foreign country.
For these purposes, ‘Key persons’ will include the Chief Executive, Chief Marketing Officer, Appointed Actuary,
Chief Investment Officer, Chief of internal Audit and Chief Finance Officer.
15. External auditors (Proposed)

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Full Name Date of Birth Address with Date of Experience in Present No. of equity Remarks
[First, Middle, Telephone Nos, Appointment auditing occupation (voting rights)
surname] Fax Nos, E-mail insurance shares and
companies percentage of
total holding in
the applicant
company
(1) (2) (3) (4) (5) (6) (7) (8)
Mr/Ms
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If auditors are a firm, state the name of the firm in Col. (1), its date of registration in Col. (2).
Note: In choosing external statutory auditors, the applicant may be guided by the Regulations for Preparation of
Financial Statements and Auditors Report of Insurance Companies, more particularly those dealing with
appointment of auditors.
16. Business to be transacted—Describe the insurance business to be transacted.
17. Where in the country do you wish to carry on insurance business? (tick the boxes)
(a) Regions: North South East West Central

(b) Metropolitan cities: Mumbai Chennai Delhi Calcutta
(c) Concentration: Rural Urban Both Rural & Urban
18. Distribution channels: Direct Tied Agents Brokers/Intermediaries others
19. Financial projections (Both for life and general insurance depending on the class applied for
registration)—A description of the model used for financial projections should be provided, based on assumptions,
for period of 5 years, for each year from the start. These should set out the following:
• Size of sales force.

• Amount of sales.
• Size of sales support and administrative staff.
• Premium income.
• Investment income.
• Commissions and other sales related expenses.
• Expenses of administration.
• Income tax and other taxes.
• Statutory reserves.
• Required solvency margins.
• Profit and loss accounts and balance sheets.
• First year and renewal expense ratios.
• Capital needs Indian and Foreign.
• Break-even periods and the Return on Capital.
• Share holder dividends: Indian and Foreign.
• Policy holder surpluses and bonus declarations.
This section should also discuss the manner in which the future capital needs will be met.
20. Sensitivity analysis (Life)—The analysis set out in para 19 above will be based on a base scenario and a few
alternate scenarios. Sensitivity analysis based on ‘Optimistic’ and ‘Pessimistic’ assumptions should also be
included. These will relate to assumptions such as:
• Size of sales force.

• Volume of sales.
• Average size of sale.
• Levels of mortality/morbidity, policy terminations.
• Administrative expenses (including inflation).
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• Future investment conditions.
A discussion on the manner in which the outcome of the pessimistic scenarios will be handled should be included.
21. Rural business—Legislation requires that a specified percentage of the new business should be undertaken in
the rural or social sector. The manner in which this requirement will be fulfilled should be described. For the
purpose of this section, please see the relevant regulations covering this area.
22. Obligation in unorganised sector and backward classes—In addition, insurers shall discharge obligations in
respect of unorganised sector to cover risks of economically vulnerable sections of the society and backward
classes. For the purpose of this section, please see the relevant regulations covering this area.
The manner in which these requirements are proposed to be met should be described in detail.
23. Particulars of previous application—Has the applicant ever applied for license in India or outside India? If so,
give particulars.
24. Conclusion—In conclusion, the report should discuss the viability of the operations. Any special issues or
concerns should also be indicated.
Certification
I, the undersigned, solemnly declare that the facts given in this application form on behalf of the Applicant
Company, are true and that the projections and estimations are based on reasonable assumptions.
Place:
Date:Signature of the Authorised Person (with seal)
Form–IRDA/R2
Application for Registration
[Please see regulation 10 of Insurance Regulatory and Development Authority Registration of Indian Insurance
(This form is supplied free of cost to the applicants by the Insurance Regulatory and Development Authority. Please
fill in the application carefully. Should you require any clarifications, please write to the Authority specifically
mentioning your query or call on us personally subject to prior appointment).
1. Geographic spread—Give the addresses of the administrative offices in each State and Union Territory in India,
overseas, and also in Rural Areas with the name of person in charge of the office. [If the applicant has not decided,
he might give the proposed number and locations of administrative offices in each State and Union Territory in
India, overseas, and also in Rural Areas].
2. Market research and analysis—The company may have undertaken some form of market analysis to ascertain
the market potential, consumer needs, target market, product potential, etc. (in particular health insurance
segment). Full description of the research, along with the conclusions reached.
3. Products to be sold—Based on the market research and analyses undertaken, the partners would have
decided upon the products to be marketed individual or group insurance. The description should include the
following:
• Description of the product features.

• The target markets where the products will be sold.
• Specification of the names of the products in life/general insurance, linked non-linked, health insurance.
4. Distribution—This section should describe how the products will be or are proposed to be distributed. This
should cover the following:
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• The channels of distribution to be used, with an indication on the relative degrees of importance placed on
each of the channels.
• The distribution network that will be set up in the market place.
• Any limitations on the products to be sold by any of the channels.
• Remuneration to be paid to each channel of distribution.
5. Sales promotion—The approach to be used for advertisement and sales promotion, eg, the media to be used,
frequency, etc. Copies of sales material, literature advertising the product, if any, should be provided.
6. Underwriting—This section should describe the approach used for underwriting of proposals; the arrangements
made for medical and other reports, etc.
Please also state the nature of support to be provided in underwriting and in training of underwriters by the foreign
promoters.
7. Investments—Each company will have established its investment philosophy that will be appropriate for the
products it intends to market. This should be described. Other information should include the investment personnel,
investment adviser (if outsourced), location of the investment operations, investment brokers to be used, etc.
Regulations regarding investment, Valuation, Exposure Prudential Provisioning Norms Life & Non-Life issued by the
Authority may be taken into account.
8. Information technology—Insurance industry is very much dependent on computer technology. Full description
should be provided for the following:
• The different areas where computer systems will be employed.

• Whether the systems will be bought off the shelf (with some customisation), developed locally or imported
into India by the foreign promoter (with some customisation).
• The degree to which the systems will be used for policyholder servicing.
• The degree of inter-connectivity of the systems.
• A description of how the IT systems will be used to develop the required Management Information
Systems.
• Extent of procedures and operations which will remain manual.
9. Customer service—Customer service could be provided either centrally through the head office or decentralised
to the branch offices/operational units. The degree to which customer service is planned to be decentralised to the
branch offices should be described. The service standards planned to be introduced for the various aspects of
customer service should be described. Any plan to introduce ‘call-centres’ or customised grievance settlement
machinery may be indicated. Mention the time schedule for various types of service offered by the Company.
10. Retention limits and reinsurance—The nature of re-insurance arrangements should be described fully, giving
the following details:
• The name(s) of reinsurer(s).

• The basis of reinsurance.
• Terms of reinsurance.
The manner in which the retention limit(s) have been established should be discussed.
11. Recruitment and training—Different areas of the company require personnel with different skill sets. These
personnel will include agents, sales supervisors, branch managers, administrative staff for various departments,
etc. Some of the departments will require special technical skills (eg, underwriting, actuarial, accounting, sales,
information technology, etc). This section should set out the following information for each of the categories:
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• Desirable skill sets;

• Sources for recruitment;
• Approach to be used for training in house/outsource.
12. Internal controls—The Company will need to establish a set of procedures and norms for various activities.
The manner in which these will be monitored should be described. These activities will relate to underwriting and
policy issue, customer service, investments, accounting, new product pricing, computation of reserves and
Required Solvency Margins, regulatory compliance, claim processing and settlement procedures, etc.
13. Expenses of administration
Life—In arriving at the premium rates, the Appointed Actuary will need to build the estimated expense levels into
the premium calculations. The manner in which the expenses of administration have been estimated and converted
into average factors should be described. These expenses will have to be distinguished between first year and
renewal, fixed and variable. All overhead expenses will also have to be covered.
General
The proposes expenses as a per cent of premium at levels of operational offices and each level of supervisory
office and head office.
14. New product pricing
Life—The financial projections will incorporate the sale of planned products. A description of these products to the
extent possible should be provided. This should include the following:
• The product features, such as coverage periods, premium levels, non-forfeiture values, loan provisions,
etc.
• Distribution channels to be used.
• Commission scales.
• Average policy size.
• Reserving method used.
• The levels of the various parameters built into the computations. These will relate to mortality, policy
terminations, expenses, interest and any other parameters that may be relevant for the product. The values
of these parameters will have to be specified at two levels—at the Expected level and at a level inclusive of
the Margins for Adverse Deviations. The justifications for both levels should be provided.
• Profitability criteria used in product pricing.
General—In respect of products not governed by market tariffs, please indicate how the products will be priced, the
data base which will be used to determine premium bases and the terms and conditions, the statistical system
which will be established to review adequacy of rates.
15. Information policy—Mention the Company’s policy regarding insurance awareness in the public.
16. Premium rates—Enclose the Company’s Premium Tables for the products along with rebates, if any, offered.
Certification
I, the undersigned, solemnly declare that the facts given in this application form on behalf of the Applicant
Company, are true and that the projections and estimations are based on reasonable assumptions.
Place:
Date:Signature of the Authorised Person (with seal)
Form–IRDA/R3
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Insurance Regulatory and Development Authority (Seal of the Authority)
Certificate of Registration
Registration Number ..................
This is to certify that (Name of Insurer and his address) ......................................... has this day been registered in
accordance with the provisions of sub-section (2A) of section 3 of the Insurance Act, 1938 (IV of 1938) to transact
the classes of business specified in the Schedule below:
Given under the seal of the Authority at New Delhi this ........... day of ............ two thousand and .......... .
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY SCHEDULE
Classes of business which may be transacted—
1. .............................................................................................................
2. .............................................................................................................
3. .............................................................................................................
4. .............................................................................................................
Form IRDA/R4
Issue of Duplicate Certificate of Registration
An insurer shall apply in the following format with the documents specified herein:
To
Insurance Regulatory and Development Authority,
New Delhi.
Application for issue of duplicate certificate of registration.
We request you to issue a duplicate certificate of registration for which we give below the follow details:
1. Name of insurer:
2. Registration Number:
3. Date of Certificate of Registration:
4. How original certificate has been lost, destroyed or mutilated?
5. Particulars of remittance of fee.
Yours truly,
Place: ..............................
Date: ..............................
Signature of the principal officer
(Name of the principal officer)
(Seal)
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Notes: 1. Enclose the original copy of the resolution of the board for the issue of duplicate certificate, in
duplicate.
2. Enclose a DD for Rupees five thousand drawn in favour of Insurance Regulatory and Development
Authority payable at the place of head office of the Authority.
7.Form IRDA/R5
Application for Renewal
Date:
From: (Name of insurer)
To: Insurance Regulatory and Development Authority,
Dear Sir,
As required by Regulation 20 of Insurance Regulatory and Development Authority (Registration of Indian Insurance
Companies) Regulations, 2000, we hereby apply for renewal of registration for the year……….to…………..
Our total gross premium written direct in India during the financial year …………… to …………was Rs…………..
Accordingly, we enclose a bank draft no. ……..dated………..drawn on ……………………., Hyderabad, for

Rs……………..
Kindly issue the renewal of registration certificate.
Yours faithfully,
(Name of signatory)
(Designation)
Note: The renewal of registration shall be for financial year.
The fees for year 1.4.x to 31.3.x+1 shall be based on gross premium for financial year 1.4.x-2 to 31.3.x-1. This
figure shall tally with audited Annual Accounts figure.
Application for renewal for year 1.4x to 31.3x-1 shall be sent to the Authority before 31.12.x-1.]
8.Form IRDA/R6
Insurance Regulatory and Development Authority
Certificate of Renewal of Registration
Registration Number:
Date of Renewal of Registration:
The Certificate of registration of ........................ (Name of Insurer) is hereby renewed under section 3A of the
Insurance Act, 1938, for the year ............................ to Issued at New Delhi on ........................ day of .......................
2000.
(Seal of the Authority.) (Authorised Signatory)
APPENDIX–IV INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(INSURANCE ADVERTISEMENTS AND DISCLOSURE) REGULATIONS, 2000
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In exercise of the powers conferred by section 26 of the Insurance Regulatory and Development Authority Act, 1999
(41 of 1999), the Authority in consultation with the Insurance Advisory Committee, hereby makes the following
regulations, namely:–
Development Authority (Insurance Advertisements and Disclosure) Regulations, 2000.
2. Definitions—Unless the context otherwise requires:–
(a) ‘Authority’ means the Insurance Regulatory and Development Authority established under sub-section (1)
of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999;
(b) ‘insurance advertisement’ means and includes any communication directly or indirectly related to a policy
and intended to result in the eventual sale or solicitation of a policy from the members of the public, and
shall include all forms of printed and published materials or any materials using the print and or electronic
medium for public communication such as:
(i) newspapers, magazines and sales talks;
(ii) bill boards, hoardings, panels;
(iii) radio, television, website, e-mail, portals;
(iv) representations by intermediaries;
(v) leaflets;
(vi) descriptive literature/circulars;
(vii) sales aids flyers;
(viii) illustrations from letters;
(ix) telephone solicitations;
(x) business cards;
(xi) videos;
(xii) faxes or
(xiii) any other communication with a prospect or a policyholder that urges him to purchase, renew,
increase, retain or modify a policy of insurance.
Explanation. The following materials shall not be considered to be an advertisement provided they are not
used to induce the purchase, increase, modification, or retention of a policy of insurance:–
(i) materials used by an insurance company within its own organisation and not meant for distribution to
the public;
(ii) communications with policyholders other than materials urging them to purchase, increase, modify
surrender or retain a policy;
(iii) materials used solely for the training, recruitment, and education of an insurer’s personnel,
intermediaries, counselors, and solicitors, provided they are not used to induce the public to purchase,
increase, modify, or retain a policy of insurance;
(iv) any general announcement sent by a group policyholder to members of the eligible group that a policy
has been written or arranged.
2.[* * *]
(d) ‘unfair or misleading advertisement’ will mean and include any advertisement:
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(i) that fails to clearly identify the product as insurance;

(ii) makes claims beyond the ability of the policy to deliver or beyond the reasonable expectation of
performance;
(iii) describes benefits that do not match the policy provision;
uses words or phrases in a way which hides or minimises the costs of the hazard insured against
or the risks inherent in the policy;
omits to disclose or discloses insufficiently, important exclusions, limitations and conditions of the
contract;
gives information in a misleading way;
illustrates future benefits on assumptions which are not realistic nor realisable in the light of the
insurer’s current performance;
where the benefits are not guaranteed, does not explicitly say so as prominently as the benefits
are stated or says so in a manner or form that it could remain unnoticed;
implies a group or other relationship like sponsorship, affiliation or approval, that does not exist;
makes unfair or incomplete comparisons with products which are not comparable or disparages
competitors.
(e) ‘prospect’ means any party that enters or proposes to enter into an insurance contract directly, or through
an insurance intermediary.
Words and expressions used and not defined in these regulations but defined in the Insurance Act, 1938 (4 of
1938), or the Life Insurance Corporation Act, 1956 (31 of 1956) or the General Insurance Business (Nationalisation)
Act, 1972 (57 of 1972), or Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) shall have the
meanings respectively assigned to them in those Acts or the rules as the case may be.
3. Compliance and control—(1) Every insurer or intermediary or insurance agent shall—
(i) have a compliance officer, whose name and official position in the organisation shall be communicated to
the Authority, and he shall be responsible to oversee the advertising programme;
(ii) establish and maintain a system of control over the content, form, and method of dissemination of
advertisements concerning its policies;
(iii) maintain an advertising register at its corporate office which must include;
(a) a specimen of every advertisement disseminated, or issued or a record of any broadcast or telecast,
etc;
(b) a notation attached to each advertisement indicating the manner, extent of distribution and form
number of any policy advertised; and
(iv) maintain a specimen of all advertisement for a minimum period of three years;
(v) file a copy of each advertisement with the Authority as soon as it is first issued, together with information:
(a) an identifying number for the advertisement;
(b) the form number(s) of the policy(ies)advertised and when the product/s were approved by the
Authority;
(c) a description of the advertisement and how it is used;
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(d) the method or media used for dissemination of the advertisement;

(vi) file a certificate of compliance with their annual statement stating that, to the best of its knowledge,
advertisements disseminated by the insurer or by its intermediaries during the preceding year have
complied with the provisions of these regulations and the advertisement code as stated in regulation 12.
(2) The advertisement register shall be subject to inspection and Preview by the Authority for content, context,
prominence, and position of required disclosures, omissions of required information, etc.
4. Changes in advertisement—(1) Any change in an advertisement would be considered as a new advertisement.
(2) All the provisions of regulation 3 shall apply mutatis mutandis to an advertisement referred to in sub-regulation
(i).
(3) The Authority shall be informed at the time of filing the advertisement the extent of change the original
advertisement.
5. Insurance company advertisements—(1) Every insurance company shall be required to prominently disclose
in the advertisement and that part of the advertisement that is required to be returned to the company or insurance
intermediary or insurance agent by a prospect or an insured the full particulars of the insurance company, and not
merely any trade name or monogram or logo.
(2) Where benefits are more than briefly described, the form number of the policy and the type of coverage shall be
disclosed fully.
6. Advertisements by insurance agents—(1) Every advertisement by an insurance agent that affects an insurer
must be approved by the insurer in writing prior to its issue;
(2) It shall be the responsibility of the insurer while granting such approval to ensure that all advertisements that
pertain to the company or its products or performance comply with these regulations and are not deceptive or
misleading.
Explanation. An agent shall not be required to obtain written approval of the company prior to issue for:
(i) those advertisements developed by the insurer and provided to the agents;
(ii) generic advertisements limited to information like the agents’s name, logo, address and phone number;
and
(iii) advertisements that consist only of simple and correct statement’s describing the availability of lines of
insurance, references to experience, service and qualifications of agents; but making no reference to
specific, policies, benefits, costs or insurers.
7. Advertisements by insurance intermediaries—Only properly licensed intermediaries may advertise or solicit

insurance through advertisements.
8. Advertising on the internet—(1) Every insurer or intermediary’s web site or portal shall:
(i) include disclosure statements which outline the site’s specific policies vis-a-vis the privacy of personal
information for the protection of both their own businesses and the consumers they serve.
(ii) display their registration/license numbers on their web sites;
(2) For the purposes of these regulations, except where otherwise specifically excluded or restricted, no form or
policy otherwise permissible for use shall be deemed invalid or impermissible if such form or policy accurately
reflects the intentions of the parties in such form or policy as published electronically or transmitted electronically
between parties.
9. Identity of advertiser—Every advertisement for insurance shall:
(i) state clearly and unequivocally that insurance is the subject matter of the solicitation; and
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(ii) state the full registered name of the insurer/intermediary/insurance agent.
10. Endorsements and other third-party involvement—(1) A third party, group or association shall not—
(i) distribute information about an insurance policy, intermediary or insurer on its letterhead;
(ii) allow an insurance intermediary or insurer to distribute information about an insurance policy, insurance or
insurance company on its letterhead;
(iii) distribute information about an individual insurance policy, or about an intermediary or insurer in its
envelopes, unless—
(a) the third party is providing only a distribution service for the insurance advertisement and is not itself
soliciting the coverage, and
(b) the insurance information is a piece separate from any other information distributed by the third party
and clearly indicates its origin;
(iv) recommended that its members purchase specific insurance products;
(v) imply that a person must become a member of its organisation in order to purchase the policy;
(vi) imply that a purchaser of a policy by becoming a member of a limited group of persons shall receive
special advantages from the insurer not provided for in the policy;
Provided that a third party, group or association may:
(i) endorse an insurance company or insurance intermediary’s product and provide truthful statements,
quotes, and testimonials endorsing the insurance products to the insurance company for use in the
company’s advertisements, so long as the language does not convey directly or indirectly a
recommendation that members of the organisation purchase the products;
3.[* * *]
11. Procedure for action in case of complaint—(1) If an advertisement is not in accordance with these
regulations the Authority may take action in one or more of the following ways:
(i) issue a letter to the advertiser seeking information within a specific time, not being more than ten days from
the date of issue of the letter;
(ii) direct the advertiser to correct or modify the advertisement already issued in a manner, suggested by the
Authority with a stipulation that the corrected or modified advertisement shall receive the same type of
publicity as the one sought to be corrected or modified;
(iii) direct the advertiser to discontinue the advertisement forthwith;
(iv) any other action deemed fit by the Authority, keeping in view the circumstances of the case, to ensure that
the interests of the public are protected.
(2) The advertiser may seek additional time from the Authority to comply with the directions justifying
the reasons therefor. The Authority, may, however, refuse to grant extension of time if it feels that the
advertiser is seeking time only to delay the matters.
(3) Any failure on the part of the advertiser to comply with the directions of the Authority may entail the
Authority to take such action as deemed necessary including levy of penalty.
12. Adherence to advertisement code—Every insurer or intermediary shall follow recognised standards of
professional conduct as prescribed by the Advertisement Standards Council of India (ASCI) and discharge its
functions in the interest of the policyholders.
13. Statutory warning—(1) Every proposal for an insurance product shall carry the following stipulation, as
prescribed in section 41 of the Insurance Act, 1938 (4 of 1938):–‘No person shall allow or offer to allow, either
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directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of
any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or
any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy
accept any rebate, except such rebate as may be allowed in accordance with the published prospectus or tables of
the insurer.’
(2) If any person fails to comply with sub-regulation (1) above, he shall be liable to payment of a fine which may
extend to rupees five hundred.
APPENDIX–V INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (LICENSING

OF INSURANCE AGENTS) REGULATIONS, 2000
In exercise of the powers conferred by sub-section (6) of section 42 and clauses (k), (l), (m), (n), (o) and (p) of sub-
section (2) of section 114A of the Insurance Act, 1938 (4 of 1938), the Authority in consultation with the Insurance
Advisory Committee, hereby makes the following regulations, namely:–
1. Short title and commencement—(1) These regulations may be called Insurance Regulatory and Development
Authority (Licensing of Insurance Agents) Regulations, 2000.
(2) They shall come into force on the date1. of their publication in the official Gazette.
2. Definitions—In these regulations, unless the context otherwise requires—
(a) ‘Act’ means the Insurance Act, 1938 (4 of 1938);

(b) ‘Approved Institution’ means an Institution engaged in education and/or training particularly in the area of
insurance sales, service and marketing, approved and notified by the Authority;
(c) ‘Authority’ means the Insurance Regulatory and Development Authority established under the provisions of
section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
(d) ‘Composite Insurance Agent’ means an insurance agent who holds a licence to act an insurance agent for
a life insurer and a general insurer;
(e) ‘Corporate Agent’ means a person other than an individual as specified in clause (i);
(f) ‘Designated Person’ means an officer normally in charge of marketing operations, as specified by an
insurer, and authorised by the Authority to issue or renew licences under these regulations;
(g) ‘Examination Body’ means an Institution, which conducts pre-recruitment tests for insurance agents and
which is duly recognised by the Authority;
(h) ‘Licence’ means a certificate of licence to act as an insurance agent issued under these regulations;
(i) ‘Person’ means—
(i) an individual;
(ii) a firm or
(iii) a company formed under the Companies Act, 1956 (1 of 1956), and includes a banking company as
defined in clause (4A) of section 2 of the Act;
(j) ‘Practical Training’ includes orientation, particularly in the area of insurance sales, service and marketing,
through training modules as approved by the Authority;
(k) ‘Proposal form’ means an application for purchase of an insurance product which shall be the basis of
insurance contract;
(l) ‘Prospect’ means a potential purchaser of an insurance product;
(m) ‘Recognised Board or Institution’ means such board or institution as may be recognised by any State
Government or the Central Government.
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(2) All words an expressions used herein and not defined but defined in the Insurance Act, 1938 (4 of 1938), or in
the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall have the meanings respectively
assigned to them in those Acts.
3. Issue or renewal of licence—(1) A person desiring to obtain or renew a licence (hereinafter referred to as ‘the
applicant’) to act as an insurance agent or a composite insurance agent shall proceed as follows:
(a) the applicant shall make an application to a designated person:–
(i) in Form IRDA-Agents-VA, if the applicant is an individual;

(ii) in Form IRDA-Agents-VC, if the applicant is a firm or a company;
Provided that the applicant, who desires to be a composite insurance agent, shall make two separate
applications.
(b) The fees payable by the applicant to the Authority shall be as specified in Regulation 7.
(2) The designated person may, on receipt of the application along with the evidence of payment of fees to the
Authority, and on being satisfied that the applicant—
(i) possesses the qualifications as specified under Regulation 4;

(ii) possesses the practical training as specified under Regulation 5;
(iii) has passed the examination as specified under Regulation 6;
(iv) has furnished the application complete in all respects;
(v) has the requisite knowledge to solicit and procure insurance business and
(vi) is capable of providing the necessary service to the policy holders;
grant or renew, as the case may be, a licence in Form IRDA-Agents-VB, along with identity card in Form IRDA-
Agents-VZ.
Provided that in the case of a corporate agent, the identity card shall be in Form IRDA-Agent-VY.
Provided further that such identity card from one life insurer and such identity card from one general insurer shall be
provided to the applicant seeking licence to act as a composite insurance agent.
Provided further that in the case of a firm or a company, all of its partners or directors, as the case may be, shall
fulfil the requirements of sub-clauses (i) to (iii).
Provided further a licence issued in accordance with this regulation shall entitle the applicant to act as insurance
agent for one life insurer or one general insurer or both
2.(3)The designated person shall grant or renew the licence within a period of three months from the date of
application.
(4) The designated person shall, if the consideration of the application is likely to get delayed within 60 days of the
receipt of the application, inform the applicant the reasons for such a delay, and the likely time it would take to do
so.]
4. Qualifications of the applicant—The applicant shall possess the minimum qualification of a pass in 12th
Standard or equivalent examination conducted by any recognised Board/Institution, where the applicant resides in a
place with a population of five thousand or more as per the last census, and a pass in 10th Standard or equivalent
examination from a recognised Board/Institution if the applicant resides in any other place.
5. Practical training—(1) The applicant shall have completed from an approved institution, at least, 3.fifty hours
practical training in life or general insurance business, as the case may be, which may be spread over 4.on to two
weeks, where such applicant is seeking licence for the first time to act as insurance agent.
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Provided that the applicant shall have completed from an approved institution, at least, 5.seventy five hours practical
training in life and general insurance business, which may be spread over 6.two to three weeks, where such
applicant is seeking licence for the first time to act as a composite insurance agent.
(2) Where the applicant, referred to under sub-regulation (1), is—
(a) an Associate/Fellow of the Insurance Institute of India, Mumbai;

(b) an Associate/Fellow of the Institute of Chartered Accountants of India, New Delhi;
(c) an Associate/Fellow of the Institute of Costs and Works Accountants of India, Calcutta;
(d) an Associate/Fellow of the Institute of Company Secretaries of India, New Delhi;
(e) an Associate/Fellow of the Actuarial Society of India, Mumbai;
(f) a Master of Business Administration of any Institution/University recognised by any State Government or
the Central Government; or
(g) possessing any professional qualification in marketing from any Institution/University recognised by any
State Government or the Central Government:
he shall have completed, at least, 7.twenty five hours practical training from an approved institution.
Provided that such applicant shall have completed from an approved institution, at least, 8.thirty five hours practical
training in life and general insurance business, where such applicant is seeking licence for the first time to act as a
composite insurance agent.
(3) An applicant, who has been granted a licence after the commencement of these regulations, before seeking
renewal of licence to act as an insurance agent shall have completed, at least twenty-five hours practical training in
life or general insurance business, as the case may be, from an approved institution.
Provided that such applicant before seeking renewal of licence to act as a composite insurance agent shall have
completed from an approved institution, at least, fifty hours practical training in life and general insurance business.
6. Examination—The applicant shall have passed the pre-recruitment examination in life or general insurance
business, or both, as the case may be, conducted by the Insurance Institute of India, Mumbai, or any other
examination body.
7. Fees payable—(1) The fees payable to the Authority for issue or renewal of licence to act as insurance agent or
a composite insurance agent shall be rupees two hundred and fifty.
(2) The additional fees payable to the Authority, under the circumstances mentioned in sub-section (3) of section 42
of the Act, shall be rupees one hundred.
8. Code of conduct—(1) Every person holding a licence, shall adhere to the code of conduct specified below:–
(i) Every insurance agent shall—

(a) identify himself and the insurance company of whom he is an insurance agent;
(b) disclose his licence to the prospect on demand;
(c) disseminate the requisite information in respect of insurance products offered for sale by his insurer
and take into account the needs of the prospect while recommending a specific insurance plan;
(d) disclose the scales of commission in respect of the insurance product offered for sale, if asked by the
prospect;
(e) indicate the premium to be charged by the insurer for the insurance product offered for sale;
(f) explain to the prospect the nature of information required in the proposal form by the insurer, and also
the importance of disclosure of material information in the purchase of an insurance contract;
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(g) bring to the notice of the insurer any adverse habits or income inconsistency of the prospect, in the
form of a report (called ‘Insurance Agent’s Confidential Report’) along with every proposal submitted to
the insurer, and any material fact that may adversely affect the underwriting decision of the insurer as
regards acceptance of the proposal, by making all reasonable enquiries about the prospect;
(h) inform promptly the prospect about the acceptance or rejection of the proposal by the insurer;
(i) obtain the requisite documents at the time of filing the proposal form with the insurer; and other
documents subsequently asked for by the insurer for completion of the proposal;
(j) render necessary assistance to the policy holders or claimants or beneficiaries in complying with the
requirements for settlement of claims by the insurer;
(k) advise every individual policy holder to effect nomination or assignment or change of address or
exercise of options, as the case may be, and offer necessary assistance in this behalf, wherever
necessary;
(ii) No insurance agent shall,—
(a) solicit or procure insurance business without holding a valid licence;
(b) induce the prospect to omit any material information in the proposal form;
(c) induce the prospect to submit wrong information in the proposal form or documents submitted to the
insurer for acceptance of the proposal;
(d) behave in a discourteous manner with the prospect;
(e) interfere with any proposal introduced by any other insurance agent;
(f) offer different rates, advantages, terms and conditions other than those offered by his insurer;
(g) demand or receive a share of proceeds from the beneficiary under an insurance contract;
(h) force a policyholder to terminate the existing policy and to effect a new proposal from him within three
years from the date of such termination;
(i) have, in case of a corporate agent, a portfolio of insurance business under which the premium is in
excess of fifty per cent of total premium procured, in any year, from one person (who is not an
individual) or one organisation or one group of organisations;
(j) apply for fresh licence to act as an insurance agent, if his licence was earlier cancelled by the
designated person, and a period of five years has not elapsed from the date of such cancellation;
(k) become or remain a director of any insurance company;
(iii) Every insurance agent shall, with a view to conserve the insurance business already procured through him,
make every attempt to ensure remittance of the premiums by the policyholders within the stipulated time,
by giving notice to the policyholder orally and in writing.
9. Cancellation of licence—The designated person may cancel a licence of an insurance agent, if the insurance
agent suffers, at any time during the currency of the licence, from any of the disqualifications mentioned in sub-
section (4) of section 42 of the Act, and recover from him the licence and the identity card issued earlier.
10. Issue of duplicate licence—The Authority may issue duplicate licence replace a licence lost, destroyed, or
mutilated on payment a fee of rupees fifty.
11. Non-application to existing insurance agents—Nothing contained in Regulations 4 to 6 of these Regulations

shall apply to the existing agents before the commencement of these Regulations.
9.12.From the date of coming into force of the Insurance Regulatory and Development Authority (Licensing of
Corporate Agents) Regulations, 2002, the Insurance Regulatory and Development Authority (Licensing of Insurance
Agents) Regulations, 2000 or any part thereof applying to corporate agents shall cease to have any effect, except
as respects things done or omitted to be done thereunder.
Form IRDA–Agents-VA
(See Regulation 3)
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(Licensing of Insurance Agents) Regulations, 2000
Application for a Licence/Renewal of Licence to Act as an Insurance Agent
To
The Insurance Regulatory and Development Authority,
Department of Licensing,
New Delhi.
Dear Sirs,
I request that:
(a) a licence to act as an insurance agent*/a composite insurance agent* may be granted to me.
(b) *my licence bearing number ............. and expiry date .............. may be renewed for a further period of three
years.
2. I hereby declare that particulars given below are true and that the licence for which I apply will be used only by
myself for soliciting or procuring insurance business for one life insurer*/one general insurer*/both*.
(1) Name:
(2) Father’s/Husband’s Name:
(3) Full Address:
House No.:
Street:
Town:
District:
State:
Pin Code:
Telephone No. (STD Code–No.): —
(4) Date of Birth: Day–Month–Year: ––
(5) Title: State 1 if are Mr, 2 Mrs, 3 Miss:

(6) If you ever held a Licence, state No. and date of expiry, otherwise say ‘Nil’.
(a) Licence Number:
(b) Date of Expiry: Day–Month–Year: — —
(7) If you apply for licence to work for a life insurer, state 1, for a general insurer, state 2, for both state 3 in the
box.
(8) If you are an applicant from a rural place, state 1, in the box.
(9) Educational Qualifications.
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State 1. if you passed Class X; 2. Class XII; 3. Graduate;
4. Post-graduate; 5. if you hold a professional qualification such as (ACA, FASI, AICWA).
(10) Give particulars of pass in pre-recruitment test conducted by the Insurance Institute of India or any
examination body:
(a) Name of Examination Body:
(b) Candidate’s Number:
(c) Centre of Examination:
(d) Date of Passing: (Day–Month–Year) — —
(11) Give particulars of Practical Training completed from an approved institution.
(a) Training Hours completed:
(b) Name of Training Institute:
(c) Candidate’s Number:
(d) Centre (Place) of Training:
(e) Starting Date of Training: (Day-Month-Year) — —
3. I further declare that—
(a) I have not been found to be of unsound mind by a court of competent jurisdiction;
(b) I have not been found guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or
an abetment of or attempt to commit any such offence by a court of competent jurisdiction;
(c) I have not been found guilty of or to have knowingly participated in or connived at any fraud, dishonestly or
mis-representation against an insurer or an insured in the course of any judicial proceeding relating to any
policy of insurance or the winding up of an insurance company or in the course of an investigation of the
affairs of an insurer; and
(d) #I have not violated the code of conduct specified under Regulation 8 of Insurance Regulatory and
Development Authority (Licensing of Insurance Agents) Regulations, 2000).
4. I have made the payment of licence fee of rupees two hundred and fifty and for which I enclose the documentary
evidence.
5. I enclose the following documents in support of the educational qualification, pre-recruitment test, and the
practical training.
(a) .............................(b) .........................
Place: Yours faithfully,
Date: Signature of applicant
(*Strike out portion not required).
(#not applicable to the applicants seeking licence for the first time).
Notes and Instructions:
1. An individual can apply for only one licence which will entitle him to solicit or procure insurance business of
any class and to act as an insurance agent for one life insurer, one general insurer, or both.
2. The application should be filled in, as far as possible, in Hindi language or English language.
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3. Any correction or alteration made in any answer to the questions in the application should be initialled by
the applicant.
4. An applicant must be at least 18 years of age on the date of the application. If required the applicant shall
furnish proof of age.
5. An applicant shall furnish the proof of educational qualification, pass in the pre-recruitment test conducted
by the Insurance Institute of India, Mumbai or an examination body approved by the Insurance Regulatory
and Development Authority, and completion of practical training from a training institution approved by the
Insurance Regulatory and Development Authority, along with the application. This is not applicable where
the applicant is an absorbed agent.
6. The fees payable by an applicant is rupees two hundred and fifty.
7. The name and the licence No. given in the application are identical with those shown in the last licence
held. If there is any subsequent change in the name, the reasons for the same should be stated furnishing
documentary evidence for the same.
8. The application should reach the designated person before the expiry of licence held by the applicant but
not more than three months before such expiry. If the application does not reach the designated person at
least 30 days before the date on which the last licence ceases to be in force, an additional fee of one
hundred rupees should be payable. In this connection please also refer to the provisions of sub-sections
(3) and (3A) of section 42 of the Insurance Act, 1938.
9. If the applicant desires to work for a life insurer or a general insurer or both, as the case may be, he should
enclose the documentary evidence of the relevant pass in the pre-recruitment test and the completion of
the relevant practical training.
Form IRDA-Agents-VB
(See Regulation 3)
Insurance Regulatory and Development Authority, New Delhi Licence No.
LICENCE TO ACT AS AN INSURANCE AGENT UNDER PART II OF THE INSURANCE ACT, 1938 (IV OF 1938)
Name of Insurance Agent*/Composite Insurance Agent*: ...............................................
Address:
........................................................................................................................................................................................
........................................................................................................................................................................................
..............................................................................................................................
Having paid the prescribed fee and having made the necessary declaration is hereby authorised to act an insurance
agent for three years from ............... for procuring or soliciting insurance business of one life insurer*/one general
insurer*/both*.
(*strike our portion not required)
Place:
Date: for Insurance Regulatory and Development Authority

Designated Person:
Signature of Licence holder:
This licence is not valid unless it bears a facsimile of the signature of the chairperson of the Insurance Regulatory
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and Development Authority and the initials of a person authorised by him in this behalf, the signature of the licence
holder and the identity card(s). The licence holder should put his signature as soon as licence is received.
Notes:
1. If it is desired to renew this licence for a further period the procedure laid down in Regulation 3 of
Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000, shall
be followed, and application for renewal should reach the Designated Person before the licence expires. In
this connection attention is also invited to the provisions of sub-sections (3) and (3A) of section 42 of the
2. This licence authorises the licence holder to act as an agent for the insurance business specified
thereunder, and therefore no identifying mark or note of any description by which the identity of an insurer
might be established should be placed on the licence.
3. No correction in this licence will be valid unless initialled by the Insurance Regulatory and Development
Authority or a person authorised by him in this behalf.
4. The attention of the licence holder is drawn to the code of conduct specified under Regulation 8 of
Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000, and
any violation of code of conduct may result in cancellation of licence.
Form IRDA-Agents-VC
(See Regulation 3)
Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000
Application from a Firm or Company for a Licence/Renewal of Licence to Act as an Insurance Agent
To
The Insurance Regulatory and Development Authority,
Department of Licensing,
New Delhi,
Dear Sirs,
It is requested that—
(a) *a licence to act as an insurance agent*/a composite insurance agent* may be granted to our
Firm/Company;
(b) *our licence bearing number ............. and expiry date .............. may be renewed for a further period of
three years.
2. It is hereby declared that particulars given below are true and that the licence for which our Firm/Company apply
will be used only by our Firm/Company for soliciting or procuring insurance business.
(1) Name:
(2) Full Address:
House No.:
Street:
Town:
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District:
State:
Pin Code:
Telephone No. (STD Code–No.): — —
(3) (i) (In the case of a Firm) the names of all the partners therein: (ii) (In the case of a Company) the names of
the Directors:
(4) Whether the Partnership Deed*/Memorandum of Association* contains as main objects the carrying on of
soliciting or procuring insurance business as an insurance agent.
(Please enclose a certified copy of the Partnership Deed*/Memorandum of Association*)
(5) The date from when the licence should be effective:

(6) If you apply for licence to work for a life insurer, state 1, a general insurer, state 2, for both, state 3 in the
box.
3. It is further declared that—
(a) any partner of our Firm*/any Director of our Company* has not been found to be of unsound mind by a
court of competent jurisdiction;
(b) any partner of our Firm*/any Director of our Company* has not been found guilty of criminal
misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit
any such offence by a court of competent jurisdiction;
(c) any partner of our Firm*/any Director of our Company* has not been found guilty of or to have knowingly
participate in or connived at any fraud, dishonestly or mis-representation against an insurer or an insured in
the course of any judicial proceeding relating to any policy of insurance or the winding up of an insurance
company or in the course of an investigation of the affairs of an insurer;
(d) any partner of our Firm*/any Director of our Company* has not violated the code of conduct specified under
Regulation 8 of Insurance Regulatory and Development Authority (Licensing of Insurance Agents)
Regulations, 2000;
(e) the application in Form IRDE-Agents-V for each partner of our Firm*/each Director of our Company* has
been enclosed along with this form;
(f) any partner of our Firm*/any Director of our Company* is not a minor.
4. The payment of licence fee of rupees two hundred and fifty has been made and for which the receipt is enclosed.
5. The documents in support of the educational qualification, pre-recruitment test, and the practical training, in
respect of all partners of our Firm*/all Directors of our Company* have been enclosed along with this form.
(*Strike out portion not required.)
Place: Yours faithfully,
Date: Signature of applicant
Notes:
1. The application should be filled in, as far as possible, in Hindi language or English language.
2. Any correction or alteration made in any answer to the questions in the application should be initialled by
the applicant.
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3. The fees payable by an applicant is rupees two hundred and fifty.

4. The name and the licence No. given in the application are identical with those shown in the last licence
held. If there is any subsequent change in the name, the reasons for the same should be stated furnishing
documentary evidence for the same.
5. The application should reach the designated person before the expiry of licence held by the application but
not more than three months before such expiry. If the application does not reach the designated person at
least 30 days before the date on which the last licence ceases to be in force, an additional fee of one
hundred rupees should be payable. In this connection please also refer to the provisions of sub-sections
(3) and (3A) of section 42 of the Insurance Act, 1938.
6. If the Firm or Company desires to act as an insurance agent or a composite insurance agent, as the case
may be, the documentary evidence of the relevant pass in the pre-recruitment test and the completion of
the relevant practical training of partners of the Firm or Directors of the Company should be enclosed.
7. In case of a Firm, the signatory to the application (being a partner) should enclose a certified copy of the
resolution of all the partners authorising him to make the application. In the case of a Company, the
signatory to the application (being a director) should enclose a certified copy of the resolution of Board of
Directors authorising him to make the application.
Form IRDA-Agents-VZ
(See Regulation 3)
Individual Insurance Agent’s Identity Card
Photo Agent’s Licence No.:
Name of the Agent:
Father’s/Husband’s Name:
Office of the Insurer with whom the agents is attached:
Agent’s signature The holder of this card is authorised to sell our

insurance products, as per our terms and conditions
Male/Female Issued on: -- · Valid up to: -- · Signature of Designated Person Name of Insurer (With
Seal)
Born on: -- · (Please see on the reverse)
Address and telephone numbers of the Insurer: (If required to be contracted by any one in connection with the
holder of this card): Address and telephone numbers of the Agent:
Form IRDA-Agents-VY
(See Regulation 3)
Corporate Agent’s Identity Card

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Corporate Insurance Agent’s Licence No.:
Name of the Corporate Insurance Agent:
Signature of the Applicant (as authorised by the

Corporate Agent)
Office of the insurer with whom the Corporate Insurance

Agent is attached:
Valid up to: This card authorises the corporate insurance agent

named above to sell our insurance products, as per our
terms and conditions
Born on: -- ° Signature of Designated Person
Name of Insurer (With Seal)
(Please see on the reverse)
Address and telephone numbers of the Insurer: (If required to be contracted by any one in connection with the
holder of this card):
Address and telephone numbers of the Corporate Insurance Agents:
Names of Partners/Directors of the Corporate Insurance Agent.
APPENDIX–VI INSURANCE SURVEYORS AND LOSS ASSESSORS (LICENSING,

PROFESSIONAL REQUIREMENTS AND CODE OF CONDUCT) REGULATIONS, 20001.
In exercise of the powers conferred by section 42D, 64UM and 114A of the Insurance Act, 1938 (4 of 1938) and
section 26 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), the Authority, in
Consultation with the Insurance Advisory Committee, hereby makes the following regulations, namely:–
CHAPTER I
PRELIMINARY
1. Short title, commencement and application—(1) These regulations may be called the Insurance Surveyors
and Loss Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000.
(2) They shall come into force on the date2. of their publication in the Official Gazette and shall apply to all licensed
insurance surveyors and loss assessors.
2. Definition— In these regulations, unless the context otherwise requires—

(b) ‘applicant’ means any person who applies for the grant of a surveyor’s and loss assessor’s licence or
renewal thereof;
(c) ‘authority’ means the Insurance Regulatory and Development Authority established under sub-section (1)
of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
3.[(ca) Associate member: Any Licentiate Member holding valid Surveyor and Loss Assessor licence
continuously for a period not less than 8 years and upon fulfilment of other criteria set out in Regulation
14A(1)(ii).
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(cb) “Corporate surveyor” means company incorporated under Companies Act, 1956 or Firm formed under
Partnership Act, 1932, including LLP (Limited Liability Partnership) incorporated under LLP Act, 2008,
licensed to act as Surveyor and Loss Assessor.]
(d) ‘designated person’ means an officer of the Authority detailed by the Authority to discharge the functions
assigned to him under all or any of these regulations;
4.[(da) Fellow Member:
Any Associate Member holding valid Surveyor and Loss Assessor licence continuously for a period not
less than 8 years and fulfills other criteria set out in Regulation 14A(1)(ii).]
(e) ‘inspecting authority’ means the person(s) appointed by the Authority to inspect and investigate the affairs
of any surveyor and loss assessor;
5.[(ea) “Institute” means the Indian Institute of Insurance Surveyors and Loss Assessors (IIISLA) promoted
by IRDA under section 14 of IRDA Act, 1999 and incorporated under Section 25 of the Companies Act,
1956.]
(f) ‘IRDA Act’ means the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
6.[(fa) Licentiate Member: Any person holding a valid licence issued by the Authority to act as surveyor
and loss assessor, and fulfills other criteria set out in Regulation 14 A(l)(ii).
(fb) “Member” means the member of the Institute and includes Student member, Licentiate member, Associate
member and Fellow member.
(fc) “Surveyor and Loss Assessor” means a person who is a member of the Institute and licensed by the
Authority to act as Surveyor and Loss Assessor.
(fd) “Student Member” means any person who is member of Institute and enrolls himself as trainee with IRDA
for seeking practical training to obtain a licence to act as Surveyor and Loss Assessor.
(fe) “Membership level of a surveyor” means level allotted by the institute to the member, based on the criteria
set out in Regulation 14A of these Regulations.]
(g) words and expressions used and not defined in these regulations but defined in the Insurance Act, 1938 (4
of 1938) or Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) or the General
Insurance Business (Nationalisation) Act, 1972 (57 of 1972), or in any rules or regulations made under
those Acts, shall have the meanings respectively assigned to them in those Acts or rules or regulations, as
the case may be.
CHAPTER II
LICENSING PROCEDURE
3. Application for, and matters relating to, grant of licence—7.[(1) Every person who is a student member of the
Institute and intending to act as a surveyor and loss assessor in respect of general insurance business shall apply
to the Authority for grant of licence in FORM-IRDA-l-AF as given in the Schedule to these regulations.
(2) The Authority while considering the application made under sub-regulation (1) for grant of licence as a SLA, take
into consideration all matters relating to the duties, responsibilities and functions of surveyor and loss assessor and
satisfy itself that the applicant is a fit and proper person to be granted a licence. In particular and without prejudice
to the foregoing, the Authority shall satisfy itself that the applicant, satisfy all the requirements of section 64 UM
read with section 42D of the Act and rule 56A of Insurance Rules, 1939 and fulfills the eligibility criteria set out in
Regulation 3A of these regulations.
(a) The applicant shall pay fees applicable to the Licentiate level of membership, through online net
banking/RTGS/NEFT/Demand Draft (in favour of IRDA payable at Hyderabad) and furnish evidence of
payment.
(b) Documents to be enclosed (can be submitted online followed by hard copy):
(a) Application in Form-IRDA-l-AF duly completed in all respects
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(b) Copy of Membership certificate issued by the Institute, indicating Student Membership No, Date of
Issue, etc
(c) Copy of recent photo- 1
(d) Copy of PAN
(e) Copy of Proof of residence
(f) Proof of qualification
(g) Copy of Training completion certificate
(h) Copy of quarterly reports (4 quarters)
(i) Copy of mark sheet in proof of having passed the Surveyor examination as provided under Regulation
16 of these regulations
(j) No Objection Certificate from employer, if employed
(k) Affidavit as stated under sl no 3 of FORM-IRDA-1-AF (to be uploaded in soft form at the time of
submission of application through online)
(l) Self-addressed envelope of 4.5”x10” with Rs. 40 postage stamp
(m) Demand draft, in case fee is paid by DD
(n) Details of fee payment by RTGS/NEFT, if paid through RTGS/NEFT
(o) Any other document/information that may be required by the Authority from time to time (Copies of
documents – sl No (c) to (j) shall be notarized).
(c) Disclosures:
(i) Submit a declaration that he/she shall file with the Authority, any changes in the information submitted
to the Authority within 15 days of such change and apply in the FORM-IRDA-17-AF as given in
Schedule to these Regulations, for grant of modified license. The license issued by the Authority (in
original) shall be surrendered at the time of application for grant of modified license.
(ii) submits such other information as may be required by the Authority from time to time. q
(3) The Authority on being satisfied that the applicant is eligible for grant of licence, shall grant the same in FORM-
IRDA-2-LF as given in the Schedule to these regulations, mentioning the level of membership granted by the
institute, particular class/department or subject of general insurance business namely, fire, marine cargo, marine
hull, engineering, motor, miscellaneous, Crop Insurance and loss of profit allotted based on their
technical/professional/lnsurance qualification and other qualifications as specified under Regulation 3(2) of IRDA
Surveyor Regulations.
3A. Eligibility Criteria
i) Qualifications (one or more of the following):
a) Qualifications slated under Section 64UM read with Section 42 D of the Insurance Act 1938
b) Additional technical qualifications as stated under Rule 56 A of Insurance Rules, 1939
c) Post Graduate Diploma in General Insurance from I.I.R.M
d) B.Sc in Agricultural Science from a recognized university
e) Additional technical qualification as may be specified by the Authority from time to time
f) Shall be a “Student/Member” of the Institute
ii) Training:
a) Practical training for a period not less than twelve months as specified in Regulation 16(1)
b) Such other training which the authority may specify from time to time.
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Explanation: Any person who has undergone the requisite training for obtaining a license to
act as surveyor and loss assessor, as stated under (ii) (a) above may undergo such other
training as may be specified by the Authority.
iii) Examination:
Passing of relevant paper/s of Surveyor Examination conducted by Insurance Institute of India or the institute
authorised by IRDA.
3B. Allotment of department/area of work at the time of grant of license to act as Surveyor and loss
assessor shall be as specified by IRDA from time to time
(4) A surveyor and loss assessor, whose licence has been cancelled or suspended for any reason, may submit an
application for issuance of licence, after the expiry of three years from the date of such cancellation or suspension,
and, such an application shall be treated as a fresh case, and, accordingly, the applicant shall satisfy all the
requirements of sub-regulation (2).
(5) A surveyor and loss assessor shall be subject to level of membership in the Institute as specified in Chapter V of
these regulations
(6) A license issued before the commencement of these regulations, by IRDA shall be deemed to have been issued
in accordance with these regulations.]
4. Corporate surveyors and loss assessors—

