Law of Insurance - Study Material 2023 Part-I PDF

History of insurance
The history of insurance describes the development of

the modern business of insurance against risks, especially
regarding cargo, property, death, automobile accidents,
and medical treatment.
The industry helps to eliminate risks (as when fire insur-
ance companies demand the implementation of safe prac-
tices and the installation of hydrants), spreads risks from
the individual to the larger community, and provides an
important source of long-term finance for both the public
and private sectors. The insurance industry is generally
profitable and provides attractive employment opportu-
nities for white collar workers. Merchants have sought methods to minimize risks since early
times. Pictured, Governors of the Wine Merchant’s Guild by
Ferdinand Bol, c. 1680.
1 Ancient world
At some point in the 1st millennium BC, the inhabitants
of Rhodes created the 'general average'. This allowed
In some sense, we can say that insurance dates back
groups of merchants to pay to insure their goods being
to early human society. We know of two types of
shipped together. The collected premiums would be used
economies in human societies: natural or non-monetary
to reimburse any merchant whose goods were jettisoned
economies (using barter and trade with no centralized
during transport, whether to storm or sinkage.[3]
nor standardized set of financial instruments) and mone-
tary economies (with markets, currency, financial instru- The ancient Athenian “maritime loan” advanced money
ments and so on). Insurance in the former case entails for voyages with repayment being cancelled if the ship
agreements of mutual aid. If one family’s house gets de- was lost. In the 4th century BC, rates for the loans dif-
stroyed, the neighbours are committed to help rebuild it. fered according to safe or dangerous times of year, im-
Granaries embodied another early form of insurance to plying an intuitive pricing of risk with an effect similar to
indemnify against famines. These types of insurance have insurance.[4]
survived to the present day in countries or areas where a The Greeks and Romans introduced the origins of health
modern money economy with its financial instruments is and life insurance c. 600 BC when they created guilds
not widespread. called “benevolent societies” which cared for the families
The first methods of transferring or distributing risk in of deceased members, as well as paying funeral expenses
a monetary economy, were practised by Chinese and of members. Guilds in the Middle Ages served a simi-
Babylonian traders in the 3rd and 2nd millennia BC, lar purpose. The Jewish Talmud also deals with several
respectively.[1] Chinese merchants travelling treacherous aspects of insuring goods. Before insurance was estab-
river rapids would redistribute their wares across many lished in the late 17th century, “friendly societies” existed
vessels to limit the loss due to any single vessel’s cap- in England, in which people donated amounts of money
sizing. The Babylonians developed a system which was to a general sum that could be used for emergencies.
recorded in the famous Code of Hammurabi, c. 1750 BC,
and practised by early Mediterranean sailing merchants.
If a merchant received a loan to fund his shipment, he 2 Medieval era
would pay the lender an additional sum in exchange for
the lender’s guarantee to cancel the loan should the ship- Separate insurance contracts (i.e., insurance policies not
ment be stolen or lost at sea. bundled with loans or other kinds of contracts) were in-
Achaemenian monarchs in Ancient Persia were presented vented in Genoa in the 14th century, as were insurance
with annual gifts from the various ethnic groups un- pools backed by pledges of landed estates. The first
der their control. This would function as an early form known insurance contract dates from Genoa in 1347, and
of political insurance, and officially bound the Persian in the next century maritime insurance developed widely
monarch to protect the group from harm.[2] and premiums were intuitively varied with risks.[5]
1
2 3 MODERN INSURANCE
These new insurance contracts allowed insurance to be

separated from investment, a separation of roles that first
proved useful in marine insurance. The first printed book
on insurance was the legal treatise On Insurance and Mer-
chants’ Bets by Pedro de Santarém (Santerna), written in
1488 and published in 1552.[6]
3 Modern insurance
The subscription room at Lloyd’s of London in the early 19th

century.
Insurance became more sophisticated in Enlightenment An 18th-century fire insurance contract.