8.[(I) Application for grant of fresh corporate licence and related matters
i) Where the applicant is an applicant for corporate surveyor, the Authority shall satisfy itself that the
applicant shall submit the application complete in all respects, satisfy all the applicable requirements of
section 64UM read with section 42D of the Act and rule 56A of the Insurance rules, 1939 and shall conform
mutatis-mutandis to the eligibility criteria set out in Regulation 3 A of these regulations.
Provided that none of the directors or partners suffers from any of the disqualifications mentioned in
section 42 D of the Insurance Act, 1938 read with Section 42(4) of the Act.
ii) There shall be at least two directors/partners in the company/firm at any point of time who are members of
the institute and are licensed to act as surveyor and loss assessor. The department and level of
membership of the director/partner under their individual surveyor license shall become the department
and level of membership of the Company/firm. Any licensed surveyor and loss assessor appointed as
director/partner of a firm/company seeking application for grant of corporate license, shall undertake survey
jobs and issue survey reports only in the capacity of director/partner of the applicant company/firm.
iii) Licensed surveyors who are working as employees of the company/firm shall undertake survey jobs only of
that company/firm with whom he/she is employed with. The employee shall undertake survey jobs only in
those department and level of membership allotted to him/her under his/her individual license.
iv) Upon grant of corporate license, the company/firm can undertake survey jobs only in those department and
level of membership displayed against each of the director/partner in the corporate license issued by the
Authority.
v) None of the directors or partners of one corporate surveyor shall be appointed as director or partner in
another corporate surveyor.
vi) The main object of the company/firm shall be to carry out insurance survey and loss assessment and name
of the company or firm shall include the words “Insurance Surveyors and Loss Assessors.”
vii) the aggregate holdings of equity shares held by a foreign company shall be disclosed at the time of making
the application for grant of license, which shall not at any time, exceed 26% of the paid up equity capital of
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the applicant or such other percentage as may be specified by the Authority”. The manner of calculation of
26% FD1 shall be identical to the one specified for Indian Insurance Companies.
viii) Ensure that the same promoter/subscriber of the applicant does not have more than one corporate
surveyor license. “Promoter/Subscriber” shall be as defined in the “Companies Act, 1956”.
ix) Shall pay fees based on the highest level of membership of any of the directors/partners as provided under
Regulation 5, through online net banking/RTGS/NEFT/Demand Draft (in favour of IRDA payable at
Hyderabad) and furnish evidence of payment.
x) Documents to be enclosed (can be submitted online followed by hard copy):
a) Application in Form-IRDA-3-AF duly completed in all respects
b) Copy of Membership certificate issued by the Institute to the directors/partners, indicating Membership
No, Date of Issue, etc
c) Copy of one recent photo of directors/partners
d) Copy of Surveyor license of directors/partners
e) Copy of certificate of incorporation issued by ROC in case of company
f) Copy of Partnership deed in case of a firm duly signed by all the partners
g) Copy of Memorandum and Articles of association of the company
h) Copy of Form no 32 filed with ROC
i) Copy of Form no 18 filed with ROC
j) Copy of Form 4 filed with ROC
k) Copy of TAN
l) Proof of qualification of directors/partners
m) Affidavit as stated in FORM-IRDA-3-AF (to be submitted in soft form at the time of submission of
application through online)
n) Self-addressed envelope of 4.5”xl0” with Rs. 40 postage stamp
o) Demand draft, in case fee is paid by DD
p) Details of fee payment by RTGS/NEFT, if paid through RTGS/NEFT
q) Any other document/information that may be required by the Authority from time to time (Copies of
documents sl no (d) to (m) shall be notarised)
xi) Disclosures:
a) Submit a declaration that prior to joining corporate firm, the individual surveyors shall complete all jobs
entrusted to them completed within the timelines provided under Regulation 9 of PPI Regulations, and
that upon grant of corporate license, such surveyors, shall henceforth work only under the corporate
license.
b) Such other additional requirements as may be specified by the Authority from time to time.
c) Submit a declaration that they shall submit information about resignation/ death/suspension of
director/partner, change in share-holding pattern and such other material changes to the Authority and
apply in FORM-IRDA-18AF as given in the Schedule to these regulations within 15 days of such
change for grant of modified license. The license issued by the Authority (in original) shall be
surrendered at the time of application for grant of modified licene.
d) Submit details of those members who hold license to act as surveyor and are employed in the
registered office and branch offices of the firm/company to conduct survey jobs on behalf of the
company firm.
xii) The applicant referred to in Regulation 4(1) shall apply in FORM-IRDA-3-AF as given in the Schedule to
these regulations.
The Authority on being satisfied that the applicant is eligible for grant of license, shall grant the same in
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FORM-IRDA-4-LF as given in the Schedule to these regulations, indicating the department and
membership level of the corporate surveyor. Such membership level shall be the highest level at which
the corporate surveyor can function.
5. Fee structure—9.
(i) The fee payable to the Authority by fresh applicants for grant of licence to act as surveyors and loss
assessors shall be one thousand Rupees notwithstanding the membership level.
(ii) Grant of licence is subject to fulfilment of requirements stated under Regulation 3 or 4 of IRDA Surveyor
Regulations, 2000 as the case may be, as amended from time to time.
(iii) Payment of fees through online payment-net banking in Surveyor Licensing Portal considered as one of
the modes of payment.]
6. Application to conform to the requirements—Any incomplete application not conforming to the requirements
of these regulations shall be rejected.
Provided that before rejecting any such application, the applicant shall be given a reasonable opportunity to make
good the application.
7. Renewal of licence—10.[(I) An application for renewal of surveyor license including online submission of
application for renewal, shall reach the Authority at least thirty days before the expiry of the period of validity
thereof,
a) in FORM-IRDA-5-AF (for individuals),

b) in FORM-IRDA-6-AF (for corporate surveyors) as given in the Schedule to these regulations, along with a
renewal fee of two hundred rupees.
Provided that the Authority may, if it is satisfied that undue hardship would be caused otherwise, accept any
application, within six months of its expiry on payment by the applicant of a penalty of seven hundred and fifty
rupees.
Provided further that a licence not so renewed ceases to exist. However, an application from such surveyor can be
treated as fresh application and processed under Regulation 3, and such applicant shall be allotted Licentiate level
of membership in the license issued by the Authority.
(2) The Authority may renew the license upon being satisfied that the applicant has complied with all the
requirements as may be specified by the Authority from time to time, particularly those specified in Chapter II of the
Regulations.
Documents to be submitted (to be uploaded in soft form in the online licensing portal)
I. In case of Individual:

b) Copy of recent photo – 1
c) Copy of PAN
d) Copy of Proof of residence
e) Proof of qualification
f) No Objection Certificate from employer, if employed
g) Work performance in Form-IRDA-12 (to be uploaded in soft form for previous 5 financial years)
h) Affidavit as stated in FORM-IRDA-l-AF (to be uploaded in soft form at the time of submission of application
through online)
i) Copy of membership certificate issued by the institute
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j) Self-addressed envelope of 4.5” x10” with Rs. 40 postage stamp

k) Demand draft, in case fee is paid by DD
l) Details of fee payment by RTGS/NEFT, if paid through RTGS/NEFT
m) Any other document/information that may be required by the Authority from time to time (Copies of
documents sl no (c) to (i) shall be notarized)
II. In case of corporate surveyors:

b) Copy of one recent photo of directors/partners
c) Copy of Surveyor license of directors/partners and their institute’s membership details
d) Copy of certificate of incorporation issued by ROC in case of company
e) Copy of Partnership deed in case of a firm duly signed by all the partners
f) Copy of Memorandum and Articles of association of the company
g) Copy of Form no 32 filed with ROC
h) Copy of Form no 18 filed with ROC
i) Copy of Form 4 filed with ROC
j) Copy of TAN
k) Proof of qualification of directors/partners
l) Affidavit as stated in FORM-IRDA-3-AF (to be uploaded in soft form at the time of submission of application
through online)
m) Self-addressed envelope of 4.5” x10” with Rs. 40 postage stamp
n) Work Performance of the company/firm (to be uploaded in soft form for previous 5 financial years)
o) Demand draft, in case fee is paid by DD
p) Details of fee payment by RTGS/NEFT, if paid through RTGS/NEFT
q) Any other document/information that may be required by the Authority from time to time (Copies of
documents sl no (c) to (l) shall be notarized)
(3) The Authority on being satisfied that the applicant is eligible for renewal of license, shall renew the same
a) in Form-IRDA-7-LF in case of individuals including sole proprietor

b) in Form-IRDA-8-IF in case of corporate surveyor
in the format given in the schedule to these regulations. A license so renewed shall be valid for five years from the
date of renewal, unless cancelled earlier.
(4) The application for renewal of licence shall be processed taking into account the eligibility criteria, existing,
including those set out under Regulation 3A, at the time of receipt of such application.]
8. Procedure where application for grant of license is rejected—11.[(1) the application for grant of license can
be rejected on the following grounds:
a) does not conform with or the applicant fails to comply with the provisions of the Act and these regulations,
b) if the Authority is of the opinion that the grant of license is not in the interest of the policy holders.
Provided that before rejecting any such application, the applicant shall be given a reasonable opportunity of being
heard.
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(2) Where the application for grant of license is rejected a refund of not more than 60% of the fee received shall be
made to the applicant.
(3) The rejection of application as stated under (1) above, shall be communicated to the applicant within thirty days
of such rejection, stating the grounds for rejection thereof.
Procedure where application for renewal of license is refused:
(1) The Authority may refuse the application for renewal of licene to a surveyor and loss assessor on any of the
following grounds, if the applicant:
(i) makes a statement which is false in material particulars with regard to the eligibility for obtaining license,
(ii) if the applicant suffers from any of the disqualifications provided under sub-section (4) of section 42 of the
Act, read with clause D of sub-section (I) of section 64UM of the Act.
Provided that the Authority shall give a reasonable opportunity, to the person concerned, of being heard, before
such refusal.
(2) The refusal of license referred to in sub-regulation (4) shall take effect from the date of such refusal and no
surveyor and loss assessor shall carry out any survey and loss assessment work thereafter, including the jobs on
hand. All such pending jobs shall be returned by him/it to the insurer or the insured as the case may be.
(3) A surveyor whose application for renewal of license is refused for any reason, may submit an application for
issuance of license, after the expiry of three years from the date of such refusal, and, such an application shall be
treated as an application for grant of fresh license, and accordingly the applicant shall satisfy all the requirements
stated under Regulation 3 or Regulation 4 as the case may be.
9.***
10. Issue of duplicate licence/identity card—(1) A person to whom a licence has been issued or renewed, shall,
if such licence and/or identity card is/are lost, destroyed or mutilated, make an application in FORM-IRDA-9 given in
the Schedule to these regulations to the Authority requesting for issuance of duplicate thereof, along with a fee of
five rupees.
(2) The application referred to in sub-regulation (1) shall contain full particulars of licence/identity card and as to
how the loss/destruction or mutilation has occurred, and the application shall be accompanied by mutilated pieces,
if any, in possession of the person making the application.
(3) The Authority, on being satisfied, may issue a duplicate licence and/or identity card in FORM-IRDA-10-LF as
given in the Schedule to these regulations.
(4) The duplicate so issued shall remain in force for the remainder of the period of validity of the licence and/or
identity card, unless cancelled earlier, and the duplicate shall bear an endorsement thereon that it is a duplicate.
CHAPTER III
CONSTITUTION AND FUNCTIONS OF SURVEYORS AND LOSS ASSESSORS COMMITTEE
11. Constitution—(1) The Authority shall constitute a committee to be called ‘Surveyors and Loss Assessors
Committee’ (hereinafter referred to as ‘the Committee’), for assisting the Authority on the matters and affairs relating
to Insurance Surveyors and Loss Assessors.
(2) The Committee may consist of the following persons:
(i) an Officer of the Authority;

(ii) two representatives of the Surveyors and Loss Assessors;
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12.[(iii) one representative of Insurers from Public sector and a representative of insurer from Private
sector] and
(iv) a representative of the policy holders.
(3) The Committee will be for a period of three years and will be prescribed over the officer of the Authority.
12. Functions of the committee—(1) The Committee shall perform the following functions:
(i) recommending the syllabus for examination and practical training requirements for persons to qualify as
surveyors and loss assessors;
(ii) recommending to the Authority for its consideration to recognise foreign qualifications and training for the
purposes of grant of licence to act as surveyors and loss assessors;
(iii) improving and developing the status and standard of the profession of surveyors and loss assessors;
(iv) co-ordinating with educational or other institutions, having as their objects, wholly or partly, similar to those
of the profession of surveyors and loss assessors, in such manner as may be conducive for the attainment
of common objectives;
(v) looking into the matters of professional misconduct, indiscipline, non-adherence to code of conduct by
surveyors and loss assessors; and dealing with complaints of insured/insurer in respect of survey work
done by surveyors and loss assessors;
(vi) discharging any other function, which may be entrusted by the Authority, from time to time.
(2) The Committee may meet as frequently as necessary to conduct its affairs.
(3) The members of the Committee, other than the officer of Authority will be entitled to such allowances as may be
determined by the Authority from time to time.
13.[12A.Appointment of Surveyors and Loss Assessors—(1) No person or a firm or a company shall act as a
surveyor and loss assessor without being licensed under Regulation 3 or Regulation 4 of the IDRA Surveyor
Regulations as the case may be.
(2) Surveyors and loss assessors shall be appointed either by insurers or insured to assess loss under a
policy of insurance in respect of general insurance business; above rupees twenty thousand.
(3) Such appointment of a surveyor for assessment of loss shall be made within 72 hours from the time the
occurrence of loss was known to the insured. Notice of such appointment shall be sent in writing to the
insurer or insured as the case may be and shall form part of the claims settlement process.
(4) A surveyor and loss assessor shall assess losses of only those departments specified in his/her or its
license.
(5) In case of any dispute/dissatisfaction, in the assessment of loss by surveyor appointed by the insurer, the
insured can record his dissatisfaction, and then may appoint the appropriate surveyor to assess the loss
reported under a policy of general insurance, in which case the fee shall be paid by the Insured.
(6) Dispute, if any, between the insurer and insured, in quantum of loss assessed may be referred to
Arbitration.
CHAPTER IV
DUTIES AND RESPONSIBILITIES OF A SURVEYOR AND LOSS ASSESSOR
13. (1) A surveyor and loss assessor shall, for a major part of the working time, investigate, manage, qualify,
validate and deal with losses (whether insured or not) arising from any contingency, and report thereon, and carry
out the work with competence, objectivity and professional integrity by strictly adhering to the code of conduct
expected of such surveyor and loss assessor.
(2) The following shall, inter alia, be the duties and responsibilities of a surveyor and loss assessor:
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(i) declaring whether he has any interest in the subject-matter in question or whether it pertains to any of his
relatives, business partners or through material shareholding;
Explanation. For the purpose of this clause, “relatives” shall mean any of the relatives, as mentioned in Schedule
1A to the Companies Act, 1956;
(ii) maintaining confidentiality and neutrality without jeopardising the liability of the insurer and claim of the
insured;
(iii) conducting inspection and re-inspection of the property in question suffering a loss;
(iv) examining, inquiring, investigating, verifying and checking upon the causes and the circumstances of the
loss in question including extent of loss, nature of ownership and insurable interest;
(v) conducting spot and final surveys, as and when necessary and comment upon franchise, excess/under
insurance and any other related matter;
(vi) estimating, measuring and determining the quantum and description of the subject under loss;
(vii) advising the insurer and the insured about loss minimisation, loss control, security and safety measures,
wherever appropriate, to avoid further losses;
(viii) commenting on the admissibility of the loss as also observance of warranty conditions under the policy
contract;
(ix) surveying and assessing the loss on behalf of insurer or insured;
(x) assessing liability under the contract of insurance;
(xi) pointing out discrepancy, if any, in the policy wordings;
(xii) satisfying queries of the insured/insurer and of persons connected thereto in respect of the claim/loss;
(xiii) recommending applicability of depreciation and the percentage and quantum of depreciation;
(xiv) giving reasons for repudiation of claim, in case the claim is not covered by policy terms and conditions;
(xv) taking expert opinion, wherever required;
(xvi) commenting on salvage and its disposal wherever necessary.
14.[(3)A surveyor or loss assessor whether appointed by insurer or insured, shall submit his report to the insurer as
expeditiously as possible, but not later than 30 days of his appointment, with a copy of the report to the insured
giving his comments on the insured’s consent or otherwise on the assessment of loss. Where, in special
circumstances of the case, either due to its special and complicated nature, the surveyor shall under intimation to
the insured, seek an extension, in any case not exceeding six months from the insurer for submission of his report.
If an insurer, on the receipt of a survey report, finds that it is incomplete in any respect, he shall require the surveyor
under intimation to the insured, to furnish an additional report on such incomplete issues as may be required by the
insurer. Such a request may be made by the insurer within 15 days of the receipt of the original survey report.
Provided that the facility of calling for an additional report by the insurer shall not be resorted to more than once in
the case of a claim.
The surveyor on receipt of this communication shall furnish an additional report within three weeks of the date of
receipt of communication from the insurer].
CHAPTER V
CATEGORISATION OF SURVEYORS
14.15. [A surveyor and loss assessor shall be categorized on the basis of level of membership allotted by the
Institute as stated under Regulation 14. Accordingly, licensed surveyor and loss assessor shall be allotted
membership by the Institute. The three levels of membership in the Institute viz. Licentiate, Associate and Fellow,
as defined in the Articles of the institute.
a. Every surveyor and loss assessor, whether a company or firm or an individual, shall be eligible to carry on the
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work as a surveyor or loss assessor, as per the level of membership allotted by the institute and specified in the
licence.]
16.[14A. Functions of the Institute
(I) The Institute shall grant appropriate membership to person eligible, within 15 days from the date of receipt of
application for membership, for grant of a valid licene to be issued by the Authority to act as a surveyor and loss
assessor based on the following criteria, including any other criteria as may be specified by the Authority from time
to time:
i) Membership
Licentiate Member: Any person holding a valid license issued by an Authority to act as surveyor and loss assessor,
and fulfills other criteria set out in Regulation 14A(1) (ii).
Associate member: Any Licentiate Member holding valid license continuously for a period not less than 8 years and
fulfills other criteria set out in Regulation I4A(1) (ii).
Fellow Member:
Any Associate Member holding valid license continuously for a period not less than 8 years and fulfills other criteria set
out in Regulation 14 A(l) (ii).
ii) Training, examination, seminars and workshops:
a. The institute shall conduct training, examination, seminars and workshops to all the members and every member,
in order to upgrade his/her level of membership, shall undergo such training, examinations, seminars and
workshops as specified below:
b. In addition to the period of practical training that an application seeking a license to act as a surveyor and loss
assessor is required to undergo training as prescribed in Regulation 16, the Institute shall provide and every
member shall undergo, such training commensurate to their level of membership, for the minimum period as
specified below:
Licentiate – 100 hrs
Associate – 50 hrs
Fellow – 25 hrs
c. The Institute or any other institution authorized by the Authority, shall conduct seminars and workshop and every
member shall attend a minimum number of such seminars and workshops as specified below:
Licentiate – 5
Associate – 8
Fellow – 10
Provided further that all existing licensed surveyors and loss assessors shall become the members of the Institute
within 6 months from the date of these regulations and apply to IRDA for grant of modified licence indicating the
level of membership to be allotted by the Institute.
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Provided further that such members shall be required to comply with the requirements on training, evaluation,
seminars and workshops for upgrading their existing levels of membership within the time limit as may be
prescribed by the Authority from time to time.
(2) The Authority may from time to time issue such guidelines, directions or such other communication for the
efficient conduct of the affairs of the Institute.]
CHAPTER VI
CODE OF CONDUCT
15. Every surveyor and loss assessor shall—
(1) behave ethically and with integrity in the professional pursuits. Integrity implies not merely honesty but fair
dealings and truthfulness;
(2) strive for objectivity in professional and business judgment;
(3) act impartially, when acting on instructions from an insurer in relation to a policy holder’s claim under a
policy issued by that insurer;
(4) conduct himself with courtesy and consideration to all people with whom he comes into contact during the
course of his work;
(5) not accept or perform survey work in areas for which he does not hold a licence;
(6) not accept or perform work which he is not competent to undertake unless he obtains some advice and
assistance, as will enable him to carry out the work competently;
(7) carry out his professional work with due diligence, care and skill and with proper regard to technical and
professional standards expected of him;
(8) keep himself updated with all developments relevant to his professional practice;
(9) at all times maintain proper record for work done by him and comply with all relevant laws;
(10) assist and encourage his colleagues to obtain professional qualifications, and, in this behalf, provide free
articleship and/or practical training for a period of twelve months;
17.[(11) maintain a register of survey work, containing the relevant information, such as, details of insured,
insurer, policy number, date of allocation of survey work, date of submission of survey report, amount of
claims assessed, such fee details and shall keep important records of the survey reports, photographs and
other important documents for a period of three years and furnish the same and such other specified
returns, as and when called for by the Authority or by any investigating authority or the insurer. However, in
case of litigation involving above information/records/documents/photographs, etc, the same shall be
maintained till the conclusion of the litigation.
(12) disclose to all parties concerned his appointment, where the acceptance or continuance of such an
engagement may materially prejudice, or could be seen to materially affect the interests of any interested
party. As soon as a conflict of interest is foreseen, every surveyor and loss assessor shall notify all
interested parties immediately and seek instructions for his continuance;
(13) not disclose any information, pertaining to a client or employer or policy holder acquired in the course of his
professional work, to any third party, except, where consent has been obtained from the interested party,
or where there is a legal right or duty enjoined upon him to disclose;
(14) neither use nor appear to use, any confidential information acquired or received by him in the course of his
professional work, to his personal advantage or for the advantage of a third party.
18.[(15) comply with all the provisions of the Act, the IRDA Act, the rules and regulations made there under
and the orders, directions and guidelines issued by the Authority from time to time,
(16) shall undertake survey jobs in a company/firm only as an employee/director/ partner.
(17) neither act as a consultant of the Insured nor involve in settlement of loss, particularly those losses which
are being assessed by him as an appointed surveyor
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(18) comply with the provisions of AOA, regulations and Code of Ethics framed by the Institute from time to
time.
CHAPTER VII
PRACTICAL TRAINING
19.[16Trainee Applicants.—A student member seeking a license to act as a surveyor and loss assessor shall
apply and enroll with Authority as Trainee in FORM-IRDA-13 as given in the Schedule to these regulations, after
having obtained the willingness to impart training from his trainer in FORM-lRDA-14 as given in the schedule to
these regulations, and shall undergo a period of practical training of not less than twelve months with a licensed
surveyor and loss assessor as specified below:
(1A) During the period of training, every applicant who is a student member of the Institute and enrolled as trainee
shall comply with the code of conduct and code of ethics prescribed by the Institute and duly approved by IRDA and
shall have include the following:
i) Behave ethically and with integrity. Integrity implies not merely honesty but fair dealings and truthfulness,
ii) Not accept/perform/undertake/any survey works and not issue any survey report without holding a valid
license issued by the Authority to act as surveyor and loss assessor,
iii) Maintain at all times, proper record of training details duly certified by the trainer surveyor, and
iv) Disclose all information relating to any proceedings initiated or investigation pending or carried out/against
him/her or it by any agency and details of the results thereof,
v) File within 15 days, any change in information already submitted to the authority.
vi) Any other requirement that may be specified by the Institute from time to time.
(2) The surveyor under whom a trainee will be trained shall belong to Associate or Fellow member of the Institute.
(3) The trainee shall maintain a quarterly record of training received in FORM-IRDA-15 during the period and shall
get it certified by the surveyor and loss assessor under whom he has trained and the certificate in FORM-IRDA-16
shall be attached to the application for seeking grant of a license under Regulation 3;
(3A). The requirement to undergo practical training for a period not less than 12 months as stated under Regulation
16(1) shall not be applicable to those student members who have over 15 years of experience in areas relating to
risk management and settlement of claims in relevant field in General Insurance Industry.
The licence to be granted to an applicant to act as a surveyor and loss assessor shall be in that particular area for
which he has been trained;
(4) If a surveyor and loss assessor already licensed by the Authority seeks to obtain a similar licence for acting as a
surveyor in a category other than for which he is licensed, he shall undergo a period of training not less than six
months under a surveyor and loss assessor holding either a Fellow or Associate member licence issued by the
Authority to act in that particular area.
(5) Those who have already enrolled as trainees with IRDA shall become the student member of the Institute in
addition to complying with the criteria set out in Regulation 3 for grant of license to act as surveyor and loss
assessor.]
20.[17.
The Authority may also prescribe the passing by an applicant of an examination on the successful
completion of the training prescribed above for the grant of a license under Regulation 3. The examination may be
conducted either by the Institute or by an institution authorized by IRDA.]
CHAPTER VIII
MISCELLANEOUS
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18. Register of licensed insurance surveyors and loss assessors—(1) The21. [Institute] shall maintain a register
of all licensed insurance surveyors and loss assessors containing the following particulars:
(i) full name, date of birth, domicile, residential and professional address;
(ii) the date on which name is entered in the Register;
(iii) licence number and period of validity;
(iv) professional and other qualifications;
(v) areas of survey work licensed to be undertaken;
(vi) 22.[level of Membership in the Institute] of the surveyor and loss assessor;
(vii) any other particulars as may be prescribed by the Authority from time to time.
Provided that in the case of corporate surveyors, the particulars to be entered in the register, shall be with reference
to every director or partner, as the case may be.
(2) The Authority shall, delete the particulars of surveyors and loss assessors, who are no longer alive, or whose
licence has been cancelled or suspended.
(3) The Authority23. [may] cause the publication of the relevant particulars entered in the register, as may be
considered appropriate by it, at such intervals and in such manner as may be deemed fit.
24.[19.Submission of returns by Surveyor and Loss Assessor :—Every licensed surveyor and loss assessor
shall:—
(a) furnish such of the document, statement, account, return or report, as and when required by the Authority,
and comply with such directions, as may be issued by the Authority in this behalf, from time to time; and
(b) submit an annual statement in FORM-IRDA-12 given in the Schedule to these regulations.
(c) Every insurer shall submit to the Authority the following:
i) Quarterly report on misconduct of licensed surveyors, including, action, if any taken, on the employee
surveyors under the employment rules.
ii) File with the Authority, annually, a copy of the policy formulated by the company, on the methodology
followed for appointment of surveyors, utilisation of surveyors and allotment of survey jobs to licensed
surveyors.
iii) File with Authority, changes, if any, made in the policy submitted as stated under (d), within 15 days of
such change with reasons thereof.]
20. Inspection—(1) The Authority, may appoint one or more persons as inspecting authority to undertake
inspection of survey work, books, records and documents, or to investigate any bona fide complaint received
against a survey or and loss assessor.
(2) The inspecting authority shall, as soon as possible, submit an inspection report to the Authority.
25.[(3)A surveyor and loss assessor shall provide the information demanded by the inspecting authority for the
purpose of carrying out inspection/investigation and extend all possible co-operations to facilitate the conduct of its
work.]
(4) The Authority shall, after consideration of the inspection report, communicate the findings of the inspecting
authority to the surveyor and loss assessor, and shall also give him a reasonable opportunity of being heard before
any action is taken by the Authority on the findings of the inspection report.
26.[20A. Action in case of Default – Suspension of License
(1) The Authority shall suspend a licence already granted, to a surveyor and loss assessor (individual/corporate), if
he/it:
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i. Fails to discharge the duties and responsibilities in a satisfactory and professional manner; or
ii. Violates the code of conduct specified in these regulations; or
iii. Makes a statement which is false in material particulars with regard to eligibility for obtaining licence or
renewal thereof or in any of the activities transacted by him or them or the matters connected therewith as
a surveyor and loss assessor or has after the issue or renewal of such licence, acquired any of the
disqualifications provided under sub-section (4) of section 42 of the Act, read with section 42(4) of the Act;
iv. Has contravened any of the provisions of the Act, or IRDA Act, 1999, or any rules or regulations made
under those Acts, or any order or direction issued by the Authority;
v. Has been negligent in discharge of his obligations;
vi. Has been sentenced to a term of imprisonment by any court of law
Provided that the Authority shall give a reasonable opportunity to the person concerned, of being heard before such
suspension.
2) The Authority may also suspend the licence if it is of the opinion that the continuation of such licence would be
prejudicial to the interest of the policy holders, in which case the opportunity of personal hearing may not be
provided.
3) The Authority may in addition to cancellation of the individual licence of director/partner of corporate surveyor
may also suspend the licence of a corporate surveyor for any act committed as stated under 1 and 2 above, if the
same is committed by any one of its partner/director.
4) The suspension of licence shall be for such period as may be indicated in the order and shall take effect from the
date of the order of suspension until revoked.
5) During the period of suspension, the holder of such a licence shall not carry out any survey and loss assessment
work including the jobs on hand and shall return all such pending jobs to the insurer or the insured, as the case may
be.
6) A surveyor whose licence has been suspended for any reason, may submit an application for issuance of
licence, after the expiry of three years from the date of such cancellation, and, such an application shall be treated
as an application for grant of fresh licence, and accordingly the applicant shall satisfy all the requirements stated
under Regulation 3 or Regulation 4 as the case may be.
27.[20B. Cancellation of licence.—1. Where it is found that a surveyor and loss assessor suffers from any of the
disqualifications mentioned in section 42D read with section 42(4) of the Act or has knowingly contravened any
provisions of the Act or the IRDA Act, l999, or the rules of regulations made under those Acts or any order of
directions or instruction issued bythe Authority, the Authority may, cancel his licence, with effect from such date as
may be specified by it.
Provided that the Authority shall give a reasonable opportunity to the person concerned, of being heard, before
cancellation.
Provided further that the powers conferred on the Authority in this sub-regulation are without prejudice to the
powers conferred on it by sub-section (7) of section 64UM of the Act.
2. The Authority may also cancel the licence if it is of the opinion that the continuation of such licence would be
prejudicial to the interest of the policyholders.
3. A surveyor whose licence has been cancelled for any reason, may submit an application for issuance of licence,
after the expiry of three years from the date of such cancellation, and, such an application shall be treated as an
application for grant of fresh licence, and accordingly the applicant shall satisfy all the requirements stated under
Regulation 3 or Regulation 4 as the case may be.
20C. Procedure for suspension and cancellation of licence.—1. A licensed surveyor and loss assessor whose
licence is proposed to be suspended or cancelled by the Authority, may be granted an opportunity of hearing before
suspending or cancelling the licence
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1. Provided, that the Authority may not follow this procedure if the continued employment of the licensed
surveyor and loss assessor is considered to be prejudicial to the interest of policyholders.
2. Upon receipt of the order of suspension, the licensed surveyor and loss assessor may file a representation
before the Authority for revocation of suspension. The Authority may designate an officer, who upon
considering the representation shall, pass such an order or orders as he/she deems fit which shall be
communicated to the suspended surveyor and loss assessor.
3. If, on the basis of the order of the designated person, the Authority revokes the order of suspension and
restores the licence of the surveyor and loss assessor, it shall indicate the date from which the restoration
will take place.
4. The licence granted by the Authority may be cancelled by the Authority where the surveyor and loss
assessor does not represent within a period of 45 days from the date of order of suspension.
5. Any order of suspension or revocation of the order thereof shall be intimated to the insurer.
6. Authority shall notify only cancellations in the Official gazette.]
21. Power to clarify—In case of any doubt or ambiguity in regard to any of these regulations, the same shall be
clarified by the Chairperson of the Authority.
28.[SCHEDULE
FORM-IRDA-1-AF
[See Regulation 3(1)]
Application for a Licence to Act as Surveyor and Loss Assessor (Individual)
Checklist
Please ensure the following:
1) To enclose a copy of the Student Membership Certificate issued by the Institute

2) To make online payment of fees (as mentioned in the Regulations) through “NET BANKING /DEMAND
DRAFT/NEFT/RTGS” during application submission.
3) Have scanned copies ready of Degree/Diploma attested by Notary/Magistrate.
4) To attach scanned copy of affidavit duly Notarized against S. No. 2 of the application form.
5) To enclose attested and scanned documents in response to Q. No.’s 4, 8, 9, 10 & 11. The answers to
which are a must.
6) To attach a recent scanned copy of passport size photograph along with the application form.
7) Send physical copies of application, uploaded documents and self-addressed envelope of 4.5” x 10 with
Rs. 40 postage stamp to IRDA. These are mandatory for grant of license.
Notes: Read with Regulation 3
1. The attention of the applicant is drawn to Section 102 of the Insurance Act, 1938, which provides that
whoever in any document required for the purpose of any of the provisions of the Act, rules or regulations
made thereunder, fails to furnish the same shall be liable to a penalty not exceeding Rs. 5 lakhs for each
such failure and punishable with fine.
2. An individual can apply for only one licence, which will entitle him to act as a Surveyor and Loss Assessor
for any insurer.
3. Any correction or alteration made in answer to the questions in the application should be initiated by the
applicant.
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4. An applicant must be at least 18 (eighteen) years of age on the date of submission of the application. In the
case of any applicant declaring him at is 18 years, the exact date of birth of falling in the year or birth
should be stated against item 4 of the application. If require the applicant shall furnish proof of age.
5. A notification will be sent to the applicant on successful submission of the application form.
6. Any change in the information submitted to the authority must be informed to the authority within 15 days
from date of the change.
7. As the licence is issued bilingual viz, Hindi and English, the applicant may like to indicate how he spells his
name in Hindi. It is, therefore, advised that the name and address may be written.
1. I student member of the Institute, request that a license to act as a Surveyor and Loss Assessor may be
granted to me for the following class/department
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Dept Fire Marine cargo Marine Hull Engg Motor Misc Crop LOP
Insurance
Please tick
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Student Membership Details... (to upload soft copy of the Membership Certificate and ID card issued by the
Institute)
2. I hereby declare that
i) I have not been found to be of unsound mind by a Court of competent jurisdiction.

ii) I have not been found guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or
of abetment or attempt to commit any such offence by a Court of competent jurisdiction.
iii) I have not been found guilty of or to have knowingly participated in or connived at any fraud/dishonesty or
misrepresentation against an insurer or an insured in the course of any judicial proceeding relating to any
policy of insurance or the winding up of an insurance company.
iv) I shall not violate the code of conduct specified by the regulations made by the Authority.
v) I possess the requisite qualifications and practical training as specified by the regulations made by the
Authority.
vi) I have passed such examination as specified by the regulations made by the Authority.
3. I also declare that the particulars given below are true:
a. Full Name (Shri/Smt/Kum)[in English & Hindi) ............................................

b. Father/Husband’s Name ....................................................
c. Present address [in English & Hindi]
Address1 ....................................................
Address2 ....................................................
Address3 ....................................................
City/Town/Village ....................................................
District ....................................................
State ....................................................
Country ....................................................
Pincode ....................................................
d. Permanent address Address1 ....................................................
Address2 ....................................................
Address3 ....................................................
City/Town/Village ....................................................
District ....................................................
State ....................................................
Country ....................................................
Pincode ....................................................
4. Qualification
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a) Academic/Professional ....................................................
b) Insurance ....................................................
c) Training Attended ....................................................
(Nature – Duration for all of the above)
5. Communication
Phone Office Phone Res. Fax Mobile Email ID Alternate Email

ID
6. Date of Birth ....................................................

7. Sole Proprietor (Name if applicable) ....................................................
8. Practical Training Details (Please enclose the Training Completion Certificate obtained from the
surveyor/survey firm)
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Name of the Departments Level of Period of training Name of Areas Covered Result
Surveyor/Surveyo allocated to Membership undergone person(s) under
rs’ Firm surveyors/Survey allotted to the (Please mention whom training
or Firm Surveyor/Survey dates) undertaken
Firm
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9. Experience Details:
a) Whether the applicant was employed with any insurance company:
b) Job Experience in previous employment other than insurance surveyor, if any:
c) Details of other business/ employment:
10. Occupation status:
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Student Professional Business Employee Service Housewife Others .............

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Student Professional Business Employee Service Housewife Others .......................
11. Employment details: (In chronological order of employment).

a) Whether applicant is currently employed? Yes/No .........................
b) If yes, provide details below and also attach scanned copy of NOC from employer
Name of Nature of Nature of Work Period of employment

Employer Organization
From Date To Date
(Govt/Semigovt/ (Insurance
Private Firm, survey related,
insurance Others)
company,
surveyor firm,
PSU, others)
c) Details of any other business/profession carried
Name of Firm Designation Nature of Business
12. Have you ever held a license to act as a surveyor and loss assessor? If Yes, please provide details:
Licence No. .....................................
Date of Issue .....................................
Expiry Date .....................................
13. Fee Payment: NET BANKING/DEMAND DRAFT/NEFT/RTGS
Fee applicable for Fresh License: Rs. 1000 + applicable service tax as per approval of GOI @
14%[Rs.1140/-]
14. Declaration:
I solemnly declare and confirm that the particulars given above are true to the best of my knowledge
and belief.
Signature of Applicant................................................
FORM - IRDA - 2 LF
Not Transferable
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Insurance Regulatory and Development Authority Licence No......................
Licence to Act as a Surveyor and Loss Assessor under the Insurance Act, 1938 (Individual)
Mr/Mrs/Miss .......................................................
Address House No.................. Street ......................
Town/District.............. State.............. Pin code..........
* working as sole proprietor of........................................ having Membership no ........................of the Institute and
having paid the specified fee and having made the necessary declaration is hereby authorised under Section 64-
UM of the Insurance Act, 1938 to act as surveyor and loss assessor for a period of five years
from...................................,,,,,
This Licence will expire onDD-MM-YYYY
Name ....................................................... is allocated the following departments and category:

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Insurance
Level of
Membership
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Hyderabad, dated the DD-MM-YYYY
Signature of License Holder ....................................
...............................................
Designated Person
Notes:
1. If it is desired to renew this license for a further period, the procedure stated in the Regulations shall be
followed, and an application for renewal should reach the Authority at least thirty days before the license
expires.
2. This license authorizes the license holder to act as a surveyor and loss assessor for any registered insurer
and therefore, no identifying mark or note of any description by which the identity of an insurer might be
established should be placed on the license.
3. No correction in this license shall be valid unless initialled by the Designated Person of the Authority.
FORM-IRDA-3-AF
[See Regulation 4]
Application from a Firm or Company for a Licence to Act as a Surveyor and Loss Assessor
Checklist
1) To enclose a copy of the Membership certificate issued by the Institute to directors/partners.

2) To make online payment of fees (as mentioned in the regulations) through “Net Banking” during application
submission.
3) Have scanned copies ready of Degree/Diploma/Technical qualifications attested by Notary/ Magistrate
only.
4) To attach scanned copy of affidavit duly notarized against S. No. 2 of the application form.
5) Attach attested and scanned copies of documents wherever required.
6) Send Self-addressed envelope 4.5”x10” with Rs. 40 postage stamp to IRDA.
1. The attention of the applicant is drawn to Section 102 of the Insurance Act, 1938, which provides that
made there under, fails to furnish the same, shall be liable to a penalty not exceeding Rs 5 lakhs for each
2. A firm or company including group companies can apply for only one licence which will entitle it to act as a
surveyor and loss assessor.
3. Any correction or alteration made in the application should be initialed by the applicant.
4. Name of the company should be suffixed by “Insurance Surveyor and Loss Assessor”.
5. A licensed SLA cannot act/function as a Director/Partner of more than one company/firm.
6. All directors shall possess surveyor license which shall be duly licensed and be a member of the Institute.
7. The main object of the company/firm shall be to undertake survey, loss assessments and related jobs.
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8. Any changes in licence details should be duly reported within 15 days to IRDA far grant of modified licence.
Affidavit should be provided on behalf of the firm.
9. The fee to be applied depends on the highest level of membership of any of the Director/Partner of the
company/firm.
10. An affidavit of Rs. 10/- duly notarized on non-judicial stamp paper is required to be scanned and attached
for renewal of licences in the form of a declaration as contained against Sl.. No. 6 of the application form.
11. An email notification will be sent to the applicant on successful submission of the application form.
• It is requested that a licence to act as a Surveyor and Loss Assessor may be granted to our Firm/
Company for the following departments and level of membership allotted to our directors/partners under
their individual surveyor licence:
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Insurance
Name of
director/partne
rs, their
individual
Licence-
Details & level
of Membership
Page 75 of 339
• It is hereby declared that-

(i) No director/partner of our Company/Firm has been found to be of unsound mind by a Court of
competent jurisdiction.
(ii) No director/partner of our Company/Firm has been found guilty of criminal misappropriation or criminal
breach of trust, or cheating or forgery, or an abetment of or attempt to commit any such offence by a
Court of competent jurisdiction.
(iii) No director/partner of our Company/Firm has been found guilty of or to have knowingly participated in
or connived at any fraud, dishonesty or misrepresentation against an insurer or an insured in the
course of any judicial proceedings relating to any policy of insurance or the winding up of an insurance
company or in the course of an investigation of the affairs of an insurers.
(iv) No director/partner of our Company/Firm is a minor.
(v) No director/partner of our Company/Firm shall violate the code of conduct specified by the regulations
made by the Authority.
(vi) All director(s)/partners) of our Company/Firm possess the requisite qualifications and practical training
as specified by the regulations made by the Authority.
(vii) All directors)/partners) persons of our Company/Firm have passed such examination as specified by
the regulations made by the Authority.
(The above declaration shall pre-populate in the online licensing process)
• It is also declared that the particulars given below are true.
1. Name of Firm/Company (In English ........................................

& Hindi)
2. Address of Company/Firm (In ........................................

English & Hindi)
(Registered/Corporate Office) ........................................
3. Details of Branch Office/s (If any) ........................................
........................................
........................................
4. Details of Employees
Licensed Designation Employment Period SLA No. Date of Expiry

surveyors
employed in the
firm Licence no
& Level of
membership
From Date To Date
It is also declared that the name of all the director/s & partner(s) with their addresses and their date of birth
submitted:
a) have been in practice as a surveyor/ loss assessor on the 31 May 1970 or,
b) hold a degree of a recognised university in any branch of engineering, or
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c) be a fellow or associate member of the Institute of Chartered Accountants of India or Institute of Cost and
Works Accountants of India or
d) possess actuarial qualifications or hold a degree or diploma of any Indian University or Institute in relation
to insurance, or
e) hold a diploma in insurance granted or recognised by the Government, or
f) possess any of the technical qualifications mentioned in Rule 56A.
(N.B. 1: In the case of each of the partners/directors claiming to come under item (a) above and not being eligible to
come under any of the items (b) to (f) above, a declaration as given in the Insurance Rules, 1939 and sworn before
a Magistrate or Notary Public should be forwarded and in the case of each of the partners/Directors claiming to
come under any one of the items (b) to (f) above, either the original diplomas/certificates with one of the attested
copy each, or copies of the original diplomas/certificates duly attested by a Magistrate or Notary Public should be
enclosed. Where original diplomas/certificates are sent, they will be returned after perusal, but no responsibility can
be accepted for loss or damage of such originals
5. Details of Directors (details to capture multiple directors is captured)
SLA No. ................................................
Membership details of Institute:
Membership/ID card No ................................................
Date of Issue of ID card ................................................
Level of membership allotted ................................................
Dale of Expiry ................................................
Name ................................................
Address Departments allocated ................................................

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Insurance
Level of
Membership
Page 78 of 339
Last Employment details
Name of Employer Nature of Nature of Work Period of employment

Organisation
From Date To Date
(Govt/Semigovt/Priv (Insurance survey

ate Firm, insurance related. Others)
company, surveyor
firm, PSU, others)
N.B.: Where a director/partner does not already hold an individual licence, then an application (in FORM NO. 1-AF
Application for New Licence) from such a person should also submitted.)
• Did the Firm/Company ever hold a licence?
If Yes, provide details below and upload copy of old licence
SLA No. .........................................
Date of Issue .........................................
Date of expiry .........................................
Reason for Non renewal .........................................
• Fee Payment: Net Banking /Demand Draft/NEFT/RTGS:
Fee applicable for Fresh License: Rs. 1000/- + applicable service tax as per approval of GOI @
14%[Rs.1140/-]
• Declaration
I solemnly declare and confirm that the particulars given above are true to the best of my knowledge
and belief.
Signature of Applicant.......................................
FORM-IRDA-4 LF
(See Regulation 4)
Not Transferable
Licence No ....................................
Licence to Act as a Surveyor and Loss Assessor under the Insurance Act, 1938 (Corporate)
Name of the Company/Firm: ..................................................
Registered Address: .............................................................