era Europe, and specialized varieties developed. Some
forms of insurance developed in London in the early
decades of the 17th century. For example, the will of the
tially, each company employed its own fire department to
English colonist Robert Hayman mentioned two “policies
prevent and minimise the damage from conflagrations on
of insurance” taken out with the diocesan Chancellor of
properties insured by them. They also began to issue 'Fire
London, Arthur Duck. Of the value of £100 each, one re-
insurance marks' to their customers. These would be dis-
lated to the safe arrival of Hayman’s ship in Guyana and
played prominently above the main door of the property
the other was in regard to “one hundred pounds assured
and allowed the insurance company to positively iden-
by the said Doctor Arthur Ducke on my life”.[7]
tify properties that had taken out insurance with them.
One such notable company was the Hand in Hand Fire &
3.1 Property insurance Life Insurance Society, founded in 1696 at Tom’s Coffee
House in St. Martin’s Lane in London.[10] It was struc-
Property insurance as we know it today can be traced to tured as a mutual society, and for 135 years it operated
its own fire brigade and played an important part in shap-
the Great Fire of London, which in 1666 devoured more
than 13,000 houses. The devastating effects of the fire ing fire fighting and prevention.[10] The Sun Fire Office
converted the development of insurance “from a matter is the earliest still existing property insurance company,
of convenience into one of urgency, a change of opin- dating from 1710.[10]
ion reflected in Sir Christopher Wren's inclusion of a siteThis system was soon exposed as terribly flawed, as rival
for 'the Insurance Office' in his new plan for London in brigades often ignored burning buildings once they dis-
1667”.[8] A number of attempted fire insurance schemes covered that it had no insurance policy with their com-
came to nothing, but in 1681, economist Nicholas Bar- pany. Eventually, a solution was agreed upon in which all
bon and eleven associates established the first fire insur- the insurance companies would supply money and equip-
ance company, the “Insurance Office for Houses”, at the ment to a municipal authority charged with stationing fire
back of the Royal Exchange to insure brick and frame prevention assets and firefighters equally around the city
homes. Initially, 5,000 homes were insured by his Insur- to respond to all fires. This did not solve the problem en-
ance Office.[9] tirely, as the brigades still tended to favour saving insured
[11]
In the wake of this first successful venture, many similar buildings to those without any insurance at all.
companies were founded in the following decades. Ini- In Colonial America, the first insurance company that
3.3 Life insurance 3
underwrote fire insurance and was formed in Charles 3.3 Life insurance
Town (modern-day Charleston), South Carolina in 1732.
Benjamin Franklin helped to popularize and make stan- The first life insurance policies were taken out in the early
dard the practice of insurance, particularly Property in- 18th century. The first company to offer life insurance
surance to spread the risk of loss from fire, in the was the Amicable Society for a Perpetual Assurance Of-
form of perpetual insurance. In 1752, he founded fice, founded in London in 1706 by William Talbot and
the Philadelphia Contributionship for the Insurance of Sir Thomas Allen.[13][14] The first plan of life insurance
Houses from Loss by Fire. Franklin’s company made was that each member paid a fixed annual payment per
contributions toward fire prevention. Not only did his share on from one to three shares with consideration to
company warn against certain fire hazards, it refused to age of the members being twelve to fifty-five. At the end
insure certain buildings where the risk of fire was too of the year a portion of the “amicable contribution” was
great, such as all wooden houses. divided among the wives and children of deceased mem-
bers and it was in proportion to the amount of shares
the heirs owned. Amicable Society started with 2000
3.2 Business insurance members.[15][16]
Lloyd’s Coffee House was the first marine insurance company.
At the same time, the first insurance schemes for the