Page 79 of 339
Having paid the specified fee and having made the necessary declaration is hereby authorized under Section 64-
UM of the insurance Act, 1938 to act as a surveyor/loss assessor for five years from DD-MM-YYYY.
This Licence will expire on DD-MM-YYYY.
The following are the details of Directors/Partners along with departments and level of Membership allotted along
with their individual licence number—-
Page 80 of 339
Sl. No. Name of Fire Marine Marine Hull Engg Motor Misc Crop LOP
Director/Par cargo Insurance
tner
Licence and
Membership
details of
directors/part
ners
Page 81 of 339
.........................................................
Seal of the Company/Firm
........................................................
Designated Person
Notes:
1. If it is desired to renew this licence for a further period, the procedure stated in the Regulations shall be
followed, and an application for renewal should reach the Authority at least thirty days before the licence
expires.
2. This licence authorises the licence holder to act as a surveyor and loss assessor for any registered insurer
established should be placed on the licence.
3. No correction in this licence shall be valid unless initialed by the Designated Person of the Authority.
FORM - IRDA - 5 AF
Application for Renewal of a Licence to Act as Surveyor and Loss Assessor (Individual)
Checklist
1) To enclose a copy of the membership certificate issued by the institute

2) To submit FORM 12 (annually) online before applying for Renewal to make online payment of fees (as
mentioned in the regulations) through “Net Banking/Demand Draft/NEFT/RTGS” during application
submission.
3) To attach scanned copy of previous licence.
4) To attach scanned copies of qualifications duly attested by notary.
5) to attach scanned copy of affidavit duly notarised against S. No. 6 of the application form.
6) To send Self addressed envelope 4.5” x 10” with Rs. 40 postage stamp to IRDA to send hard copy of the
renewed licence.
7) To submit FORM 12 (annually) online before applying for Renewal.
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8) To attach a recent scanned copy of passport size photograph along with the application form.
1. All licensed surveyors shall apply online 30 days before the expiry of the licence.
2. Any correction or alteration made in answer to the questions in the application should be initiated by the
applicant.
3. An affidavit of Rs. 10/- duly notarised on non-judicial stamp paper is required to be scanned and attached
for renewal of licences in the form of a declaration as contained against S. No. of 6 of the application form.
from date of the change for grant of modified licence by the authority.
I request that the below licence may be renewed for a further period of five years.
1. Current License Details
SLA No. (mandatory) ............................................
Licence Effective Date ............................................
Date of Expiry
Membership/ID card No .......................................
Date of Issue of ID card .......................................
Level of membership allotted .......................................
2. Name of Surveyor and Loss .......................................

Assessor
3. Permanent Address .......................................
4. Present Address .......................................
(If change in present address,

please upload proof doc)
5. Departments allocated
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Insurance
Licence and
Membership
details of
directors/partn
ers
Page 84 of 339
6. I declare that since the date of my last application for licence
(i) I have not been found to be unsound mind by a Court of competent jurisdiction.
(ii) I have not been found guilty of criminal misappropriation or criminal breach of trust or cheating or forgery of
an abetment of or attempt to commit any such Offence by a Court of Competent jurisdiction, and
(iii) I have not been found guilty of or to have knowingly participated in or connived at any fraud/dishonesty or
made any misrepresentation against an insurer or an insured in the course of any judicial proceeding
relating to a policy of insurance or the winding up of any investigation of the affairs of an insurer, and
(iv) My licence has not been cancelled at any time by the Controller of Insurance/ Insurance Regulatory and
Development Authority.
(v) I declare that I continue to hold the qualification on the basis of which my licence mentioned above was
issued.
(vi) An undertaking on performance report showing survey work done by me during the last 5 years of the
validity period indicating total number of survey work, and amount involved in each category of cases,
year-wise and company-wise is attached.
(vii) In addition to surveyor’s work, I am also engaged on other occupations, the details of which are given
below: Or
I am not engaged in any other occupation.
(viii) I have not been disqualified for any of the provisions neither attracted the disqualification stated in section
42D of the Insurance Act, 1938.
Occupation status:
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Page 86 of 339
Employment details:
d) Whether applicant is currently employed? Yes/No ...........................
e) If yes, provide details below and also attach scanned copy of NOC from employer

Organisation
From Date To Date
(Govt/Semi- (Insurance survey

govt/Private Firm, related. Others)
insurance company,
surveyor firm, PSU,
others)
f) Details of any other business/profession carried out:
7. Whether the applicant has been in practice as a Surveyor and Loss Assessor on the 31 May 1970 ?
If answer is YES and the applicant does not possess any of the qualifications stated in Insurance Act,
1938 and rules and regulations made thereunder, the applicant must make a declaration as given in
the Insurance Rules, 1939 and duly sworn before a Magistrate or a Notary Public.
8. Payment; NET BANKING/DEMAND DRAFT/NEFT/RTGS
A fee of Rs. 100/- + applicable service tax as approved by GOI @ 14% should be paid as Renewal fee.
[Rs.114/-]
In case license is submitted after expiry upto a maximum period of six months, the license fee will be
Rs. 100/- + penalty of Rs. 750/- + applicable service tax as approved by GOI @ 14% (along with
photocopy of qualification duly attested by notary).[Rs.969/-]
9. Declaration
I solemnly declare and confirm that the particulars given above are true to the best of my knowledge and belief.
Signature of Applicant ...................................................
Date:
Place:
FORM - IRDA - 6 - AF
Application from a Firm or Company for Renewal of a Licence to Act as a Surveyor and Loss Assessor
Checklist
Page 87 of 339
1) To enclose a copy of the membership certificate issued by the Institute to the directors/partners
2) To submit FORM 12 (annually) online before applying for Renewal to make online payment of fees (as
mentioned in the regulations) through Net Banking during application submission.
3) Have scanned copies ready of Degree/Diploma/Technical qualification attested by Notary/Magistrate.
4) To attach scanned copy of affidavit duly notarized against S.No.3 of the application form.
5) To send Self-addressed envelope of 4.5” x 10” with Rs. 40. postage stamp to IRDA to send a hard copy of
the License Certificate.
Notes:
1. The application should be submitted online at least 30 days before the expiry of the licence with a renewal
fee of Rs. 200 may be paid online through Net Banking/Demand Draft/NEFT/RTGS.
2. In case licence is submitted after expiry up to a maximum period of six months, the licence fee will be Rs.
200/-with a penalty of Rs. 750/- through Net Banking/Demand Draft/NEFT/RTGS.
3. The attention of the applicant is drawn to Section 102 of the Insurance Act 1938, which provides that
made there under, fails to furnish the same, shall be liable to a penalty not exceeding Rs. 5 lakhs for each
4. A firm or company including group companies can apply for only one licence which will entitle it to act as a
surveyor and loss assessor.
5. Any correction or alteration made in the application should be initialed by the applicant.
6. Name of the company should be suffixed by “Insurance Surveyor and Loss Assessor”.
7. A licensed SLA cannot act/function as a Director/Partner of more than one company/firm.
8. All directors shall possess surveyor licence which shall be duly licensed and categorised.
9. The main object of the company/firm shall be to undertake survey, loss assessments and related jobs.
10. Any changes in licence details should be duly reported within 15 days to IRDA for grant of modified licence
by the Authority. Affidavit should be provided on behalf of the firm.
11. An affidavit of Rs. 10/- duly notarised on non-judicial stamp paper is required to be scanned and attached
for renewal of licences in the form of a declaration as contained against S.No.of 6 of the application form.
1. Current Corporate Licence Details
SLA no. ...........................................
Date of Expiry ...........................................
Name of the Firm/Company ...........................................
Address of Company/Firm ...........................................
Departments allocated ...........................................

Page 88 of 339
Insurance
Licence details
of
directors/partn
ers and level
of membership
Page 89 of 339
2. It is requested that the above licence may be renewed for a further period of five years for the following
classes of insurance and level of membership allotted to directors/partners:
Page 90 of 339
Insurance
Licence details
of
directors/partn
ers and level
of membership
Page 91 of 339
3. It is hereby declared that—
(i) No director/partner of our Company/Firm has been found to be of unsound mind by a Court of competent
jurisdiction;
(ii) No director/partner of our Company/Firm has been found guilty of criminal misappropriation or criminal
breach of trust or cheating or forgery, or an abetment of or attempt to commit any such offence by a Court
of competent jurisdiction;
(iii) No director/partner of our Company/Firm has been found guilty of or to have knowingly participated in or
connived at any fraud, dishonesty or misrepresentation against an insurer or an insured in the course of
any judicial proceedings relating to any policy of insurance or the winding up of an insurance company or in
the course of an investigation of the affairs of an insurers; and
(iv) No director/partner of our Company/Firm is a minor.
(v) No director/partner of our Company/Firm shall violate the code of conduct specified by the regulations
made by the Authority.
(vi) All director/partner(s) of our Company/Firm possess the requisite qualifications and practical training as
specified by the regulations made by the Authority.
(vii) All director(s)/partner(s) of our Company/Firm have passed such examination as specified by the
regulations made by the Authority.
(The above declaration shall prepopulate in the online licensing process)
4. It is declared that each one of the Director(s)/partner(s) of the firm who was a partner/Director when the
above mentioned licence was issued and who is now a Director(s) /partner(s) continues to satisfy the
requirements of clause (D) of sub-section (1) of Section 64-UM of the Act.
It is also declared that all the director(s)/partner(s) whose address, date of birth have been submitted
a) have been in practice as surveyor and loss assessor on 26 October 1968 or

b) hold a degree of a recognised university in any branch of engineering, or
c) be a fellow or a associate member of the Institute of Chartered Accountants of India or Institute of Cost
and Works Accountants of India, or
d) possess actuarial qualifications or holds a degree or diploma of any Indian University or Institute in
relation to Insurance, or
e) hold a diploma in insurance granted or recognised by the Government, or
f) possess any of the technical qualifications mentioned in Rule 56-A.
(The above declaration shall pre-populate in the online licensing process)
[N.B. 1. In the case of each of the director/partner who was not a partner/ Director on the date of last application for
licence:—
(i) where he claims to come under item (a) above, and is not eligible to come under any of the items (b) to (f)
above, a declaration as given in the Insurance Rules, 1939 and sworn before a Magistrate or a Notary
Public should be forwarded with this form; and
where the claims to come under any one of the items (b) to (f) above, either the original diplomas/certificates with
one of the attested copy each, or copies of the original diplomas/certificates duly attested by a Magistrate or Notary
Public should be enclosed. Where original diplomas/certificates are sent, they will be returned after perusal, but no
responsibility can be accepted for loss or damage of such originals.
Page 92 of 339
5. Details of Directors/Partners
a) Name of the director/partner ...........................................
SLA no. ...........................................
Date of Expiry ...........................................
Membership ID card No ...........................................
Date of Issue of ID card ...........................................
Level of membership allotted ...........................................
Name ...........................................
Address ...........................................
Departments allocated
Page 93 of 339
Insurance
Licence details
and level of
Membership
Page 94 of 339
Note: Where a director/partner does not already hold an individual licence, then an application (in FORM NO. 1-AF
-Application for New Licence) from such a person should also be submitted.]
Last Employment details

Organisation
From Date To Date

insurance company,
surveyor firm, PSU,
others)
6. Declaration
Signature of the applicant..............................
(Digital Signature)
Name of the Company/Firm:
Corporate Licence No:
Seal of the Company/ Firm
FORM - IRDA - 7 LF
Not transferable
Insurance Regulatory and Development Authority Licence no............................
Renewal of Licence to Act as a Surveyor and Loss Assessor under the Insurance Act, 1938 (Individual)
Mr/Mrs/ Miss ...................................................
Address .................................................................................................
* working as sole proprietor of ......................................... having Membership no .............................. of the Institute

and having paid the specified fee and having made the necessary declaration, his/her Licence No .....................
dated ............................. to act as a surveyor and loss assessor is hereby renewed up to ................ day
of................ 20 ..........................
Name ............................................ are allocated the following departments and category:

Page 95 of 339
Insurance
Level of
Membership
Page 96 of 339
Signature of Licence Holder.................................................
.................................................
Designated Person
Notes:
expires.
3. No correction in this licence shall be valid unless initialled by the Designated Person of the Authority.
FORM - IRDA - 8 LF
Not Transferable
Insurance Regulatory and Development Authority Licence No .........................
Renewal of Licence to Act as a Surveyor and Loss Assessor under the Insurance Act, 1938 (Corporate)
Name: ..............................................................................
Address: ...........................................................................
having paid the specified fee and having made the necessary declaration is hereby authorized under Section 64-
UM of the Insurance Act, 1938 to act as a surveyor/loss assessor for five years from DD-MM-YYYY.
This Licence will expire on DD-MM-YYYY.
The Directors/Partners are allocated the following departments and categories:-

Page 97 of 339
Sl. No. Name of Fire Marine Marine Hull Engg Motor Misc Crop LOP
Director cargo Insurance
Licence and
Membership
details of
director
Page 98 of 339
Signature of the license Holder .......................................
Seal of the Firm/Company.......................................
.........................................................
Designated Person Insurance
Regulatory and Development Authority
Notes:
expires.
3. No correction in this licence shall be valid unless initialed by the Designated Person of the Authority.
FORM - IRDA - 9
Application for Duplicate License
I regret to inform you that my/our licence no .................................... expiry date DD-MM-YYYY has been
Lost Destroyed Mutilated
by the following circumstances

........................................................................................................................................................................................
........................................................................................................................................................................................
........................
The fees of Rs. 5/- is also paid below for issue of duplicate licence. (Fee Payment: Net Banking/Demand
Draft/NEFT/RTGS) I/We, therefore request the Authority to kindly issue a duplicate licence in light of the
circumstances explained above.
Declaration
I/We ............................................. solemnly declare and confirm that the particulars given above are true to the best
of my knowledge and belief.
In case the original licence is traced, I/We assure you that the same shall be returned to the authority.
....................................................
Signature of the Applicant
Date:
Place:
Page 99 of 339
FORM - IRDA - 10 - LF
Not Transferable
License No ..........................
Duplicate License
Name............................................................................ Address: House No. ..........................Street...................

Town/District .............................. State ......................... Pin code ........................ having paid Rs. Five only and
having made the necessary declaration of having lost/destroyed/mutilated the licence is hereby authorized under
Section 64-UM of the Insurance Act, 1938 to continue to act as surveyor and loss assessor for the balance period
till expiry of the licence.
This Licence will expire on DD-MM-YYYY
The surveyor and loss assessor will continue to work for the following departments:
Page 100 of 339
Insurance
Category
Page 101 of 339
Hyderabad, dated the ........................ 20 ................
Signature of the licence Holder...................................
Seal of the Firm/Company...................................
.............................................................
Designated Person
Notes:
I. If it is desired to renew this licence for a further period, the procedure stated in the Regulations shall be
expires.
II. This licence authorises the licence holder to act as a surveyor and loss assessor for any registered insurer
III. No correction in this licence shall be valid unless initialed by the Designated Person of the Authority.
FORM - IRDA -12
[See Regulation 19(b)]
Format for Annual Submission of Return to the Authority
1. Name of Surveyor ......................................................
2. Licence Details
Current SLA No ......................................................
Date of Expiry DD-MM-YYYY
MEMBERSHIP DETAILS OF INSTITUTE:
Membership/ID card No .....................................
Date of Issue of ID card .....................................
Level of membership allotted .....................................
Qualifications acquired in the past 1 year (Upload docs for proof)
a) Academic/Professional .....................................
b) Insurance .....................................
c) Training Attended .....................................
(Nature - Duration for all of the above)

Page 102 of 339
3. No. of surveys done in last financial year and the name of insurers: 20 _______ 20 _______
Page 103 of 339
Insurers Fire Marine Marine Hull Engg. Motor Misc. Crop LOP Total
Cargo Insurance
A
D
Page 104 of 339
4. Quantum of losses assessed in last financial year: 20XX-20XX

Page 105 of 339
Fire No. Marine No. Marine No. Engg. No. Motor No. Misc. No. Crop No. LOP No.
Cargo Hull Insura
nce
>10 >1 >10 2.5 >50, >1 >10
Lakhs Lakh Lakhs Lakhs 000 Lakh Lakhs
1-10 25,000 2.5-10 50,000 10,000 25,000 1-10

Lakhs -1 Lakhs -2.5 - -1 Lakhs
Lakh Lakhs 50,000 Lakh
0-1 0- 0-2.5 0- 0- 0- 0-1

Lakh 25,000 Lakhs 50,000 10,000 25,000 Lakh
Total
Page 106 of 339
5. Declaration
I ...................................... solemnly declare and confirm that the particulars given above are true to the best of my
knowledge and belief.
Signature of the applicant .....................................
Date:
Place:
FORM – IRDA - 13
Prescribed Format for Enrollment as Trainees
(Reg 16(1))
Instructions:
1) It is mandatory to enclose copy of the Student membership ID issued by the Institute.

2) It is mandatory to attach certificate of trainer/surveyor firm along with the enrollment application.
3) Enrollment applications will be processed by IRDA only after receiving online submission of certificate from
the selected trainer/Surveyor firm by trainee.
4) Any change in the information submitted to the authority must be informed to the authority within 15 days
Details of the Applicant
1. Name..................................................................
2. Membership Details of the Institute: Student Membership no
3. Permanent address..................................................................
4. Present address..................................................................
5. Communication details
Phone Phone Res. Fax Mobile Email ID Alternate

Office Email ID
6. Date of Birth ..........................................................

........
7. Nationality ..........................................................
........
8. Qualifications acquired in the past 1

year (Upload docs for proof)
d) Academic/Professional ..........................................................
........
e) Insurance ..........................................................
........
Page 107 of 339
f) Training Attended ..........................................................

........
(Nature - Duration for all of the

above)
9. Occupation status:
Page 108 of 339

Page 109 of 339
10. Employment details:
g) Whether applicant is currently employed? Yes/No

h) If yes, provide details below and also attach scanned copy of NOC from employer

Organisation
From Date To Date

insurance company,
surveyor firm, PSU,
others)
i) Details of any other business/profession carried out:
11. Options for departments, in which you wish to be trained and granted surveyors licence
l. _______________ 2. _______________ 3. _______________ 4. _______________ 5.

_______________ 6. _______________ 7. _______________ 8. _______________
12. Name of Trainer Surveyor: ..............................................
SLA No...............................................
Membership Details of the Institute:
Membership ID card No..................................
Date of Issue of ID card..................................
Level of membership allotted..................................
Date of expiry..................................
Page 110 of 339
Insurance
Level of
Membership
Page 111 of 339
Present Address ...........................................................................
Communication details.

ID
13. Declaration
Signature of the Applicant................................
Date:
Place:
FORM - IRDA - 14
Format of Certificate from Trainer Surveyor Giving Acceptance to Impart Training (Reg 16(1))
Important Instructions:
This form needs to be filled by trainer after receiving automated notification regarding enrollment of the trainee
surveyor
I, ................................. (name of Surveyor/Surveyor Firm) bearer of Surveyor’s Licence no. & Membership
details................................. certify that Mr/Ms .................................is enrolled for training as a trainee surveyor in
the following departments:
(i) ................................. (ii) .................................(iii) ................................. (iv) ................................. (v)

................................. (vi) ................................. (vii) ................................. (viii) .................................
I have verified the information pertaining to educational qualifications and certify that they are true and correct. I am
a Member of the Institute and hold a valid surveyor licence issued by the Insurance Regulatory And Development
Authority for the departments I am imparting practical training.
I undertake to impart practical training to the best of my knowledge and ability and agree to supervise his/ her
performance on weekly basis, based on the records to be maintained by the trainee and keep the Insurance
Regulatory And Development Authority informed about the progress by way of submission of quarterly reports in
the form and manner prescribed.
Surveyor’s Licence No ..............................................
Date of Expiry ..............................................
Date ..............................................
Address Communication ..............................................

ID
Signature of Trainer
Page 112 of 339
.............................
Date:
Place:
FORM - IRDA - 15
Quarterly Report - Format For Daily Diary (REG 16(3))
Format For Daily Diary
(To be Maintained by Trainer Surveyor and Submitted Online in Soft Form on Quarterly Basis)
Report for the Quarter ending:________________(MM/YYYY)
1. Name of Trainee……………………………….
2. Address……………………………….
3. Communication……………………………….

ID
4. Name of Trainer Surveyor/Surveyor Firm:
Current Licence No ...................................
Date of expiry ...................................
Membership Details ...................................
Date of commencement of training:
Department Contents of training imparted (Upload in soft form

and Attach supporting documents wherever
possible)
Signature of Trainer
Date:
Place:
FORM - IRDA - 16
Training Completion Certificate
[Reg 16(3)]
Page 113 of 339
To be Submitted by Trainer for Each Trainee, After Completion of the Training
SLA No ................................................... «Trainer Name»«Trainer Address» Date of Expiry:

........................................... «Trainer Qualification» Membership ID No. ................................ Level of Membership
.........................
SURVEYOR & LOSS ASSESSOR
<List of department in which trainer is licensed>
This is to certify that Mr/Ms ................................... had undergone training with me in department/s <List of
departments with check box> From <date> to <date> for a period of 12 months/6 months. During the
process he learnt various aspects of <department> for surveying and loss assessing.
During the period of training I found him/her hardworking, sincere and understanding. In my opinion he is fully
conversant with all the techniques of Survey and
I wish him/her all the best in all his/her future career,
<Additional remark if any>
<trainer Name>
SURVEYOR & LOSS ASSESSOR
SLA NO ....................... Date of Expiry ......................
Membership No ......................... Level of Membership ...............
FORM - IRDA - 17 AF
Reg [3(2)(C)]
Application Format for Grant of Modified Licence Individual Surveyor
Any change in the information submitted to the authority must be informed to the authority within 15 days from date
of the change, attach copies of documents as proof
o Name
Name of Firm/Company (wherever applicable) ..................................................... Remarks

......................................
o SLA No ............ Expiry date .......................... Membership ID No ........................ Level of

Membership...............
o Present Address:
Address 1: .............................................. Address 2: .................................... Address 3:

..............................................
City/Town/Village: .......................................... District: ...................................... State:

.....................................
Country: ......................................... Pin code: ............................................. Remarks:

Page 114 of 339
.........................................
Change in Licensee Name
o Incorporation of Sole Proprietary firm’s Name:
Name of Firm: .............................. Remarks: ..............................
o Grant of Additional Departments:

Page 115 of 339
Dept Fire Marine Marine Engg Motor Misc Crop LOP

cargo Hull Insurance
Select
Page 116 of 339
o Swapping of Departments :
Select Current Department Select new Licence category (as

Department per categorisation)
Remarks: ........................... (should we delete this as we are removing the restriction in departments)
o Correction in the licence already issued (where there is a typographical error in the licence issued):
o Change in level of Membership allotted by the Institute
From .................... To ....................... (Attach soft copy of Membership certificate issued by the Institute
indicating such change/s and reasons thereof)
o Change in Personal information:
Phone No. (Res) .......................... Phone No. (Office): ..............................
Mobile No .................................
e-mail: ..................................... Alternate e-mail: ......................................... Remarks:

………………...………..
Signature of the applicant
Place:
Date:
FORM - IRDA - 18
Reg [4(1)(xi)]
Application Format for Grant of Modified Licence Corporate Surveyor
Any change in the information submitted to the authority must be informed to the authority within 15 days from date
of the change, attach copies of documents as proof.
Select Modification Type
o Name
Name of Firm/Company .................................................................. Remarks ..........................................
o Corporate Licence No ............................................... Expiry date ....................

o Corporate/Registered Office Address:
Page 117 of 339
Address 1: ................................. Address 2: .............................................. Address 3:

.................................
City/Town/Village: ................................. District: ........................................ State: .................................
Country: ............................................... Pin code: ......................................... Remarks:

.............................................
o Branch Office Address:
Select Branch Pune Satara Nasik
Address 1: ....................................... Address 2: ............................................. Address 3:

.....................................
City/Town/Village: ..................................... District: ...................................... State:

......................................................
Country: ......................................... Pin code: ............................................. Remarks:

.................................
o Change in Director/Partner Details:
Add new Director/Partner Remove existing Director/Partner Modify existing Director/ Partner
o Change in employee:
Add new employee/s Remove existing employee/s
o Change in Share-holding pattern and Promoter(s)

o Correction in the licence already issued (where there is a typographical error in the licence issued):
o Change in the level of Membership allotted by the Institute to the director(s)/partner(s)
From .......................... To ......................... (Attach soft copy of Membership certificate issued by the
Institute indicating such change/s and reasons thereof)
o Opening of branch offices/any other office by corporate surveyor

o Change in Personal information:
Phone No. (Res) ............................ Phone No. (Office): ............................... Mobile No

...............................
e-mail: ............................ Alternate e-mail: ............................
Remarks: .....................................................................................
Page 118 of 339
Signature of the director/partner Seal of the company]
APPENDIX–VII INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(APPOINTED ACTUARY) REGULATIONS, 20001
In exercise of the powers conferred by clause (zd) of sub-section (2) of section 114A of the Insurance Act, 1938 (4
of 1938), the Insurance Regulatory and Development Authority, in consultation with the Insurance Advisory
Committee, hereby makes the following regulations, namely:–
Development Authority (Appointed Actuary) Regulations, 2000.
(2) They shall come into force from the date1. of their publication in the Official Gazette.
2. Definitions—(1) In these regulations, unless the context otherwise requires—

(b) ‘Actuarial Society of India’ means Actuarial Society of India registered under Societies Registration Act,
1860 (21 of 1860);
(c) ‘Appointed Actuary’ means an actuary mentioned in Regulation 3 below;
(d) ‘Authority’ means the Insurance Regulatory and Development Authority established under sub-section (1)
(e) ‘Professional Standard’ means the standard of practice specified, with the concurrence of the Authority, by
the Actuarial Society of India by issue of guidance notes to its members.
(2) All words and expressions used herein and not defined herein but defined in the Insurance Act, 1938 (4 of
1938), or in the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall have the meanings
respectively assigned to them in those Acts.
3. Procedure for Appointment of an Appointed Actuary—(1) An insurer registered to carry on insurance

business in India shall, subject to sub-regulation (2) appoint an actuary, who shall be known as the ‘Appointed
Actuary’ for the purposes of the Act.
(2) A person shall be eligible to be appointed as an appointed actuary for an insurer, if he or she shall be—
(i) ordinarily resident in India;

2.[(ii) A Fellow Member or an Affiliate Member in accordance with the Actuaries Act, 2006 with
specialisation (as evidence by qualification and/or working experience) in:
i. Life insurance for Life insurance company/Life reinsurance company;
ii. General insurance for General insurance company/General reinsurance company;
iii. Health insurance for Stand-alone Health insurance Company/Health reinsurance company;
Provided, however, the syllabus and reading material constituting element of study for such specialization
and the requirements for issuing the certificate of practice for Appointed Actuaries shall be to the
satisfaction of the Authority.
Provided further that the existing Appointed Actuaries who does not satisfy the conditions in Regulation
2(a)(i) or 2(a)(ii) or 2(a) (iii), as applicable, shall have to qualify the respective specialization subject (s)
within a period of five years to continue to hold the position of Appointed Actuary.]
3.[(iii) an employee of the life insurer, in case of life insurance business;

(iv) a person shall be a full time employee of the General insurer in case of General Insurance business/Health
Insurance business.
Page 119 of 339
Provided further that the existing Appointed Actuaries who doesnot satisfy the conditions in Regulation
2(b), shall have to be appointed as employee within a period of two years to continue to hold the
position of Appointed Actuary.]
(v) a person who has not committed any breach of professional conduct;
(vi) a person against whom no disciplinary action by the Actuarial Society of India or any other actuarial
professional body is pending;
(vii) not an appointed actuary of another insurer;
4.[(viii)
i. A person who shall not be over the age of seventy years as on 1 December 2013; and not over age
sixty five years as on 1 December of every calendar year with effect from 01.01.2014.
ii. A person shall cease to be Appointed Actuary, once he/she attains the age of sixty five years, as the
case may be, on or after 1 December of a calendar year.
iii. In case, the person attains the age of sixty five years before 1 December of a Calendar Year, he/she
shall be allowed to continue as Appointed Actuary till 30 November of that calendar year subject to
compliance with the other provisions of the regulations.
(ix) not over the age of seventy years.
5.[(ix) A person shall have:
(i) A minimum of 10 years relevant experience and
(ii) At least 2 years of post qualified (Fellowship in the specialised subject) experience out of those 10
years of experience stated in (i) above and
(iii) Should have handled suitably responsible positions immediately prior to the application for Appointed
Actuary and
(iv) At least 2 years of recent relevant experience out of those 10 years of experience stated in (i) above, in
the respective field for which the Appointed Actuary position is being sought for.]
(3) An insurer shall seek the approval of the Authority for the appointment of appointed actuary, submitting the
application in Form IRDA-AA-1.
(4) The Authority shall, within thirty days from the date of receipt of application, either accept or reject the same.
Provided that before rejecting the application, the Authority shall give an opportunity of being heard to the insurer.
(5) If an insurer does not receive approval within thirty days of the receipt of such application by the Authority, the
insurer shall deem that the approval has been granted by the Authority.
(6) An insurer, who is unable to appoint an appointed actuary in accordance with sub-regulation (2), shall make an
application to the Authority in writing for relaxation of one or more conditions mentioned in sub-regulation 2.
(7) The Authority shall, on receipt of the application referred to in sub-regulation (6), communicate its decision to the
insurer within thirty days of receipt of such application.
(8) The appointment of an appointed actuary shall take effect from the date of approval by the Authority.
4. Effect of rejection of the application—The insurer shall, within four weeks of rejection of the application
referred to under regulation 3, apply to the Authority for the appointment of a person other than the one rejected by
it under regulation 3 as an appointed actuary, for the purposes of these regulations.
5. Life Insurance not to carry on business of insurance without an appointed actuary—A life insurer shall not
carry on business of insurance without an appointed actuary.
Page 120 of 339
6. Cessation of appointment of appointed actuary—(1) An appointed actuary shall cease to be so, if he or she
has been given notice of withdrawal of approval by the Authority on the following grounds:-
(a) that he or she ceases to be eligible in accordance with sub-regulation (2) of regulation (3), or;
(b) that he or she has, in the opinion of the Authority, failed to perform adequately and properly the duties and
obligations of an appointed actuary under these regulations.
(2) The Authority shall give an appointed actuary a reasonable opportunity of being heard, if he or she has been
given a notice of withdrawal of approval by it.
(3) If a person ceases to be an appointed actuary of an insurer otherwise than on the grounds mentioned in sub-
regulation (1), the insurer and the appointed actuary shall intimate the Authority the reasons therefor within fifteen
days of such a cessation.
7. Powers of appointed actuary—(1) An appointed actuary shall have access to all information documents in
possession, or under control, of the insurer if such access is necessary for the proper and effective performance of
the functions and duties of the appointed actuary.
(2) The appointed actuary may seek any information for the purpose of sub-regulation (1) of this regulation from any
officer or employee of the insurer.
(3) The appointed actuary shall be entitled—
(a) to attend all meetings of the management including the directors of the insurer;
(b) to speak and discuss on any matter, at such meeting —
(i) that relates to the actuarial advice given to the directors;
(ii) that may affect the solvency of the insurer;
(iii) that may affect the ability of the insurer to meet the reasonable expectations of policyholders; or
(iv) on which actuarial advice is necessary;
(c) to attend—
(i) any meeting of the shareholders or the policyholders of the insurer; or
(ii) any other meeting of members of the insurer at which the insurer’s annual accounts or financial
statements are to be considered or at which any matter in connection with the appointed actuary’s
duties is discussed.
8. Duties and obligations—In particular and without prejudice to the generality of the foregoing matters, and in the
interests of the insurance industry and the policyholders, the duties and obligations of an appointed actuary of an
insurer shall include:-
(a) rendering actuarial advice to the management of the insurer, in particular in the areas of product design
and pricing, insurance contract wording, investments and reinsurance;
(b) ensuring the solvency of the insurer at all times;
(c) complying with the provisions of the section 64V of the Act in regard to certification of the assets and
liabilities that have been valued in the manner required under the said section;
(d) complying with the provisions of the section 64VA of the Act in regard to maintenance of required solvency
margin in the manner required under the said section;
(e) drawing the attention of management of the insurer, to any matter on which he or she thinks that action is
required to be taken by the insurer to avoid—
(i) any contravention of the Act; or
(ii) prejudice to the interests of policyholders;
Page 121 of 339
(f) complying with the Authority’s directions from time to time;

(g) in the case of the insurer carrying on life insurance business—
(i) to certify the actuarial report and abstract and other returns as required under section 13 of the Act;
(ii) to comply with the provisions of section 21 of the Act in regard to further information required by the
Authority;
(iii) to comply with the provisions of section 40B of the Act in regard to the bases of premium;
(iv) to comply with the provisions of the section 112 of the Act in regard to recommendation of interim
bonus or bonuses payable by life insurer to policyholders whose policies mature for payment by reason
of death or otherwise during the inter-valuation period;
(v) to ensure that all the requisite records have been made available to him or her for the purpose of
conducting actuarial valuation of liabilities and assets of the insurer;
(vi) to ensure that the premium rates of the insurance products are fair;
(vii) to certify that the mathematical reserves have been determined taking into account the guidance notes
issued by the Actuarial Society of India and any directions given by the Authority;
(viii) to ensure that the policyholders’ reasonable expectations have been considered in the matter of
valuation of liabilities and distribution of surplus to the participating policyholders who are entitled for a
share of surplus;
(ix) to submit the actuarial advice in the interests of the insurance industry and the policyholders;
(h) in the case of the insurer carrying on general insurance business to ensure—
(i) that the rates are fair in respect of those contracts that are governed by the insurer’s in-house tariff;
(ii) that the actuarial principles, in the determination of liabilities, have been used in the calculation of
reserves for incurred but not reported claims (IBNR) and other reserves where actuarial advice is
sought by the Authority;
(i) informing the Authority in writing of his or her opinion, within a reasonable time, where,—
(i) the insurer has contravened the Act or any other Acts;
(ii) the contravention is of such a nature that it may affect significantly the interests of the owners or
beneficiaries of policies issued by the insurer;
(iii) the directors of the insurer have failed to take such action as is reasonably necessary to enable him to
exercise his or her duties and obligations under this regulation; or
(iv) an officer or employee of the insurer has engaged in conduct calculated to prevent him or her
exercising his or her duties and obligations under this regulation.
9. Absolute privilege of appointed actuary—(1) An appointed actuary shall enjoy absolute privilege to make any
statement, oral or written, for the purpose of the performance of his functions as appointed actuary. This is in
addition to any other privilege conferred upon an appointed actuary under any other Regulations.
(2) Any provision of the letter of appointment of the appointed actuary, which restricts or prevents his duties,
obligations and privileges under these regulations, shall be of no effect.
10. Applicability to re-insurance business—These regulations shall apply to reinsurers carrying on reinsurance
business in India.
6.[11. Conflicts of Interest.—The Appointed Actuary’s functions shall be in accordance with IRDA (Appointed
Actuary) Regulations, 2000 and he/she shall not function in any other capacity which could result in conflict of
interest in performing his/her role as an Appointed Actuary in accordance with the aforementioned Regulations.]
Form irda–AA-1
Particulars of Appointed Actuary

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1. Name of Insurer:
2. Name of Actuary:
3. Residential Address with telephone number: [Residential addresses during the last five years have to be
furnished]
4. Official Address with telephone number:
5. Date of Appointment:
6. Date and Place of Birth:
7. Annual Remuneration and Fringe Benefits:
8. Shareholding (in per cent of share holding) in the Indian Insurance Company (for which the applicants is
the Appointed Actuary) and also in the promoter’s companies, if any:
9. Professional qualifications:
10. Working experience (give also particulars of previous experience as Appointed Actuary in India or
elsewhere):
11. Achievements and special positions held presently or previously:
12. Names, countries of incorporation, addresses and principal activities of any other firms or companies in
which the applicant was a director, partner, proprietor or employee:
13. Particulars of any criminal conviction for offences in India or elsewhere:
14. Has the applicant been adjudicated bankrupt during the last ten years? If so, give details:
15. Has the applicant been disciplined by any professional bodies or any insurance regulator? If so, give
details:
Certification
I hereby certify that the information given in this form is complete, true and correct, and also enclose the Certificate
of Practice issued by the Actuarial Society of India.
................................
Place: ............................... Signature of Actuary
Date: ..................................
Countersigned by the principal officer of the Insurer:
APPENDIX–VIII INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(ACTUARIAL REPORT AND ABSTRACT) REGULATIONS, 2000
In exercise of the powers conferred by clause (g) of sub-section (2) section 114A of the Insurance Act, 1938, (4 of
1938), the Authority, in consultation with the Insurance Advisory Committee, hereby makes the following
regulations, namely:–
Development Authority (Actuarial Report and Abstract) Regulations, 2000.
2. Definitions—In the regulations, unless the context otherwise requires:

Page 123 of 339
of section 3 of the Insurance Regulatory and Development Authority Act 1999 (41 of 1999);
(c) ‘extra premium’ means a charge for any risk not provided for in the minimum contract premium;
(d) ‘group business’ means those insurance contracts which are group policies as mentioned under sub-s (2)
of s 4 of the Act;
(e) ‘guarantees’ means the terms in regard to benefits or premiums or charges, which may not be altered
during the currency of the policy;
(f) ‘individual business’ means individual insurance contracts issued on single/joint lives;
(g) ‘inter valuation period’ means, as respects any valuation, the period to the valuation date of that valuation
from the valuation date of the preceding valuation in connection with which an abstract was prepared under
the Act or under the enactments repealed by the Act, or, in a case where no such valuation has been made
in respect of the class of business in question, from the date on which the insurer began to carry on that
class of business;
(h) ‘maturity date’ means a fixed date on which benefit may become payable either absolutely or contingently;
(i) ‘non-par policies’ or ‘policies without participation in profits’ means policies which are not entitled for any
share in surplus (profits) during the term of the policy;
(j) ‘office yearly premium’ means regular premium (excluding extra premiums which are required to be shown
separately) payable by the policyholder to secure the basic benefits under the policy in a policy year;
(k) ‘options’ means the rights available to a policyholder under a policy;
(l) ‘par policies’ or ‘policies with participation in profits’ means policies which are not non-par policies as
defined under clause (i);
(m) ‘policies with deferred participation in profits’ means policies entitled for participation in profits after a
certain period from the date of commencement of the policy;
(n) ‘premium term’ means the period during which premiums are payable;
(o) ‘riders’ or ‘rider benefits’ means add-on benefits, which are in addition to basic benefits under a policy;
(p) ‘valuation date’ means as respects any valuation the date as at which the valuation is made;
(q) all words and expressions used herein and not defined but defined in the Insurance Act, 1938 (4 of 1938),
or in the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), or in any Rules or
Regulations made thereunder shall have the meanings respectively assigned to them in those Acts or
Rules or Regulations.
3. Procedure for preparation of Actuarial Report and Abstract—(1) The Abstract and Statements must be so
arranged that the number and letters of the paragraphs correspond with Regulation 4.
(2) The Abstracts and Statements shall be furnished to the Authority, within nine months from the end of the period
to which they refer to, in accordance with sub-s (1) of s 15 of the Act.
(3) Four copies of the Abstracts and Statements shall be furnished to the Authority in accordance with sub-section
(1) of section 15 of the Act, and one of the four copies so furnished shall be signed by the persons as mentioned in
sub-section (2) of section 15 of the Act.
(4) There shall be appended to every such Abstract and Statement—
(a) a certificate signed by the principal officer that full and accurate particulars of every policy under which
there is a liability, either actual or contingent, has been furnished to the appointed actuary for the
investigation; and
(b) a certificate signed by the appointed actuary with his remarks, if any, to the effect that:–
(i) the data furnished by the principal officer has been included in conducting the valuation of liabilities for
the purpose of investigation;
(ii) reasonable steps have been taken to ensure the accuracy and completeness of the data;
Page 124 of 339
(iii) he has complied with provisions of the Act;

(iv) he has complied with guidance notes issued by the Actuarial Society of India with the concurrence of
the Authority;
(v) in his opinion, the mathematical reserves are adequate to meet the insurer’s future commitments under
the contracts, and the policyholders’ reasonable expectations.
4. Requirements applicable to Abstract and Statements—(1) Abstracts and statements shall be prepared
separately in respect of—
(a) Linked Business;

(b) Non-linked Business; and
(c) Health Insurance Business
(2) An insurer shall prepare the following statements which shall be annexed to the abstract prepared in accordance
with these regulations, namely:—
(a) in respect of Linked Business,—

(i) (Form) LB-1;
(ii) Form LB-2;
(iii) Form LB-3;
(iv) Form LB-4;
(v) Form IA;
(b) in respect of Non-Linked Business,—
(i) (Form) NLB-1;
(ii) Form NLB-2;
(iii) Form DD;
(iv) Form DDD;
(v) Form DDDD;
(vi) Form 1A;
(c) in respect of Health Insurance Business,—
(i) (Form) LB-1;
(ii) Form LB-2;
(iii) Form LB-3;
(iv) Form NLB-1;
(v) Form IA.
(d) Summary statements,—
(i) Form K;
(ii) Form IRDA-AA as specified under Regulation 4 of Insurance Regulatory and Development Authority
(Assets, Liabilities, and Solvency Margin of Insurers) Regulations, 2000;
(iii) Form H;
(iv) Form I;
(v) Statement of Composition and Distribution of surplus in respect of policyholders’ fund as specified
under Regulation 8;
(3) Each Abstract shall show—

Page 125 of 339
(a) The Valuation Date—The date on which valuation (investigation) is done;

(b) New Products—A brief description of new products introduced during the inter-valuation period giving
salient features;
(c) Foreign Operations—A brief description of the foreign operations of the insurer, during the inter-valuation
period;
(d) Valuation Method—A brief description of—
(i) the methods adopted in the determination of mathematical reserves in respect for insurance products;
(ii) the method by which age at entry, premium term, maturity date, valuation age, period from the
valuation date to the maturity date, have been treated for the purpose of valuation;
(iii) the method of allowing for—
(I) incidence of premium income; and
(II) premiums payable otherwise than annually;
(e) Valuation bases—(i) Valuation parameters used in the valuation shall be furnished in the manner as
specified in the table hereunder—
Page 126 of 339
Descriptio Mortality Morbidity Inflation Interest Expenses Future Others Remarks

n basis used basis used Rate Rate bonuses, if please
any specify
(1) (2) (3) (4) (5) (6) (7) (8) (9)
(a)
Insurance
Product:
(i) Regular
premium
(ii) Single
premium
and Fully
paid up
(iii)
Reduced
paid up
(b)
Insurance
Product:
(i) Regular
premium
(ii) Single
premium
and Fully
paid up
(iii)
Reduced
paid up
Page 127 of 339
(ii) Expenses related to premiums, sum assured, annuity, etc, and per policy shall be specified separately
under Column (5) of the table;
(iii) Items such as terminal bonus, in case of with profit contracts, management charges, etc, in respect of
linked business, shall be specified under Column (8) of the table;
(f) Other Adjustments (Provisions)—The methods by which provision, if any, has been made for the following
matters, including a statement of bases wherever necessary—
(i) Policies in respect of which extra premiums have been charged on account of underwriting of under-
average lives that are subject to extra risks such as occupation hazard, over-weight, under-weight,
smoking history, health, climatic or geographical conditions;
(ii) Lapsed policies not included in the valuation but under which a liability exists or may arise;
(iii) Options available under individual and group insurance policies;
(iv) Guarantees available to individual and group insurance policies;
(v) The rates of exchange at which benefits in respect of policies issued in foreign currencies have been
converted into Indian Rupees and what provision has been made for possible increase of mathematical
reserves arising from future variations in rates of exchange;
(g) Further Information—The following information shall be appended—
(i) Returns on Assets as specified under Regulation 5;
(ii) Distribution of surplus as specified under Regulation 6;
(iii) Principles adopted in distribution of surplus as specified under Regulation 7;
(iv) Negative Reserves and Guaranteed Surrender Value Deficiency Reserves as specified under
Regulation 9;
(v) Miscellaneous, if any.
5. Returns on assets—(1) The average gross rates of interest yielded by the assets may be determined
expressing the investment income as percentage of the mean fund [i = 2xI /(A + B - I); where i is the gross yield; I =
Investment Income; A = the assets at the beginning of the financial year, and B = the assets at the end of the
financial year; Investment Income (shown in the Revenue Account) should include the amount of the unrealised
gain taken into revenue account, A and B have to be adjusted value of assets shown in the Balance Sheet].
(2) The average gross rates of interest, referred to under sub-regulation (1), shall be furnished for each fund
maintained by an insurer.
6. Distribution of surplus—The basis adopted in the distribution of surplus as between the shareholders and the
policyholders, and whether such distribution was determined by the instruments constituting the company, or by its
regulations or by-laws or how otherwise shall be mentioned.
7. Principles adopted in distribution of profits—The general principles adopted in distribution of profits among
policyholders, tracts including statements on following points, shall be furnished:—
(i) Whether the principles were determined by instruments constituting the insurer, or by its regulations or by-
laws or how otherwise;
(ii) The number of years premium to be paid, period to elapse and other conditions to be fulfilled before a
bonus is allotted;
(iii) Whether the bonus is allocated in respect of each year’s premium paid, or in respect of each calendar year
or year of assurance or how otherwise; and
(iv) Whether the bonus vests immediately on allocation, or, if not, conditions of vesting.
8. Statement of composition of surplus and distribution of surplus in respect of policyholders’ funds—(1) A

statement, showing total amount of surplus arising during the inter-valuation period, and the allocation of such
Page 128 of 339
surplus, shall be furnished separately for participating business and for non-participating business, with the
particulars as mentioned below:–
Composition of Surplus:
(a) Surplus shown under Form I;

(b) Interim Bonuses paid during the inter-valuation period;
(c) Terminal Bonuses paid during the inter-valuation period;
(d) Loyalty Additions or other forms of bonuses, if any, paid during the inter-valuation period;
(e) Sum transferred from shareholders’ funds during the inter-valuation period;
(f) Amount of surplus, from policyholders’ funds, brought forward from preceding valuation;
(g) Total Surplus [total of the items (a) to (f)].
Distribution of Surplus:
Policyholders’ Fund:
(a) To Interim Bonuses paid;

(b) To Terminal Bonuses;
(c) To Loyalty Additions or any other forms of bonuses, if any;
(d) Among policyholders with immediate participation giving the number of policies which participated and the
sums assured thereunder (excluding bonuses);
(e) Among policyholders with deferred participation, giving the number of policies which participated and the
sums assured thereunder (excluding bonuses);
(f) Among policyholders in the discounted bonus class giving the number of policies which participated and
the sums assured thereunder (excluding bonuses);
(g) To every reserve fund or other fund or account (any such sums passed through the accounts during the
inter-valuation period to be separately stated);
(h) As carried forward un-appropriated. Shareholders’ Fund:
(i) To the shareholders’ funds (any such sums passed through the accounts during the inter-valuation period
to be separately stated);
Totals:
(j) Total Surplus allocated: [total of the items (a) to (i)].
(2) Specimen of Bonuses allotted to policies for one thousand rupees together with the amounts apportioned under
the various manners in which the bonus is receivable, for each type of participating product, shall be furnished.
9. Negative reserves and guaranteed Surrender Value Deficiency Reserves—A brief description of treatment
adopted for negative reserves and guaranteed surrender value deficiency reserves shall be furnished.
10. Notes applicable to all Forms—(1) Each Form mentioned under sub-regulation (2) of Regulation 4 shall have
the following description:-
Classification;
Category;
Division;
Page 129 of 339
Sub-Class; and
Group.
(2) There shall be two Classifications, namely, Business within India, and Total Business (consisting of Business
within India and Business outside India), with Classification Codes 1 and 2 respectively.
(3) There shall be three Categories namely, Linked Business; Non-Linked Business and Health Insurance
Business, with Category Codes 1, 2 and 3 respectively, under each Classification;
(4) There shall be two Divisions, namely, Individual Business and Group Business, with Division Codes 1 and 2
respectively, under Category Codes 1, 2 and 3.
(5) There shall be three sub-classes, namely, Life Business, General Annuity, and Pension, with sub-class codes 1,
2 and 3 respectively, under Category Codes 1 and 2, and two Sub-Classes, namely, Linked Business, Non-Linked
Business, with Sub-Class Codes 1 and 2 respectively, under Category Code 3.
(6) There shall be four Groups under each sub-class, with Group Codes as specified under sub-regulation (7).
(7) The details of Group Codes under each Category shall be as follows:-
(a) Category Code 1–Linked Business—consisting of Insurance Products,—

(1) in respect of Division Code 1–Individual Business; and under each Sub-Class Code—
Group Code
(i) with guarantees—with participation in profits: A;
(ii) with no guarantees—with participation in profits: B;
(iii) with guarantees—without participation in profits: C;
(iv) with no guarantees—without participation in D;

profits:
(2) in respect of Division Code 2–Groups Business, and under each Sub-Class Code—
(iv) with no guarantees—without participation in profits: D;
(b) Category Code 2–Non-Linked Business—consisting of Insurance Products—

(1) in respect of Division Code 1–Individual Business,—
Group Code
(I) Sub-Class Code 1–Sub-Class–Life Business;

Page 130 of 339
(i) with participation in profits: A;
(ii) with deferred participation in profits: B;
(iii) under discounted Bonus system: C;
(iv) without participation in profits: D;
(II) Sub-Class Codes 2, 3–Sub-Class–General Annuity/Pension, as the case may be—
(i) Immediate Annuities with participation in profits: A;
(ii) Immediate Annuities without participation in profits: B;
(iii) Deferred Annuities with participation in profits: C;
(iv) Deferred Annuities without participation in profits: D;
(2) in respect of Division Code 2–Group Business,—

(I) Sub-Class Code 1–Sub-Class–Life Business, where—
(i) Premiums are guaranteed for not more than one year—
(a) with participation in profits: A;
(b) without participation in profits: B;
(ii) Premiums are guaranteed for more than one year:-
(a) with participation in profits: C:
(b) without participation in profits: D:
(II) Sub-Class Codes 2, 3–Sub-Class–General Annuity/Pension, as the case may be,—
(i) Immediate Annuities with participation in profits: A;
(ii) Immediate Annuities without participation in profits: B;
(iii) Deferred Annuities with participation in profits: C;
(iv) Deferred Annuities without participation in profits: D;
(c) Category Code 3–Health Insurance Business—consisting of Insurance Products:

(1) in respect of Division Code 1–individual Business,—
(I) Sub-Class Code 1–Linked Business,—

Page 131 of 339
(iv) with no guarantees—without participation in profits: D;
(II) Sub-Class Code 2–Non-Linked Business:—
(i) without participation in profits: A;
(ii) with deferred participation in profits: B;
(iii) under discounted Bonus system: C;
(iv) under participation in profits: D;
(2) in respect of Division Code 2–Group Business,

(I) Sub-Class Code 3–Linked Business:–
Group Code
(iv) with no guarantees—without participation in D;

profits:
(II) Sub-Class Code 4–Non-Linked Business—

(i) Premiums are guaranteed for not more than one year:–
(a) with participation in profits: A;
(b) without participation in profits: B;
(ii) Premiums are guaranteed for more than one year:–
(a) with participation in profits: C;
(b) without participation in profits: D;
(8) ‘Nil’ Statements shall be furnished for those Forms where the insurer has no transactions.
(9) Information relating to insurance products shall be given in Forms in the following order of insurance products,
wherever required:-
Whole Life Assurances,
Endowment Assurances,
Anticipated Endowment Plants (Money Back Plans),

Page 132 of 339
Pure Endowments,
Double Endowments,
Term Insurance Contracts and
Others (specifying each).
(10) All figures shall be furnished in thousands and all amounts shall be furnished in Indian rupees.
(11) In respect of Group Business; ‘the number of policies’ in Forms, wherever applicable, shall be read as ‘number
of schemes’.
(12) Rider Benefits shall be furnished in Forms, wherever required, in the order of (a) Accident Cover double, triple;
(b) Disability Covers, (c) Dread Disease Covers and (d) Others (specifying each).
(13) Other Adjustments, shall be furnished in Forms; wherever necessary, for instance, Provisions for Deaths due
to AIDS.
FORM DD
(See Regulation 4)
Insurance Regulatory and Development Authority (Actuarial Report and Abstract) Regulations, 2000
Classified Statement of Life Insurance Policies for the Year Ended 31st March 20.............
(Direct Business plus reinsurance accepted, if any)

Page 133 of 339
New Business transacted during the year Total business in force at the end of the year,
Item- No Descripti Number Number Sums Annuity Premium Single Number Number Sum Annuity Vested
on of of lives Assured pa Premium of of lives Assured pa Bonus
policies s policies
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
01 Total
Before
Reinsura
nce:
(a)
Regular
Premium
Contracts
;
(b) Single
Premium
Contracts
;
(c) Other
02 Reinsura
nce
Ceded
(a)
Regular
Premium
Contracts
;
(b) Single
Premium
Contracts
;
(c) Other
03 Total
After
Reinsura
Page 134 of 339
New Business transacted during the year Total business in force at the end of the year,
Item- No Descripti Number Number Sums Annuity Premium Single Number Number Sum Annuity Vested
on of of lives Assured pa Premium of of lives Assured pa Bonus
policies s policies
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
nce:
(a)
Regular
Premium
Contracts
;
(a) Single
Premium
Contracts
;
(c) Other
Page 135 of 339
Notes to Form DD—
1. All figures must be furnished in thousands;

2. In respect of Group Business, number of group schemes shall be furnished under the column: ‘number of
policies’.
3. ‘Premium’ refers to Annualised Premium.
4. ‘Single Premium’ includes consideration for immediate or deferred annuities and all other premiums paid at
the outset of the contracts and no subsequent premium is payable.
5. Col [Item (c)]—‘Other’ includes Paid up and Fully paid up contracts where no Premium is payable in future.
FORM DDD
(See Regulation 4)
Additions to and Deletions from Policies for the Year Ended 31st March 20.............
Item No Description Number of Sum Assured Annuity pa Reversionary

Policies bonus additions
(1) (2) (3) (4) (5) (6)
01 Policies at the
beginning of the
year
02 Additions
during the year:
New Policies
issued
03 Old Policies
reinstated
04 Old Policies
revived
05 Old Policies
changed and
increased
06 Bonus additions
allotted
07 Total (Sum of
items 01 to 06)
08 Deletions
during the year
By death
Page 136 of 339
09 By survivance or
the happening of
contingencies
insured against
other than death
10 By expiry of term
under temporary
insurance
11 By surrender of
policy
12 By surrender of
bonus
13 By forfeiture or
lapse
14 By revivals of old
policies
15 By change and
decrease
16 By being not
taken up
17 Total
discontinued:
(Sum of items 08
to 16)
18 Total existing at
the end of the
year:[(07)–(17)]
Notes to Form DDD—
1. All figures must be furnished in thousands;

2. In respect of Group Business, number of group schemes shall be furnished under the column: ‘number of
policies’;
3. All amounts stated shall be total gross amounts without taking into account of re-insurances ceded or
accepted.
FORM DDDD
(See Regulation 4)
Particulars of Policies Forfeited or Lapsed in the last year under Review and of Policies Revived and Reinstated for
full benefits Classified According to the year in which they were issued— for the Year Ended 31st March,
20.............
Page 137 of 339
Page 138 of 339
Item No. Year in which POLICIES FORFEITED/LAPSED POLICIES REVIVED AND REINSTATED FOR FULL
policies were BENEFITS
issued
Number of Sum Assured Annuity pa Number of Sum Assured Annuity pa

Policies Policies
(1) (2) (3) (4) (5) (6) (7) (8)
01 Year
ending....being
the year under
review
02 Year
ending....being
the year previous
to that under
review
03 Year
ending....being
the year previous
to that under
review
04 Year
ending....being
the year previous
to that under
review
05 Year
ending....being
the year previous
to that under
review
06 Year
ending....being
the year and
earlier
Page 139 of 339
Notes to Form DDDD—
1. All figures must be furnished in thousands.

2. All amounts stated shall be total gross amounts without taking into account of re-insurance ceded or
accepted.
3. For Col (2), for instance, valuation date is 31 March 2001. Item 01 should relate to the year ending on 31
March 2001. Item 02 should relate to the year ending of 31 March 2000. Item 03 should relate to the year
ending on 31 March 1999, and so on. Item 06 should relate to the year ending on 31 March 1996 and
earlier.
FORM NLB–1
(See Regulation 4)
Particulars of Policies and Valuation details as at 31st March, 20.............
(Direct Business plus reinsurance accepted less re-insurance ceded)

Page 140 of 339
Particulars of Policies Valuation Details
Item Descri Numb Numb Sums Annuit Veste Office Sum Veste Annuit Future Future Termi Cost Office Mathe
No ption er of er of Assur y pa d Yearly Assur d y pa Expen Bonus nal of Yearly matica
policie lives ed Bonus Premi ed Bonus ses es Bonus bonus Premi l
s es um es es es um Reser
allocat ves
ed
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
01 (a)
Insur
ance
Produ
ct:
(i)
Regul
ar
Premi
um
(ii)
Single
Premi
um
(iii)
Fully
paid
up
(iv)
Reduc
ed
paid
up
(b)
Insur
ance
Produ
cts:
Page 141 of 339
(i)
Regul
ar
Premi
um
(ii)
Single
Premi
um
(iii)
Fully
paid
up
(iv)
Reduc
ed
paid
up
02 Rider
Benefi
ts,
specif
y........
03 Other
adjust
ments
,
specif
y
04 Total
befor
e
Reins
uranc
e
05 Re-
insura
Page 142 of 339
nce
ceded
06 Total
after
Reins
uranc
e
Page 143 of 339
Notes to Form NLB–1— 1. All figures should be in thousands.
2. Col(17) = Col(9) + Col(10) + Col(11) + Col(12) + Col(13) + Col(14) + Col(15) – Col(16).
FORM NLB–1
(See Regulation 4)
Summary and Valuation of Policies as at 31st March, (20.............)
(Direct Business plus reinsurance accepted, if any, less reinsurance ceded)

Page 144 of 339
Numb Sub- Descr Numb Numb Sums Annui Veste Office Sum Veste Annui Futur Futur Termi Cost Office Mathe
er of class iption er of er of Assur ty pa d Yearl Assur d ty pa e e nal of Yearl matic
polici polici lives ed Bonu y ed Bonu Expe Bonu Bonu bonus y al
es. es ses Premi ses nses ses ses es Premi Reser
um alloca um ves
ted
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
01 Life INDIV
Busin IDUA
ess L
BUSI
NESS
Befor
e
Reins
uranc
e
02 After
Reins
uranc
e
03 Gener Befor
al e
Reins
uranc
e
04 Annui After
ty Reins
uranc
e
05 Pensi Befor
on e
Reins
uranc
e
Page 145 of 339
06 After
Reins
uranc
e
07 Life GRO
Busin UP
ess BUSI
NESS
Premi
ums
Guara
nteed
for
not
more
than
one
year:
Befor
e Re-
insura
nce
08 After
Re-
insura
nce
09 Premi
ums
Guara
nteed:
for
more
than
one
year
Befor
e Re-
insura
nce
10 After
Page 146 of 339
Re-
insura
nce
11 Gener Befor
al e Re-
insura
nce
12 Annui After
ty Re-
insura
nce
13 Pensi Befor
on e Re-
insura
nce
14 After
Re-
insura
nce
15 After
Re-
insura
nce
16 Totals Befor
e Re-
insura
nce
17 After
Re-
insura
nce
Page 147 of 339
Notes to Form NLB-2—1. All figures should be in thousands.
2. Col (17) = Co l(19) + Col (10) + Col (11) + Col (12) + Col (13) + Col (14) + Col (15) – Col (16).
FORM LB-1
(See Regulation 4)
IRDA (Actuarial Report and Abstract) Regulations, 2000
Particulars of Policies and Valuation details as at 31st March, 20.............
(Direct Business plus reinsurance accepted less reinsurance ceded)

Page 148 of 339
Particulars of Policies Valuation

Details
Item No Descripti Number Number Benefits payable on death, Office Unit Non Unit Cost of Mathemat
on of of lives maturity or otherwise Yearly Liabilities Liabilities Bonuses ical
policies On Death On Other Premium allocated Reserves
Maturity than (5) &
(6)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
01
(a) In
s
u
ra
n
c
e
P
r
o
d
u
ct
:
(i) R
e
g
u
l
a
r
P
r
e
m
i
u
m
(ii) S
i
Page 149 of 339

Details
Maturity than (5) &
(6)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
n
g
l
e
P
r
e
m
i
u
m
(iii) F
u
l
l
y
p
a
i
d
u
p
(iv) R
e
d
u
c
e
d
Page 150 of 339

Details
Maturity than (5) &
(6)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
p
a
i
d
u
p
(b) In
s
u
ra
n
c
e
P
r
o
d
u
ct
s:
(i) R
e
g
u
l
a
r
P
r
Page 151 of 339

Details
Maturity than (5) &
(6)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
e
m
i
u
m
(ii) S
i
n
g
l
e
P
r
e
m
i
u
m
(iii) F
u
l
l
y
p
a
i
d
u
p
Page 152 of 339

Details
Maturity than (5) &
(6)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
(iv) R
e
d
u
c
e
d
p
a
i
d
u
p
02 Rider
Benefits,
03 specify
04 .............
05 Other
adjustmen
06 ts, specify
Total
before
Reinsuran
ce
Deduct
Page 153 of 339

Details
Maturity than (5) &
(6)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Reinsuran
ceceded
Total after
Reinsuran
ce
Page 154 of 339
Notes to Form LB-1:
1. All figures should be in thousands.

2. Col(12) = Col (9) + Col (10) + Col (11)
FORM LB-2
(See Regulation 4)
Statement of Net Asset Values for the Segregated Funds Maintained by the Insurer for its Linked Business for the
Financial Year Ended 31st March, 20.............
Page 155 of 339
Item No Description Segregated Fund Segregated Fund Segregated Fund ........ Total
1 2 3
(1) (2) (3) (4) (5) (6) (7)
01 Fund brought
forward from last
02 year
03 Value of creation of
units
04
Increase (decrease)
05 in value of
investments in the
06 financial year
Other income
Total income (Sum

01 to 04)
Value of
cancellation of units
07 Management
charges
08
Tax paid
09
Other expenditure
10
Increase (decrease)
11 in provisions
12 Total expenditure
(Sum 06 to 10)
13
Fund carried toward
14
Total Number of
Units:
Net Asset Value per

Unit
Page 156 of 339
Notes to Form LB-2:
1. All items must be in thousands 7;

2. Items under Col (3), Col(4), Col(5), Col(6), etc must be brought forward from the annual accounts of the
company.
FORM LB-3
(See Regulation 4)
IRDA (Actuarial Report and Abstract) Regulations, 2000
Statement of Analysis of Units in Segregated Funds as at 31st March, 20.............

Page 157 of 339
Item Description Number of Units in Total

Segregated Fund Segregated Fund Segregated Fund .....
1 2 3
1 2 3 4 5 6 7
01 (a) Insurance
Product:
02 (b)
03 (c)
04 (d)
05 Total
Page 158 of 339
FORM LB-4
(See Regulation 4)
Summary and Valuation of Policies on at 31st March, 20.............
(Direct Business plus reinsurance accepted less reinsurance ceded)

Page 159 of 339

Item No Descript Number Number Benefits payable on death, Office Unit Non Unit Cost of Mathem
ion of of lives maturity or otherwise Yearly Liabilitie Liabilitie Bonuse atical
policies On On Other Premiu s s s Reserve
Death Maturity than (5) m allocate s
& (6) d
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (
1
3
)
01 Life Individua
Business l
Business
With
Guarante
es:
Before
Re-
insuranc
e
02 After Re-
insuranc
e
03 Without
Guarante
es:
Before
Reinsura
nce
04 After
Reinsura
nce
05 General With
Annuity Guarante
es:
Before
Reinsura
nce
Page 160 of 339

& (6) d
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (
1
3
)
06 After
Reinsura
nce
07 Without
Guarante
es:
Before
Reinsura
nce
08 After
Reinsura
nce
09 Pension With
Guarante
es:
Before
Reinsura
nce
10 After
Reinsura
nce
11 Without
Guarante
es:
Before
Reinsura
nce
Page 161 of 339

& (6) d
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (
1
3
)
12 After Re-
insuranc
e
13 Life Group
Business Business
With
Guarante
es:
Before
Reinsura
nce
14 After
Reinsura
nce
15 Without
Guarante
es:
Before
Reinsura
nce
16 After
Reinsura
nce
17 General With
annuity Guarante
es:
Before
Reinsura
Page 162 of 339

& (6) d
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (
1
3
)
nce
18 After
Reinsura
nce
19 Without
Guarante
es:
Before
Reinsura
nce
20 After
Reinsura
nce
21 Pension With
Guarante
es:
Before
Reinsura
nce
22 After
Reinsura
nce
23 Without
Guarante
es:
Before
Reinsura
Page 163 of 339

& (6) d
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (
1
3
)
nce
24 After
Reinsura
nce
Page 164 of 339
Notes to Form LB-4:
Col (13) = Col (10) + Col (11) + Col (12).
FORM IA
(See Regulation 4)
Valuation Result as at 31st March, 20.............

Page 165 of 339
Item No Description Balance of Fund Mathematical Surplus Negative Reserves Surrender Value
shown in Balance Reserves Deficiency
Sheet (excluding cost of Reserves
bonuses
allocated)
(1) (2) (3) (4) (5) (6) (7)
01 Business within
India: Par Policies
02 Non-par Policies
03 Total
04 Total Business Par

Policies
05 Non-par Policies
06 Total
Page 166 of 339
Notes to Form 1A:

2. Col (5) = Col (3) – Col (4).
FORM H
(See Regulation 4)
Summary of Valuation as at 31st March, 20.............
Item No Category of business Mathematical Reserves (inclusive

of cost of bonuses allocated)
(1) (2) (3)
01 Business within India: Linked
Business
02
Non-Linked Business
03
Health Insurance Business
04
Total
05
Total Business: Linked Business
06
Non-Linked Business
07
Health Insurance Business
08
Total
Notes to Form H:

2. Mathematical reserves in Col (3) shall be furnished inclusive of cost of bonuses allocated.
FORM I
(See Regulation 4)
Valuation Result as at 31st March, 20.............

Page 167 of 339
Item No Description Balance of Fund Mathematical Surplus Negative Reserves Surrender Value
shown in Balance reserves Deficiency
Sheet (excluding cost of Reserves
bonuses
allocated)
(1) (2) (3) (4) (5) (6) (7)
01 Business within
India: Par Policies
02 Non-par Policies
03 Totals
04 Total Business Par

Policies
05 Non-par-Policies
06 Totals
Page 168 of 339
Notes to Form I:

2. Col (5) = Col (3) – Col (4).
FORM K
(See Regulation 4)
Statement of Solvency Margins: Life Insurers
TABLE I—Required Solvency Margin Based on Mathematical Reserves and Sum at Risk
Page 169 of 339
Item No Descriptio Mathemati Mathemati K1 Sum at Sum at K2 First Second Required

n cal cal Risk Risk after Factor Factor Solvency
Reserves Reserves before Reinsuran Margin
before Re- after Re- Reinsuran ce
insurance insurance ce
1 2 3 4 5 6 7 8 9 10 11
Category:
Non-Linked
Division-
Individual:
01 Sub-Class-
Life
Business
02 Sub-Class-
General
Annuity
03 Sub-Class-
Pension
Division:
Group
Business:
Sub-Class:
Life
Business:
04 (a)
Premiums
guaranteed
for not
more than
one year
05 (b)
Premiums
guaranteed
for more
than one
year
06 Sub-class:
General
Page 170 of 339

1 2 3 4 5 6 7 8 9 10 11
Annuity
07 Sub-class:
Pension
Category:
Linked
Division-
Individual:
Sub-Class-
Life
Business
08 (a) with
guarantees
09 (b) without
guarantees
Sub-Class-
General
Annuity
10 (a) with
guarantees
11 (b) without
guarantees
12 Sub-Class-
Pension
13 (a) with
guarantees
(b) without
guarantees
Division:
Group
Business:
Page 171 of 339

1 2 3 4 5 6 7 8 9 10 11
Sub-class-
Life
Business
14 (a) with
guarantees
15 (b) without
guarantees
Sub-Class
General
Annuity
16 (a) with
guarantees
17 (b) without
guarantees
Sub-Class-
pension
18 (a) with
guarantees
19 (b) without
guarantees
Category:
Health
Insurance
Division
Individual:
Sub-Class
Linked
20 (a) with
guarantees
21 (b) without
Page 172 of 339

1 2 3 4 5 6 7 8 9 10 11
guarantees
Sub-Class
Non-Linked
22 Sub-Class
Linked
23 (a) with
guarantees
24 (b) without
guarantees
Sub-class-:
Non-Linked
25 (a)
Premiums
guaranteed
for not
more than
one year
26 (b)
Premiums
guaranteed
for more
than one
year
27 Total
Page 173 of 339
Notes to Form K:
1. K1 = 0.85* or (Mathematical Reserve after Re-insurance/Mathematical Reserves before reinsurance),

whichever is higher, [*0.50 in case of reinsurers, carrying on life insurance-business];
2. K2 = 0.5 or (Sum at Risk after re-insurance/Sum at risk before re-insurance), whichever is higher;
3. Col (11) = [Co l(3) • Col (5) • Col (9)] + [Col (6) • Col (8) • Col (10)];
4. In the computation of the total sum at risk, ignore the contracts for which the sum at risk is a negative figure
or does not exist;
5. Details of first and second factors:
Item First Factor Second Factor

Non-Linked
Business:
Individual Business:
01 Life Business 4% 0.3%
02 General Annuity 4% 0%
03 Pension 4% 0%
04 Health 4% 0%
Group Business:
Life Premiums guaranteed for
05 not more than one 1% 0.2%

year
06 more than one year 3% 0.3%
07 General Annuity 4% 0%
08 Pension 4% 0%
Linked Business:
Life Business—
11 With Guarantees 2% 0.2%
12 Without Guarantees 1% 0.3%
General Annuity
13 With Guarantees 2% 0%
14 Without Guarantees 1% 0%
Pension
Group Business:
Page 174 of 339
Item First Factor Second Factor

Life Business—
15 With Guarantees 2% 0.3%
16 Without Guarantees 1% 0.2%
General Annuity
Pension
Health Insurance:
Linked Business
23 Non-Linked 4% 0%
Business
Group Business:
Linked
Non-Linked
26 Premiums 1% 0%
Guarantees for not
more than year
27 Premiums 3% 0%
Guarantees for more
one than year
Table II—Required Solvency Margin Based on Assets of Policyholders’ Fund
Item No Category of Notes Amount (see Third Factor % Required

Asset Notes Solvency
below).Rs. Margin
(1) (2) (3) (4) (5) (6)
Non-Mandated
investments
Corporate Bonds
Page 175 of 339
Item No Category of Notes Amount (see Third Factor % Required

Asset Notes Solvency
below).Rs. Margin
(1) (2) (3) (4) (5) (6)
01 AAA or
equivalent
02 AA or equivalent
03 A or equivalent
04 BBB or
equivalent
05 BB or equivalent
06 B or equivalent
07 Lower than B
08 Unrated
Mortgages
09 Residential
10 Commercial
Real estate
11 Residential
12 Commercial
Preference
Shares
13 Listed
Preference
Shares
14 Unlisted
Preference
Equity
15 Listed Ordinary
Shares
16 Unlisted
Ordinary Shares
17 Total
Notes:
1. Col (5) = Col (3)* Col (4);

2. Col (4) = zero until further intimation from the Authority;
3. The Table should show the Amount in Column (3) (which is balance sheet value in respect of the above
mentioned category of asset [where the balance sheet is prepared in accordance with Insurance
Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of
Insurance Companies) Regulations, 2000.]
4. All the figures in Column (3) and (5) should be in Indian Rupees lakhs.
Page 176 of 339
Table III—Available Solvency Margin and Solvency Ratio
Item No Description Notes No. Adjusted Value

(1) (2) (3) (4)
01 Available Assets in
Policyholders’ Fund:
Deduct:
02 Mathematical Reserves
03 Other Liabilities
04 Excess in Policyholders’
funds (01–02–03)
Shareholders’ Fund:
Deduct:
06 Other Liabilities of
Shareholders’ Fund
07 Excess in Shareholders
Funds (05–06)
08 Total ASM (04) + (07)
09 Total RSM
10 Solvency Ratio
(ASM/RSM)
Certification
I, .................... the Appointed Actuary; certify that the above statements have been prepared in accordance with the
section 64VA of the Insurance Act, 1938, and the amounts mentioned therein are true and fair to the best of my
knowledge.
Place: Name and Signature of Appointed Actuary

Date:
Notes:
1. Item No. 01 shall be the amount of the Adjusted Value of Assets as mentioned in Form IRDA-Assets—AA
as specified under Schedule I of Insurance Regulatory and Development Authority (Assets, Liabilities and
Solvency Margin of Insurers) Regulations, 2000;
2. Item No. 02 shall be the amount of Mathematical Reserves as mentioned in Form H;
3. Item No. 03 and 06 shall be the amount of other liabilities as mentioned in the Balance Sheet;
4. Items No. 05 shall be the amount of the Total Assets as mentioned in Form IRDA-Assets—AA as specified
under Schedule I of Insurance Regulatory and Development Authority (Assets, Liabilities and Solvency
Margin of Insurers) Regulations, 2000.
Page 177 of 339
APPENDIX–IX INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(OBLIGATIONS OF INSURERS TO RURAL OR SOCIAL SECTORS) REGULATIONS, 20021.
F. No. IRDA/Reg./10/2002.—In exercise of the powers conferred by section 32C, read with section 32B of the
Insurance Act, 1938 (4 of 1938), the Authority, in consultation with the Insurance Advisory Committee, hereby
makes the following regulations to substitute the Insurance Regulatory and Development Authority (Obligations of
Insurers to Rural or Social Sectors) Regulations, 2000, namely:—
Development Authority (Obligations of Insurers to Rural or Social Sectors) Regulations, 2002.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. Definitions—In these regulations, unless the context otherwise requires—
(a) “Act” means the Insurance Act, 1938 (4 of 1938);

(b) “Authority” means the Insurance Regulatory and Development Authority established, under the provisions
2.[(c) “Rural Sector” means the places or areas classified as ‘rural’ while conducting the latest decennial
population census (Census of India).]
(d) “Social sector” includes unorganised sector, informal sector, economically vulnerable or backward classes
and other categories of persons, both in rural and urban areas;
(e) “Unorganised sector” includes self-employed workers such as agricultural labourers, bidi workers, brick kiln
workers, carpenters, cobblers, construction workers, fishermen, hamals, handicraft artisans, handloom and
khadi workers, lady tailors, leather and tannery workers, papad makers, powerloom workers, physically
handicapped self-employed persons, primary milk producers, rickshaw pullers, safai karmacharis, salt
growers, seri-culture workers, sugarcane cutters, tendu leaf collectors, toddy tappers, vegetable vendors,
washerwomen, working women in hills, or such other categories of persons;
(f) “economically vulnerable or backward classes” means persons who live below the poverty line;
(g) “other categories of persons” includes persons with disability as defined in the Persons with Disabilities
(Equal Opportunities, Protection of Rights, and Full Participation) Act, 1995 and who may not be gainfully
employed; and also includes guardians who need insurance to protect spastic persons or persons with
disability;
(h) “informal sector” includes small scale, self-employed workers typically at a law level of organisation and
technology, with the primary objective of generating employment and income, with heterogeneous activities
like retail trade, transport, repair and maintenance, construction, personal and domestic services and
manufacturing, with the work mostly labour intensive, having often unwritten and informal employer-
employee relationship;
(i) all words and expressions used herein and not defined herein but defined in the Insurance Act, 1938 (4 of
1938) or in the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) shall have the
meanings respectively assigned to them in those Acts.
3. Obligations—Every insurer, who begins to carry on insurance business after the commencement of the
Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall, for the purposes of sections 32B
and 32C of the Act, ensure that he undertakes the following obligations, during the first five financial years,
pertaining to the persons in—
(a) rural sector,
(i) in respect of a life insurer,—
(I) seven per cent in the first financial year;

(II) nine per cent in the second financial year;
(III) Twelve per cent in the third financial year;
Page 178 of 339
(IV) Fourteen per cent in the fourth financial year;

(V) Sixteen per cent in the fifth year; of total policies written direct in that year;
(ii) in respect of a general insurer,—
(I) two per cent in the first financial year;

(II) three per cent in the second financial year;
(III) five per cent there after, of total gross premium income written direct in that year;
(b) social sector, in respect of all insurers,
(I) five thousand lives in the first financial year;

(II) seven thousand five hundred lives in the second financial year;
(III) ten thousand lives in the third financial year;
(IV) fifteen thousand lives in the fourth financial year;
(V) twenty thousand lives in the fifth year:
3.[Provided that in cases where an insurance company commences operations in the second half of the financial
year and is in operations for less than six months as at 31st March of the relevant financial year, (i) no rural or
social sector obligations shall be applicable for the said period, and (ii) the annual obligations as indicated in the
Regulations shall be reckoned from the next financial year which shall be considered as the first year of operations
for the purpose of compliance. In cases where an insurance company commences operations in the first half of the
financial year, the applicable obligations for the first year shall be 50 per cent of the obligations as specified in these
Regulations.]:
Provided further that, in case of a general insurer, the obligations specified shall include insurance for crops:
4.[* * *]
5.[3A.
Obligation in the Sixth Financial Year.—Every insurer, who begins to carry on insurance business after the
commencement of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall, for the
purposes of Sections 32B and 32C of the Act, insure that he undertakes the following obligations, during the Sixth
Financial year of operations:
(a) In respect of life insurers, eighteen per cent of the total policies written direct shall be in the rural sector.
(b) In respect of the non-life insurers, five per cent of the total gross premium income written direct shall be in
the rural sector, and
(c) In respect of all insurers, twenty five thousand new lives shall be covered in the social sector and the
policies should be in force on 31st March of the year.]
6.[3B. Obligations after the Sixth Financial Year.—
(1)(a) Rural Sector
(i) in respect of a life insurer,
(I) eighteen per cent in the seventh financial year;

(II) nineteen per cent in the eighth and ninth financial years;
(III) twenty per cent in the tenth financial year, of the total policies written direct in that year;
Page 179 of 339
(ii) in respect of a general insurer,
(I) five per cent in the seventh financial year;

(II) six per cent in the eighth financial year;
(III) seven per cent in the ninth and tenth financial years; of the total gross premium income written
direct in that year.
(b) Social sector
(i) in respect of all insurers,
(I) twenty five thousand lives in the seventh financial year;

(II) thirty five thousand lives in the eighth financial year;
(III) forty five thousand lives in the ninth financial year;
(IV) fifty five thousand lives in the tenth financial year.
(2) The obligations of the insurers towards the rural and social sectors for the tenth financial year shall also be
applicable in respect of the financial years thereafter.]
4. Obligations of existing insurers—(1) The obligations of existing insurers as on the date of commencement of
IRDA Act shall be decided by the Authority after consultation with them and the quantum of insurance business to
be done shall not be less than what has been recorded by them for the accounting year ended 31 March 2002.
(2) The Authority shall review such quantum of insurance business periodically and give directions to the insurers,
for achieving the specified targets.
7.[4A.Obligations of the existing insurers for the financial years 2007-08 to 2009-10.—(1) The obligations of
the existing insurers as on the date of the commencement of the Insurance Regulatory and Development Authority
Act, 1999 towards the rural and social sectors from the financial year 2007-08 to the financial year 2009-10 are as
under—
(a) Life Insurance Corporation of India,—
(i) Rural Sector,
(I) twenty four per cent in the financial year 2007-08;

(II) twenty five per cent in the financial years 2008-09 and 2009-10, of the total policies written direct in
that year;
(ii) Social Sector,
(I) Twenty lakh lives in the financial years 2007- 08, 2008-09 and 2009-10.
(b) General Insurers,
(i) Rural Sector,—
(I) six per cent in the financial year 2007-08;

(II) seven per cent in the financial years 2008-09 and 2009-10, of the total gross premium income
written direct in that year;
Page 180 of 339
(ii) Social Sector,—
(I) for the financial year 2007-08 the average of the number of lives covered by the respective insurer
in the social sector from the financial years 2002-03 to 2004-05 or 5.50 lakh lives, whichever is
higher;
(II) for the financial year 2008-09, the obligations of the existing insurers shall increase by 10 per cent
over the number of persons prescribed for the financial year 2007-08;
(III) for the financial year 2009-10, the obligations of the existing insurers shall increase by 10 per cent
over the number of persons prescribed for the financial year 2008-09.
(2) The obligations of the insurers, towards the rural and the social sectors for the financial year 2009-10 shall also
be applicable in the financial years thereafter.]
8.[5.
Notes applicable to Regulations 3, 3A, 3B, 4 and 4A.—(1) The term ‘lives’ referred to in Regulations 3, 3A,
3B and 4A in respect of all insurers refers to human lives insured as at the end of each financial year.
(2) Re-insurance premium shall not be included while calculating the obligations of the insurers in respect of the
rural and social sectors.
(3) The Authority may prescribe or revise the obligations as specified in these Regulations, from time to time.
6. Compliance.—(1) For the purpose of these Regulations, compliance with the obligations towards the rural sector
in respect of both general and life companies shall be based on the sale of products conforming to the proviso that
all such contracts meet the stipulation as to the minimum amount of cover as laid down in Schedules I and II of the
Insurance Regulatory and Development Authority (Micro Insurance) Regulations, 2005.
(2) For the purpose of these Regulations, compliance with the obligations towards the social sector in respect of
both general and life companies shall be based on the sale of products conforming to the proviso that all such
contracts meet the stipulations as to the cover laid down in Schedules I and II of Insurance Regulatory and
Development Authority (Micro Insurance) Regulations, 2005.
7. Submission of returns.—Every insurer shall submit a return, as part of the financial returns to be submitted
under the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors
Report of Insurance Companies) Regulations, 2002, the rural and social sector obligations specified under these
regulations and disclose the level of compliance achieved during the said year. Such reporting shall form part of the
‘Notes to the Accounts’.]
APPENDIX–X INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (ASSETS,

LIABILITIES AND SOLVENCY MARGIN OF INSURERS) REGULATIONS, 2000
In exercise of the powers conferred by clauses (y), (z) and (za) of sub-section (2) of section 114A of the Insurance
Act, 1938 (4 of 1938), read with section 26 of the Insurance Regulatory and Development Authority Act, 1999 (41 of
1999), the Authority, in consultation with the Insurance Advisory Committee, hereby makes the following
regulations, namely:—
Development Authority (Assets, Liabilities and Solvency Margin of Insurers) Regulations, 2000.
2. Definitions—(1) In these regulations, unless the context otherwise requires,—

Page 181 of 339
(2) All words and expressions used herein and not defined but defined in the Insurance Act, 1938 (4 of 1938), or in
the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), or in any Rules or Regulations made
thereunder, shall have the meanings respectively assigned to them in those Acts or Rules or Regulations.
3. Valuation of assets—Every insurer shall prepare a statement of the value of assets Form IRDA-Assets-AA in
accordance with Schedule I.
4. Determination of amount of liabilities— Every insurer shall prepare a statement of the amount of liabilities in
accordance withSchedule IIA, in respect of life insurance business, and in Form HG in accordance with Schedule II-
B, in respect of general insurance business, as the case may be.
5. Determination of Solvency Margin—Every insurer shall prepare a statement of solvency margin in accordance
with Schedule IIIA, in respect of life insurance business, and in Form KG in accordance with Schedule IIIB, in
respect of general insurance business, as the case may be.
6. Health insurance business—Where the insurer transacts health insurance business, providing health covers,
the amount of liabilities shall be determined in accordance with the principles specified under these Regulations.
7. Business outside India—Where the insurer transacts insurance business in a country outside India, and
submits statements or returns or any such particulars to a public authority of that country, he shall enclose the same
along with the Forms specified in accordance with these Regulations and the Insurance Regulatory and
Development Authority (Actuarial Report and Abstract) Regulations, 2000.
Provided that if the appointed actuary is of the opinion that it is necessary to set additional reserves over and above
the reserves shown in the statements or returns or any such particulars submitted to the public authority of a
country outside India, he may set such additional reserves.
8. Furnishing of forms—The Forms, namely, Form IRDA-Assets-AA, Form HG, and Form KG, shall be furnished
separately for Business within India and Total Business transacted by the insurer.
9. Personal visit of appointed actuary to the authority—The Authority may, if considered necessary and
expedient, ask the appointed actuary to make a personal visit to the office of the Authority to elicit from him any
further information.
SCHEDULE I
(See Regulation 3)
Valuation of Assets
1. Interpretation—In this Schedule, unless the context otherwise requires, ‘non-mandated investments’ means
those investments that are neither approved securities nor approved investments.
2. Values of assets—(1) The following assets should be placed with value zero,—
(a) Agent’s balances and outstanding premiums in India, to the extent they are not realised within a period of
thirty days;
(b) Agent’s balances and outstanding premiums outside India, to the extent they are not realisable;
(c) Sundry debts, to the extent they are not realisable;
(d) Advances of an unrealisable character;
(e) Furniture, fixtures, dead stock and stationery;
(f) Deferred expenses;
(g) Profit and loss appropriation account balance and any fictitious assets other than pre-paid expenses;
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(h) Reinsurer’s balances outstanding for more than three months;

(i) Preliminary expenses in the formation of the company.
(2) The value of computer equipment including software shall be computed as under:—
(i) seventy-five per cent of its cost in the year of purchase;

(ii) fifty per cent of its cost in the second year;
(iii) twenty-five per cent of its cost in the third year; and
(iv) zero per cent thereafter.
(3) All other assets of an insurer have to be valued in accordance with the Insurance Regulatory and Development
Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2000.
3. Statement of Assets—(1) Every insurer shall prepare a statement of assets in Form IRDA-Assets-AA.
FORM IRDA–ASSETS–AA
(See Regulation 3)
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (ASSETS, LIABILITIES, AND SOLVENCY

MARGIN OF INSURERS) REGULATIONS, 2000
Statement of Assets as at 31st March, 20....
Item No Category of Asset Policyholders' funds: Shareholders funds:

Amount (in rupees Amount (in rupees
lakhs) as per (a) below lakhs) as per (a) below
(1) (2) (3) (4)
01 Approved Securities
02 Approved Investments
03 Deposits
04 Non-Mandated
Investments
05 Other Assets, specify
06 Total
07 Fair Value Change

Account
08 Adjusted Value of Assets:

(6)–(7)
I certify that the statement has been prepared in accordance with Schedule I.
Place: ................ Name and Signature of
Appointed Actuary
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(in case of a life insurer)/
Date: ................ Name and Signature of Auditor
(In case of general insurer)
Notes: The statement shall show the value of the above-mentioned categories of assets in accordance with
Regulation 2 in Schedule I.
SCHEDULE II-A
(See Regulation 4)
Valuation of Liabilities–Life Insurance
1. Interpretation—In this Schedule,—
(a) “valuation date”, in relation to an actuarial investigation, means the date to which the investigation relates;
(b) “universal life contracts” means those contracts that are presented in an unbundled form. The contracts
where policyholders have an option to invest in units of insurer’s segregated fund (s) shall be treated as
‘linked business’; and others shall be treated as ‘non-linked business’;
(c) “segregated funds” means funds earmarked in respect of linked business.
2. Method of determination of mathematical reserves—(1) Mathematical Reserves shall be determined

separately for each contract by a prospective method of valuation in accordance with sub-paras (2) to (4).
(2) The valuation method shall take into account all prospective contingencies under which any premiums (by the
policyholder) or benefits (to the policyholder/beneficiary) may be payable under the policy, as determined by the
policy conditions. The level of benefits shall take into account the reasonable expectations of policyholders (with
regard to bonuses, including terminal bonuses, if any) and any established practices of an insurer for payment of
benefits.
(3) The valuation method shall take into account the cost of any options that may be available to the policyholder
under the terms of the contract.
(4) The determination of the amount of liability under each policy shall be based on prudent assumptions of all
relevant parameters. The value of each such parameter shall be based on the insurer’s expected experience and
shall include an appropriate margin for adverse deviations (hereinafter referred to as MAD) that may result in an
increase in the amount of mathematical reserves.
(5)(i) The amount of mathematical reserve in respect of a policy, determined in accordance with sub-
para (4), may be negative (called ‘negative reserves’) or less than the guaranteed surrender value
available (called ‘guaranteed surrender value deficiency reserves’) at the valuation date.
(ii) The appointed actuary shall, for the purpose of section 35 of the Act, use the amount of such mathematical
reserves without any modification;
(iii) The appointed actuary shall, for the purpose of sections 13, 49, 64V and 64VA of the Act, set the amount
of such mathematical reserve to zero, in case of such negative reserve, or to the guaranteed surrender
value, in case of such guaranteed surrender value deficiency reserves, as the case may be.
(6) The valuation method shall be called ‘Gross Premium Method’.
(7) If in the opinion of the appointed actuary, a method of valuation other than the Gross Premium Method of
valuation is to be adopted, then, other approximations (eg, retrospective method) may be used:
Provided that the amount of calculated reserve is expected to be at least equal to the amount that shall be
produced by the application of Gross Premium Method.
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(8) The method of calculation of the amount of liabilities and the assumptions for the valuation parameters shall not
be subject to arbitrary discontinuities from one year to the next.
(9) The determination of the amount of mathematical reserves shall take into account the nature and term of the
assets representing those liabilities and the value placed upon them and shall include prudent provision against the
effects of possible future changes in the values of assets on the ability of the insurer to meet its obligations arising
under policies as they arise.
3. Policy cash flows—The gross premium method of valuation shall discount the following future policy cash flows
at an appropriate rate of interest:
(a) premiums payable, if any, benefits payable, if any, on death; benefits payable, if any, on survival; benefits
payable, if any, on voluntary termination of contract, and the following, if any:-
(i) basic benefits,

(ii) rider benefits,
(iii) bonuses that have already been vested as at the valuation date,
(iv) bonuses as a result of the valuation at the valuation date and
(v) future bonuses (one year after valuation date) including terminal bonuses (consistent with the valuation
rate of interest);
(b) commission and remuneration payable, if any, in respect of a policy (This shall be based on the current
practice of the insurer). No allowance shall be made for non-payment of commissions in respect of the
orphaned policies;
(c) policy maintenance expenses, if any, in respect of a policy, as provided under sub-para (4) of para 5;
(d) allocation of profit to shareholders, if any, where there is a specified relationship between profits
attributable to shareholders and the bonus rates declared for policy-holders:
Provided that allowance must be made for tax, if any.
4. Policy options—Where a policy provides built-in options, that may be exercised by the policyholder, such as
conversion or addition of coverage at future date(s) without any evidence of good health, annuity rate guarantees at
maturity of contract, etc., the costs of such options shall be estimated and treated as special cash flows in
calculating the mathematical reserves.
5. Valuation parameters—(1) The valuation parameters shall constitute the bases on which the future policy cash
flows shall be computed and discounted. Each parameter shall have to be appropriate to the block of business to
be valued. An appointed actuary shall take into consideration the following—
(a) The value(s) of the parameter shall be based on the insurer’s experience study, where available. If reliable
experience study is not available, the value(s) can be based on the industry study, if available and
appropriate. If neither is available, the values may be based on the bases used for pricing the product. In
establishing the expected level of any parameter, any likely deterioration in the experience shall be taken
into account;
(b) The expected level, as determined in clause (a) of this sub-para, shall be adjusted by an appropriate
Margin for Adverse Deviations (MAD), the level of MAD being dependent on the degree of confidence in
the expected level, and such MAD in each parameter shall be based on the Guidance Notes issued by the
Actuarial Society of India, with the concurrence of the Authority;
(c) The values used for the various valuation parameters should be consistent among themselves.
(2) Mortality rates to be used shall be referenced to published table, unless the insurer has constructed a separate
table based on his own experience.
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Provided that such published table shall be made available to the insurance industry by the Actuarial Society of
India, with the concurrence of the authority.
Provided further that such rates determined by reference to a published table shall not be less than hundred per
cent of that published table.
Provided further that such rates determined by reference to a published table may be less than hundred per cent of
that published table if the appointed actuary can justify a lower per cent.
(3) Morbidity rates to be used shall be by reference to a published table, unless the insurer has constructed a
separate table based on his own experience.
Provided that such published table shall be made available to the insurance industry by the Actuarial Society of
India, with the concurrence of the Authority.
Provided further that such rates determined by reference to a published table shall not be less than hundred per
cent of that published table.
Provided further that such rates determined by reference to a published table may be less than hundred per cent of
that published table if the appointment actuary can justify a lower per cent.
(4) Policy maintenance expenses shall depend on the manner, in which they are analysed by the insurer, viz, fixed
expenses and variable expenses. The variable expenses shall be related to sum assured or premium or benefits.
The fixed expenses may be related to sum assured or premiums or benefits or per policy expenses. All expenses
shall be increased in future years for inflation, the rate of inflation assumed should be consistent with the valuation
rate of interest.
(5) Valuation rates of interest, to be used by appointed actuary—
(a) shall be not higher than the rates of interest, for the calculation of the present value of policy cash flows
referred to in para 4, determined from prudent assessment of the yields from existing assets attributable to
blocks of life insurance business, and the yields which the insurer is expected to obtain from the sums
invested in the future, and such assessment shall take into account—
(i) the composition of assets supporting the liabilities, expected cash flows from the investments on hand,
the cash flows from the block of policies to be valued, the likely future investment conditions and the
reinvestment and disinvestment strategy to be employed in dealing with the future net cash flows;
(ii) the risks associated with investment in regard to receipt of income on such investment or repayment of
principal;
(iii) the expenses associated with the investment functions of the insurer;
(b) shall not be higher than, for the calculation of present value of policy cash flows in respect of a particular
category of contracts, the yields on assets maintained for the purpose of such category of contracts;
(c) in respect on non-participating business, shall recognise the risk of decline in the future interest rates;
(d) in respect of participating business, shall be based on the assumption (with regard to future investment
conditions), that the scale of future bonuses used in the valuation is consistent with the valuation rate of
interest; and
(e) in respect of single premium business, shall take into account the effect of changes in the risk-free interest
rates.
(6) Other parameters, may be taken into account, depending on the type of policy. In establishing the values of
such parameters, the considerations set out in this Schedule shall be taken into account.
6. Applicability to Re-insurance—(1) The Schedule shall also apply to the valuation of business in the books of
reinsurers.
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(2) As regards the business ceded by insurers, this Schedule shall be applicable to the net sums at risks retained
by the insurer.
(3) Re-insurance arrangement with an element of borrowing in the form of deposit or credit of any kind from
insurer’s reinsurers without the prior approval of the Authority shall not be treated as credit for re-insurance for the
purpose of determination of required solvency margin.
7. Additional requirements for linked business—(1) Reserves in respect of linked business shall consist of two
components, namely, unit reserves and general funds reserves.
(2) Unit reserves shall be calculated in respect of the units allocated to the policies in force at the valuation date
using unit values at the valuation date.
(3) General fund reserves (non-unit reserves) shall be determined using a prospective valuation method set out in
this Schedule, which shall take into account of the following, namely:
(a) premiums, if any, payable in future;

(b) death benefits, if any, provided by the general fund (over and above the value of units);
(c) management charges paid to the general fund;
(d) guarantees, if any, relating to surrender values or minimum death and maturity benefits;
(e) fund growth rates and management charges. (The values of these parameters, along with others, shall be
determined in accordance with para 5);
(f) negative reserves, if any, shall be dealt with in accordance with sub-para (5) of para 2.
8. Additional requirements for provisions—The appointed actuary shall make aggregate provisions in respect of
the following, where it is not possible to calculate mathematical reserves for each policy, in the determination of
mathematical reserves:—
(a) Policies in respect of which extra premiums have been charged on account of underwriting of under-
average lives that are subject to extra risks such as occupation hazard, over-weight, under-weight,
smoking history, health, climatic or geographical conditions;
(b) Lapsed policies not included in the valuation but under which a liability exists or may arise;
(c) Options available under individual and group insurance policies;
(d) Guarantees available to individual and group insurance policies;
(e) The rates of exchange at which benefits in respect of policies issued in foreign currencies have been
converted into Indian Rupees and what provision has been made for possible increase of mathematical
reserves arising from future variations in rates of exchange;
(f) Other, if any.
9. Statement of liabilities—An insurer shall furnish a statement of liabilities in accordance with the Insurance
Regulatory and Development Authority (Actuarial Report and Abstract) Regulations, 2000.
SCHEDULE II-B
(See Regulation 4)
Valuation of Liabilities: General Insurance
1. Interpretation—In this Schedule,—
(a) “Reserve for claims incurred but not reported (IBNR)” means the reserve for claims incurred but not
reported on the balance sheet date, and includes reserve for claims which may be inadequately reserved;
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(b) “Reserve for outstanding claims” means the reserve for outstanding claims as mentioned in para 2(1)(b)(iii)
of this Schedule;
2. Determination of liabilities—An insurer shall—
(i) place a proper value in respect of the following items, namely:—
(I) provision for bad and doubtful debts,

(II) reserve for dividends declared or recommended, and outstanding dividends in full,
(III) amount due to insurance companies carrying on insurance business in full,
(IV) amount due to sundry creditors, in full,
(V) provision for taxation, in full, and
(VI) foreign exchange reserve.
(ii) determine the amount of following reserves, in the manner specified herein below for each reserve—
(a) reserve for unexpired risks, shall be, in respect of,—
(I) Fire business, 50 per cent,

(II) Miscellaneous business, 50 per cent,
(III) Marine business other than marine hull business, 50 per cent; and
(IV) Marine hull business, 100 per cent,
of the premium; net of re-insurances, received or receivable during the preceding twelve months;
(b) reserve for outstanding claims shall be determined in the following manner—
(I) where the amounts of outstanding claims of the insurers are known, the amount is to be provided
in full;
(II) where the amounts of outstanding claims can be reasonably estimated according to the insurer, he
may follow the ‘case by case method’ after taking into account the explicit allowance for changes in
the settlement pattern or average claim amounts, expenses and inflation;
(c) reserve for claims incurred but not reported (IBNR) shall be determined using actuarial principles. In
such determination, the appointed actuary shall follow the Guidance Notes issued by the Actuarial
Society of India, with the concurrence of the Authority, and any directions issued by the Authority, in
this behalf.
3. Statement of liability—Every general insurer shall prepare a statement of liabilities in Form HG, certified by an
auditor approved by the Authority in accordance with section 64V of the Act, and also certified by its appointed
actuary in respect of IBNR reserves. The statement shall be furnished to the Authority along with the returns
mentioned in section 15 of the Act.
FORMHG
(See Regulation 4)
Insurance Regulatory and Development Authority (Assets, Liabilities and Solvency Margin) Regulation,
2000.
TABLE I: STATEMENT OF LIABILITIES as at 31 March, 20......

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Item No Description Reserves for Reserves for IBNR Reserves Total Reserves
unexpired risks outstanding
claims
(1) (2) (3) (4) (5) (6)
01 Fire
02 Marine
Sub class:
Marine Cargo
Marine Hull
03 Miscellaneous
Sub class: Motor
Engineering
Aviation
Liabilities Rural
Insurance
Others
04 Health
Insurance
05 Total Liabilities
Certification from Auditor (approved by the Authority)
I certify that the above statement represents the liabilities of the insurer which have been determined in the manner
prescribed in the Insurance Regulatory and Development Authority (Assets, Liabilities and Solvency Margin of
Insurers) Regulations, 2000 and the amounts of such liabilities are fair and reasonable. I also further certify that the
above statement includes the IBNR reserves which have been determined by the appointed actuary and his
certificate is furnished herein below.
Qualifications, if any (in regard to the determination of liabilities):
Place: ................... Name and Signature of the Auditor
Date: ....................
Certification from the Appointed Actuary
I certify that the IBNR reserves in the statement above represent, in my opinion, true and fair amount.
Qualifications, if any (in regard to the determination of IBNR reserves:)
Place: ................... Name and Signature of the Appointed Actuary
Date: ....................
SCHEDULE III-A
(See Regulation 5)
DETERMINATION OF SOLVENCY MARGINS—LIFE INSURERS

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1. Interpretation—In this Schedule—
(a) “Available Solvency Margin” means the excess of value of assets (furnished in IRDA-Form-AA) over the
value of life insurance liabilities (furnished in Form H as specified in Regulation 4 of Insurance Regulatory
and Development Authority (Actuarial Report and Abstract) Regulations, 2000) and other liabilities of
policyholders’ funds and shareholders’ funds;
(b) “Solvency Ratio” means the ratio of the amount of Available Solvency Margin to the amount of Required
Solvency Margin.
2. Determination of solvency margin—Every insurer shall determine the required solvency margin, the available
solvency margin, and the solvency ratio in Form K as specified under Insurance Regulatory and Development
Authority (Actuarial Report and Abstract), Regulations, 2000.
SCHEDULE III-B
(See Regulation 5)
DETERMINATION OF SOLVENCY MARGINS—GENERAL INSURERS
1. Interpretation—In this Schedule—
(a) “Available Solvency Margin” means the excess of value of assets (furnished in Form IRDA-Assets-AA)
over the value liabilities (furnished in Form HG), with further adjustment as shown in Table III of Form KG.
(b) “Solvency Ratio’” means the ratio of the amount of Available Solvency Margin to the amount of Required
Solvency Margin.
2. Determination of solvency margin—Every insurer shall determine the required solvency margin, the available
solvency margin, and the solvency ratio in Form KG.
FORM KG
(See Regulation 5)
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (ASSETS, LIABILITIES AND SOLVENCY

MARGIN) REGULATION, 2000.
TABLE I—STATEMENT OF SOLVENCY MARGIN: (General Insurers) as at 31March, 20.....
Table I—Required Solvency Margin Based on Net premium and Net Incurred Claims (in Rs. Lakhs)
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Item No Description Gross Net Premiums Gross Net Incurred RSM-I RSM-2 RSM
(Class of Premiums Incurred claims
business) claims
1 2 3 4 5 6 7 8 9
01 Fire
02 Marine:
Marine
Cargo
03 Marine Hull:
04 Miscellaneou
s:
Motor
05 Engineering
06 Aviation
07 Liability
08 Rural
Insurance
09 Others
10 Health
Insurance:
11 Total
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Notes:
1. RSM-1 in the above table means Required Solvency Margin based on net premiums, and shall be
determined as twenty per cent of the amount which is the higher of the Gross Premiums multiplied by a
Factor A as specified below and the Net Premiums.
2. RSM-2 in the above table means Required Solvency Margin based on net incurred claims, and shall be
determined as thirty per cent of the amount which is the higher of the Gross Net Incurred Claims multiplied
by a Factor B as specified below and the Net Incurred Claims:
Item No Description (Class of A B

business)
(1) (2) (3) (4)
01 Fire 0.5 0.5
02 Marine: 0.7 0.7

Marine Cargo
03 Marine Hull: 0.5 0.5
04 Miscellaneous: 0.85 0.85

Motor
05 Engineering 0.5 0.5
06 Aviation 0.9 0.9
07 Liability 0.85 0.85
08 Rural Insurance 0.5 0.5
09 Others 0.7 0.7
10 Health 0.85 0.85
(3) RSM means Required Solvency Margin and shall be the higher of the amounts of RSM-I and RSM-2.
TABLE II – AVAILABLE SOLVENCY MARGIN AND SOLVENCY RATIO
Item Description Notes No. Amount

(1) (2) (3) (4)
Policyholders’ Funds:
Deduct:
02 Liabilities
04 Excess in Policyholders’
funds (01-02-03)
Shareholders’ Funds:
Deduct:
07 Excess in Shareholders’
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Item Description Notes No. Amount

(1) (2) (3) (4)
Funds: (05-06)
08 Total ASM (04) + (07)
09 Total RSM
10 Solvency Ratio (Total

ASM/Total RSM)
Certification
I, ................, the Auditor, certify that the above statements have been prepared in accordance with the section
64VA of the Insurance Act, 1938, and the amounts mentioned therein are true to the best of my knowledge.
Place: .............. Name and Signature of the Auditor
Date: ...............
Countersignature: Principal Officer:
Notes:
1. Item No 01 shall be the amount of the Adjusted Value of Assets in respect of policyholders’ funds as
mentioned in Form IRDA-Assets-AA.
2. Item No 02 shall be the amount of Total Liabilities as mentioned in Form HG.
3. Item No 03 shall be the amount of other liabilities arising in respect of policyholders’ funds and as
mentioned in the Balance Sheet.
4. Item No 05 shall be the amount of the Total Assets in respect of shareholders’ funds as mentioned in Form
IRDA-Assets-AA.
5. Item No 06 shall be the amount of other liabilities arising in respect of shareholders’ funds and as
mentioned in the Balance Sheet.
APPENDIX–XI INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(PREPARATION OF FINANCIAL STATEMENTS AND AUDITOR’S REPORT OF INSURANCE
COMPANIES) REGULATIONS, 20021.
F. No. IRDA/Reg./03/2002, dated 30-3-2002.—In exercise of the powers conferred by section 114A of the
Insurance Act, 1938 (4 of 1938) and in supersession of the Insurance Regulatory and Development Authority
(Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2000 the
Authority in consultation with the Insurance Advisory Committee, hereby makes the following regulations, namely:—
1. Short title and commencement.—These Regulations may be called the Insurance Regulatory and
Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies)
Regulations, 2002.
(2) They shall come into force from the date of their publication in the Official Gazette.
(3) On and from the commencement of these Regulations, the Insurance Regulatory and Development Authority
(Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2000, shall stand
superseded, except as respects things done or omitted to be done thereunder.
2. Definitions.—(1) In these Regulations, unless the context otherwise requires,—

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(a) “Act” means the Insurance Act, 1938 (4 of 1938);

(b) “Authority” means the Insurance Regulatory and Development Authority established under sub-section (1)
(c) all words and expressions used herein and not defined but defined in the Insurance Act, 1938 (4 of 1938),
or Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), or Companies Act, 1956 (1 of
1956), shall have the meanings respectively assigned to them in those Acts.
3. Preparation of financial statements, management report and auditor’s report.—(1) An insurer carrying on
life insurance business, after the commencement of these Regulations, shall comply with the requirements of
Schedule A.
(2) An insurer carrying on general insurance business, after the commencement of these Regulations, shall comply
with the requirements of Schedule B:
Provided that this sub-regulation shall apply, mutatis mutandis, to reinsurers, until separate regulations are made.
(3) The report of the auditors on the financial statements of every insurer and re-insurer shall be in conformity with
the requirements of Schedule C, or as near thereto as the circumstances permit.
(4) The Authority may, from time to time, issue separate guidelines in the matter of appointment, continuance or
removal of auditors of an insurer or reinsurer, as the case may be, and such directions/guidelines may include
prescriptions regarding qualifications and experience of auditors, their rotation, period of appointment, etc., as may
be deemed necessary by the authority.
SCHEDULE A
(See Regulation 3)
PART I
Accounting Principles for Preparation of
Financial Statements
1. Applicability of Accounting Standards.—Every Balance-sheet, Revenue Account [Policy-holders’ Account],

Receipts and Payments Account [Cash Flow Statement] and Profit and Loss Account [Shareholders’ Account] of an
insurer shall be in conformity with the Accounting Standards (AS) issued by the ICAI, to the extent applicable to
insurers carrying on life insurance business, except that—
(i) Accounting Standard 3 (AS 3)—Cash Flow Statements—Cash Flow Statement shall be prepared only
(ii) Accounting Standard 17 (AS 17)—Segment Reporting shall apply to all insurers irrespective of the
requirements regarding listing and turnover mentioned therein.
2. Premium.—Premium shall be recognised as income when due. For linked business the due date for payment
may be taken as the date when the associated units are created.
3. Acquisition costs.—Acquisition costs, if any, shall be expensed in the period in which they are incurred.
Acquisition costs are those costs that vary with and are primarily related to the acquisition of new and renewal
insurance contracts. The most essential test is the obligatory relationship between costs and the execution of
insurance contracts (i.e., commencement of risk).
4. Claims Cost.—The ultimate cost of claims shall comprise the policy benefit amount and specific claims
settlement costs, wherever applicable.
5. Actuarial valuation—Liability for Life Policies.—The estimation of liability against life policies shall be
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determined by the appointed actuary of the insurer pursuant to his annual investigation of the life insurance
business. Actuarial assumptions are to be disclosed by way of notes to the account.
The liability shall be so calculated that together with future premium payments and investment income, the insurer
can meet all future claims (including bonus entitlements to policy-holders) and expenses.
6. Procedure to determine the value of investments.—An insurer shall determine the values of investments in
the following manner:—
(a) Real Estate—Investment Property.—The value of investment property shall be determined at historical cost,
subject to revaluation at least once in every three years. The change in the carrying amount of the investment
property shall be taken to Revaluation Reserve.
The insurer shall assess at each balance-sheet date whether any impairment of the investment property has
occurred.
Gains/losses arising due to changes in the carrying amount of real estate shall be taken to equity under
‘Revaluation Reserve’. The ‘Profit on sale of investments’ or ‘Loss on sale of investments’, as the case may be,
shall include accumulated changes in the carrying amount previously recognised in equity under the heading
‘Revaluation Reserve’ in respect of a particular property and being recycled to the relevant Revenue Account or
Profit and loss Account on sale of that property.
The bases for revaluation shall be disclosed in the notes to accounts. The Authority may issue directions specifying
the amount to be released from the revaluation reserve for declaring bonus to the policy-holders. For the removal of
doubt, it is clarified that except for the amount that is released to policy-holders as per the Authority’s direction, no
other amount shall be distributed to share-holders out of Revaluation Reserve Account.
An impairment loss shall be recognised as an expense in the Revenue/Profit and Loss Account immediately, unless
the asset is carried at revalued amount. Any impairment loss of a revalued asset shall be treated as a revaluation
decrease of that asset and if the impairment loss exceeds the corresponding revaluation reserve, such excess shall
be recognised as an expense in the Revenue/Profit and Loss Account.
(b) Debt Securities.—Debt securities, including Government securities and redeemable preference shares, shall be
considered as “held to maturity” securities and shall be measured at historical cost subject to amortisation.
(c) Equity Securities and Derivative Instruments that are traded in active markets.— Listed equity securities and
derivative instruments that are traded in active markets shall be measured at fair value on the balance-sheet date.
For the purpose of calculation of fair value, the lowest of the last quoted closing price at the stock exchanges where
the securities are listed shall be taken.
The insurer shall assess on each balance-sheet date whether any impairment of listed equity
security(ies)/derivative(s) instruments has occurred.
An active market shall mean a market, where the securities traded are homogenous, availability of willing buyer and
willing sellers is normal and the prices are publicly available.
Unrealised gains/losses arising due to changes in the fair value of listed equity shares and derivative instruments
shall be taken to equity under the head ‘Fair Value Change Account”. The ‘Profit on sale of investments’ or ‘Loss on
sale of investments’, as the case may be, shall include accumulated changes in the fair value previously recognised
in equity under the heading ‘Fair Value Change Account’ in respect of a particular security and being recycled to the
relevant Revenue Account or Profit and Loss Account on actual sale of that listed security.
The Authority may issue directions specifying the amount to be released from the Fair Value Change Account for
declaring bonus to the policy-holders. For the removal of doubt, it is clarified that except for the amount that is
released to policy-holders as per the Authority’s prescription, no other amount shall be distributed to share-holders
out of Fair Value Change Account. Also, any debit balance in Fair Value Change Account shall be reduced from
profit/free reserves while declaring dividends.
The insurer shall assess, on each balance-sheet date, whether any impairment has occurred. An impairment loss
shall be recognised as an expense in Revenue/Profit and Loss Account to the extent of the difference between the
Page 195 of 339
re-measured fair value of the security/investment and its acquisition cost as reduced by any previous impairment
loss recognised as expense in Revenue/Profit and Loss Account. Any reversal of impairment loss, earlier
recognised in Revenue/Profit and Loss Account shall be recognised in Revenue/Profit and Loss Account.
(d) Unlisted and other than actively traded Equity Securities and Derivative instruments.— Unlisted equity securities
and derivative instruments and listed equity securities and derivative instruments that are not regularly traded in
active markets shall be measured at historical cost. Provision shall be made for diminution in value of such
investments. The provision so made shall be reversed in subsequent periods if estimates based on external
evidence show an increase in the value of the investment over its carrying amount. The increased carrying amount
of the investment due to the reversal of the provision shall not exceed the historical cost.
For the purposes of this regulation, a security shall be considered as being not actively traded, if as per guidelines
governing mutual funds laid down from time to time by SEBI, such a security is classified as “thinly traded”.
7. Loans.—Loans shall be measured at historical cost subject to impairment provisions.
The insurer shall assess the quality of its loan assets and shall provide for impairment. The impairment provision
shall not be lower than the amounts derived on the basis of guidelines prescribed from time to time by the Reserve
Bank of India, that apply to companies and financial institutions.
8. Linked business.—The accounting principles used for valuation of investments are to be consistent with
principles enumerated above. A separate set of financial statements, for each segregated fund of the linked
businesses, shall be annexed.
Segregated funds represent funds maintained in accounts to meet specific investment objectives of policy-holders
who bear the investment risk. Investment income/gains and losses generally accrue directly to the policy-holders.
The assets of each account are segregated and are not subject to claims that arise out of any other business of the
insurer.
9. Funds for future appropriation.—The funds for future appropriation shall be presented separately.
The funds for future appropriation represent all funds, the allocation of which, either to the policy-holders or to the
share-holders, has not been determined by the end of the financial year.
PART II
Disclosures Forming Part of Financial Statements
A. The following shall be disclosed by way of notes to the balance-sheet:—
1. Contingent Liabilities:
(a) Partly-paid up investments;

(b) Underwriting commitments outstanding;
(c) Claims, other than those under policies, not acknowledged as debts;
(d) Guarantees given by or on behalf of the company;
(e) Statutory demands/liabilities in dispute, not provided for;
(f) Reinsurance obligations to the extent not provided for in accounts;
(g) Others (to be specified).
2. Actuarial assumptions for valuation of liabilities for life policies in force.

3. Encumbrances to assets of the company in and outside India.
4. Commitments made and outstanding for loans, investments and fixed assets.
5. Basis of amortisation of debt securities.
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6. Claims settled and remaining unpaid for a period of more than six months as on the balance-sheet date.
7. Value of contracts in relation to investments, for:
(a) Purchases where deliveries are pending;

(b) Sales where payments are overdue.
8. Operating expenses relating to insurance business: basis of allocation of expenditure to various segments
of business.
9. Computation of managerial remuneration.
10. Historical costs of those investments valued on fair value basis.
11. Basis of revaluation of investment property.
B. The following accounting policies shall form an integral part of the financial statements:—
1. All significant accounting policies in terms of the accounting standards issued by the ICAI, and significant
principles and policies given in Part 1 of accounting principles. Any other accounting policies, followed by
the insurer, shall be stated in the manner required under Accounting Standard AS 1 issued by ICAI.
2. Any departure from the accounting policies shall be separately disclosed with reasons for such departure.
C. The following information shall also be disclosed:—
1. Investments made in accordance with any statutory requirement should be disclosed separately together
with its amount, nature, security and any special rights in and outside India;
2. Segregation into performing/non-performing investments for purpose of income recognition as per the
directions, if any, issued by the authority;
3. Assets to the extent required to be deposited under local laws or otherwise encumbered in or outside India;
4. Percentage of business sector wise;
5. A summary of financial statements for the last five years, in the manner as may be prescribed by the
Authority;
6. Bases of allocation of investments and income thereon between Policyholders’ Account and Share-holders’
Account;
7. Accounting Ratios as may be prescribed by the Authority.
PART III
General Instructions for Preparation of Financial Statements
1. The corresponding amounts for the immediately preceding financial year for all items shown in the Balance-
sheet, Revenue Account, Profit and Loss Account and Receipts and Payments Account shall be given.
2. The figures in the financial statements may be rounded off to the nearest thousands.
3. Interest, dividends and rentals receivable in connection with an investment should be stated at gross amount, the
amount of income-tax deducted at source should be included under ‘advance taxes paid’ and taxes deducted at
source.
4. (I) For the purposes of financial statements, unless the context otherwise requires,—
(a) the expression ‘provision’ shall, subject to (II) below mean any amount written off or retained by way of
providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any
known liability or loss of which the amount cannot be determined with substantial accuracy;
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(b) the expression ‘reserve’ shall not, subject to as aforesaid, include any amount written off or retained by
way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing
for any known liability or loss;
(c) the expression ‘capital reserve’ shall not include any amount regarded as free for distribution through the
profit and loss account; and the expression ‘revenue reserve’ shall mean any reserve other than a capital
reserve;
(d) The expression ‘liability’ shall include all liabilities in respect of expenditure contracted for and all disputed
or contingent liabilities.
(II) Where—
(a) any amount written off or retained by way of providing for depreciation, renewals or diminution in value of
assets, or
(b) any amount retained by way of providing for any known liability or loss,
is in excess of the amount which in the opinion of the directors is reasonably necessary for the purpose, the excess
shall be treated as a reserve and not provision.
5. The company shall make provisions for damages under lawsuits where the management is of the opinion that the
award may go against the insurer.
6. Extent of risk retained and reinsured shall be separately disclosed.
7. Any debit balance of the Profit and Loss Account shall be shown as deduction from uncommitted reserves and
the balance, if any, shall be shown separately.
PART IV
Contents of Management Report
There shall be attached to the financial statements, a management report containing, inter alia, the following duly
authenticated by the management:—
1. Confirmation regarding the continued validity of the registration granted by the Authority;
2. Certification that all the dues payable to the statutory authorities have been duly paid;
3. Confirmation to the effect that the share-holding pattern and any transfer of shares during the year are in
accordance with the statutory or regulatory requirements;
4. Declaration that the management has not directly or indirectly invested outside India the funds of the
holders of policies issued in India;
5. Confirmation that the required solvency margins have been maintained;
6. Certification to the effect that the values of all the assets have been reviewed on the date of the balance-
sheet and that in his (insurer’s) belief the assets set forth in the balance-sheets are shown in the aggregate
at amounts not exceeding their realisable or market value under the several headings—“Loans”,
“Investments”, “Agents balances”, “Outstanding Premiums”, “Interest, Dividends and Rents outstanding”,
“Interest, Dividends and Rents accruing but not due”, “Amounts due from other persons or Bodies carrying
on insurance business”, “Sundry debtors”, “Bills Receivable”, “Cash” and the several items specified under
“other Accounts”;
7. Certification to the effect that no part of the life insurance fund has been directly or indirectly applied in
contravention of the provisions of the Insurance Act, 1938 (4 of 1938) relating to the application and
investment of the life insurance funds;
8. Disclosure with regard to the overall risk exposure and strategy adopted to mitigate the same;
9. Operations in other countries, if any, with a separate statement giving the management’s estimate of
country risk and exposure risk and the hedging strategy adopted;
10. Ageing of claims indicating the trends in average claim settlement time during the preceding five years;
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11. Certification to the effect as to how the values, as shown in the balance-sheet, of the investments and
stocks and shares have been arrived at, and how the market value thereof has been ascertained for the
purpose of comparison with the values so shown;
12. Review of asset quality and performance of investment in terms of portfolios, i.e., separately in terms of
real estate, loans, investments, etc.
13. A responsibility statement indicating therein that—
(a) in the preparation of financial statements, the applicable accounting standards, principles and policies
have been followed along with proper explanations relating to material departures, if any;
(b) the management has adopted accounting policies and applied them consistently and made judgments
and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs
of the company at the end of the financial year and of the operating profit or loss and of the profit or
loss of the company for the year;
(c) the management has taken proper and sufficient care for the maintenance of adequate accounting
records in accordance with the applicable provisions of the Insurance Act, 1938 (4 of 1938)/Companies
Act, 1956 (1 of 1956), for safeguarding the assets of the company and for preventing and detecting
fraud and other irregularities;
(d) the management has prepared the financial statements on a going concern basis;
(e) the management has ensured that an internal audit system commensurate with the size and nature of
the business exists and is operating effectively.
14. A schedule of payments, which have been made to individuals, firms, companies and organisations in
which directors of the insurer are interested.
PART V
Preparation of Financial Statements
(1) An insurer shall prepare the Revenue Account [Policy-holders’ Account], Profit and Loss Account [Share-
holders’ Account] and the Balance Sheet in Form A-RA, Form A-PL and Form A-BS, as prescribed in this Part, or
as near thereto as the circumstances permit:
Provided that an insurer shall prepare Revenue Account and Balance-Sheet for the undermentioned businesses
separately and to that extent the application of AS 17 shall stand modified:—
(a) Participating policies and Non-participating policies;

(b) (i) Linked business [As defined in regulation 2(i) of the IRDA (Registration of Indian Insurance
(ii) Non-linked business separately for ordinary life, general annuity, pensions and health insurance;
(c) Business within India and Business outside India.
(2) An insurer shall prepare separate Receipts and Payments Account in accordance with the Direct Method
prescribed in AS 3—“Cash Flow Statement” issued by the ICAI.
FORM A-RA
Name of the Insurer:
Registration No. and date of Registration with the IRDA
REVENUE ACCOUNT FOR THE YEAR ENDED 31st MARCH, 20... Policyholders’ Account (Technical
Account)
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Particulars Schedule Current Year Previous Year

(1) (2) (3) (4) (5)
Premiums earned – 1 (Rs. 000) (Rs. 000)

Net
(a) Premium;
(b) Reinsurance
ceded;
(c) Reinsurance
accepted
Income from
investments
(a) Interest,
dividends and rent—
gross;
(b) Profit on
sale/redemption of
investments
(c) (Loss on
sale/redemption of
investments)
(d) Transfer/gain on
revaluation/change
in fair value*.
Other income (to be

specified)
Total (A)
Commission 2
Operating expenses 3
related to insurance
business
Provision for
doubtful debts
Bad debts written off
Provision for tax
Provisions (other
than taxation)
(a) For diminution in

the value of
investments (Net)
(b) Others (to be

specified).
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Total (B)
Benefits paid (Net) 4
Interim bonuses paid
Change in valuation
of liability in respect
of life policies
(a) Gross**;
(b) Amount ceded in

reinsurance;
(c) Amount accepted

in reinsurance.
Total (C)
Surplus/(deficit) (D)
= (A) - (B) - (C)
APPROPRIATIONS
Transfer to
shareholders’
account
Transfer to other
reserves (to be
specified)
Balance being fluids

for future
appropriations
Total (D)
* Represents the deemed realised gain as per norms specified by the Authority.
** Represents mathematical reserves after allocation of bonus.
Notes.—
The total surplus shall be disclosed separately with the following details:—
(a) Interim bonuses paid;

(b) Allocation of bonus to policyholders;
(c) Surplus shown in the revenue account;
(d) Total surplus: ((a) + (b) + (c)).
See notes appended at the end of Form A-PL
FORM A-PL

Page 201 of 339
REVENUE ACCOUNT FOR THE YEAR ENDED 31st MARCH, 20... Share-holders’ Account (Non-technical
Account)

(1) (2) (3) (4) (5)
Amounts transferred (Rs. 000) (Rs. 000)

from/to the
Policyholders
account (technical
account)
Income From
Investments
(a) Interest,
Dividends & Rent -
Gross
(b) Profit on
sale/redemption of
investments
(c) (Loss on
sale/redemption of
investments)
Other Income (to be

specified)
Total (A)
Expense other than

those directly related
to the insurance
business
Bad debts written off
Provisions (Other
than taxation)
(a) For diminution in

the value of
investments (net)
(b) Provision for

doubtful debts
(c) Others (to be

specified)
Total (B)
Profit/(Loss) before
tax
Page 202 of 339

Provision for
Taxation
Profit/(Loss) after tax
APPROPRIATIONS
(a) Balance at the

beginning of the year
(b) Interim dividends

paid during the year
(c) Proposed final

dividend
(d) Dividend
distribution on tax
(e) Transfer to
reserves/other
accounts (to be
specified)
Profit
carried..................to
the balance-sheet
Notes to Form A-RA and A-PL.—
(a) Premium income received from business concluded in and outside India shall be separately disclosed.
(b) Reinsurance premiums whether on business ceded or accepted are to be brought into account gross (i.e.
before deducting commissions) under the head reinsurance premiums.
(c) Claims incurred shall comprise claims paid, specific claims settlement costs wherever applicable and
change in the outstanding provision for claims at the year-end.
(d) Terms of expenses and income in excess of one per cent, of the total premiums (less reinsurance) or Rs.
5,00,000 whichever is higher, shall be shown as a separate line item.
(e) Fees and expenses connected with claims shall be included in claims.
(f) Under the sub-head “Others” shall be included items like foreign exchange gains or losses and other items.
(g) Interest, dividends and rentals receivable in connection with an investment should be stated as gross
amounts, the amount of income tax deducted at source being included under “advance taxes paid and
taxes deducted at source”.
(h) Income from rent shall include only the realised rent. It shall not include any notional rent.
FORM A-BS
BALANCE SHEET AS AT 31ST MARCH, 20…
Particulars Schedule Curren Year Previous Year

Page 203 of 339

(1) (2) (3) (4) (5)
(Rs. 000) (Rs. 000)
Sources of Funds 5
Share-holders’ funds
Share capital
Reserves and 6
Surplus
Credit/[Debit] Fair
Value Change
Account
Sub-Total
Borrowings 7
Policy-holders’
Funds
Credit[Debit] Fair
Value Change
Account
Policy Liabilities
Insurance Reserves
Provision for linked

Liabilities
Sub-Total
Funds for future

appropriations
Total
Application of
Funds
Investments
Share-holders’ 8
Policy-holders’ 8A
Assets Held to cover 8B

Linked Liabilities
Loans 9
Fixed Assets 10
Current Assets
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Cash and Bank 11
Balances
Advances and Other 12

Assets
Sub-Total (A)
Current Liabilities 13
Provisions 14
Sub-total (B)
Net Current Assets

(C) = (A-B)
Miscellaneous 15
Expenditure (to the
extent not written off
or adjusted)
Debit Balance in
Profit & Loss
Account (Share-
holders’ Account)
Total
CONTINGENT LIABILITIES
Sl. No. Particulars Current Year Previous Year

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Partly paid-up investments
2. Claims other than against

policies, not acknowledged
as debts by the company
3. Underwriting commitments
outstanding (in respect of
shares and securities)
4. Guarantees given by or on
behalf of the company
5. Statutory
demands/liabilities in
dispute, not provided for
6. Reinsurance obligations to
the extent not provided for
in accounts
7. Others (to be specified)

Page 205 of 339

Total
SCHEDULES FORMING PART OF FINANCIAL STATEMENTS
SCHEDULE 1
Premium

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. First year premiums
2. Renewal premiums
3. Single premiums
Total Premium
SCHEDULE 2
Commission Expenses
Particulars Current Year Previous Year

(1) (2) (3)
(Rs. 000) (Rs. 000)
Commission paid
Direct - First year premiums
-Renewal premiums
-Single premiums
Add: Commission on Re-insurance

Accepted
Less: Commission on Re-insurance

Ceded
Net Commission
Note.—The profit/commission, if any are to be combined with the re-insurance accepted or re-insurance ceded
figures.
SCHEDULE 3
Operating Expenses related to Insurance Business

(1) (2) (3) (4)
Page 206 of 339

(Rs. 000) (Rs. 000)
1. Employees’ remuneration
and welfare benefits
2. Travel, conveyance and

vehicle running expenses
3. Training expenses
4. Rents, rates and taxes
5. Repairs
6. Printing and stationery
7. Communication expenses
8. Legal and professional

charges
9. Medical fees
10. Auditors’ fees, expenses,

etc.
(a) as auditor
(b) as adviser or in any

other capacity, in respect
of—
(i) Taxation matters
(ii) Insurance matters
(iii) Management services;

and
(c) in any other capacity
11. Advertisement and

publicity
12. Interest & Bank Charges
14. Depreciation
Total
Notes.—
(a) Items of expenses and income in excess of one per cent, of the total premium (less re-insurance) or Rs.
SCHEDULE 4
Benefits Paid [NET]

Page 207 of 339

(1) (2) (3)
(Rs. 000) (Rs. 000)
1. Insurance Claims
(a) Claims by Death,
(b) Claims by Maturity,
(c) Annuities/pension payment,
(d) Other benefits, specify
2. (Amount ceded in reinsurance):
(c) Annuities/pensions payment,
3. Amount accepted in reinsurance:
(c) Annuities/pensions payment,
Total
Notes.—
(a) Claims include specific claims settlement costs, wherever applicable.

(b) Legal and other fees expenses shall also form part of the claims cost, wherever applicable.
SCHEDULE 5
Share Capital

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Authorised Capital
Equity Shares of Rs...each
2. Issued Capital

Page 208 of 339

3. Subscribed Capital
4. Called-up Capital
5. Less: Calls unpaid
Add: Shares forfeited

(Amount originally paid-up)
Less: Par value of Equity

Shares bought back
Less: Preliminary
Expenses
Expenses including
commission or brokerage
on Underwriting or
subscription of shares
Total
Notes.—
(a) Particulars of the different classes of capital should be separately stated.

(b) The amount capitalised on account of issue of bonus shares should be disclosed.
(c) In case any part of the capital is held by a holding company, the same should be separately disclosed.
SCHEDULE 5A
Pattern of Shareholding
[As certified by the management]

Number of Shares % of Holding Number of Shares % of Holding
(1) (2) (3) (4) (5)
Promoters
-Indian
-Foreign
Others
Total
SCHEDULE 6
Reserve and Surplus

Page 209 of 339

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Capital Reserve
2. Capital Redemption
Reserve
3. Share Premium
4. Revaluation Reserve
5. General Reserves
Less. Debit balance in

Profit and Loss Account, if
any
Less: Amount utilised for

Buy-back
6. Catastrophe Reserve
7. Other Reserves (To be

specified)
8. Balance of profit in Profit

and Loss Account
Total
Note.—
Additions to and deductions from the reserves shall be disclosed under each of the specified heads.
SCHEDULE 7
Borrowings

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Debentures/Bonds
2. Banks
3. Financial Institutions
Total
Notes.—
Page 210 of 339
(a) The extent to which the borrowings are secured shall be separately disclosed stating the nature of the
security under each sub-head.
(b) Amounts due within 12 months from the date of balance-sheet should be shown separately.
SCHEDULE 8
Investments-Shareholders

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
Long-Term Investments
1. Government securities and

Government guaranteed
bonds including Treasury
Bills
2. Other Approved Securities
3. Other Investments
(a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds
(c) Derivative Instruments
(d) Debentures/Bonds
(e) Other Securities (to be

specified)
(f) Subsidiaries
(g) Investment Properties-

Real Estate
4. Investments in
infrastructure and social
sector
5. Other than approved

investments
Short-Term Investments

Bills
Page 211 of 339

(a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds

specified)
(f) Subsidiaries

Real Estate
4. Investments in
sector

investments
Total
Note.—See notes appended at the end of Schedule-8B.
SCHEDULE 8A
Investments-Policyholders

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)

Bills
3. Other investments
(a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds

Page 212 of 339


specified)
(f) Subsidiaries

Real Estate
4. Investments in
Infrastructure and Social
Sector
5. Other than Approved

investments

Bills
(a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds

specified)
(f) Subsidiaries

Real Estate
4. Investments in
Sector

Investments
Total
Notes.—See notes appended at the end of Schedule 8B.
SCHEDULE 8B
Page 213 of 339
Assets held to cover linked liabilities

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)

Bills
3. (a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds

specified)
(f) Subsidiaries

Real Estate
4. Investments in
Sector

Investments

Bills
3. (a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds

Page 214 of 339


specified)
(f) Subsidiaries

Real Estate
4. Investments in
Sector

Investments
Total
Notes—(Applicable to Schedules 8, 8A and 8B).—
(a) Investments in subsidiary/holding companies, joint ventures and associates shall be separately disclosed, at
cost.
(i) Holding company and subsidiary shall be construed as defined in the Companies Act, 1956.
(ii) Joint Venture is a contractual arrangement whereby two or more parties undertake an economic activity,
which is subject to joint control.
(iii) Joint control—is the contractually agreed sharing of power to govern the financial and operating policies of
an economic activity to obtain benefits from it.
(iv) Associate—is an enterprise in which the company has significant influence and which is neither a
subsidiary nor a joint venture of the company.
(v) Significant influence (for the purpose of this schedule) means participation in the financial and operating
policy decisions of a company, but not control of those policies. Significant influence may be exercised in
several ways, for example, by representation on the board of directors, participation in the policy making
process, material inter-company transactions, interchange of managerial personnel or dependence on
technical information. Significant influence may be gained by share ownership, statute or agreement. As
regards share ownership, if an investor holds, directly or indirectly through subsidiaries, 20 per cent, or
more of the voting power of the investee, it is presumed that the investor does have significant influence,
unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds directly or
indirectly through subsidiaries, less than 20 per cent, of the voting power of the investor, it is presumed that
the investor does not have significant influence, unless such influence is clearly demonstrated. A
substantial or majority ownership by another investor does not necessarily preclude an investor from
having significant influence.
(b) Aggregate amount of company’s investments other than listed equity securities and derivative instruments and
also the market value thereof shall be disclosed.
(c) Investment made out of catastrophe reserve should be shown separately.
(d) Debt securities will be considered as “held to maturity” securities and will be measured at historical costs subject
to amortisation.
(e) Investment property means a property [land or building or part of a building or both] held to earn rental income
or for capital appreciation or for both, rather than for use in services or for administrative purposes.
Page 215 of 339
(f) Investments maturing within twelve months from balance-sheet date and investments made with the specific
intention to dispose of within twelve months from balance-sheet date shall be classified as short-term investments.
SCHEDULE 9
Loans

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Security-wise
Classification
Secured
(a) On mortgage of
property
(aa) In India
(bb) Outside India
(b) On Shares, Bonds,

Govt. Securities, etc.
(c) Loans against policies
(d) Others (to be specified)
Unsecured
Total
2. Borrower-wise
Classification
(a) Central and State

Governments
(b) Banks and Financial

Institutions
(c) Subsidiaries
(d) Companies
(e) Loans against policies
(f) Others (to be specified)
Total
3. Performance-wise
Classification
(a) Loans classified as

standard
(aa) In India
Page 216 of 339

(bb) Outside India
(b) Non-standard loans

less provisions
(aa) In India
(bb) Outside India
Total
4. Maturity-wise
Classification
(a) Short Term
(b) Long Term
Total
Notes.—
(a) Short-term loans shall include those, which are repayable within 12 months from the date of balance-sheet.
Long-term loans shall be the loans other than short-term loans.
(b) Provisions against non-performing loans shall be shown separately.
(c) The nature of the security in case of all long-term secured loans shall be specified in each case. Secured loans
for the purposes of this schedule, means loans secured wholly or partly against an asset of the company.
(d) Loans considered doubtful and the amount of provision created against such loans shall be disclosed.
SCHEDULE 10
Fixed Assets
Page 217 of 339
Particulars Cost/Gross Block Depreciation Net Block

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Opening Additions Deductions Closing Up to Last For the On To Date As at Year Previous
Year Year Sales/Adjus end Year
t ments
Goodwill
Intangibles
(specify)
Land-
Freehold
Leasehold
Property
Buildings
Furniture
and Fittings
Information
Technology
Equipment
Vehicles
Office
Equipment
Others
(Specify
nature)
Total
Work-in-
progress
Grand total
Previous
Year
Page 218 of 339
Note.—Assets included in land, property and building above exclude investment properties as defined in note (e) to
Schedule 8.
SCHEDULE 11
Cash and Bank Balances

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Cash (including cheques,

drafts and stamps)
2. Bank Balances
(a) Deposit Accounts
(aa) Short-term (due within

12 months of the date of
Balance-Sheet)
(bb) Others
(b) Current Accounts
(c) Others (to be specified)
3. Money at Call and Short

Notice
(a) With Banks
(b) With other Institutions
Total
Balances with non-

scheduled banks included
in 2 and 3 above
Note.—
Bank balance may include remittances in transit. If so, the nature and amount should be separately stated.
SCHEDULE 12
Advances and other assets

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
Advances
Page 219 of 339

1. Reserve deposits with
ceding companies
2. Application money for

investments
3. Pre-payments
4. Advances to
directors/officers
5. Advance tax paid and

taxes deducted at source
(Net of provision for
taxation)
Total (A)
Other Assets
1. Income accrued on
investments
2. Outstanding Premiums
3. Agents’ Balances
4. Foreign Agencies’
Balances
5. Due from other entities

carrying On insurance
business (including re-
insurance)
6. Due from
subsidiaries/holding
company
7. Deposit with Reserve

Bank of India [Pursuant, to
section 7 of the Insurance
Act, 1938]
Total (B)
Total (A+B)
Notes.—
(a) The items under the above heads shall not be shown net of provisions for doubtful amounts. The amount of
provision against each head should be shown separately.
(b) The term ‘officer’ should conform to the definition of that term as given under the Companies Act, 1956.
(c) Sundry debtors will be shown under item 8 (others)

Page 220 of 339
SCHEDULE 13
Current Liabilities

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
2. Balances due to other

insurance companies
3. Deposits held on re-

insurance ceded
4. Premiums received in
advance
5. Unallocated premium
6. Sundry creditors
7. Due to
company
8. Claims Outstanding
9. Annuities Due
10. Due to Officers/Directors
Total
SCHEDULE 14
Provisions

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. For taxation (less

payments and taxes
deducted at source)
2. For proposed dividends
3. For dividend distribution

tax
4. Bonus payable to the

Policy-holders
Page 221 of 339

Total
SCHEDULE 15
Miscellaneous Expenditure
(To the extent not written off or adjusted)

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Discount allowed in issue

of shares/debentures
Total
Notes.—
(a) No item shall be included under the head “Miscellaneous Expenditure” and carried forward unless:
1. some benefit from the expenditure can reasonably be expected to be received in future, and
2. the amount of such benefit is reasonably determinable.
(b) The amount to be carried forward in respect of any item included under the head “Miscellaneous Expenditure”
shall not exceed the expected future revenue/other benefits related to the expenditure.
SCHEDULE B
(See Regulation 3)
PART 1
Accounting Principles for Preparation of Financial Statements
1. Applicability of Accounting Standards.—Every balance-sheet, receipts and Payments/accounts [Cash Flow

Statement] and Profit and Loss Account [Shareholders’ Account] of the insurer shall be in conformity with the
Accounting Standards (AS) issued by the ICAI, to the extent applicable to the insurers carrying on general
insurance business, except that—
(i) Accounting Standard 3 (AS 3)—Cash Flow Statements—Cash Flow Statement shall be prepared only
(ii) Accounting Standard 13 (AS 13)—Accounting for Investments, shall not be applicable.
(iii) Accounting Standard 17 (AS 17)—Segment Reporting shall apply to all insurers irrespective of the
requirements regarding listing and turnover mentioned therein.
2. Premium.—Premium shall be recognised as income over the contract period or the period of risk is whichever is
appropriate. Premium received in advance, which represents premium income not relating to the current accounting
period, shall be disclosed separately in the financial statements.
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A reserve for unexpired risks shall be created as the amount representing that part of the premium written which is
attributable to, and to be allocated to the succeeding accounting periods and shall not be less than as required
under section 64V(l)(ii)(b) of the Act.
Premium received in advance, which represents premium received prior to the commencement of the risk, shall be
shown separately under the head ‘Current Liabilities’ in the financial statements.
3. Premium deficiency.—Premium deficiency shall be recognised if the sum of expected claim costs, related
expenses and maintenance costs exceeds related reserve for unexpired risks.
4. Acquisition costs.—Acquisition costs, if any, shall be expensed in the period in which they are incurred.
Acquisition costs are those costs that vary with, and are primarily related to, the acquisition of new and renewal
insurance contracts. The most essential test is the obligatory relationship between costs and the execution of
insurance contracts (i.e., commencement of risk),
5. Claims.—The components of the ultimate cost of claims to an insurer comprise the claims under policies and
claims settlement costs. Claims under policies comprise the claims made for losses incurred and those estimated or
anticipated under the policies following a loss occurrence.
A liability for outstanding claims shall be brought to account in respect of both direct business and inward
reinsurance business. The liability shall include—
(a) Future payments in relation to unpaid reported claims;

(b) Claims Incurred But Not Reported (IBNR) including inadequate reserves (sometimes referred to as Claims
Incurred But Not Enough Reported (IBNER),
which will result in future cash/asset outgo for settling liabilities against those claims. Change in estimated liability
represents the difference between the estimated liability for outstanding claims at the beginning and at the end of
the financial period.
The accounting estimate shall also include claims cost adjusted for estimated salvage value if there is sufficient
degree of certainty of its realisation.
Actuarial Valuation of claim liability—in some cases: Claims made in respect of contracts where the claims payment
period exceeds four years shall be recognised on an actuarial basis, subject to regulations that may be prescribed
by the Authority. In such cases, certificate from a recognised actuary as to the fairness of liability assessment must
be obtained. Actuarial assumptions shall be suitably disclosed by way of notes to the account.
6. Procedure to determine the value of investments.—An insurer shall determine the values of investments in
the following manner:—
(a) Real Estate-Investment Property—Investment property shall be measured at historical cost less
accumulated depreciation and impairment loss, residual value being considered zero and no revaluation
being permissible.
The insurer shall assess at each balance-sheet date whether any impairment of the investment
property has occurred.
An impairment loss shall be recognised as an expense in the Revenue/Profit and Loss Account
immediately.
Fair value as at the balance-sheet date and the basis of its determination shall be disclosed in the
financial statements as additional information.
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(b) Debt Securities—Debt securities, including Government securities and redeemable preference shares,
shall be considered as “held to maturity” securities and shall be measured at historical cost subject to
amortisation.
(c) Equity Securities and Derivative Instruments traded are traded in active markets.—Listed equity securities
and derivative instruments that are traded in active markets shall be measured at fair value as at the
balance-sheet date. For the purpose of calculation of fair value, the lowest of the last quoted closing price
of the stock exchanges where the securities are listed shall be taken.
The insurer shall assess on each balance-sheet date whether any impairment of listed equity
security(ies)/derivative(s) instruments has occurred.
An active market shall mean a market, where the securities traded are homogenous, availability of
willing buyers and willing sellers is normal and the prices are publicly available.
Unrealised gains/losses arising due to changes in the fair value of listed equity shares and derivative
instruments shall be taken to equity under the head “Fair Value Change Account”. The ‘Profit on sale of
investments’ or ‘Loss on sale of investments’, as the case may be, shall include accumulated changes
in the fair value previously recognised in equity under the heading Fair Value Change Account in
respect of a particular security and being recycled to Profit and Loss Account on actual sale of that
listed security.
For the removal of doubt, it is clarified that balance or any part thereof shall not be available for
distribution as dividends. Also, any debit balance in the said Fair Value Change Account shall be
reduced from profits/free reserves while declaring dividends.
The insurer shall assess, on each balance-sheet date, whether any impairment has occurred. An
impairment loss shall be recognised as an expense in Revenue/Profit and Loss Account to the extent
of the difference between the re-measured fair value of the security/investment and its acquisition cost
as reduced by any previous impairment loss recognised as expense in Revenue/Profit and Loss
Account. Any reversal of impairment loss, earlier recognised in Revenue/Profit and Loss Account shall
be recognised in Revenue/Profit and Loss Account.
(d) Unlisted and other than actively traded Equity Securities and Derivative Instruments—Unlisted equity
securities and derivative instruments and listed equity securities and derivative instruments that are not
regularly traded in active market will be measured at historical cost. Provision shall be made for diminution
in value of such investments. The provision so made shall be reversed in subsequent periods if estimates
based on external evidence show an increase in the value of the investment over its carrying amount. The
increased carrying amount of the investment due to the reversal of the provision shall not exceed the
historical cost.
For the purpose of this regulation, a security shall be considered as being not actively traded, if as per
guidelines governing mutual funds laid down from time to time by SEBI, such a security is classified as
“thinly traded”.
7. Loans.—Loans shall be measured at historical cost subject to impairment provisions.
The insurer shall assess the quality of its loan assets and shall provide for impairment. The impairment provision
shall not be lower than the amount derived on the basis of guidelines prescribed from time to time by the Reserve
Bank of India, that apply to companies and financial institutions.
8. Catastrophe reserve.—Catastrophe reserve shall be created in accordance with norms, if any, prescribed by
the Authority, Investment of funds out of catastrophe reserve shall be made in accordance with prescription of the
Authority.
PART II
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Disclosures Forming Part of Financial Statements
A. The following shall be disclosed by way of notes to the Balance-Sheet.—
1. Contingent Liabilities:
(a) Partly-paid up investments;

(b) Underwriting commitments outstanding;
(c) Claims, other than those under policies, not acknowledged as debts;
(d) Guarantees given by or on behalf of the company;
(e) Statutory demands/liabilities in dispute, not provided for;
(f) Re-insurance obligations to the extent not provided for in accounts;
(g) Others (to be specified).
2. Encumbrances to assets of the company in and outside India.

3. Commitments made and outstanding for Loans, Investments and Fixed Assets.
4. Claims, less re-insurance, paid to claimants in/outside India.
5. Actuarial assumptions for determination of claim liabilities in the case of claims where the claims payment
period exceeds four years.
6. Ageing of claims—distinguishing between claims outstanding for more than six months and other claims.
7. Premiums, less re-insurance, written from business in/outside India.
8. Extent of premium income recognised, based on varying risk pattern, category-wise, with basis and
justification therefor, including whether reliance has been placed on external evidence.
9. Value of contracts in relation to investments, for—
(i) Purchases where deliveries are pending;

(ii) Sales where payments are overdue.
10. Operating expenses relating to insurance business; basis of allocation of expenditure to various classes of
business.
11. Historical costs of those investments valued on fair value basis.
12. Computation of managerial remuneration.
13. Basis of amortisation of debt securities.
14. (a) Unrealised gain/losses arising due to changes in the fair value of listed equity shares and derivative
instruments are to be taken to equity under the head “Fair Value Change Account” and on realisation
reported in Profit and Loss Account.
(b) Pending realisation, the credit balance in the “Fair Value Change Account” is not available for
distribution.
15. Fair value of investment property and the basis therefor.

16. Claims settled and remaining unpaid for a period of more than six months on the balance-sheet date.
B. The following accounting policies shall form an integral part of the financial statements:—
Page 225 of 339
1. All significant accounting policies in terms of the accounting standards issued by the ICAI, and significant
principles and policies given in Part I of Accounting Principles. Any other accounting policies, followed by
the insurer, shall be stated in the manner required under Accounting Standard AS 1 issued by ICAI.
2. Any departure from the accounting policies as aforesaid shall be separately disclosed with reasons for
such departure.
C. The following information shall also be disclosed:—
1. Investments made in accordance with any statutory requirement should be disclosed separately together
with its amount, nature, security and any special rights in and outside India:
2. Segregation into performing/non-performing investments for purpose of income recognition as per the
directions, if any, issued by the Authority;
3. Percentage of business sector-wise;
4. A summary of financial statements for the last five years, in the manner as may be prescribed by the
Authority;
5. Accounting ratios as may be prescribed by the Authority;
6. Basis of allocation of interest, dividends and rent between Revenue Account and Profit and Loss Account.
PART III
General Instructions for Preparation of Financial Statements
(1) The corresponding amounts for the immediately preceding financial year for all items shown in the Balance-
Sheet, Revenue Account and Profit and Loss Account should be given.
(2) The figures in the financial statements may be rounded off to the nearest thousands.
(3) Interest, dividends and rentals receivable in connection with an investment should be stated at gross value, the
amount of income-tax deducted at source being included under ‘advance taxes paid’.
(4) Income from rent shall not include any notional rent.
(5) (I) For the purposes of financial statements, unless the context otherwise requires,—
(a) the expression ‘provision’ shall, subject to note II below mean any amount written off or retained by way of
providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any
known liability or loss of which the amount cannot be determined with substantial accuracy;
(b) the expression ‘reserve’ shall not, subject to as aforesaid, include any amount written off or retained by
way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing
for any known liability;
(c) the expression ‘capital reserve’ shall not include any amount regarded as free for distribution through the
profit and loss account; and the expression ‘revenue reserve’ shall mean any reserve other than a capital
reserve;
(d) The expression ‘liability’ shall include all liabilities in respect of expenditure contracted for and all disputed
or contingent liabilities.
(II) Where;
(a) any amount written off or retained by way of providing for depreciation, renewals or diminution in value of
assets, or
(b) any amount retained by way of providing for any known liability, is in excess of the amount which in the
opinion of the directors is reasonably necessary for the purpose, the excess shall be treated for the
purposes of these accounts as a reserve and not as a provision.
Page 226 of 339
(6) The company should make provisions for damages under lawsuits where the management is of the opinion that
the award may go against the insurer.
(7) Extent of risk retained and reinsured shall be separately disclosed.
(8) Any debit balance of Profit and Loss Account shall be shown as deduction from uncommitted reserves and the
balance, if any, shall be shown separately.
PART IV
Contents of Management Report
There shall be attached to the financial statements, a management report containing, inter alia, the following duly
authenticated by the management:—
1. Confirmation regarding the continued validity of the registration granted by the Authority;
2. Certification that all the dues payable to the statutory authorities have been duly paid;
3. Confirmation to the effect that the share-holding pattern and any transfer of shares during the year are in
accordance with the statutory or regulatory requirements;
4. Declaration that the management has not directly or indirectly invested outside India the funds of the
holders of policies issued in India;
5. Confirmation that the required solvency margins have been maintained;
6. Certification to the effect that the values of all the assets have been reviewed on the date of the balance-
sheet and that in his (insurer’s) belief the assets set forth in the balance-sheets are shown in the aggregate
at amounts not exceeding their realisable or market value under the several headings—“Loans”,
“Investments”, “Agents balances”, “Outstanding Premiums”, “Interest, Dividends and Rents outstanding”,
“Interest, Dividends and Rents accruing but not due”, “Amounts due from other persons or bodies carrying
on insurance business”, “Sundry debtors”, “Bills Receivable”, “Cash” and the several items specified under
“Other Accounts”;
7. Disclosure with regard to the overall risk exposure and strategy adopted to mitigate the same;
8. Operations in other countries, if any, with a separate statement giving the management’s estimate of
country risk and exposure risk and the hedging strategy adopted;
9. Ageing of claims indicating the trends in average claim settlement time during the preceding five years;
10. Certification to the effect as to how the values, as shown in the balance-sheet, of the investments and
stocks and shares have been arrived at, and how the market value thereof has been ascertained for the
purpose of comparison with the values so shown;
11. Review of asset quality and performance of investment in terms of portfolios, i.e., separately in terms of
real estate, loans, investments, etc.;
12. A responsibility statement indicating therein that—
(i) in the preparation of financial statements, the applicable accounting standards, principles and policies
have been followed along with proper explanations relating to material departures, if any;
(ii) the management has adopted accounting policies and applied them consistently and made judgments
and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs
of the company at the end of the financial year and of the operating profit or loss and of the profit or
loss of the company for the year;
(iii) the management has taken proper and sufficient care for the maintenance of adequate accounting
records in accordance with the applicable provisions of the Insurance Act, 1938 (4 of 1938)/Companies
Act, 1956 (1 of 1956), for safeguarding the assets of the company and for preventing and detecting
fraud and other irregularities;
(iv) the management has prepared the financial statements on a going concern basis;
Page 227 of 339
(v) the management has ensured that an internal audit system commensurate with the size and nature of
the business exists and is operating effectively.
15. A schedule of payments, which have been made to individuals, firms, companies and organisations in
which directors of the insurer are interested.
PART V
Preparation of Financial Statements
(1) An insurer shall prepare the Revenue Account, Profit and Loss Account [Share-holders’ Account] and the
Balance Sheet in Form B-RA, Form B-PL, and Form B-BS, or as near thereto as the circumstances permit:
Provided that an insurer shall prepare Revenue Accounts separately for fire, marine, and miscellaneous insurance
business and separate schedules shall be prepared for marine cargo, marine—other than marine cargo and the
following classes of miscellaneous insurance business under miscellaneous insurance and accordingly application
of As 17—segment reporting—shall stand modified.
1. Motors
2. Workmen’s compensation/s
3. Public/products
4. Engineering employer’ liability liabilitys
5. Aviations
6. Personal accidents
7. Health insurances
8. Others
(2) An insurer shall prepare separate Receipts and Payments Account in accordance with the Direct method
prescribed in AS 3—“Cash Flow Statement” issued by the ICAI.
FORM B-RA
Registration No and date of Registration with the IRDA
REVENUE ACCOUNT FOR THE YEAR ENDED 31st MARCH, 20...
Sl. No. Particulars Schedule Current Year Previous Year

(1) (2) (3) (4) (5)
(Rs. 000) (Rs. 000)
1. Premiums earned 1
(Net)
2. Profit/loss on
sale/redemption of
investments
3. Other (to be
specified)
Page 228 of 339

4. Interest, Dividend &
Rent-Gross
Total (A)
(1) (2) (3) (4) (5)
1. Claims Incurred 2
(Net)
2. Commission 3
3. Operating Expenses 4
related to Insurance
Business
Total (B)
Operating
Profit/(Loss) from
Fire/Marine/Miscella
neous Business C-
(A-B)
Appropriations
Transfer to
shareholders’
account
Transfer to
catastrophe reserve
Transfer to other
reserves (to be
specified)
Total (C)
Note:—See notes appended at the end of Form-B-PL
FORM B-PL
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH, 20...

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Operating
Profit/(Loss)
(a) Fire Insurance

Page 229 of 339

(b) Marine Insurance
(c) Miscellaneous
Insurance
2. Income from
Investments
(a) Interest, Dividend

& Rent-Gross
(b) Profit on sale of

investments
Less: Loss on sale

of investments
3. Other income (To

be specified)
Total (A)
4. Provisions (Other
than taxation)
(a) For deminution in

the value of
investments
(b) For doubtful

debts
(c) Others (to be

specified)
5. Other expenses
(a) Expenses other

than those related to
Insurance Business
(b) Bad debts written

off
(c) Others (to be

specified)
Total (B)
Profit Before Tax
Provision for taxation
Appropriations
(a) Interim dividends

paid during the year
(b) Proposed final

dividend
Page 230 of 339

(c) Dividend
distribution tax
(d) Transfer to any

Reserves or other
Accounts (to be
specified)
Balance carried
forward to Balance-
Sheet
Notes.—To Form B-RA and B-PL
(a) Premium income received from business concluded in and outside India shall be separately disclosed.
(b) Reinsurance premiums whether on business ceded or accepted are to be brought into account gross (i.e.,
before deducting commissions) under the head reinsurance premiums.
(c) Claims incurred shall comprise claims paid, specific claims settlement costs wherever applicable and
change in the outstanding provision for claims at the year-end.
(d) Items of expenses and income in excess of one per cent of the total premiums (less reinsurance) or Rs.
(e) Fees and expenses connected with claims shall be included in claims.
(f) Under the sub-head “Others” shall be included items like foreign exchange gains or losses and other items.
(g) Interest, dividends and rentals receivable in connection with an investment should be stated as gross
amount, the amount of income-tax deducted at source being included under “advance taxes paid and taxes
deducted at source”.
(h) Income from rent shall include only the realised rent. It shall not include any notional rent.
FORM B-BS
BALANCE SHEET AS AT 31st MARCH, 20...

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
Sources of Funds
Share Capital 5
Reserves and 6
surplus
Fair value Change

Account
Borrowings 7
Total
Page 231 of 339

Application of 2
Funds
Investments 8
Loans 9
Fixed Assets 10
Current Assets
Cash and bank 11

balances
Advances and Other 12

Assets
Sub-total (A)
Current Liabilities 13
Provisions 14
Sub-Total (B)
Net Current Assets

(C) = (A—B)
Miscellaneous 15
Expenditure (to the
extent not written off
or adjusted)
Debit balance in
profit and loss
account
Total
CONTINGENT LIABILITIES

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Partly paid-up investments
2. Claims, other than against

policies, not acknowledged
as debts by the company
3. Underwriting commitments
outstanding (in respect of
shares and securities)
4. Guarantees given by or on
behalf of the company
Page 232 of 339

5. Statutory
demands/liabilities in
dispute, not provided for
6. Re-insurance obligations
Total
SCHEDULES FORMING PART OF FINANCIAL STATEMENTS
SCHEDULE 1
Premium Earned [Net]

(1) (2) (3)
(Rs. 000) (Rs. 000)
Premium from direct business

written
Add: Premium on re-insurance

accepted
Less: Premium on re-insurance

ceded
Net Premium
Adjustment for change in reserve for

unexpired risks
Total Premium Earned (Net)
Note.—Re-insurance premiums whether on business ceded or accepted are to be brought into account, before
deducting commission, under the head Re-insurance premiums.
SCHEDULE 2
Claims incurred [Net]

(1) (2) (3)
(Rs. 000) (Rs. 000)
Claims paid
Direct
Add: Re-insurance accepted
Less: Re-insurance Ceded

Page 233 of 339

Net Claims paid
Add: Claims outstanding at the end

of the year
Less: Claims outstanding at the

beginning
Total Claims Incurred
Notes.—
(a) Incurred But Not Reported (IBNR), Incurred But Not Enough Reported [IBNER] claims should be included
in the amount for claims.
(b) Claims include specific claims settlement cost but not expenses of management.
(c) The surveyor fees, legal and other expenses shall also form part of claims cost.
(d) Claims cost should be adjusted for estimated salvage value if there is a sufficient certainty of its realisation.
SCHEDULE 3
Commission

(1) (2) (3)
(Rs. 000) (Rs. 000)
Commission paid
Direct
Add: Re-insurance Accepted
Less: Commission on Re- insurance

ceded
Net Commission
Note.—
The profit/commission, if any, are to be combined with the re-insurance accepted or re-insurance ceded figures.
SCHEDULE 4
Operating Expenses Related to Insurance Business

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Employees’ remuneration
and welfare benefits
2. Travel, conveyance and

Page 234 of 339

vehicle running expenses
3. Training expenses
4. Rents, rates & taxes
5. Repairs
6. Printing & stationery
7. Communication
8. Legal and professional

charges
9. Auditors’ fees, expenses,

etc.
(a) as auditor
(b) as adviser or in any

other capacity, in respect
of
(i) Taxation matters
(ii) Insurance matters
(iii) Management services;

and
(c) in any other capacity
10. Advertisement and

publicity
11. Interest & Bank Charges
13. Depreciation
Total
Notes.—Items of expenses and income in excess of one per cent, of the total premium (less re-insurance) or Rs.
SCHEDULE 5
Share Capital

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Authorised Capital

Page 235 of 339

2. Issued Capital
3. Subscribed Capital
4. Called-up Capital
Less: Calls unpaid
Add: Equity Shares

forfeited (Amount originally
paid up)
Less: Par value of equity

shares bought back
Less: Preliminary
Expenses
Expenses including
commission or brokerage
on underwriting or
subscription of shares
Total
Notes.—
(a) Particulars of the different classes of capital should be separately stated.

(b) The amount capitalised on account of issue of bonus shares should be disclosed.
(c) In case any part of the capital is held by a holding company, the same should be separately disclosed.
SCHEDULE 5A
Share Capital
Pattern of Shareholding
[As certified by the management]
Shareholder Current Year Previous Year

(1) (2) (3) (4) (5)
Promoters
-Indian
-Foreign
Others
Page 236 of 339
Shareholder Current Year Previous Year

Total
SCHEDULE 6
Reserves and Surplus

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Capital Reserve
2. Capital Redemption
Reserve
3. Share Premium
4. General Reserve
Less. Debit balance in

Profit and Loss Account
Less: Amount utilised for

Buy-back
5. Catastrophe Reserve
6. Other Reserves (To be

specified)
7. Balance of profit in Profit

and Loss Account
Total
Note.—Additions to and deductions from the reserves should be disclosed under each of the specified heads.
SCHEDULE 7
Borrowings

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Debentures/Bonds
2. Banks
3. Financial Institutions
Total
Page 237 of 339
Notes.—
(a) The extent to which the borrowings are secured shall be separately disclosed stating the nature of the
security under each sub-head.
(b) Amounts due within 12 months from the date of balance-sheet should be shown separately.
SCHEDULE 8
Investments

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)

Bills
(a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds

specified)
(f) Subsidiaries
(g) Investment
Properties—Real Estate
4. Investments in
sector

investments

Bills
Page 238 of 339

(a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds

specified)
(f) Subsidiaries
(g) Investment
Properties—Real Estate
4. Investments in
sector

investments
Total
Notes.—
(a) Investments in subsidiary/holding companies, joint ventures and associates shall be separately disclosed, at
cost:
(i) Holding company and subsidiary shall be construed as defined in the Companies Act, 1956.
(ii) Joint Venture is a contractual arrangement whereby two or more parties undertake an economic activity,
which is subject to joint control.
(iii) Joint control—is the contractually agreed sharing of power to govern the financial and operating policies of
an economic activity to obtain benefits from it.
(iv) Associate—is an enterprise in which the company has significant influence and which is neither a
subsidiary nor a joint venture of the company.
(v) Significant influence (for the purpose of this schedule)—means participation in the financial and operating
policy decisions of a company, but not control of those policies. Significant influence may be exercised in
several ways, for example, by representation on the board of directors, participation in the policy making
process, material inter company transactions, interchange of managerial personnel or dependence on
technical information. Significant influence may be gained by share ownership, statute or agreement. As
regards share ownership, if an investor holds, directly or indirectly through subsidiaries, 20 per cent, or
more of the voting power of the investee, it is presumed that the investor does have significant influence,
unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly
through subsidiaries, less than 20 per cent, of the voting power of the investee, it is presumed that the
investor does not have significant influence, unless such influence is clearly demonstrated. A substantial or
majority ownership by another investor does not necessarily preclude an investor from having significant
influence.
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(b) Aggregate amount of company’s investments other than listed equity securities and derivative instruments and
also the market value thereof shall be disclosed.
(c) Investments made out of Catastrophe reserve should be shown separately.
(d) Debt securities will be considered as “held to maturity” securities and will be measured at historical cost subject
to amortisation.
(e) Investment property means a property [land or building or part of a building or both] held to earn rental income
or for capital appreciation or for both, rather than for use in services or for administrative purposes.
(f) Investments maturing within twelve months from balance-sheet date and investments made with the specific
intention to dispose of within twelve months from balance-sheet date shall be classified as short-term investments.
SCHEDULE 9
Loans

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Security-wise
Classification
Secured
(a) On mortgage of
property
(aa) In India
(bb) Outside India
(b) On Shares, Bonds,

Govt. Securities, etc.
Unsecured
Total
2. Borrower-wise
Classification
(a) Central and State

Governments
(b) Banks and Financial

Institutions
(c) Subsidiaries
(d) Industrial undertakings
(e) Others (to be specified)
Total
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3. Performance-wise
Classification
(a) Loans classified as

standard
(aa) In India
(bb) Outside India
(b) Non-standard loans

less provisions
(aa) In India
(bb) Outside India
Total
4. Maturity-wise
Classification
(a) Short Term
(b) Long Term
Total
Notes.—
(a) Short-term loans shall include those, which are repayable within 12 months from the date of balance-sheet
date. Long-term loans shall be the loans other than short-term loans.
(b) Provisions against non-performing loans shall be shown separately.
(c) The nature of the security in case of all long-term secured loans shall be specified in each case. Secured
loans for the purposes of this schedule, means loans secured wholly or partly against an asset of the
company.
(d) Loans considered doubtful and the amount of provision created against such loans shall be disclosed.
SCHEDULE 10
Fixed Assets
(Rs. 000)
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Particulars Cost/Gross Block Depreciation Net Block

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Opening Additions Deductions Closing Up to Last For the On To Date As at Year Previous
Year Year Sales/Adjus end Year
tments
Goodwill
Intangibles
(specify)
Land-
Freehold
Leasehold
Property
Buildings
Furniture
and Fittings
Information
Technology
Equipment
Vehicles
Office
Equipment
Others
(Specify
nature)
Total
Work-in-
progress
Grand total
Previous
Year
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Note.—Assets included in land, building and property above exclude investment properties as defined in note (e) to
Schedule 8.
SCHEDULE 11
Cash and Bank Balances

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Cash (including cheques,

drafts and stamps)
2. Bank Balances
(a) Deposit Accounts
(aa) Short-term (due within

12 months of the date of
Balance-Sheet)
(bb) Others
(b) Current Accounts
3. Money at Call and Short

Notice
(a) With Banks
(b) With other Institutions
Total
Balances with non-

scheduled banks included
in 2 and 3 above
Note.—
Bank balance may include remittances in transit. If so, the nature and amount should be separately stated.
SCHEDULE 12
Advances and other Assets

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
Advances
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1. Reserve deposits with
ceding companies
2. Application money for

investments
3. Pre-payments
4. Advances to
directors/officers
5. Advance tax paid and

taxes deducted at source
(Net of provision for
taxation)
Total (A)
Other Assets
1. Income accrued on
investments
2. Outstanding Premiums
4. Foreign Agencies’
Balances
5. Due from other entities

carrying on insurance
business (including re-
insurance)
6. Due from
company
7. Deposit with Reserve

Bank of India [Pursuant, to
section 7 of the Insurance
Act, 1938]
Total (B)
Total (A+B)
Notes.—
(a) The items under the above heads shall not be shown net of provisions for doubtful amounts. The amount
of provision against each head should be shown separately.
(b) The term ‘officer’ should conform to the definition of that term as given under the Companies Act, 1956.
(c) Sundry debtors will be shown under item 9 (others)
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SCHEDULE 13
Current Liabilities

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
2. Balances due to other

insurance companies
3. Deposits held on re-

insurance ceded
4. Premiums received in
advance
5. Unallocated premium
6. Sundry creditors
7. Due to
company
8. Claims Outstanding
9. Due to Officers/Directors
Total
SCHEDULE 14
Provisions

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Reserve for unexpired risk
2. For taxation (less advance

tax paid and taxes
deducted at source)
3. For proposed dividends
4. For dividend distribution

tax
Total
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SCHEDULE 15
Miscellaneous Expenditure

(1) (2) (3) (4)
(Rs. 000) (Rs. 000)
1. Discount allowed in issue

of shares/debentures
Total
Notes.—
(a) No item shall be included under the head “Miscellaneous Expenditure” and carried forward unless:
1. some benefit from the expenditure can reasonably be expected to be received in future, and
2. the amount of such benefit is reasonably determinable.
(b) The amount to be carried forward in respect of any item included under the head “Miscellaneous
Expenditure” shall not exceed the expected future revenue/other benefits related to the expenditure.
SCHEDULE C
(See Regulation 3)
Auditor’s Report
The report of the auditors on the financial statements of every insurer shall deal with the matters specified herein:
1. (a) That they have obtained all the information and explanations which, to the best of their knowledge and belief
were necessary for the purposes of their audit and whether they have found them satisfactory;
(b) Whether proper books of account have been maintained by the insurer so far as appears from an examination of
those books;
(c) Whether proper returns, audited or unaudited, from branches and other offices have been received and whether
they were adequate for the purpose of audit;
(d) Whether the balance-sheet. Revenue Account and Profit and Loss Account and the Receipts and Payments
Account dealt with by the report are in agreement with the books of account and returns;
(e) Whether the actuarial valuation of liabilities is duly certified by the appointed actuary including to the effect that
the assumptions for such valuation are in accordance with the guidelines and norms, if any, issued by the Authority,
and/or the Actuarial Society of India in concurrence with the Authority.
2. The Auditors shall express their opinion on:
(a) (i) Whether the balance-sheet gives a true and fair view of the insurer’s affairs as at the end of the
financial year/period;
(ii) Whether the revenue account gives a true and fair view of the surplus or the deficit for the financial
year/period;
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(iii) Whether the profit and loss account gives a true and fair view of the profit or loss for the financial
year/period;
(v) Whether the receipts and payments account gives a true and fair view of the receipts and payments for
the financial year/period.
(b) The financial statements stated at (a) above are prepared in accordance with the requirements of ‘the
Insurance Act, 1938 (4 of 1938), the Insurance Regulatory and Development Act, 1999 (41 of 1999) and -
the Companies Act, 1956 (1 of 1956), to the extent applicable and in the manner so required.
(c) Investments have been valued in accordance with the provisions of the Act and these Regulations.
(d) The accounting policies selected by the insurer are appropriate and are in compliance with the applicable
accounting standards and with the accounting principles, as prescribed in these Regulations or any order
or direction issued by the Authority in this behalf.
3. The auditors shall further certify that—
(a) they have reviewed the management report and there is no apparent mistake or material inconsistencies
with the financial statements;
(b) the insurer has complied with the terms and conditions of the registration stipulated by the Authority.
4. A certificate signed by the auditors [which shall be in addition to any other certificate or report which is required
by law to be given with respect to the balance-sheet] certifying that—
(a) they have verified the cash balances and the securities relating to the insurer’s loans, reversions and life
interests (in the case of life insurers) and investments;
(b) to what extent, if any, they have verified the investments and transactions relating to any trusts undertaken
by the insurer as trustee; and
(c) no part of the assets of the policyholders’ funds has been directly or indirectly applied in contravention of
the provisions of the Insurance Act, 1938 (4 of 1938) relating to the application and investments of the
policyholders’ funds.
APPENDIX–XII THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(INVESTMENT) REGULATIONS, 20161.
In exercise of the powers conferred by clause (i) sub-section (2) of Section 114A read with sections 27, 27A, 27B,
27C, 27D and 28 of the Insurance Act, 1938 (4 of 1938), the Authority, in consultation with the Insurance Advisory
Committee, hereby makes the following Regulations, :—
1. Short title and commencement.—(1) These regulations may be called the Insurance Regulatory and
Development Authority (Investment) Regulations, 2016.
2. Definitions.—In these regulations, unless the context otherwise requires,—

(b) ‘accretion of funds’ means investment income, gains/loss on sale/redemption of existing investment and
operating surplus;
(c) “Accounting Standard” (AS) means applicable Accounting Standard or Indian Accounting Standard (Ind
AS) as issued by the Institute of Chartered Accountants of India and notified by the Central Government
under the Companies Act, to the extent recognized under the IRDAI (Preparation of Financial Statements
and Audit Report) Regulations, issued in that behalf;
(d) “Approved Investments” means Investments made as per Regulation 3(a) and (b) read with Schedule I and
Schedule II of this regulation;
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(da) “Assets” means assets in India, held by an Insurer in accordance with the provisions of Section 31 of the
Act;
(e) ‘Authority’ means the Insurance Regulatory and Development Authority established under sub-section (1)
[(f) ‘Financial Derivatives’ means a derivative as defined under clause (ac) of section 2 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), and includes a contract which derives its value from interest
rates of underlying debt securities and such other derivative contracts as may be stipulated by the
Authority, from time to time.
(g) “Group” means: two or more individuals, association of individuals, firms, trusts, trustees or bodies
corporate, or any combination thereof, which exercises, or is established to be in a position to exercise,
significant influence and/or control, directly or indirectly, over any associate as defined in Accounting
Standard (AS), body corporate, firm or trust, or use of common brand names, Associated persons, as may
be stipulated by the Authority, from time to time, by issuance of guidelines under these regulations;
Explanation: Use of common brand names in conjunction with other parameters of significant influence
and/or control, whether direct or indirect shall be reckoned for determination for inclusion as forming
part of the group or otherwise;
(h) “Infrastructure facility” means, the ‘Harmonized Master list of Infrastructure sub-sectors’ as per Gazette
Notification Dt. 14th October, 2014 of Department of Economic Affairs, as amended from time to time, and
shall also include the following:
1. a road, including toll road, a bridge or a rail system;

2. a highway project including other activities being an integral part of the highway project;
3. a port, airport, inland waterway or inland port and associated railway sidings;
4. a water supply project, irrigation project, water treatment system, sanitation and sewerage system or
solid waste management system;
5. telecommunication services whether basic or cellular, including radio paging, domestic satellite service
(i.e., a satellite owned and operated by an Indian company for providing telecommunication service),
network of trunking, broadband network and internet services;
6. an industrial park or special economic zone;
7. generation or generation and distribution of power (both conventional and non-conventional);
8. transmission or distribution of power by laying a network of new transmission or distribution lines
including telecom towers;
9. construction relating to projects involving agro-processing and supply of inputs to agriculture;
10. construction for preservation and storage of processed agro- products, perishable goods such as fruits,
vegetables and flowers including testing facilities for quality;
11. construction of educational institutions and hospitals;
(i) “Investment Assets” mean all investments made out of:
(1) in the case of Life Insurer—
(i) shareholders’ funds representing solvency margin, non-unit reserves of unit linked insurance
business, participating and non-participating funds of policyholders, funds of variable insurance
products including One Year Renewable pure Group Term Assurance Business (OYRGTA) at their
carrying value;
(ii) policyholders’ funds of Pension, Annuity business and Group business including funds of variable
insurance products at their carrying value;
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(iii) policyholders’ unit reserves of unit linked insurance business including funds of variable insurance
products at their market value as per guidelines issued under these regulations, from time to time.
(2) in the case of General Insurer including an insurer carrying on business of re-insurance or health
insurance
or in case of a branch of a foreign company engaged in the business of re-insurance, funds

maintained in its head office account, shareholders’ funds representing solvency margin and
policyholders’ funds at their carrying value as shown in its balance sheet prepared in
accordance with any regulations issued in that behalf for the time being in force, by IRDAI
(Preparation of Financial Statements and Auditors’ Report of Insurance Companies)
Regulations,
(j) Money Market Instruments.—Money Market Instruments shall comprise of short-term investments with
maturity not more than one year comprising of the following instruments:
1. Certificate of deposit rated by a credit rating agency registered under SEBI (Credit Rating Agencies)
Regulations, 1999.
2. Commercial paper rated by a credit rating agency registered under SEBI (Credit Rating Agencies)
Regulations, 1999.
3. Reverse Repo.
4. Treasury Bills (including Cash Management Bills);
5. Call, Notice, Term Money;
6. CBLO as per Schedules I and II of these regulations;
7. Any other instrument as may be prescribed by the Authority,
(k) “Promoter” means a promoter as defined under Regulation 2(1)(x) of IRDAI (Issuance of Capital by Indian
Insurance Companies transacting life insurance business) Regulations;
(l) ‘‘‘Principal Officer’’’ means any person connected with the management of an insurer or any other person
upon whom the Authority has served notice of its intention of treating him as the principal officer thereof;
(m) All words and expressions used herein and not defined but defined in the Act or in the Insurance
Regulatory and Development Authority Act, 1999 (41 of 1999) or in any Rules or Regulations made
thereunder, shall have the meanings respectively assigned to them in those Acts or Rules or Regulations.
3. Approved Investments.—
(a) No insurer shall invest or keep invested any part of its Controlled Fund, as defined under section
27A/Assets as defined under section 27(2) of the Act, read together with section 27E of the Act, otherwise
than in approved securities, as per section 2(3) of Insurance Act, 1938, as amended from time to time and
in any of the following approved investments, namely:—
(1) debentures secured by a first charge on any immoveable property plant or equipment of any company
which has paid interest in full;
(2) debentures secured by a first charge on any immovable property, plant or equipment of any company
where either the book value or the market value, whichever is less, of such property, plant or
equipment is more than three times the value of such debentures;
(3) first debentures secured by a floating charge on all its assets of any company which has paid dividends
on its equity shares;
(4) preference shares of any company which has paid dividends on its equity shares for at least two
consecutive years immediately preceding;
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(5) equity shares of any listed company on which not less than ten percent dividends have been paid for at
least two consecutive years immediately preceding;
(6) immovable property situated in India, provided that the property is free of all encumbrances;
(7) loans on policies of life insurance within their surrender values issued by him or by an insurer whose
business he has acquired and in respect of which business he has assumed liability;
(8) Fixed Deposits with banks included for the time being in the Second Schedule to the Reserve Bank of
India Act, 1934 (2 of 1934) and;
such other investments as the Authority may, by notification in the Official Gazette, declare to
be Approved Investments.
(b) In addition the following investments shall be deemed as Approved Investments
(1) All rated debentures (including bonds) and other rated & secured debt instruments as per Note
appended to Regulations 4 to 9. Equity shares, preference shares and debt instruments issued by All
India Financial Institutions recognized as such by Reserve Bank of India – investments shall be made
in terms of investment policy guidelines, benchmarks and exposure norms, limits approved by the
Board of Directors of the insurer.
(2) Bonds or debentures issued by companies, rated not less than AA or its equivalent and A1 or
equivalent ratings for short term bonds, debentures, certificate of deposits and commercial papers by a
credit rating agency, registered under SEBI (Credit Rating Agencies) Regulations, 1999.
(3) Subject to norms and limits approved by the Board of Directors of the insurer’s deposits [including fixed
deposits as per Regulation 3(a)(8)] with banks (e.g., in current account, call deposits, notice deposits,
certificate of deposits etc.) included for the time being in the Second Schedule to Reserve Bank of
India Act, 1934 (2 of 1934) and deposits with primary dealers duly recognized by Reserve Bank of
India as such.
(4) Collateralized Borrowing & Lending Obligations (CBLO) created by the Clearing Corporation of India
Ltd and recognized by the Reserve Bank of India and exposure to Gilt, G Sec and liquid mutual fund
forming part of Approved Investments as per Mutual Fund Guidelines issued under these regulations
and money market instrument/investment.
(5) Asset Backed Securities with underlying Housing loans or having infrastructure assets as underlying as
defined under ’infrastructure facility’ in Regulation 2(h) as amended from time to time.
(6) Commercial papers issued by All India Financial Institutions recognized as such by Reserve Bank of
India having a credit rating of A1 by a credit rating agency registered under SEBI (Credit Rating
Agencies) Regulations, 1999.
(7) Money Market instruments as defined in Regulation 2(j) of this Regulation, subject to provisions of
approved investments.
Explanation: All conditions mentioned in the ‘note’ appended to Regulations 4 to 9 shall be

complied with.
(c) The board of the insurer, to comply with the provisions of Section 27A(2)(ii) of the Act, may delegate to
Investment Committee, for investments already made and the continuance of such investments from
controlled fund/assets, in otherwise than in an approved investments, and in All India Financial Institutions
recognized as such by RBI for investments carrying a rating of less than AA and being part of Approved
Investment. The investment committee shall be responsible for the details, analysis and review of non-
performing assets of investments on a quarterly periodicity. The insurer shall report compliance of this
provision to the Authority through Form 4.
(d) Unless specifically permitted by the Authority, no investment shall be made in any entity not formed under
laws relating to companies in India and in any private limited company or one person company or a
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company formed under section 8 of the Companies Act, 2013 or erstwhile Section 25 of the Companies
Act, 1956.
4. Regulation of Investments– Life Insurer.—
A life insurer, for the purpose of these Regulations, shall invest and at all times keep invested, the Investment
Assets forming part of the Controlled Fund as under:
(a) all funds (excluding Shareholders’ funds held beyond solvency margin, held in a separate custody account)
of Life insurance business and One Year Renewable pure Group Term Assurance Business (OYRGTA),
and non-unit reserves of all categories of Unit linked life insurance business, as per Regulation 5;
(b) all funds of Pension, Annuity and Group Business [as defined under Regulation 2(1)(e) of IRDAI (Actuarial
Report and Abstract for life insurance business) Regulations] as per Regulation 6; and
(c) the unit reserves portion of all categories of Unit linked funds, as per Regulation 7.
5. Without prejudice to section 10(2AA), 27 or 27A of the Act and any provisions of these Regulations, every insurer
carrying on the business of Life Insurance, shall invest and at all times keep invested his Investment Assets as
defined in Regulation 4(a) (other than funds relating to Pension & General Annuity and Group Business and unit
reserves of all categories of Unit Linked Business) in the following manner:—
S. No. Type of Investment Percentage to funds as under

Regulation 4(a)
(i) Central Government Securities Not less than 25%
(ii) Central Government Securities, Not less than 50% of the fund (incl.
State Government Securities or (i) above)
Other Approved Securities
(iii) Approved Investments as specified Not exceeding 50%

in Regulation 3(a), (b) and Not
exceeding 50% Other Investments
as specified in Section 27A(2) and
Schedule I to these Regulations, (all
taken together) subject to
Exposure/Prudential Norms as
specified in Regulation 9:
(iv) Other Investments as specified in Not exceeding 15%

Section 27A (2), subject to
(v) Investment in housing and Total Investment in housing and

infrastructure by way of subscription infrastructure (i. e.,) investment in
or purchase of: A. Investment in categories (i), (ii), (iii) and (iv) above
Housing taken together shall not be less than
15% of the fund under Regulation
(a) Bonds/debentures of 4(a)
HUDCO and National
Housing Bank
(b) Bonds/debentures of
Housing Finance
Companies either duly
accredited by National
Housing Banks, for house
building activities, or duly
guaranteed by Government
or carrying current rating of
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S. No. Type of Investment Percentage to funds as under

Regulation 4(a)
not less than ‘AA’ by a
credit rating agency
registered under SEBI
(Credit Rating Agencies)
Regulations, 1999
(c) Asset Backed Securities
with underlying housing
loans, satisfying the norms
specified in the guidelines
issued under these
regulations from time to
time.
B. Investment in Infrastructure:
(Explanation. Subscription or
purchase of Bonds/Debentures,
Equity and Asset Backed Securities
with underlying infrastructure assets
would qualify for the purpose of this
requirement.)
‘Infrastructure facility’ shall have the

meaning as given in Regulation 2(h)
as amended from time to time.
Note.—Investments made under

category (i) and (ii) above may be
considered as investment in housing
and infrastructure, provided the
respective government issues such
a security specifically to meet the
needs of any of the sectors specified
as ‘infrastructure facility’.
6. Without prejudice to Sections 10(2AA), 27 or 27A of the Act and any provisions of these Regulations every
insurer carrying on Pension, Annuity and Group Business [as defined under Regulation 2(1)(e) of IRDAI (Actuarial
Report and Abstract for life insurance business) Regulations] shall invest and at all times keep invested its
Investment Assets of Pension, Annuity and Group business in the following manner:—
S. No. Type of Investment Percentage to funds under

Regulation 4(b)
(ii) Central Government Securities, Not less than 40% [incl(i) above]
State Government Securities or
(iii) Balance to be invested in Approved Not exceeding 60%

Investments, as specified in
Schedule I, subject to
Exposure/Prudential norms specified
in Regulation 9.
Note.—For the purposes of this regulation no investment falling under ‘Other Investments’ as specified under
27A(2) of Insurance Act, 1938 shall be made.
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(7) Unit Linked Insurance Business.—
(a) Without prejudice to Sections 10(2AA), 27 or 27A of the Act and any provisions of these Regulations every
insurer shall invest and at all times keep invested its segregated fund(s) under Regulation 4(c) (with underlying
securities at custodian level) of Unit linked business as per pattern of investment offered to and subscribed to by the
policyholders where the units are linked to categories of assets which are both marketable and readily realizable
within the approved pattern as per the product regulations.
However, the investment in Approved Investments shall not be less than 75% of such fund(s) in each such
segregated fund”.
(a) All prudential and exposure norms under Regulation 9, shall be applicable at the level of individual segregated
fund at SPIN level.
(b) Insurer shall, as per circular/guidelines issued, from time to time, disclose on their website, the minimum
information required for the benefit of policyholders.8. Regulation of Investments.—(1) General Insurer
including an insurer carrying on business of re-insurance or health insurance.—Without prejudice to sections
10(2AA), 27 or 27B of the Act and any provisions of these regulations, an insurer carrying on the business of
General Insurance including an insurer carrying on business of re-insurance or health insurance shall invest and at
all times keep invested his investment assets in the manner set out below:
S.No. Type of Investment Percentage of Investment Assets

(ii) Central Government Securities, Not less than 30% [incl. (i) above]
State Government Securities or
(iii) Approved Investments as specified Not exceeding 70%

in Regulation 3(a), (b) Other
Investments as specified in Section
27A(2) and Schedule II to these
Regulations, (all taken together)
subject to Exposure/Prudential
Norms as specified in Regulation 9:
(iv) Other investments as specified in Not more than 15%

Section 27A(2), subject to
Housing and loans to State Total Investment in housing and

Government for Housing and Fire infrastructure (i.e.) investment in
Fighting equipment, by way of categories (i), (ii), (iii) and (iv) above
subscription or purchase of: A. taken together shall not be less than
Investment in Housing 15% of the Investment Assets.
1. Bonds/Debentures issued Not less than 10%
by HUDCO, National
Housing Bank
2. Bonds/debentures of
Housing Finance
Companies either duly
accredited by National
Housing Bank, for house
building activities, or duly
guaranteed by Government
or carrying current rating of
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S.No. Type of Investment Percentage of Investment Assets

not less than ‘AA’ by a
credit rating agency
registered under SEBI
(Credit Rating Agencies)
Regulations, 1999
3. Asset Backed Securities
with underlying housing
loans, satisfying the norms
specified in the guidelines
issued under these
regulations from time to
time.
B. Investment in Infrastructure:
(Explanation: Subscription or
purchase of Bonds/Debentures,
Equity and Asset Backed Securities
with underlying infrastructure assets
would qualify for the purpose of this
requirement.)
‘Infrastructure facility’ shall have the

meaning as given in Regulation 2(h)
as amended from time to time.
Note.—Investments made under

category (i) and (ii) above may be
considered as investment in housing
or infrastructure, as the case may
be, provided the respective
government issues such a security
specifically to meet the needs of any
of the sectors specified as
‘infrastructure facility’
Note.—For the purpose of the regulations 4 to 8 —
1. Applicability of Pattern of Investment
Pattern of Investment will not be applicable for Shareholders’ funds held in business beyond required
solvency margin, and not taken in calculation of solvency margin. Such excess shall be:
(i) made after fully complying with investment in Central Government Securities, State Government and
Other Approved Securities and in Housing & Infrastructure Investments from funds representing
solvency margin,
(ii) such excess of Shareholder’s funds, held beyond Solvency Margin requirement, shall be held in a
separate custody account with identified scrips,
(iii) such excess funds shall be determined only after Actuarial Valuation, certified by Appointed Actuary
and such valuation is filed with the Authority,
(iv) such transfer made between quarters, shall be certified by the Concurrent Auditor to have complied
with points (i), (ii) and (iii) above,
(v) Exposure Norms of ‘investee company’, ‘group’, ‘promoter group’ and ‘industry sector’ shall be
applicable to both funds representing solvency margin [FRSM] and funds held in excess of required
solvency margin.
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2. All investment in assets or instruments, which are capable of being rated as per market practice, shall be
made on the basis of credit rating of such assets or instruments. No approved investment shall be made in
instruments, if such instruments are capable of being rated, but are not rated.
3. The rating should be done by a credit rating agency registered under SEBI (Credit Rating Agencies)
Regulations, 1999.
4. Corporate bonds or debentures rated not less than AA or its equivalent and A1 or equivalent ratings for
short term bonds, debentures, certificate of deposit and commercial paper, by a credit rating agency,
registered under SEBI (Credit Rating Agencies) Regulations, 1999 would be considered as ‘Approved
Investments’.
5. The rating of a debt instrument issued by All India Financial Institutions recognized as such by RBI shall be
of ‘AA’ or equivalent rating. In case investments of this grade are not available to meet the requirements of
the investing insurance company, and Investment Committee of the investing insurance company is fully
satisfied about the same, then, for the reasons to be recorded in the Investment Committee’s minutes, the
Investment Committee may approve investments in instruments carrying current rating of not less than ‘A+’
or equivalent as rated by a credit rating agency, registered under SEBI (Credit Rating Agencies)
Regulations, 1999, would be considered as ‘Approved Investments’.
6. Approved Investments under regulations 5, 6, 7 and 8 which are downgraded below the minimum rating
prescribed or not continuing to satisfy dividend criteria should be automatically re-classified under ’Other
Investments’ and specifically identified under a category which shall be valued at marked to market on a
quarterly basis, for the purpose of pattern of investment.
7. Investments in equity shares listed on a registered stock exchange should be made in actively traded and
liquid instruments viz., equity shares other than those defined as thinly traded as per SEBI Regulations and
guidelines governing mutual funds issued by SEBI from time to time.
8. (a) Not less than 75% of investment in debt instruments (including Central Government Securities, State
Government Securities or Other Approved Securities) in the case life insurer and not less than 65% of
investment in debt instruments (including Central Government Securities, State Government Securities or
Other Approved Securities) in the case of General Insurer including an insurer carrying on business of re-
insurance or health insurance – shall be in sovereign debt, AAA or equivalent rating for long term and
sovereign debt, A1+ or equivalent for short term instruments. This shall apply at segregated fund(s) in case
of Unit linked business.
Note: In calculating the 75% in the case of Life insurers and 65% in the case of General Insurer
including an insurer carrying on business of re-insurance or health insurance, of investment in ‘Debt’
instruments, investment in (a) Reverse Repo with corporate bond underlying (b) Bank Fixed Deposit
(c) Investment in Promoter Group Mutual Fund(s) and un-rated Mutual funds, shall not be considered
both in numerator and denominator.
(b) Not more than 5% of funds under Regulation 4(a) and Regulation 4 (c) in debt instruments (including
Central Government Securities, State Government Securities or Other Approved Securities) in the
case of life insurer and not more than 8% of investment in debt instruments (including Central
Government Securities, State Government Securities or Other Approved Securities) in the case of
General Insurer including an insurer carrying on business of re-insurance or health insurance – shall
have a rating of A or below or equivalent rating for long term.
(c) No investment can be made in other investments out of funds under Regulation 4(b).
(d) Investments in debt instruments rated AA – (AA minus) or below for long term and below A1 or
equivalent for short term debt instruments shall form part of Other Investments.
9. Notwithstanding the above, it is emphasized that rating should not replace appropriate risk analysis and
management on the part of the Insurer. The Insurer should conduct risk analysis commensurate with the
complexity of the product(s) and the materiality of their holding, or could also refrain from such
investments.
9. Exposure/Prudential Norms.—Without prejudice to anything contained in sections 10(2AA), 27, 27A, 27B and
27C of the Act every insurer shall limit its investment of controlled funds/all assets as per the following exposure
norms:—
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A. Exposure norms for:
1. (a) all funds of Life insurance business and One Year Renewable pure Group Term Assurance
Business (OYRGTA), and non-unit reserves of all categories of Unit linked life insurance business.
(b) all funds of Pension, Annuity and Group Business [as defined under Regulation 2(1)(e) of IRDAI
(Actuarial Report and Abstract for life insurance business) Regulations].
(c) the unit reserves portion of all categories of Unit linked funds, as per Regulation 7, Life, Pension,
Annuity and Group business and each segregated fund within Unit Linked Insurance business (except
for promoter group exposure).
2. General insurance business.

3. Re-insurance business.
4. Health insurance business.
for both Approved Investments as per Regulation 3(a), Schedule I and Schedule II of these Regulations, and Other
Investments as permitted under Section 27A(2) shall be as under.
B. The maximum exposure limit for a single ‘investee’ company (equity, debt and other investments taken together)
from all investment assets under point (A.1.a, A.1.b, A.1.c all taken together), (A.2), (A.3) and (A.4) mentioned
above, shall not exceed the lower of the following:—
(i) an amount of 10% of investment assets as under Regulation 2(i)(1), Regulation 2(i)(2) excluding fair value
change of investment assets under Regulation 4(a), 4(b) and Regulation 2(i).
(ii) an aggregate of amount calculated under point (a) and (b) of the following table
Type of Investment Limit for ‘Investee’ Limit for the entire Limit for Industry Sector
company ‘Group’ of the investee to which Investee
company Company belongs
(1) (2) (3) (4)
(a) Investment in ‘Equity’, 10%* of Outstanding Not more than 15% of the Investment by the insurer
Preference Shares, Equity Shares (Face amount under point A.1. in any industrial sector
Convertible Debentures Value) or 10% of amount (a) or A.1.(b) or A.1.(c) or shall not exceed 15% of
under point A.1.(a) or A.2 or A.3 or A.4 amount under point A.1.
(b) Investment in Debt A.1.(b) or A.1.(c) (a) or A.1.(b) or A.1.(c) or
(ind. CPs)/Loans and any [segregated fund] above Exposure to Investments A.2 or A.3 or A.4
other permitted considered separately in made in companies
Investments as per the case of life belonging to Promoter Note: Industrial sector
Act/Regulation, other than insurers/amount under A.2 Group shall be made as shall be classified in the
item ‘a’ above, or A.3 or A.4 in the case of per Point 7 under notes to lines of National Industrial
General Insurer/including Regulation 9 Classification (All
an insurer carrying on Economic Activities) -
business of reinsurance or 2008 [NIC] for all sectors,
health insurance except infrastructure
whichever is lower. sector Exposure shall be
calculated at Division level
10%* of the Paid-up Share from A to R. For Financial
capital, Free rese rves and Insurance Activities
(excl uding revaluation sector exposure shall be at
reserve) and Section level.
Debentures/Bonds (ind.
CPs) of the ‘Investee’ Exposure to ‘infrastructure’
company investments are subject to
Note: 1, 2, 3 and 4
Page 256 of 339
Type of Investment Limit for ‘Investee’ Limit for the entire Limit for Industry Sector
company ‘Group’ of the investee to which Investee
company Company belongs
Or mentioned below
10% of the amount under

point A.1.(a) or A.1.(b) or
A.1.(c) [segregated fund]
above considered
separately in the case of
life insurers/amount under
A.2 or A.3 or A.4 in the
case of General Insurer
including an insurer
carrying on business of
reinsurance or health
insurance whichever is
lower.
* In the case of insurers having investment assets within the meaning of Regulation 2(i)(1) and Regulation 2(i)(2) of
the under mentioned size, the (*) marked limit in the above table for investment in equity, preference shares,
convertible debentures, debt, loans or any other permitted investment under the Regulations, shall stand
substituted as under:
Investment assets Limit for ‘investee’ company

Equity Debt
Rs, 250000 Crores or more 15% of outstanding equity shares 15% of paid-up share capital, free
(face value) reserves (excluding revaluation
reserve) & debentures/bonds
Rs. 50000 Crores but less than Rs. 12% of outstanding equity shares 12% of paid-up share capital, free
250000 Crores (face value) reserves (excluding revaluation
Less than Rs. 50000 Crores 10% of outstanding equity shares 10% of paid-up share capital, free
(face value) reserves (excluding revaluation
Notes.—
1. Industry sector norms shall not apply for investments made in ’Infrastructure facility’ sector as defined
under Regulation 2(h) of this regulation as amended from time to time. NIC classification shall not apply to
investments made in ‘Infrastructure facility’.
2. Investments in Infrastructure Debt Fund (IDF), backed by Central Government as approved by the
Authority, on a case to case basis shall be reckoned for investments in Infrastructure.
3. Exposure to a public limited ‘Infrastructure investee company’ will be:
(i) 20% of outstanding equity shares (face value) in case of equity (or)
(ii) 20% of outstanding equity plus free reserves (excluding revaluation reserve) plus debentures/bonds
taken together, in the case of debt (or)
(iii) amount under Regulation 9(B)(i), whichever is lower,
(iv) The 20% mentioned above, can be further increased by an additional 5%, in case of debt instruments
alone, with the prior approval of Board of Insurer,
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(v) The outstanding tenure of debt instruments, beyond the exposure prescribed in the above table in this
regulation, in an infrastructure Investee Company, should not be less than 5 years at the time of
investment,
(vi) in case of Equity investment, dividend track record as per these regulations, in the case of primary
issuance of a wholly owned subsidiary of a Corporate/PSU shall apply to the holding company,
(vii) all investments made in an ‘infrastructure investee company’ shall be subject to group/promoter group
exposure norms.
4. An insurer can, at the time of investing, subject to group/promoter group exposure norms, invest a
maximum of 20% of the project cost (as decided by a competent body) of an Public Limited Special
Purpose Vehicle (SPV) engaged in infrastructure sector (or) amount under Regulation 9(B)(i), whichever is
lower, as a part of Approved Investments provided:
(a) such investment is in Debt

(b) the parent company guarantees the entire debt extended and the interest payment of SPV
(c) the principal or interest, if in default and if not paid within 90 days of the due date, such debt shall be
classified under other investments
(d) the latest instrument of the parent company (ies) has (have) rating of not less than AA
(e) such guarantee of the parent company (ies) should not exceed 20% of net worth of parent company
(ies) including the existing guarantees, if any, given
(f) the net worth of the parent company (ies), if unlisted, shall not be less than Rs. 500 Crores or where
the parent company (ies) is listed on stock exchanges having nationwide terminals, the net worth shall
not be less than Rs. 250 Crores
Investment Committee should at least on a half-yearly periodicity evaluate the risk of such
investments and take necessary corrective actions where the parent company (ies) is floating
more than one SPV.
5. Investment in securitized assets [Mortgaged Backed Securities (MBS)/Asset Backed Securities

(ABS)/Security Receipts (SR)] both under approved and other investment category shall not exceed 10%
of Investment Assets in case of Life companies and 5% of Investment Asset in the case of General
companies. Approved Investment in MBS/ABS with underlying Housing or Infrastructure Assets shall not
exceed 10% of investment assets in the case of life companies and not more than 5% of investment assets
in the case of General companies. Any MBS/ABS with underlying housing or infrastructure assets, if
downgraded below AAA or equivalent, shall be reclassified as Other Investments.
6. Investment Property within the meaning of Accounting Standards, and covered under Regulation 3(a)(6)
shall not exceed, at the time of investment, 5% of (a) Investment Assets in the case of general insurer and
(b) 5% of Investment Assets of life funds in the case of life insurer. Immovable property, held as
‘investment property’ shall not be for ’self-use’. Immovable property, for self-use, shall be purchased only
out of shareholders’ funds, and shall comply with circular/guidelines issued.
7. Subject to exposure limits mentioned in the table above, an insurer shall not have investments of more
than 5% in aggregate of its investment assets in all companies belonging to the promoters’ group.
Investment made in all companies belonging to the promoters’ group shall not be made by way of private
placement or in unlisted instruments (equity, debt, certificate of deposits and fixed deposits held in a
Scheduled Commercial Bank), except for companies formed by Insurers under Note 12 to Regulation 9.
8. The exposure limit for financial and insurance activities (as per Section K of NIC classification – 2008, as
amended from time to time) shall stand at 25% of investment assets for all insurers. Investment in Housing
Financing Companies and Infrastructure Financing Companies (except investment in Bonds/debentures of
HUDCO, NHB and only bonds issued by Housing Finance Companies having a rating of not less than
AAA, and investment in Debt, Equity in dedicated infrastructure financing entities forming part of
Infrastructure sector) shall form part of exposure to financial and insurance activities (as per Section K of
NIC classification – 2008).
Page 258 of 339
9. Where an investment is in partly paid-up shares, the uncalled liability on such shares shall be added to the
amount invested for the purpose of computing exposure norms.
10. Notwithstanding anything contained in Regulation 9(B) where new shares are issued to the existing
shareholders by a company the existing shares of which are covered by Regulation 3(a)(5) and the insurer
is already a shareholder, the insurer may subscribe to such new shares, provided that the proportion of
new shares subscribed by him does not exceed the proportion which the paid-up amount on the shares
held by him immediately before such subscription bears to the total paid-up capital of the company at the
time of such subscription.
11. Investment in fixed deposit and certificate of deposit of a Scheduled Bank, in case of life insurers, would be
deemed as exposure to financial and insurance activities (as per Section K of NIC classification-2008). No
investment in deposits including FDs and CDs in financial institutions falling under Promoter Group shall be
made. Investment in FDs shall not exceed either 3% of controlled fund or not more than 5% of respective
fund size [Pension & General Annuity Fund and Unit linked fund(s) at SPIN level], whichever is lower, in
the case of Life Insurers and 15% of Investment Assets as per Regulation 2(i)(2) in the case of General
Insurer including an insurer carrying on business of re-insurance or health insurance.
Note: Fixed Deposits as permitted under this Regulation kept as ASBA (Application Supported by
Blocked Amount) deposit, including FDs with Banks falling under the promoter group of the Insurer, or
otherwise, shall be excluded in computation of limits mentioned above. FDs of Banks under Promoter
Group, earmarked for complying with ASBA requirement, will be part of exposure to Promoter Group.
12. An insurer shall not out of the controlled fund/assets invest or keep invested in the shares or debentures of
any one company more than the exposure prescribed in Regulation 9 above, provided that nothing in this
regulation shall apply to any investment made with the previous approval of the Board of the Authority by
an insurer, being a company with a view to forming a subsidiary company carrying on insurance/re-
insurance business.
13. The investee company debt exposure, in Housing Finance Companies, rated not less than AA+, shall be
upto 20% of paid-up share capital, free reserves (excluding revaluation reserve) and debentures/bonds
(incl. CPs) or amount under Reg. 9(B)(i) whichever is lower. The 20% limit mentioned herein can be further
increased by an additional 5% with the prior approval of Board of Insurer. All exposure norms applicable to
group, promoter group shall be applicable to all investments made in a Housing Finance Company.10.
Returns to be submitted by an insurer.—Every insurer shall submit to the Authority the following returns
(in physical/electronic mode) within such time, at such intervals and verified/certified in the manner as
indicated there against:—
No. Form Description Periodicity of Time limit for Verified/Certifie

Returns submission d by
1. Form 1 Statement of Quarterly Within 30 days Principal
Investment and of the end of the Officer/Chief of
Income on Quarter
Investment (Investments)/Ch
ief of (Finance)
2. Form 2 (Part A, Statement of Quarterly Within 30 days Principal

B, C) Downgraded of the end of the Officer/Chief of
Investments, Quarter
Details of Rated (Investments)/Ch
Instruments ief of (Finance)
3. Form 3 A (Part Statement of Quarterly Within 30 days Principal

A, B, C, D, E) Investment of the end of the Officer/Chief of
Assets (Life Quarter
Insurers). (Investments)/Ch
ief of (Finance)
4. Form 3B (Part A, Statement of Quarterly Within 30 days Principal

Page 259 of 339
No. Form Description Periodicity of Time limit for Verified/Certifie

Returns submission d by
B) Investments of the end of the Officer/Chief of
(General Insurer Quarter
including an (Investments)/Ch
insurer carrying ief of (Finance)
on business of
reinsurance or
health
insurance))
5. Form 4 (Part A) Exposure/Prude Quarterly Within 30 days Principal

ntial and other of the end of the Officer/Chief of
Investment Quarter
Norms - (Investments)/Ch
compliance ief of
certificate (Finance)/Chief
Risk Officer
6. Form 4 (Part B) Internal/Concurr Quarterly Within 30 days Internal/Concurr

ent Auditors of the end of the ent Auditor
Certificate on Quarter appointed under
Investment Risk this regulation
Management
Systems -
Implementation
Status
7. Form 4A (Part A, Statement of Quarterly Within 30 days Principal

B, C, D) Investment of the end of the Officer/Chief of
Subject to Quarter
Exposure Norms (Investments)/Ch
— Investee ief of (Finance)/
Company,
Group, Promoter
Group, Industry
Sector
8. Form 5 Statement of Quarterly Within 30 days Principal

Investment of the end of the Officer/Chief of
Reconciliation Quarter
(Investments)/Ch
ief of (Finance)/
9. Form 6 Certificate under Quarterly Within 30 days Chairman’

section 27A (5) of the end of the Director 1,
Quarter Director 2,
Principal Officer
10. Form 7 Statement of Quarterly of the Within 30 days Principal

Non- Performing end of the of the end of the Officer/Chief of
Assets Quarter Quarter
(Investments)/Ch
ief of (Finance)/
Note.—
1. The Internal/Concurrent Audit Report of the previous quarter with comments of Audit Committee of the
Board, on Very serious’, ’serious’ points (as per the Guidance note on Internal/Concurrent Audit of
Page 260 of 339
Investment functions of Insurance Companies, issued by the Institute of Chartered Accountants of India) in
the report, and status of implementation of Audit committee recommendation shall be filed with the
Authority along with current quarter returns.
2. All returns for the quarter ending March shall be filed within the period stipulated above based on
provisional figures and later re-submitted with Audited figures within 15 days of adoption of accounts by the
Board of Directors.
11. Power to call for additional information.—The Authority may, by general or special order, require from the
insurers such other information in such manner, intervals and time limit as may be specified therein.
12. Duty to report extraordinary events affecting the investment portfolio.—Every insurer shall report to the
Authority forthwith, the effect or the probable effect of any event coming to his knowledge, which could have
material adverse impact on the investment portfolio and consequently on the security of policyholder benefits or
expectations.
13. Provisions on Investment Management.—
A. Constitution of Investment Committee—
1. Every insurer shall constitute an Investment Committee which shall consist of a minimum of two non-
executive directors of the Insurer, the Chief Executive Officer, Chief of Finance, Chief Risk Officer, Chief of
Investment division, and the Appointed Actuary. The Board of the Insurer shall ensure that Chief of
Finance, Chief of Investment and the Chief Risk Officer, shall fulfil the minimum qualification requirements
specified in the regulations/guidelines issued by the Authority. The decisions taken by the Investment
Committee shall be recorded and be open to inspection by the officers of the Authority.
B. Investment Policy—
1. Every Insurer shall draw up, an Investment Policy (IP) (fund wise IP in the case of Unit Linked Insurance
Business) and place the same before its Board of Directors for its approval.
2. Every insurer shall have a model code of conduct to prevent insider/personal trading of Officers involved in
various levels of Investment Operations in compliance with SEBI (Prohibition of Insider Trading)
Regulation, 1992 as amended from time to time and place the same before its Board of Directors for its
approval.
3. While framing the Investment Policy, the Board shall ensure compliance with the following:—
(i) Issues relating to liquidity, prudential norms, exposure limits, stop loss limits including securities
trading, management of all investment risks, management of assets liabilities mismatch, Scope of
Internal or Concurrent audit of Investments, criteria form empanelment and review of investment
brokers, investment statistics and all other internal controls of investment operations, the provisions of
the Insurance Act, 1938 and IRDAI (Investment) Regulations, Guidelines and Circulars made there
under.
(ii) Ensuring adequate return on policyholders and shareholders’ funds consistent with the protection,
safety and liquidity of such fund(s).
4. The investment policy of Life, General Insurer including an insurer carrying on business of re-insurance or
health insurance, as approved by the Board shall be implemented by the investment committee. The Board
shall review on a quarterly basis the monitoring of fund wise and in respect of each product (both
participating and nonparticipating products in the case of life insurers) the following minimum:
(a) Life Insurers:
(i) new business scale planned versus actual at the end of the period to maturity
(ii) expenses projected versus actual
(iii) persistency/renewal premium streams projected versus actual
Page 261 of 339
(iv) claims-projected versus actual

(v) actual yield versus projected yield or returns
(vi) action plan and follow up status
(b) General Insurer including an insurer carrying on business of re-insurance or health insurance (at line of
business level):
(i) gross level of premium income projected vs actual along with reasons for negative growth if any
(ii) steps to correct the business achieved as planned in case of under achievement of gross written
premium
(iii) underwriting results planned vs achieved along with reasons for negative deviations
(iv) claims outgo projected versus actual – major reasons for increase/decrease in loss ratio and
corrective steps planned for future
(v) expenses including acquisition cost planned vs actuals- in case of excess over permitted limits,
reasons for such excess along with plan to comply limits
(vi) overall incremental investments projected vs actual – reason for deviation from the planned
accretion and steps planned to correct the trend if the same is negative
5. The Board shall review the investment policy and its implementation on a half-yearly basis or at such short
intervals as it may decide and make such modification to the investment policy as is necessary to bring it in
line with the investment provisions laid down in the Act and Regulations made there under, keeping in mind
protection of policyholders’ interest and pattern of investment laid down in these regulations or in terms of
the agreement entered into with the policyholders in the case of unit linked insurance business.
C. Investment Operations—
1. The funds of the insurer shall be invested and continued to be invested in equity shares, equity related
instruments and debt instruments rated as per Note below Regulations 4 to 8 by a credit rating agency,
registered under SEBI (Credit Rating Agencies) Regulations, 1999. The Board shall lay down norms for
investing in ‘Other Investments’ as specified in section 27A(2) of the Insurance Act, 1938 by the investment
committee, taking into account the safety and liquidity of the policyholders’ funds and protection of their
interest.
2. As required under Chapter II, Regulation 7(3)(b) of IRDAI (Registration of Indian Insurance Companies)
Regulations, to ensure proper internal control of investment functions and operations the insurer shall
clearly segregate the functions and operations of front, mid and back office (as provided in the Guidance
note on Internal/Concurrent Audit of Investment functions of Insurance Companies issued by the Institute
of Chartered Accountants of India) and no function falling under Front, Mid and Back Office Investment
function(s), shall be outsourced. Also, the primary data server of the computer application used for
investment management shall remain within the country.
3. The Board of the Insurer shall appoint a Custodian to carry out the custodial service for its Investments,
who shall not be an entity under its promoter ‘Group’ unless permitted otherwise by the Authority.
D. Risk Management Systems and its Review—
1. The Board shall implement the Investment Risk Management Systems and Process, mandated by the
Authority. The implementation shall be certified by a Chartered Accountant firm, as per the procedure laid
down in the “Guidance note on Review and Certification of Investment Risk Management Systems and
Process of Insurance Companies”, issued by the Institute of Chartered Accountants of India, as amended
from time to time.
2. The Investment Risk Management Systems and Process shall be reviewed once in two financial years or
such shorter frequency as decided by the Board of the Insurer (the gap between two such audits should
Page 262 of 339
not be more than two years), by a Chartered Accountant firm and file the certificate issued by such
Chartered Accountant, with the Authority along with the first quarter returns.
3. The appointment of Chartered Accountant firm to certify implementation and review of Investment Risk
Management Systems and Process shall be as per the circular issued under these regulations.
E. Audit and Reporting to Management—
1. Every Insurer shall constitute an Audit Committee of the Board, headed by an individual, as per the IRDAI
Corporate Governance Guidelines and such person, shall not be the Chairman of Investment Committee.
2. The Insurer shall have the investment transactions covering both Shareholders and Policyholders funds be
audited through Internal or Concurrent Auditor as per the circular issued under this regulation.
3. The quarterly internal/concurrent audit report, covering investments of both shareholders as well as
policyholders, shall be as per the ”Guidance note on Internal/Concurrent Audit of Investment functions of
Insurance Companies” issued by the Institute of Chartered Accountants of India, as amended from time to
time.
4. The Details of Investment Policy, implementation status of Investment Risk Management Systems and
Process or its review shall be made available to the internal or concurrent auditor. The auditor shall
comment on implementation status, review and its impact on the investment operations, systems and
process in their report to be placed before the Board’s Audit Committee.
5. The Statutory Auditor of the Insurer shall, on a quarterly basis, confirm compliance to Regulation
13(B)(4)(a, b) and such confirmation, shall be filed by the insurer along with periodical investment returns.
F. Category of Investments—
1. Every Insurer shall invest its controlled fund as defined under Section 27A/all assets as defined under
Section 27(2) of the Insurance Act, 1938 as amended from time to time, only within the exhaustive
category of investments listed in the guidelines issued by the Authority.
G. Others—
1. The Authority may call for further information from time to time from the insurer as it deems necessary and
in the interest of policyholders and issue such directions to the insurers as it thinks fit.
14. Miscellaneous.—(1) Accounting of Investments shall be as per the Insurance Regulatory and Development
Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations and
Valuation of Assets shall be as per guidelines issued under these regulations from time to time.
(2) The Board of the Authority may, by any general or special order, modify or change the application of regulations
(4), (5), (6), (7),(8), (9) and (10) to any insurer either on its own or on an application made to it.
15. Dealing in Financial Derivatives.—(1) Every Insurer carrying on the business of life insurance or general
insurance or health insurance business may deal in financial derivatives only to the extent permitted and in
accordance with the guidelines issued by the Authority in this regard from time to time.
16. Repeal and Savings.—
(a) On and from the commencement of these regulations, the Insurance Regulatory and Development
Authority (Investment) Regulations, 2000 shall stand superseded.
(b) In respect of anything done or omitted to be done or omitted to be done prior to the commencement of
these regulations, they shall continue to be governed by Insurance Regulatory and Development Authority
(Investment) Regulations, 2000.
17. Power to remove difficulties and issue clarifications.—In order to remove any doubts or the difficulties that
may arise in the application or interpretation of any of the provisions of these regulations, the Chairperson of the
Authority may issue appropriate clarifications or guidelines as deemed necessary.
SCHEDULE I
Page 263 of 339
(See regulation 4 to 7)
A. List of Approved Investments
‘Approved Investments’ as per Regulation 3 (a) shall fulfil the following criteria:—
1. debentures referred under Regulation 3(a)(1) shall fulfill the criteria mentioned therein for five years
immediately preceding or for at least five out of the seven years immediately preceding on such or similar
debentures issued by it;
2. debentures referred under Regulation 3(a)(3) shall fulfill the criteria therein for five years immediately
preceding or for at least five out of the seven years immediately preceding;
B. Processing of Unit Linked Business Application and Declaration of NAV
Every Unit linked segregated fund(s), shall be identified by its Segregated Fund Identification Number [SFIN] and
shall follow the guidelines issued by the Authority.
1. All applications received for premium payment, switches, redemption, surrender, maturity claim etc., should
be time stamped and dated.
2. Applications for “premium payment”
1. for applications received, with local cheques, cash or demand draft payable at par at the place where
the premium is received, before cut-off time (3.00 pm) on a business day, the applicable NAV would be
the closing NAV of the same day.
2. for applications received, along with local cheques, cash or demand draft payable at par at the place
where the premium is received, after cut-off time (3.00 pm) on a business day, the applicable NAV
would be the closing NAV of the next business day.
3. for premiums received with an outstation cheque or demand draft, the closing NAV of the day on which
the cheque/Demand Draft is realized shall be applied.
3. Applications for “other than” premium payment
1. for applications received before the cut-off time (3.00 pm) on a business day, the applicable NAV
would be the closing NAV of the same day.2. for applications received, after the cut-off time (3.00 pm)
on a business day, the applicable NAV would be the closing NAV of the next business day.
4. Daily disclosure/reconciliation of Product and Fund information
(a) Every insurer doing Unit linked business shall reconcile, through the system, the premium received
(net of charges and benefits paid) under each product (Unique Identification Number – UIN) with value
of all the segregated fund(s) (Segregated Fund Identification Number – SFIN) net of fund management
charges, held under a single UIN, on a day to day basis, as per Form D01.
(b) The insurer, through a portal, shall enable the policyholder to know, through a secured login (i) the
value of policy wise units held by him, as per Form D02 and (ii) fund wise NAV (SFIN wise) on both the
Insurer’s website and life council website on the same day.
Disclosure format
No Format Description Frequency
01 Form D01 Daily reconciliation of End of the Day (not to

ULIP portfolio be filed with Authority
Page 264 of 339
No Format Description Frequency
02 Form D02 Statement of Product Enable through

Value secured login to
individual policyholde
03 Portfolio Disclosure The minimum

information, as per
guidelines/circular
issued, on a monthly
basis
(c) The internal/concurrent Auditor shall report on the automated system and process to handle the UIN
wise reconciliation (as in point ‘a’ above) and value of policy wise units held by policyholder and fund
wise NAV, on a quarterly basis
5. Applicable NAV for the applications received on the last business day of the Financial Year
(a) for applications received on the last business day of the financial year UPTO 3.00 pm shall be
processed with NAV of the last business day (irrespective of the payment instrument is local or
outstation).
(b) for applications received AFTER 3.00 pm on the last business day, the same shall fall into the next
Financial Year and NAV of the immediate next business day would be applicable.
(c) The insurer shall declare NAV for the last business day of a Financial Year, even if it is a non-business
day.
6. For allotment of units, the applicable NAV shall be as per the date of commencement of policy for new
policy contracts and date of receipt of premium for renewals.
(a) For allotment of units to a new policy contract, the NAV shall be applicable as at the date of
commencement of the policy contract. The premium in such case shall have to be received on or
before the date of commencement of policy contract.
(b) For renewals of existing policy contract, the NAV shall be applicable as at the date of renewal where
the date of receipt of premium is on or before due date and as at the date of receipt of premium where
the premium is received after the due date of renewal.
(c) For revivals, the date of revival shall be the reference date for application of NAV through allotment of
units.
(d) The date of receipt of premium for reasons such as top-up or any other provision for payment of
premium apart from regular payment schedule as approved by the Authority through ‘File & Use’,
application shall be the reference date for application of NAV.
7. The Insurer’s Policy Admin System (PAS) shall be ‘automated’ for tracking ‘policy-wise’, information of
discontinued policies along with the information of the particular ULIP fund to which the same pertains.
8. Asset allocation and exposure norms for a segregated fund shall not apply for either the first six months
from the date of its launch or the segregated fund reaches the size of Rs. 5 Crores, for the first time,
whichever is earlier. On expiry of the sixth month, every such segregated fund, shall comply with all
exposure norms under Regulation 9. Where in case of a segregated fund, has gone below Rs. 5 Crores,
the insurer may provide a free switch, after informing the policyholder, to another fund with similar fund
objective/risk profile with either same or lower fund management charges.
9. Where any segregated fund (other than discontinued policy fund under unit linked business) invest in either
Mutual Fund, Exchange Traded Fund (excluding CPSE ETF) or Bank Fixed Deposit (for a period less than
91 days at the time of placing the investment), the value of funds invested therein, shall be reduced for
Page 265 of 339
computing the fund management charges (FMC). This provision shall not be applicable for either the first
six months from the date of launch of the segregated fund or the segregated fund reaches the size of Rs. 5
Crores, for the first time, whichever is earlier.
10. In the case of discontinued policy fund, investment in treasury bills will be treated as part of Central
Government Securities.
11. All Insurers shall file a certificate, issued by Internal/Concurrent Auditor for compliance of the following:
(a) compliance to all exposure norms at the level of each segregated fund, on a quarterly basis
(b) the value of funds invested in Mutual Fund, Exchange Traded Fund or Bank Fixed Deposit (for a period
less than 91 days) had been reduced in FMC calculation, on a quarterly basis
(c) each of the directions issued at point 5 above, regarding the applicable NAV for applications received
on the last business day
(d) the Statutory Auditors shall also confirm point ‘c’ above, in the Annual Accounts.
Note:
1. Business day shall mean days other than holidays where stock exchanges (excluding Muhurat trading day)
with national wide terminals are open for trade (other than day on which exchanges are open for testing) or
any day declared by the Authority as business day.
2. The insurer shall invest only in such investments for which the day-to-day Valuations are available and
readily realisable. No investment can be made in any Fund of Funds or a fund for which NAV is not
available on a day-to-day basis.
C. Fund Management
1. In the case of (a) Life fund, (b) Pension, Annuity & Group funds, the insurer shall maintain separate sub-
custody account with identifiable securities for participating and non-participating funds.
2. Every insurer shall have a separate fund manager for debt and equity up to a fund size (for both
shareholder and policyholder funds taken together) of Rs. 10000 Crores. When the fund size, for the first
time, is Rs.10000 Crores, every fund [(a) Life fund (b) Pension, Annuity & Group fund (c) Unit linked
segregated fund(s)] shall have identifiable fund manager. No fund manager can be common between (a)
Life fund, Pension & Group fund and (b) Unit linked fund(s).
SCHEDULE II
GENERAL INSURER INCLUDING AN INSURER CARRYING ON BUSINESS OF RE-INSURANCE OR HEALTH

INSURANCE
(See regulation 8)
A. List of Approved Investments
‘Approved Investments’ as per Regulation 3(a) shall fulfil the following criteria:—
1. debentures referred under Regulation 3(a)(1) shall fulfill the criteria mentioned therein for three years
immediately preceding or for at least three out of five years immediately preceding on such or similar
debentures issued by it;
2. debentures referred under Regulation 3(a)(3) shall fulfill the criteria therein for three years immediately
preceding or for at least three out of five years immediately preceding;
B. Policyholders’ Funds
Policyholders funds shall be the sum of (1) Estimated liability for Outstanding Claims including Incurred but not
Reported (IBNR) & Incurred but not Enough Reported (IBNER) (2) Unexpired Risk Reserve (URR) (3) Catastrophe
Reserve (4) Premium Deficiency (5) Other liabilities net off Other Assets.
Page 266 of 339
Note: Other Liabilities in point B(5) above, comprise of (i) Premium received in advance (ii) Unallocated premium
(iii) Balance due to other Insurance Companies (iv) Due to others members of Third Party Pool (IMTPIP), if
applicable (v) Sundry creditors (due to Policyholders).
Other Assets in point B(5) above comprise of (i) Outstanding premium (ii) Due from other entities carrying on
Insurance business including Re-insurers (iii) Balance with terrorism pool (if applicable) (iv) Balance with Motor
Third Party Pool if any (if applicable).
C. Shareholders’ Funds
Shareholders’ funds comprise of Share Capital plus all Reserves and Surplus (except Revaluation Reserve and fair
value change account) as at the Balance Sheet date, represented by investments of funds held in business beyond
solvency margin.
D. Applicability of Pattern of Investment
Where an Insurer, hold the entire investment assets, as per Regulation 2(i) for and behalf of the Policyholders, the
pattern of investment shall apply to the entire investment assets (both shareholder and policyholders funds taken
together) and the investment assets can be maintained in a single custody account.
E. Miscellaneous
The mandatory minimum investment in Housing and Infrastructure as per Regulation 8, will not apply for Health
Insurers.
FORM 1
Company Name and Code:
Statement as on:
Statement of Investment and Income on Investment
Periodicity of Submission: Quarterly Name of the Fund.................................................
Rs. in Lakhs
Page 267 of 339
No. Catego Catego Current Quarter Year to Date Previous Year

ry of ry
Invest Code
ment
Investm Income Gross Net Investm Income Gross Net Investm Income Gross Net
ent on Yield Yield ent on Yield Yield ent on Yield Yield
(Rs.) Investm (%f)1 (%)2 (Rs.) Investm (%)1 (%)2 (Rs.) Investm (%)1 (%)2
ent ent ent
(Rs.) (Rs.) (Rs.)
Page 268 of 339
Total __________________________________________
CERTIFICATION
Certified that the information given herein are correct and complete to the best of my knowledge and belief and
nothing has been concealed or suppressed.
Date..................... Signature...........................
Full Name & Designation
Note.—Category of Investment (COI) shall be as per Guidelines
1. To be calculated based on Monthly or lesser frequency Weighted Average of Investments.

2. Yield netted for Tax.
3. FORM 1 shall be prepared in respect of each fund.
FORM 2
Statement as on:
STATEMENT OF DOWNGRADED INVESTMENTS
Periodicity of Submission: Quarterly Name of the Fund.................................................
Rs. in Lakhs
Page 269 of 339
No. Name of the COI Amount Date of Rating Original Current Date of Remarks
Security purchase agency Grade Grade Downgrade
A. During the
Quarter1
B. As on date2
Page 270 of 339
CERTIFICATION
Date..................... Signature...........................
Note.—1. Provide details of Down Graded Investments during the Quarter.
2. Investments currently upgraded, listed as Down Graded during earlier quarter shall be deleted from the
cumulative listing.
4. Category of Investment (COI) shall be as per INV/GLN/001/2003-04.
FORM 3A
PART A
STATEMENT OF INVESTMENT ASSETS (LIFE INSURERS)
Statement as on:
NON-LINKED BUSINESS
Page 271 of 339
A. LIFE Percenta SH PH Book Actual % FVC Total Market

FUND ge as per Balance FRSM + UL-Non PAR NO N Value Amount Value
reg. Unit Res PAR (SH+PH)
Fa
(b+c+d+e)
(a) (b) (c) (d) (e)
1. Not less
Governme than 25%
nt
Securities
2. Govt. Not less

Sec. or than 50%
other
Approved
Securities
(incl. I
above)
3.
Investmen
ts subject
to
Exposure
Norms
(a) Not less

Housing & than 15%
Infrastruct
ure
(b) (I) Not

Approved exceeding
Investmen
ts
(h) Other 35%

Investmen
ts not to
exceed
15% j
Page 272 of 339
Total Life Fund100%

Page 273 of 339
B. PENSION Percentage PH Book Value Actual % FVC Amount Total Fund M

AND as per reg. a
GENERAL r
ANNUITY k
FUND e
t
V
a
l
u
e
PAR NON PAR
1. Not less than
Government 20%
securities
2. Govt. Sec. Not less than

or other 40%
approved
securities
(inch I above)
3. Balance in Not exceeding

Approved 60%
Investment
Page 274 of 339
Total Pension, General Annuity Fund100%
LINKED BUSINESS
Page 275 of 339
C. LINKED FUND Percentage as per PH Total Fund Actual %

reg. PAR NON PAR
1. Approved Not less than 75%
Investment
2. Other Not more than 25%

Investments
Page 276 of 339
CERTIFICATION
Date..................... Signature...........................
Full Name...........................
Designation........................
Note.—(1) FRMS refers to “Funds representing Solvency Margin”
Pattern of investment will apply only to Shareholders (SH) funds representing FRSM(F)
Funds beyond Solvency Margin shall have a separate Custody Account.
Other investments are as permitted under section 27A(2) and 27B(3) of Insurance Act, 1938.
FORM 3A
PART B
Unit Linked Insurance Business Link to Item ‘C Form 3A (Part A)
Company Name & Code:
Statement as on:
Periodicity of Submission: Quarterly Par/Non-Par
Rs. in Lakhs
PARTICULARS Fund 1 Fund 2 Fund“n” Total of All Funds

Opening Balance
(Marker Value)
Add: Inflow during

the Quarter
Increase/(Decrease)
Value of Inv (Net)
Less: Outflow during

the Quarter
TOTAL INVESTIBLE FUNDS (MKT VALUE) _______________________________

Page 277 of 339
INVESTMENT Fund 1 Fund 2 Fund “n” Total of All Funds

OF UNIT
FUND
Actual Inv. % Actual Actual Inv. % Actual Actual Inv. % Actual Actual Inv. % Actual
Approved
Investments
(>=75%)
Govt. Bonds
Corporate
Bonds
Infrastructure
Bonds
Equity
Money Market
Mutual funds
Deposit with
Banks
Page 278 of 339
Sub Total (A)

Page 279 of 339
Current
Assets:
Accrued
interest
Dividend
Receivable
Bank Balance
Receivable for
Sale of
Investments
Other Current
Assets (for
Investments)
Less: Current
liabilities
Payable for
Investments
Fund Mgmt
Charges
Payable
Other Current
Liabilities (for
Investments)
Page 280 of 339
Sub Total (B)

Page 281 of 339
Other
Investments
(<=25%)
Corporate
Bonds
Infrastructure
Bonds
Equity
Money Market
Mutual funds
Page 282 of 339
Sub Total (C)_______________________________________________________________
Total (A+B+C)_______________________________________________________________
Fund Carried Forward (As per LB 2)_______________________________________________________________
Date............................ Signature.....................
Designation..................
Note.—
1. The aggregate of all the above Segregated Unit-Funds should tally with item C of FORM 3A (Part A), for
both Par & Non-Par Business.
2. Details of Item 12 of FORM LB 2 of IRDA (Actuarial Report) Regulation, 2000 shall be reconciled with
FORM 3A (Part B).
3. Other Investments are as permitted under sections 27A(2) and 27B(3).
FORM 3A
PART C
Link to Form 3A (Part B)
Statement for the period:
Periodicity of Submission: Quarterly

Page 283 of 339
No: Name of the Assets held NAV as on NAV as per Previous 2nd 3rd Annualised 3 Year
Scheme on the the above LB2 Qtr NAV Previous Previous Return/Yield Rolling
above date Qtr NAV Qtr NAV CAGR
1. Fund 1
2. Fund 2
3. Fund n
Page 284 of 339
Total _____________________
CERTIFICATION
Date........................
Signature............................
FORM 3B
Statement as on:
Statement of Investment Assets (General Insurer, Re-Insurers)
(Business within India)
Periodicity of Submission: Quarterly Rs. in Lakhs
No. Particulars SCH Amount

1 Investments 8
2 Loans 9
3 Fixed Assets 10
4 Current Assets
a. Cash & Bank Balance 11
b. Advances & Other 12

Assets
5. Current liabilities
a. Current liabilities 13
b. Provisions 14
c. Misc. Exp not Written 15

Off
d. Debit Balance of P&L

A/c
Application of Funds as per balance sheet (A) 0
Less: Other Assets SCH Amount

1. Loans (if any) 9
Page 285 of 339
Less: Other Assets SCH Amount

2. Fixed Assets (if any) 10
3. Cash & Bank Balance (if 11

any)
4. Advance & Other Assets 12

(if any)
5. Current liabilities 13
6. Provisions 14
7. Misc. Exp not Written Off 15
8. Debit Balance of P&L A/c
Total (B) 0
Investment Assets As per FORM 3B (A-B) 0

Page 286 of 339
No. Reg. % SH
Investment
represente Balance FRSM (b) PH (c) Book % Actual FVC Total (d+e) Market
d as (a) Value (SH amount (e) Value
+ PH)
1 Gov. Not less d=(b+c)
Sec. than 20%
2. Gov. Not less

Sec. or than 30%
Other
Approved
Sec. (Incl.
(t) above
3.
Investment
subject to
Exposure
Norms
1. Housing Not less

& Loans to than 15%
SG for
Housing
and FFE,
Infrastruct
ure
Investment
s
2. not
Approved exceeding
Investment 55%
s
3. Other
Investment
s (not
exceeding
25%)
Page 287 of 339
Total Investment Assets
CERTIFICATION
Date..............................
Signature..............................
Full name.............................
Designation..........................
Note.—
(*) FRMS refers Funds representing Solvency Margin

(*) Pattern of Investment will apply only to SH funds representing FRMS
(*) Book Value shall not include funds beyond Solvency Margin
Other investments are as permitted under sections 27A(2) and 27B(3)
FORM 4
Exposure and other Norms – Quarterly Compliance Certificate
Date as at...............................
No. Norms applicable Exposure/other Are the required Remarks

for norms as per norms
regulation complied?(Yes/No)
I Investee Company
Exposure a. Investment
in equity,
preference
shares,
convertible
debenture:
—
1. Exposur
e at any
point of
time not
exceed
ed 10%
of
outstan
ding
equity
shares
(face
value)
Page 288 of 339

or 10%
of the
respecti
ve fund
in the
case of
life
insurer/i
nvestm
ent
assets
in the
case of
general
insurer
(includin
g
reinsure
r) which
ever is
lower.
b. Investment
in
debt/loans
and any
other
permitted
Investments
as per
Act/Regulati
on, other
than item
“a” above:—
1. Exposu
re at
any
point of
time
not
exceed
ed 10%
of the
paid-up
share
capital,
free
reserve
s and
debentu
re/bond
s of the
investee
Page 289 of 339

compan
y or
10% of
respecti
ve fund
in the
case of
life
insurer/
investm
ent
assets
in the
case of
general
insurer
(includin
g
reinsure
r) which
ever is
lower.
2. Subject
to
exposur
e limits
as per
Insuran
ce Act,
1938,
investm
ent in
equity
and
debt
taken
together
had not
exceed
ed 10%
of the
respecti
ve fund
size in
the
case of
life
insurer
or
investm
ent
assets
in the
Page 290 of 339

case of
general
insurer
(includin
g re-
insurer).
II Group of the
Investee Company a. Exposure at
(Ref. Reg. 2(ca) of any point of
IRDA (Inv) Reg., time not
2000) exceeded
10% of the
respective
fund in the
case of life
insure
r/investment
assets in
the case of
general
insurer
(including
re-insurer)
and 25% in
the case of
unit linked
business.
1. Whether
any
additional
exposure
not
exceeding
5% of
respective
fund, other
than unit
linked
funds, in the
case of Life
insurer/
investment
assets in
the case of
general
insurer
(including
reinsurer)
had been
taken? If so,
has the
Page 291 of 339

“prior
approval” of
Investment
Committee
had been
obtained?
(b) Subject to
exposure
limits
mentioned
in the
regulations,
had the
Insurer
invested
more than
5% (12.5%
in the case
of Unit
linked
business)
“in
aggregate”
of its total
investments
in
companies
belonging to
the
promoters’
groups. (For
the purpose
of this
regulation
“Group”
shall have
the same
meaning as
defined
under these
regulations).
III Industry sector to

which the investee
company belongs a. Investment
by the
insurer in
any
industrial
sector had
not
exceeded
Page 292 of 339

10% of its
total
investment
exposure to
industry
sector as a
whole?
b. Has the
insurer, in
the caser of
Unit linked
business,
had
invested in
any
industrial
sector, not
exceeded
25% of its
total
investment
exposure to
industry
sector as a
whole?
c. Is the
classificatio
n of
industrial
sectors
been done
on the lines
of
classificatio
n of
industries
done by NIC
(National
Industrial
Classificatio
n Code for
Extra
Territorial
Organisatio
ns and
Bodies in
India) or any
other
system
which
adopts NIC
classificatio
Page 293 of 339

n,
consistently
from period
to period?
IV Others
a. Has the
insurer fully
complied
with
regulation
9(6) of IRDA
(Investment)
(4th
Amendment
)
Regulation,
2008 and
point A.1.e.
of Annexure
III to
Circular
INV/ClR/008
/2008-09?
b. Has the
insurer
implemente
d the
requirement
s of
guidelines
applicable
for dealing
employees,
as required
under point
A.2.a of
Annexure III
to Circular
IVV/CIR/008
/2008-09?
c. Has any
investment
been done
in
contraventio
n of section
27C of
Insurance
Act, 1938?
d. Are Money
Market
Page 294 of 339

Investments
classified as
per
regulation
2(cc) of
IRDA
(Investment)
Regulations,
2000?
e. Do
investments
of One Year
Renewable
Group Term
Assurance
Business
(OYRGTA)
follow the
pattern of
Life
Business?
f. Has any
investment
been made
in
contraventio
n of point 1
of note for
the purpose
of
regulations
3 and 4 of
IRDA
(Investment)
(4th
Amendment
)
Regulation,
2008?
g. Have all
investments
,
downgraded
as
mentioned
under point
5 of note
under
regulations
3 and 4,
have been
re-classified
Page 295 of 339

under
“Other
Investments
” through
the system?
h. Was debt
investments
under
Approved
Investments
’ based on
rating
criteria, at
any point of
time, under
any class of
business,
for both life
and general
insurer
(including
re-reinsure)
fallen below
the
minimum
percentage
as required
under point
7 of note
under
regulations
3 and 4?.
i. Has the
Insurer
complied
with the
requirement
s under
regulation 8
of IRDA
(Investment)
Regulations,
2000
j. Has the
insurer’s
Investment
Policy (fund
wise in the
case of Unit
linked
business)
has been
Page 296 of 339

approved by
the Insurer’s
Board and
has
addressed
all issues
required
under IRDA
(Investment)
Regulations,
2000? Also,
has the
investment
policy been
periodically
reviewed?
k. Has the
performanc
e of
investments
(including
unit linked
fund(s))
been placed
before the
Board on a
quarterly
basis?
l. In the case
of a life
insurer,
each
individual
fund, both
under
shareholder/
policyholder
funds,
falling under
any class of
business,
have
identified
“scrips”,
representing
the assets
of each
fund, to
comply with
the
provisions
of section
Page 297 of 339

II(1B) of
Insurance
Act, 1938?
m. Have the
purchase
and sale of
investments
under any
class of
business, in
the case of
Life Insurer,
in respect of
each fund,
(including
unit linked
fund(s))
been made
out of the
respective
fund?
n. Has inter
fund
transfer, in
the case of
a life
insurer,
been done
as per
Circular
IRDA-FA-
02-10-2003-
04?
o. Have the
Assets been
identified,
for each
segregated
fund of unit
linked
business, as
per file &
use
procedure
approved by
IRDA?
p. Has the
insurer, in
the case of
unit linked
business,
Page 298 of 339

invested the
assets, fund
wise, as per
pattern of
investment
approved by
IRDA?
q. Has the
insurer,
under
shareholder
s funds,
clearly split
funds
representing
solvency
margin
(FRSM) in
FORM 3A
(Part
A)/FORM
3B?
r. Has
shareholder
s funds,
beyond
solvency
margin,
have a
separate
custodian
account and
identified
scrips for
both life and
general
(including
re-
insurance)
companies
and
reconciled
with FORM
3A (Part A)
and FORM
3B?
s. Has the
insurer
conducted
internal or
concurrent
audit for the
Page 299 of 339

reporting
quarter and
have
implemente
d the board
audit
committee
recommend
ations of the
previous
quarter as
required
under Point
E.a of
Annexure III
to Circular -
INV/CIR/00
8/2008-09?
t. Has the
Insurer
complied
fully with the
directions of
Circular:
IRDA/CIR/I
NV/062/IAN/
05 dated
17th Jan,
2005?
u. Has the
insurer,
having not
less than
Rs. 500
Current
assets
under
managemen
t (AUM)
complied
with Points
11 and 12 of
Annexure II
to Circular -
INV/CIR/00
8/2008-09
with respect
to
outsourcing
of
investment
advice, NAV
Page 300 of 339

calculations
?
v. Has the
insurer, in
the case of
life
business,
reconciled
investment
accounts,
fund-wise,
with bank
and
custodian
records on
“day-to-day
basis for all
types of
products?
w. Has the
Insurer, in
respect of
Unit linked
products,
reconciled
the units
with “policy
admin
system is”,
on a day-to-
day basis?
x. Has the
insurer, in
the case of
general
(including
re-
insurance)
business,
reconciled
investment
accounts
with Bank
and
Custodian
records on a
day-to-day
basis?
y. Has the
Insurer’s
investment
Page 301 of 339

in mutual
fund
complied
with
guidelines
INV/GLN/00
4/2003-04
at all times
during the
quarter?
Signature............ Signature............. Signature.............
Chief Executive Officer Chief Executive Officer Chief Executive Officer
FORM 4A
PART A
Company Name & Code
Statement as on:
Investee Company Exposure Norms
Periodicity of Submission: Quarterly Rs. in Lakhs

Page 302 of 339
No. Investee Whether 10% of 10% of Fund Least of Col Actual Deviation = Investee Deviation =
Company Equity/Debt Outstanding Size/Total (d) or (e) Investment Col(f)-Col(g) Company Col(e) -
? Sh(FV)/10% Investments 3 (Eq + Debt) Col(i)
of (Sh.
Cap+FR+De
b/Bonds) of
Investee
Company
A b c D e f g h i J
Page 303 of 339
Note:—
(1) Fund size shall be as per FORM 3 A (Part A)/FORM 3B

(2) Above table shall be prepared individually for all ULIP Funds
(3) Only (-ve) deviations are to be reported
CERTIFICATION
Signature........................................
Date........................... Full name.......................................
Designation..................................
FORM 4A
PART B
Company Name & Code
Statement as on:
Group Company Exposure Statement
Rs. in Lakhs
Periodicity of Submission: Quarterly Fund Size:.......,...........
No. Name of the Group Promotor/Non- Total Investments % of Total

Promotor Group Subject to Investments
Exposure Norms
CERTIFICATION
Note.—1. Total Investments as per FORM 3A (Part ............... 0

A)/FORM 3B
Date ........................... Signature ....................................

Page 304 of 339
Full Name & Designation......................................
FORM 4A
PART C
Company Name & Code
Statement as on:
Industry Sector Exposure Statement
Rs. in Lakhs
Periodicity of Submission: Quarterly Fund Size:...................
No. Industry Sector (as per Total Investments % of Total Investments

regulations) Subject to Exposure
Norms
Note.—1. Total Investments as per FORM 3A/3B 0
CERTIFICATION
Date ........................... Signature ....................................
Full Name & Designation......................................
FORM 5
Statement as on:
Statement of Investment Reconciliation
(Business within India) Name of the Fund..................................

Page 305 of 339
Periodicity of submission: Quarterly
Rs. in Lakhs
Page 306 of 339
No. Catego COI Opening Balance Pur. for the Sales for the Adjustments Closing Balance % to
ry of period Period Total
Invest Face Book Face Book Face Book Face Book Face Book Market (1+2+3)
ment Value Value Value Value Value Value Value Value Value Value Value
1. Govt.
Sec.
Total
(1)
2. Govt.
Sec or
Other
Approv
ed
Sec./G
uarante
ed Sec.
Total
(1+2)
3. Investm
ents
subject
to
Exposu
re
Norms
(a)
Housin
g&
Loans
to State
Govt,
for
Housin
g/FFE
Page 307 of 339
No. Catego COI Opening Balance Pur. for the Sales for the Adjustments Closing Balance % to
ry of period Period Total
Invest Face Book Face Book Face Book Face Book Face Book Market (1+2+3)
ment Value Value Value Value Value Value Value Value Value Value Value
Total
[3(a)]
(b)
Infrastr
ucture
Investm
ents
Total
[3(b)]
(c)
Approv
ed
Investm
ent
Total
[3(c)]
(d)
Other
Investm
ent
Total
[3(d)]
Page 308 of 339
Total Total [3 (a+b+c+d)] ______________________
Total (1+2+3)_______________________
CERTIFICATION
Certified that the Information given herein are correct and complete to the best of my knowledge and belief and
Also, certified that all Cash Market transactions executed on the Stock Exchange are made only on Delivery basis.
Date...................... Signature..................................
Full Name & Designation.....................................
Note:—
1. Individual Categories under each of the above Major heads should be listed with Category Code.
3. Each sub-total of FORM 5 shall be listed to its corresponding head in Part A of FORM 3A/FORM 3B.
4. Other Investments’ are as permitted under sections 27A(2) and 27B(3).
5. Guidelines on preparation of FORM 5 should be strictly followed.]
FORM 5A
Statement as on:
Statement of Mutual Fund Investment
Periodicity of submission: Quarterly Name of the Fund..................................
Rs. in Lakhs
Page 309 of 339
PARTICU COI Opening Balance Pur. for the Qtr Sales for the Qtr Closing Balance Market % to
LARS Unit Amount Unit Amount Unit Cost of Unit Book Value Total Inv.
Sales value
Approved
Investmen
ts
MF - EGMF —
Gift/Govt.
Sec/Liquid
Schemes
0 0 0 Total (A) 0 0 0
MF - EMPG
(under
Insurer’s
Promoter
Group)
0 0 0 Total (B) 0 0 0
Total
(A+B)
Other
Investmen
ts
MF - OMGS
Debt/Inco
me/Serial/
Liquid
Page 310 of 339
PARTICU COI Opening Balance Pur. for the Qtr Sales for the Qtr Closing Balance Market % to
LARS Unit Amount Unit Amount Unit Cost of Unit Book Value Total Inv.
Sales value
Funds
0 0 0 Total (C) 0 0 0
MF - OMPG
(under
Insurer’s
Promoter
Group)
0 0 0 Total (D) 0 0 0
Page 311 of 339
Total (C+D)___________________
Total (A+B+C+D)___________________
CERTIFICATION
Signature.....................................
Date............................. Full Name & Designation.................................
Note.–
1. FORM 5A shall be prepared in respect of each fund.

2. Each sub-total of FORM 5A shall be linked to its corresponding head in FORM 5.
3. Other investments are as permitted under sections 27A(2) and 27B(3).
4. Guidelines on preparation of FORM 5 should be strictly followed.]
FORM 6
Statement as on:
Certificate under section 28(2a)/28(2b)/28b(3) of the Insurance Act, 1938
Periodicity of submission: Quarterly Name of the Fund..................................
Rs. in Lakhs
Page 312 of 339
Investment Under the Custody of

Particulars Bank (RS)* Self (RS) Others (RS)* Total (RS)
Share Holders Policy Holders Share Holders Policy Holders Share Holders Policy Holders SH + PH
1 Govt. Sec.
2 Govt. Sec. or
Other Approved
Securities
3 Investment
subject to
Exposure Norms
a. Housing &
Loans to State
Govt, for
Housing & FFE
b. Infrastructure
Investments
c. Approved
Investments
d. Other
Investments
Page 313 of 339
Total _______________________________________________________________________
We certify that the above mentioned securities are held free of any encumbrance, charge, hypothecation, or lien as
on the above date.
CHAIRMAN CHIEF EXECUTIVE OFFICER DIRECTOR
Note.—
1. Custodian should certify that he is not disqualified under SEBI (Mutual Fund) Regulations, 1996 as
amended from time to time.
2. Value of the securities shall be as per Guidelines.
3. In the case of Life Insurance Business, FORM 6 shall be prepared in respect of each fund.
4. The values under Certificate should be adjusted for Purchase/Sale of Investments purchased and awaiting
settlement. A reconciliation to this effect should be attached to the Certificate .
FORM 7
Statement as on:
Confirmation of Investment Portfolio
Periodicity of submission: Quarterly
No. Particulars Confirmation (Yes/No)

1. Details of Approved
Investments/Other Investments
which have matured for payment
and maturity amount is outstanding
along with particulars of defaulted
amount and period for which said
default has continued:
2. Any Investment as at (1), which

subsequent to maturity have been
rolled over:
3. In respect of Investments where

periodic income have fallen due,
details of interest payment “in
default, along with period for which
such default have persisted:
4. Details of steps taken to recover the

defaulted amounts, and the
provisioning done/proposed in the
accounts against such defaults:
CERTIFICATION
Date………………… Signature………………………….
Page 314 of 339
Full Name & Designation…………………………
Note.—If any of confirmation is in the affirmative, details be provided.
FORM 7A
Statement as on:
Details of Investment Portfolio
Periodicity of submission: Quarterly Name of the Fund……………………

Page 315 of 339
Intere Has there been

st any Principal
Rate Waiver?
COI Comp Instru % Has Total Defau Defau Princi Intere Deferr Deferr Rolle Amou Board Classi Provi Provi
any ment there O/s lt lt pal st ed ed d nt Appro ficatio sion sion
Name Type been (Book Princi Intere Due Due Princi Intere Over? val n (%) (Rs)
revisi Value) pal st from from pal st Ref
on? (Book (Book
Value) Value)
Page 316 of 339
CERTIFICATION
Date................................ Signature...............................
Full Name & Designation...............................
Note.—
A. Category of Investment (COI) shall be as per INV/GLN/001/2003-04.

B. Form 7A shall be submitted in respect of each fund.
C. Classification shall be as per F&A-Circulars-169—Jan.-07 Dated 24 January 2007.]
APPENDIX–XIII INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (LIFE

INSURANCE-REINSURANCE) REGULATIONS, 2013
F. No. IRDA/Notification/17/75/2013.—In exercise of the powers conferred by section 114A of the Insurance Act,
1938, read with sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999, the
Authority, in consultation with the Insurance Advisory Committee hereby makes the following regulations, namely:—
1. Short title and commencement.—
a. These regulations may be called the Insurance Regulatory and Development Authority (Life Insurance -
Reinsurance) Regulations, 2013.
b. They shall come into force on the date of their notification in the Official Gazette.
2. Definitions. —In these regulations, unless the context otherwise requires.—
a. ‘Act’ means the Insurance Act, 1938 (4 of 1938);

b. ‘Authority’ means the Insurance Regulatory and Development Authority established under sub-section (1)
of Section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
c. ‘Cedant’ is an insurer who enters into a reinsurance contract or a reinsurer who enters into a retrocession
contract;
d. ‘Cession’ means the part of insurance passed to a reinsurer by the insurer which issued a policy to the
original insured;
e. ‘Fronting’ means a process by which a primary insurer cedes most of or all of the insurance risk to a
reinsurer
f. ‘Facultative’ means the reinsurance of a part or all of a single policy in which cession is negotiated
separately and that the reinsurer and the insurer have the option of accepting or declining each individual
submission;
g. ‘Reinsurance contract is the legally binding document on all the parties that provide a complete, accurate
and definitive record of all the terms and conditions and other provisions of the reinsurance contract.
h. ‘Retrocession’ means the transaction whereby a reinsurer cedes to another insurer or reinsurer all or part
of the reinsurance it has previously assumed;
i. ‘Retention’ means the portion of the risk which an insurer assumes for his own account.
j. ‘Indian re-insurer’ means an Indian insurance company which has been granted a certificate of registration
under sub-section (2A) of section 3 by the Authority to carry on exclusively the reinsurance business in
India;
Page 317 of 339
k. ‘pool’ means any joint underwriting operation of insurance or reinsurance in which the participants assume
a predetermined and fixed interest in all business written.
l. ‘Treaty’ means a reinsurance arrangement between the insurer and the reinsurer, usually for one year or
longer, which stipulates the technical particulars and financial terms applicable to the reinsurance of some
class or classes of business;
m. Words and expressions used and not defined in these regulations but defined in the Insurance Act, 1938 (4
of 1938) or Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall have the
meanings respectively assigned to them in those Acts as the case may be.
3. Reinsurance with Indian reinsurers.—
a. In accordance with Section 101 A of the Insurance Act, 1938, every insurer shall reinsure with Indian
reinsurers such percentage of the sum assured on each policy as may be specified by the Authority by
notification.
b. Provided that no percentage so specified shall exceed thirty percent of the sum assured on such policy and
c. Also different percentages may be specified for different classes of insurance and
d. Also specify the proportions in which the said percentage shall be allocated among Indian reinsurers.
e. For the purpose of this regulation, an Advisory Committee shall be constituted in accordance with the
Section 101B of the Insurance Act, 1938 consisting of not more than five persons having special
knowledge and experience of life insurance business.
4. Procedure to be followed for reinsurance arrangements.—
a. The Reinsurance Programme of every insurer/reinsurer shall be guided by the following objectives to:
i. Maximize retention within the country;
ii. Develop adequate capacity;
iii. Secure the best possible protection for the reinsurance costs incurred
iv. Ensure that the reinsurance policy does not lead to fronting of insurance business;
v. Simplify the administration of business.
b. Every life insurer shall draw up a programme of reinsurance in respect of lives covered and the profile of
such a programme, duly certified by the Appointed Actuary and approved by the Board of Director, shall be
filed with the Authority, at least forty five days before the commencement of each financial year, by the
insurer, which shall include:
i. For new insurers: their proposed reinsurance arrangements in relation to their capitalisation, proposed
classes of business and retentions; their reinsurers and ratings for the past five years; and control
systems.
ii. For existing insurers:
1. The proposed reinsurance arrangements in relation to their capitalisation, proposed classes of
business and retentions; their reinsurers, shares and ratings for the past five years and
2. An annual review of existing reinsurance arrangements, including:
a. In relation to the risk exposures for each class of insurance business written: Retention limits,
comparison to the Regulatory Reporting Retention Limits in Regulation 6, and the types of
cover provided by treaties;
b. Reinsurance control systems for monitoring exposures and making cessions and claims
recoveries;
c. Major reinsurers, i.e. reinsurers accounting for more than 20 per cent of premiums ceded
under any one reinsurance contract and reinsurers accounting for more than 5 per cent of
premiums ceded in total.
Page 318 of 339
d. The name(s) of the reinsurer(s) with whom the insurer has the reinsurance arrangements, their
shares and their rating for the past five years.
Provided that the Authority may, if it considers necessary, elicit from the insurer any additional information,
from time to time, and the insurer shall furnish the same to the Authority forthwith.
c. The insurer shall ensure that the reinsurance arrangements in respect of catastrophe risks, using various
realistic disaster scenario testing, are adequate and approved by the Board of Directors before filing the
same with the Authority along-with the reinsurance programme.
d. The insurer shall determine the credit risk and concentration risk of the reinsurance arrangements and
explain the measures taken to mitigate such risks, if any, in the reinsurance programme.
e. The Authority shall examine the reinsurance programme, the retention policy details as in Regulation 5 and
the detailed report on regulatory reporting retention limits, if required under Regulation 6, submitted along
with the reinsurance programme to ensure, amongst others, that the:
i. The objectives in sub-regulation 4 (a) are met;
ii. The insurer’s financial strength, the reinsurance policy, underwriting capacity, volume of the business
etc are considered in arriving at the retention limits.
f. If the reinsurance programme of the insurers is found to be inconsistent with the overall objective of this
Regulation, the Authority for the purposes of calculating solvency, may allow a lesser credit for reinsurance
in the sum-at-risk factor.
g. For the purpose of (e) and (f), the Authority shall examine all the necessary justifications, the technical &
financial strength of the insurer, all the supporting data and the reasons why such an arrangement would
be required as submitted in the reinsurance programme.
h. The Authority shall scrutinize such a programme of reinsurance as above, and may suggest changes, if it
consider necessary, and the insurer shall incorporate such changes forthwith in his programme.
5. Retention Policy.—
a. Every insurer shall build the retention capacity within the company and formulate suitable retention policy
for each type of product/risk on an ongoing basis and justify on an ongoing basis such retention policy in
accordance with the emerging claims experience, financial standing, underwriting capacity etc. in the
annual reinsurance programme submitted to the Authority.
b. The above such retention policy of every insurer shall:
i. aim at retaining the maximum premium earned in India, maximizing the retention across products
commensurate with his financial strength & volume of business and
ii. establish the above in the reinsurance programme as referred to in sub-regulation 4 (b).
c. Insurers may be allowed to reinsure on quota share:
i. in the initial two years of starting operations for health insurance business and group term insurance
business and
ii. in the initial two years of introducing a new risks/product for health insurance business and group term
insurance business
Provided the minimum retentions in all such cases shall be at least as referred in Table: 6 (1) applicable to
health insurance business and group term insurance business.
d. The Authority may require an insurer to further justify its retention policy and may give such directions as
considered necessary.
6. Regulatory Reporting Requirements.—

Page 319 of 339
a. If the retention levels of such retention policy for mortality / morbidity risks is less than the regulatory
reporting retention limits stated in Table: 6 or the total reinsurance premium to the total premium received
under a particular product exceeds 2% for all saving products and 30% for all term insurance/health
products, in all such cases, the insurers shall report to the Authority along with the reinsurance programme
for approval a detailed working for each product on:
i. The underwriting processes;
ii. Claims fluctuations and claims experience;
iii. Current retention levels;
iv. Their financial strength;
v. Volume of business;
vi. Capital requirements;
vii. Past claims payment history of the reinsurers;
viii. Capacity building measures taken in terms of building up capacity in underwriting, claims handling, risk
management, pricing, valuation, etc. since introducing the risk; etc
TABLE: 6 Regulatory Reporting Retention Limits
S. No Age of the insurer or Type of the products Retention limit on the

year in which the risk or riders sum at risk. Rs.
is introduced**
1 0 to 3 years both Pure protection products 5 1akhs
inclusive like term insurance,
personal accident
products etc
A 1
ll 0
k l
i a
n k
d h
s s
o
f
s
a
v
i
n
g
s
p
r
o
d
u
c
t
s
li
k
e
e
n
Page 320 of 339

is introduced**
d
o
w
m
e
n
t,
U
L
I
P
S
e
t
c
A 5
ll 1
k a
i k
n h
d s
s
o
f
g
r
o
u
p
p
r
o
t
e
c
ti
o
n
p
r
o
d
u
c
t
s
A 1
ll l
k a
i k
n h
d s
s
o
Page 321 of 339

is introduced**
f
h
e
a
lt
h
i
n
s
u
r
a
n
c
e
p
r
o
d
u
c
t
s
,
e
x
c
e
p
t
p
e
r
s
o
n
a
l
a
c
c
i
d
e
n
t
p
r
o
d
u
c
t
s
.
Page 322 of 339

is introduced**
2 4 to 7 years both Pure protection products 10 lakhs
personal accident
products etc
A 2
ll 0
k l
i a
n k
d h
s s
o
f
s
a
v
i
n
g
s
p
r
o
d
u
c
t
s
li
k
e
e
n
d
o
w
m
e
n
t,
U
L
I
P
S
e
t
c
A 1
ll 0
k l
i a
n k
d h
Page 323 of 339

is introduced**
s s
o
f
g
r
o
u
p
p
r
o
t
e
c
ti
o
n
p
r
o
d
u
c
t
s
A 3
ll l
k a
i k
n h
d s
s
o
f
h
e
a
lt
h
i
n
s
u
r
a
n
c
e
p
r
o
d
u
c
t
Page 324 of 339

is introduced**
s
,
e
x
c
e
p
t
p
e
r
s
o
n
a
l
a
c
c
i
d
e
n
t
p
r
o
d
u
c
t
s
.

personal accident
products etc
A 3
ll 0
k 1
i a
n k
d h
s s
o
f
s
a
v
i
n
g
s
p
Page 325 of 339

is introduced**
r
o
d
u
c
t
s
li
k
e
e
n
d
o
w
m
e
n
t,
U
L
I
P
S
e
t
c
A 1
ll 5
k l
i a
n k
d h
s s
o
f
g
r
o
u
p
p
r
o
t
e
c
ti
o
n
p
r
o
d
u
Page 326 of 339

is introduced**
c
t
s
A 3
ll l
k a
i k
n h
d s
s
o
f
h
e
a
lt
h
i
n
s
u
r
a
n
c
e
p
r
o
d
u
c
t
s
,
e
x
c
e
p
t
p
e
r
s
o
n
a
l
a
c
c
i
d
e
Page 327 of 339

is introduced**
n
t
p
r
o
d
u
c
t
s
.

personal accident
products etc
A 3
ll 0
k l
i a
n k
d h
s s
o
f
s
a
v
i
n
g
s
p
r
o
d
u
c
t
s
li
k
e
e
n
d
o
w
m
e
n
t,
U
n
it
Page 328 of 339

is introduced**
li
n
k
e
d
p
r
o
d
u
c
t
s
e
t
c
A 2
ll 0
k l
i a
n k
d h
s s
o
f
g
r
o
u
p
p
r
o
t
e
c
ti
o
n
p
r
o
d
u
c
t
s
A 4
ll l
k a
i k
n h
d s
s
Page 329 of 339

is introduced**
o
f
h
e
a
lt
h
i
n
s
u
r
a
n
c
e
p
r
o
d
u
c
t
s
,
e
x
c
e
p
t
p
e
r
s
o
n
a
l
a
c
c
i
d
e
n
t
p
r
o
d
u
c
t
s
.
Page 330 of 339

is introduced**
5 Above 15 years The Authority may prescribe from time to time the
limits for all the four types of products
** If the insurer is introducing the risk for the first time, in such cases the limits in # 1 would apply irrespective of the
age of the insurer.
Provided further that the Authority shall review the Regulatory Reporting Retention Limits every two years and if necessary,
may revise these limits upwards from time to time.
7. Submissions of Reinsurance Treaties.—
a. All reinsurance arrangements shall be documented and filed with the Authority within 30 days of
commencement of the financial year.
b. Within 30 days of the commencement of the financial year, every insurer shall also file with the Authority a
copy of every reinsurance treaty contract in respect of that year together with the list of reinsurers, their
ratings and their shares in the reinsurance arrangement. Provided that any change in the terms and
conditions of the reinsurance treaty shall be filed with the Authority within 15 days of such changes.
8. Placement of Reinsurance Business.—
a. Insurers shall place their reinsurance business outside India with only those reinsurers who have over a
period of the past five years counting from the year preceding for which the business has to be placed,
enjoyed a credit rating of at least BBB (with Standard & Poor) or equivalent rating of any other international
rating agency.
b. Provided that placement of business by the insurer with any other reinsurer shall be with the prior approval
of the Authority.
c. Provided further that no programme of reinsurance shall be on original premium basis.
d. Provided further that no life insurer shall have reinsurance treaty arrangement with its promoter company
or its associate/group company, except on terms which are commercially competitive in the market and
with the prior approval of the Authority, which shall be final and binding.
e. The life insurers shall, before placing the business with the reinsurers, consider past claims performance of
the reinsurers, as available, while accepting their participation in the reinsurance programme.
9. Submission of Returns.—
a. Every insurer shall be required to submit to the Authority information and returns relating to its reinsurance
transactions as per Annexure 1 and in such other forms as the Authority may require or specify from time
to time
Explanation: All the life insurers shall furnish the information and returns required as per Annexure 1:
i. In the case of forms which are to be submitted on an annual basis, with in 45 days from the close of
each financial year.
ii. In all other cases, within 15 days from the close of each quarter/half-year as the case may be.
10. Inward Reinsurance Business.—
a. Every insurer wanting to write inward reinsurance business shall seek specific approval of the Authority
providing all the business projections and all documentation as may be required for such business.
Page 331 of 339
b. Every insurer wanting to write inward reinsurance business shall have a well-defined underwriting policy
approved by its Board of Directors for underwriting inward reinsurance business.
c. An insurer shall file with the Authority, at least forty five days before the commencement of each financial
year, its underwriting policy stating the classes of business, geographical scope, underwriting limits and
profit objective.
d. An insurer shall ensure that decisions on acceptance of reinsurance business are made by persons with
adequate knowledge and experience, preferably in consultation with the insurer’s Appointed Actuary.
e. An insurer shall also file with the Authority any changes to the underwriting policy as and when a change is
made duly approved by its Board of Directors.
f. An insurer shall show all the receipts and payments like premiums, claims, etc. relating to reinsurance
business accepted separately from direct insurance business.
11. Repeal and Savings.—
a. These Regulations repeal the Insurance Regulatory and Development Authority (Life Insurance -
b. Unless otherwise provided by these regulations, nothing in these regulations shall deem to invalidate the
arrangements entered prior to these regulations coming into force.
APPENDIX–XIV INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(GENERAL INSURANCE - REINSURANCE) REGULATIONS, 2013
F. No. IRDA/Reg./5/63/2013.—In exercise of the powers conferred by section 114A of the Insurance Act, 1938,
sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999, the Authority, in consultation
with the Insurance Advisory Committee, hereby makes the following regulations, namely:—
1. Short title and commencement:
(1) These regulations may be called the Insurance Regulatory and Development Authority (General Insurance
- Reinsurance) Regulations, 2013.
(2) These Regulations replace the Insurance Regulatory and Development Authority (General Insurance -
(3) These regulations shall come into force on the date of their notification in the Official Gazette.
2. Definitions.—In these regulations, unless the context otherwise requires:
a) ‘Act’ means the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
b) ‘Authority’ means the Insurance Regulatory and Development Authority established under sub-section (1)
of Section 3 of the Act;
c) ‘Cedant’ is an insurer who enters into a reinsurance contract or a reinsurer who enters into a retrocession
contract;
d) ‘Cession’ means the part of insurance passed to a reinsurer by the insurer which issued a policy to the
original insured or part of contract ceded by a reinsurer to a retrocessionaire;
e) ‘Cover note’ is a written document issued by the reinsurer or the reinsurance broker authorized by it,
detailing the contract terms and conditions of the contract and the details of the percentage of risk placed
with each reinsurer.
f) ‘Facultative’ means the reinsurance of a part or all of a single policy in which cession is negotiated
separately and that the reinsurer and the insurer have the option of accepting or declining each individual
submission;
g) ‘Indian re-insurer/s’ means the insurer/s who carry on exclusively reinsurance business and is notified in
this behalf by the Authority under Sec. 101A of Insurance Act.
Page 332 of 339
h) ‘Pool’ means any joint underwriting operation of insurance or reinsurance in which the participating
insurer/s or reinsurer/s assume a predetermined and fixed interest in all business written.
i) ‘Retrocession’ means the transaction whereby a reinsurer cedes to another insurer or reinsurer all or part
of the reinsurance it has previously assumed;
j) ‘Retention’ means the portion of the risk which an insurer assumes for his own account;
k) ‘Reinsurance contract’ is the legally binding document on all the parties that provide a complete, accurate
and definitive record of all the terms and conditions and other provisions of the reinsurance contract.
l) ‘Treaty’ means a reinsurance arrangement between the insurer and the reinsurer, usually for one year or
longer, which stipulates the technical particulars and financial terms applicable to the reinsurance of some
class or classes of business;
m) Words and expressions used and not defined in these regulations but defined in the Insurance Act, 1938 (4
of 1938) or the General Insurance Business Nationalisation Act, 1972 (57 of 1972) or Insurance Regulatory
and Development Authority Act, 1999 (41 of 1999), rules made there under shall have the meanings
respectively assigned to them in those Acts or rules as the case may be.
CHAPTER II
3. Procedure to be followed for Reinsurance Arrangements.—(1) The Reinsurance Programme of every

(re)insurer shall be guided by the following objectives to:
a) Maximize retention within the country;

b) Develop adequate capacity;
c) Secure the best possible protection for the reinsurance costs incurred;
d) Simplify the administration of business.
(2) Every (re)insurer shall maintain the maximum possible retention commensurate with its financial strength,
quality of risks and volume of business. The Authority may require an (reinsurer to justify its retention policy and
may give such directions as considered necessary in order to ensure that the Indian (re)insurer is not merely
fronting for a foreign insurer.
(3) Every insurer shall cede such percentage of the sum assured on each policy for different classes of insurance
written in India to the Indian reinsurer/s as may be specified by the Authority in accordance with the provisions of
Part IVA of the Insurance Act, 1938.
(4) The reinsurance programme of every (re)insurer shall commence from the beginning of every financial year.
Every (re)insurer shall submit to the Authority, his reinsurance programme for the forthcoming year, 45 days before
the commencement of the financial year. Notwithstanding what is stated above, the Authority, if it considers
necessary, may direct the (re)insurer to carry out changes to the reinsurance programme filed with it and the
(re)insurer shall incorporate such changes forthwith in their reinsurance programme.
(5) The (re)insurers shall ensure that the reinsurance arrangements in respect of catastrophe accumulations, using
various realistic disaster scenario testing are adequate and approved by their Board of Directors before filing the
same with the Authority along-with their reinsurance programme.
(6) Within 30 days of the commencement of the financial year, every (re)insurer shall file with the Authority a copy
of every reinsurance treaty contract wording and excess of loss cover covernote in respect of that year together
with the list of reinsurers their ratings and their shares in the reinsurance arrangement. All reinsurance
arrangements must be documented and filed with the Authority within 30 days of commencement of the financial
year.
(7) The Authority may call for further information or explanations in respect of the reinsurance programme of an
(re)insurer and may issue such direction, as it considers necessary;
(8) Every (re)insurer shall file with the Authority any new reinsurance arrangement, giving full details,
documentation, reasons for such an arrangement together with the approval of the Board of Directors within 15
Page 333 of 339
days of holding the Board meeting. The (re)insurer shall further ensure that the renewal of such a reinsurance
arrangement coincides with financial year.
(9) (Re)Insurers shall place their reinsurance business outside India with only those reinsurers who have over a
period of the past five years counting from the year preceding for which the business has to be placed, enjoyed a
credit rating of at least BBB (with Standard & Poor) or equivalent rating of any other international rating agency. The
(re)insurers shall consider past claims performance of the reinsurers while accepting their participation in the
reinsurance programme. Placements with other reinsurers shall require the approval of the Authority. (Re)Insurers
may also place reinsurances with Lloyd’s syndicates taking care to limit placements with individual syndicates to
such shares as are commensurate with the capacity of the syndicate.
(10) The Indian Reinsurer shall organise domestic pools for reinsurance surpluses in fire, marine hull and other
classes in consultation with all insurers on basis, limits and terms which are fair to all insurers and assist in
maintaining the retention of business within India at such percentages as the Authority may specify from time to
time. The arrangements so made shall be submitted to the Authority within three months of the formation of such
pools, for approval.
(11) Surplus over and above the domestic reinsurance arrangements class wise can be placed by the (re)insurer
independently with any of the reinsurers complying with sub-regulation (7) subject to the following limits of the total
reinsurance premium ceded outside India being placed with any one reinsurer:
Rating of Reinsurers (as per Standard & Poor and Limit of cession allowed under Regulation 3(11)
applicable to other equivalent international rating
agencies)
BBB of Standard & Poor 10%
Greater than BBB and up to & including AA of Standard 15%

& Poor
Greater than AA up to & including AAA of Standard & 20%

Poor
Where it is necessary in respect of specialised insurance to cede a share exceeding such limit to any particular
reinsurer, the (re)insurer may seek the specific approval of the Authority giving reasons for such cession.
(12) Every insurer shall offer an opportunity to the Indian Reinsurer to participate in its facultative and treaty
surpluses before placement of such cessions outside India. The Indian reinsurer shall set up appropriate market-
wide reinsurance arrangements for this purpose.
(13) Every (re)insurer shall be required to submit to the Authority information and returns relating to its reinsurance
transactions in such forms as the Authority may specify or require together with its annual accounts.
4. Inward Reinsurance Business.—(1) Every (re)insurer wanting to write inward reinsurance business shall have
a well-defined underwriting policy approved by its Board of Directors for underwriting inward reinsurance business.
(2) The (re)insurer shall file with the Authority, at least forty five days before the commencement of each financial
year, its underwriting policy stating the classes of business, geographical scope, underwriting limits and profit
objective.
(3) The (re)insurer shall ensure that decisions on acceptance of reinsurance business are made by persons with
necessary knowledge and experience.
(4) The (re)insurer shall also file any changes to the underwriting policy as and when a change is made duly
approved by its Board of Directors.
5. Outstanding Loss Provisioning.—(1) Every (re)insurer shall make outstanding claims provisions for every
reinsurance arrangement accepted on the basis of loss information advices received from Brokers/Cedants and
where such advices are not received, on an actuarial estimation basis.
Page 334 of 339
(2) In addition, every (re)insurer shall make an appropriate provision for incurred but not reported (IBNR) claims on
its reinsurance accepted portfolio on actuarial estimation basis.
APPENDIX–XV THE INSURANCE (AMENDMENT) BILL, 2008
The Insurance Laws (Amendment) Bill, 2008, with a view to amend the Insurance Act, 1938, the General Insurance
Business (Nationalisation) Act, 1972 and the Insurance Regulatory and Development Authority Act, 1999 was
introduced in the Rajya Sabha on the 22 December 2008. The Bill as introduced, has been referred to the Standing
Committee on Finance for examination and report. The Standing Committee submitted its report to Parliament on
13 December 2011. There are a total of 111 clauses in the Insurance Laws (Amendment) Bill, 2008.
Some of the highlights of the bill are below:—
• Permitting the foreign re-insurers to open branches in India.

• Health Insurance Business to be recognised as a separate line of business and it proposes to define
“Health Insurance Business” (Clause 2(6C)). The Bill proposes to fix the minimum capital for health
insurance business at Rs. 500 million (Rupees five hundred million). It has also been prescribed that
foreign reinsurance companies operating as reinsurers through their branches in India shall have a
minimum net owned funds of Rs. 50 billion (Rupees fifty billion) (Clause-6).
• It amends the definition “Actuary”.
• The Bill proposes to amend the definition of the Indian Insurance Company as a public limited company in
which the foreign equity does not exceed forty nine percent. (At present twenty six per cent) (Clause-
2(7A)).
• It allows the entry of Lloyd’s of London in the insurance business in India as a foreign company in joint
venture with Indian partner.
• The Bill seeks to allow the Insurance companies to issue other forms of securities as may be approved by
the IRDA (as opposed to only equities). (Clause 6A).
• The Bill proposes to allow the Indian promoters to hold up to 100% in Indian Insurance Companies. At
present no Indian Promoter shall hold more than twenty six per cent in an Indian Insurance Company
beyond ten years from the date of commencement of business (Clause 6AA).
• The Bill enables sanction of loans and advances as per norms to be specified by the Authority and the
scheme approved by the Board of Directors of the insurer (Clause 29).
• The Bill prescribes minimum business in third party risks of motor vehicles for general insurance
companies (Clause 32D).
• It recognises partial assignments of insurance policies (Clause 38).
• It proposes to recognise two types of nominees, a) a beneficial nominee b) a collector nominee (Clause
39).
• The power to appoint agents is proposed to give insurance companies subject to the qualifications
prescribed by the IRDA (Clause 42).
• The Bill proposed to amend the section 45 to state that an insurer cannot deny a claim under an insurance
policy after five years for any reason whatsoever i.e., even if the policy holder has fraudulently made a
statement on material fact.
• The penalties for non-compliance with provisions in the Insurance Act have been significantly increased.
• It proposed to recognise Securities Appellate Tribunal (SAT) as the Appellate Authority against the order
passed by IRDA.
• It prohibits any insurer from investing funds of policy holders outside India.
• It omits provisions related to Tariff Advisory Committee in view of the detariffing of rates and premium.
• It empowers the Life Insurance Council and General insurance Council to frame bye laws for elections,
meetings and collection of fees from its members.
Page 335 of 339
APPENDIX–XVI FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION
The Financial Sector Legislative Reforms Commission (FSLRC) is a body set up by the Government of India,
Ministry of Finance, on 24 March 2011, to review and rewrite the legal-institutional architecture of the Indian
financial sector. The setting up of the Commission was the result of a felt need that the legal and institutional
structures of the financial sector in India need to be reviewed and recast in tune with the contemporary requirement
of the sector.
The institutional framework governing the financial sector has been built up over a century. There are over sixty
Acts and multiple Rules and Regulations that govern the financial sector in India. The piecemeal amendments have
generated unintended outcomes including regulatory gaps, overlaps, inconsistencies and regulatory arbitrage. The
Commission would simplify and rewrite financial sector legislations, including subordinate legislations, to achieve
harmony and synergy among them.
The Terms of Reference of the Commission include the following:
a. Examining the architecture of the legislative and regulatory system governing the financial sector in India.
b. Examine if legislation should mandate statement of principles of legislative intent behind every piece of
subordinate legislation in order to make the purposive intent of the legislation clear and transparent to uses
of the law and to the courts.
c. Examine if public feedback for draft subordinate legislation should be made mandatory, with exception for
emergency measures.
d. Examine prescription of parameters for invocation of emergency powers where regulatory action may be
taken on ex parte basis.
e. Examine the interplay of exchange controls under FEMA and FDI Policy with other regulatory regimes
within the financial sector.
f. Examine the most appropriate means of oversight over regulators and their autonomy from government.
g. Examine the need for re-statement of the law and immediate repeal of any out-dated legislation on the
basis of judicial decisions and policy shifts in the last two decades of the financial sector post-liberalisation.
h. Examination of issues of data privacy and protection of consumer of financial services in the Indian market.
i. Examination of legislation relating to the role of information technology in the delivery of financial services
in India, and their effectiveness.
j. Examination of all recommendations already made by various expert committees set up by the government
and by regulators and to implement measures that can be easily accepted.
k. Examine the role of State Governments and legislatures in ensuring a smooth inter-State financial services
infrastructure in India.
l. Examination of any other related issues.
The object of setting up of the Commission is to re-write and clean up the financial sector laws. This would bring the
laws in line with the requirements of the sector doing away with the ambiguity and complexity crept in these old
legislations with amendments and changes made in them over the years.
Financial Regulatory Architecture
At present, Indian law features tight connections between several agencies. The present work allocation, between
RBI, SEBI, IRDA, Pension Fund Regulatory and Development Authority (PFRDA), Forward Market Commission
(FMC) was not designed. The present arrangement has gaps where no Regulator is in charge. It also contains
overlaps where conflicts between laws have consumed the energy of top economic policy makers. The Commission
noted, when the true activities of a financial firm are split up across many entities, each of which has oversight of
different supervisor, no supervisor has a full picture of the risks that are present.
The Commission proposes a financial regulatory architecture featuring seven agencies. This proposal features
seven agencies and is hence not a “unified financial regulator” proposal. The special features are the following:
Page 336 of 339
(a) The existing RBI will continue to exist, though with modified functions.
(b) The existing SEBI, FMC, IRDA and PFRDA will be merged into a new unified agency.
(c) The existing Securities Appellate Tribunal (SAT) will be subsumed into the “Financial Services Appellate
Authority” (FSAT).
(d) The existing Deposit Insurance and Credit Guarantee Corporation of India (DICGC) will be subsumed into
the “Resolution Corporation”.
(e) A new “Financial Redressal Agency” (FRA) will be created.
(f) A new “Debt Management Office” will be created.
(g) The existing “FSDC” (Financial Stability and Development Council) will continue to exist, though with
modified functions and statutory framework.
The functions of each of these seven proposed agencies are as follows:
(a) Reserve Bank of India: It is proposed that RBI will perform three functions. They are monetary policy,
regulation and supervision of banking in enforcing the proposed consumer protection law and the proposed
micro-prudential law, and regulation and supervision of payment systems in enforcing these two laws.
(b) Unified Financial Agency: “The Unified Financial Regulatory Agency” (UFRA) would implement the
consumer law and micro-prudential law for all financial firms other than banking and payments. It would
also take over the work on an organised financial trading from RBI in the areas connected with the Bond-
Currency-Derivatives Nexus, and from FMC for commodity futures, thus giving a unification of all organised
financial trading including equities, government bonds, currencies, commodity futures and corporate
bonds. The unification of regulation and supervision of financial firms such as mutual funds, insurance
companies, and a diverse array of firms which are not banks or payment providers, would yield consistent
treatment in consumer protection and micro-prudential regulation across all of them.
(c) Financial Sector Appellate Tribunal: The SAT will be subsumed in FSAT, which will hear appeals against
RBI for its regulatory functions, the unified financial agency, decisions of the FRA and some elements of
the work of the “Resolution Corporation”.
(d) Resolution Corporation: The present “Deposit Insurance and Credit Guarantee Corporation of India”
(DICGC) will be subsumed into the “Resolution Corporation” which will work across the financial system.
(e) Financial Redressal Agency: This is a new agency which will have to be created in implementing this
financial regulatory architecture. It will setup a nationwide machinery to become a one stop shop where
consumers can carry complaints against all financial firms.
(f) Public Debt Management Agency: An independent debt management office is envisioned.
(g) Financial Stability and Development Council: Finally, the existing “FSDC” will become a statutory agency
and have modified functions in the fields of systemic risk and development.
The main result of the work of the commission is the draft “Indian Financial Code”, a single unified and
internally consistent draft law that replaces a large part of the existing Indian legal framework
governing finance. The draft Code is comprised of 450 (four hundred and fifty) clauses.
Composition of the Board of the Regulator:
The Commission suggests that the Board of a Regulator should have four types of members:
(a) Chairperson–There will be one chairperson of the Board of a regulator. He/she will be responsible for the
functioning of the Board and the office of the Regulator.
(b) Executive Members: Some members will be designated as “Administrative Law Members”. They will be
responsible for reviewing the performance and carrying out the oversight of a designated set of employees
of the regulator, referred to as administrative law officers; and reviewing the decisions of the administrative
law officers. The executive members will devote their entire time to the management of the Regulator.
Page 337 of 339
(c) Non-Executive Members: These members who are experts in different fields and are appointed to the
Board on part-time basis.
(d) Government Nominees: These members are ex officio members of the Board.
1. Came into force on 19-4-2000, vide S.O. 397(E), dated 19-4-2000, published in the Gazette of India, Extra., PT-II, S.
3(ii), dated 19th April 2000.
1. Vide Notification No IRDA/Reg/7/2000, dated 14 July, 2000 and published in the Gazette of India, Extraordinary, Pt III,
sec 4, dated 19 July, 2000.
2. Subs. by Notification No. IRDA/Reg./3/61/2013, dated 7-2-2013 (w.e.f. 13-2-2013).
5. Subs. by Notification No. IRDA/Reg./26/2003, dated 26-2-2003 (w.e.f. 7-3-2003).
6. Subs. by Notification No. IRDA/Reg./26/2003, dated 26-2-2003 for “One-fifth” (w.e.f. 1-4-2001).
7. Ins by Notification No IRDA/Reg./26/2003, dated 26 February 2003 (w.e.f. 7-3-2003).
8. Re-numbered by Notification No. IRDA/Reg./26/2003, dated 26 February 2003 (w.e.f. 7-3-2003).
1. Vide Notification No IRDA/Reg/7/2000, dated 14 July 2000 and published in Gazette of India, Extraordinary, Pt III, sec
4, dated 19 July 2000.
2. Omitted by Notification No. IRDA/Reg./3/53/2010, dated 1-7-2010 (w.e.f. 6-7-2010). Clause (c), before omission, stood
as under:—
(c) ‘intermediary or insurance intermediary’ includes insurance brokers, re-insurance brokers, insurance consultants,
surveyors and loss assessors, or any other person representing or assisting an insurer in one or more of the following:
(i) soliciting, negotiating, procuring, or effectuating an insurance contract or a renewal of an insurance contract;
(ii) disseminating information relating to coverage or rates;
(iii) forwarding an insurance application;
(iv) servicing and delivering an insurance policy or contract;
(v) inspecting a risk;
(vi) setting a rate;

(vii) investigating or assessing a claim or loss;
(viii) transacting a matter after the effectuation of a contract; or
(ix) representing or assisting an insurer or other person in any other manner in the transaction of insurance with respect
to a subject of insurance resident, located or to be performed in India;
(x) servicing a policy or contract.

3. The 2nd Proviso omitted by Notification No. IRDA/Reg./3/53/2010, dated 1-7-2010 (w.e.f. 6-7-2010). The second
proviso, before omission, stood as under:—
(ii) provide an insurance company with information about its membership and collect compensation based upon sales
for that information.
1. Vide Notification No IRDA/Reg/7/2000, dated 14 July 2000 and published in Gazette of India, Extraordinary, Pt III,
section 4, dated 19 July 2000.
2. Subs. by Notification No. IRDA/Reg./10/2002, dated 16-10-2002.
4. Subs. by Notification No. IRDA/Reg./3/40/2007, dated 8-10-2007 for “three to four weeks” (w.e.f. 1-11-2007).
5. Subs. by Notification No. IRDA/Reg./3/40/2007, dated 8-10-2007 for “one hundred fifty hours” (w.e.f. 1-11-2007).
Page 338 of 339
6. Subs. by Notification No. IRDA/Reg./3/40/2007, dated 8-10-2007 for “six to eight weeks” (w.e.f. 1-11-2007).
7. Subs. by Notification No. IRDA/Reg./3/40/2007, dated 8-10-2007 for “fifty hours” (w.e.f. 1-11-2007).
8. Subs. by Notification No. IRDA/Reg./3/40/2007, dated 8-10-2007 for “seventy hours” (w.e.f. 1-11-2007).
9. Added by Notification No. IRDA/Reg./10/2002, dated 16-10-2002.
1. Vide Notification No IRDA/Reg/11/2000, dated 20 November 2000 and Published in the Gazette of India, Extraordinary,
Part-III, sec 4, dated 24 November 2000.
2. Came into force on 24-11-2000.
3. Ins. by Notification No. IRDA/Reg. 18/76/2013, dated 13-3-2013, (w.e.f. 22-3-2013).
7. Subs. by Notification No. IRDA/Reg. 18/76/2013, dated 13 -3-2013, (w.e.f. 22-3-2013).
8. Subs. by Notification No. IRDA/Reg. 18/76/2013, dated 13-3-2013, (w.e.f. 22-3-2013).
9. Substituted by Notification No. F.No.IRDA/Reg./4/87/2014, dated 22 January 2014, for regulation 5 (w.e.f. 22-3-2014)
28. Substituted by Notification No. IRDA/Reg. 18/76/2013, dated 13 March2013, (w.e.f. 22-3-2013).
1. Vide Notification No Reg/7/2000 IRDA, dated 14 July 2000 and published in Gazette of India, Extraordinary, Pt III; sec
4, dated 19 July 2000.
5. Ins. by Notification No. IRDA/Reg./4/62/2013, dated 7-2-2013 (w.e.f. 13-2-2013).
1. Vide Notification No IRDA/REG/7/2000, dated 14 July 2000 and published in Gazette of India, Extraordinary Part III,
sec 4, dated 19-7-2000.
1. Published in the Gazette of India, Extraordinary, Pt. III, sec. 4, dated 17-10-2002.
Page 339 of 339
2. Subs. by Notification No. IRDA/Reg./3/2004, dated 30-7-2004 (w.e.f. 5-8-2004).

4. Omitted by Notification No. IRDA/Reg./1/42/2008, dated 3-1-2008 (w.e.f. 1-2-2008).
5. Added by Notification No. IRDA/Reg./4/2005/37, dated 26-12-2005 (w.e.f. 28-12-2005).
1. Vide Notification No. IRDA/Reg/7/2000, dated 14 July 2000 and published in Gazette of India, Extraordinary, Pt III,
section 4, dated 19 July 2000.
1. Published in the Gazette of India, Extraordinary, Pt. III, sec. 4, dated 2-4-2002.
1. Vide Notification F. No. IRDAI/Reg/22/134/2016, dated 1st August, 2016, published in the Gazette of India, Extra., Pt.
III, Sec. 4, No. 321, dated 11th August, 2016.
2. Come into force on 11-8-2016.
End of Document

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1.

PART I General Principles of the Law of Insurance

1.1 Nature of Insurance

losses may be reimbursed.2.

1. JB Maclean, Life Insurance, p 1.

PART I General Principles of the Law of Insurance

1.2 History of Insurance

1.2.2 Fire Insurance

1.2.3 Life Insurance

1.2.3.1 Period of Mushroom Growth (1900–1912)

1.2.3.2 Period of Struggle and Steady Growth (1913–1938)

1.2.3.3 Period of Stability and Consolidation (1938–1950)

1.2.3.4 Period of Boom and Nationalisation (1950 up to date)

5. KMD Association v UOI, AIR 1983 J & K 100.

6. AIR 1986 Bom 412.

PART I General Principles of the Law of Insurance

1.3 Era of Privatisation

PART I General Principles of the Law of Insurance

CHAPTER 2 THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(a) the protection of the interest of the consumers;

After s 30 insert the following:

30A. Exclusive privilege of corporation to cease:

After s 24, insert the following:

Exclusive privilege of corporation and acquiring companies to cease:

PART I General Principles of the Law of Insurance

CHAPTER 2 THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

2.2 The Insurance Regulatory and Development Authority Act, 1999

2.2.4 Duties, Powers and Functions of the Authority

2.2.6 Powers and Functions

(e) promoting efficiency in the conduct of insurance business;

(k) regulating investment of funds by insurance companies;

(l) regulating maintenance of margin of solvency;

(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;

(n) supervising the functioning of the Tariff Advisory Committee;

(q) exercising such other powers as may be prescribed.

2.2.7 Finance and Accounts

2.2.8 Power of the Central Government

2.2.9 Interim Arrangements

2.2.10 Insurance Advisory Committee

2.2.11 Rule-Making Power

PART I General Principles of the Law of Insurance

CHAPTER 3 REGISTRATION OF INSURANCE COMPANIES

1. Section 3, Insurance Act, 1938.

PART I General Principles of the Law of Insurance

CHAPTER 3 REGISTRATION OF INSURANCE COMPANIES

3.2 Procedure of Registration

2. For full text see Appendix III.

PART I General Principles of the Law of Insurance

CHAPTER 3 REGISTRATION OF INSURANCE COMPANIES

3.3 Renewal of Registration

3.3.1 Manner of Payment of Fee for Renewal of Certificate

3.3.2 Issue of Duplicate Certificate

an application to the Authority in form IRDA/R4.

3.3.3 Cancellation or Suspension of Certificate

3.3.3.1 Manner of Making Order of Suspension or Cancellation of Certificate

3.3.3.2 Manner of Holding Inquiry Before Suspension or Cancellation

3.3.3.3 Show-cause Notice and Order

3.3.3.4 Publication of Order

has his principal place of business.

3.3.3.5 Effect of Suspension or Cancellation of Certificate

3.3.3.6 Existing Insurers

Every application shall be accompanied by:

a) original certificate of registration;