underwriting of business ventures became available. By
the end of the seventeenth century, London’s growing Amicable Society for a Perpetual Assurance Office, established
importance as a centre for trade was increasing demand in 1706, was the first life insurance company in the world.
for marine insurance. In the late 1680s, Edward Lloyd
opened a coffee house on Tower Street in London. It soon The first life table was written by Edmund Halley in 1693,
became a popular haunt for ship owners, merchants, and but it was only in the 1750s that the necessary math-
ships’ captains, and thereby a reliable source of the latest ematical and statistical tools were in place for the de-
shipping news.[12] velopment of modern life insurance. James Dodson, a
It became the meeting place for parties in the shipping mathematician and actuary, tried to establish a new com-
industry wishing to insure cargoes and ships, and those pany that issued premiums aimed at correctly offsetting
willing to underwrite such ventures. These informal be- the risks of long term life assurance policies, after being
ginnings led to the establishment of the insurance mar- refused admission to the Amicable Life Assurance Soci-
ket Lloyd’s of London and several related shipping and ety because of his advanced age. He was unsuccessful in
insurance businesses. In 1774, long after Lloyd’s death his attempts at procuring a charter from the government
in 1713, the participating members of the insurance ar- before his death in 1757.
rangement formed a committee and moved to the Royal His disciple, Edward Rowe Mores was finally able to es-
Exchange on Cornhill as the Society of Lloyd’s. tablish the Society for Equitable Assurances on Lives and
4 3 MODERN INSURANCE
Survivorship in 1762. It was the world’s first mutual ...grant assurances on the lives of persons trav-
insurer and it pioneered age based premiums based on elling by railway and to grant, in cases, of acci-
mortality rate laying “the framework for scientific insur- dent not having a fatal termination, compensa-
ance practice and development”[17] and “the basis of mod- tion to the assured for injuries received under
ern life assurance upon which all life assurance schemes certain conditions.
were subsequently based”.[18]
Mores also specified that the chief official should be The company was able to reach an agreement with the
called an actuary - the earliest known reference to the railway companies, whereby basic accident insurance
position as a business concern. The first modern actuary would be sold as a package deal along with travel tickets
was William Morgan, who was appointed in 1775 and to customers. The company charged higher premiums for
served until 1830. In 1776 the Society carried out the second and third class travel due to the higher risk of in-
first actuarial valuation of liabilities and subsequently dis- jury in the roofless carriages.[22] [23]
tributed the first reversionary bonus (1781) and interim
bonus (1809) among its members.[17] It also used regu-
3.5 National insurance
lar valuations to balance competing interests.[17] The So-
ciety sought to treat its members equitably and the Di-
By the late 19th century, governments began to initiate
rectors tried to ensure that the policyholders received a
national insurance programs against sickness and old age.
fair return on their respective investments. Premiums
Germany built on a tradition of welfare programs in Prus-
were regulated according to age, and anybody could be
sia and Saxony that began as early as in the 1840s. In
admitted regardless of their state of health and other
the 1880s Chancellor Otto von Bismarck introduced old
circumstances.[19]
age pensions, accident insurance and medical care that
The sale of life insurance in the U.S. began in the late formed the basis for Germany’s welfare state. His pa-
1760s. The Presbyterian Synods in Philadelphia and New ternalistic programs won the support of German industry
York founded the Corporation for Relief of Poor and Dis- because its goals were to win the support of the working
tressed Widows and Children of Presbyterian Ministers classes for the Empire and reduce the outflow of immi-
in 1759; Episcopalian priests created a comparable relief grants to America, where wages were higher but welfare
fund in 1769. Between 1787 and 1837 more than two did not exist.[24][25]
dozen life insurance companies were started, but fewer
than half a dozen survived.
3.4 Accident insurance
The Railway Passengers Assurance Company was founded in

1848 as the first company to provide accident insurance.
In the late 19th century, “accident insurance” began to be-

come available. This operated much like modern disabil-
ity insurance.[20][21] The first company to offer accident
insurance was the Railway Passengers Assurance Com- Leaflet promoting the National Insurance Act 1911
pany, formed in 1848 in England to insure against the
rising number of fatalities on the nascent railway system. In Britain more extensive legislation was introduced by
It was registered as the Universal Casualty Compensation the Liberal government, led by H. H. Asquith and David
Company to: Lloyd George. The 1911 National Insurance Act gave
5
the British working classes the first contributory system [7] “And whereas I have left in the hands of Doctor Ducke
of insurance against illness and unemployment.[26] Channcellor of London two pollicies of insurance the one
of one hundred pounds for the safe arivall of our Shipp in
All workers who earned under £160 a year had to pay 4 Guiana which is in mine owne name, if we miscarry by the
pence a week to the scheme; the employer paid 3 pence, waie (which God forbid) I bequeath the advantage thereof
and general taxation paid 2 pence. As a result, workers to my said Cosin Thomas Muchell...whereas there is an
could take sick leave and be paid 10 shillings a week for other insurance of one hundred pounds assured by the said
the first 13 weeks and 5 shillings a week for the next 13 Doctor Arthur Ducke on my life for one yeare if I chance
weeks. Workers also gained access to free treatment for to die within that tyme I entreat the said doctor Ducke to
tuberculosis, and the sick were eligible for treatment by a make it over to the said Thomas Muchell his kinsman...”
panel doctor. The National Insurance Act also provided Will of Robert Hayman, 1628:Records of the Prerogative
maternity benefits. Time-limited unemployment benefit Court of Canterbury, Catalogue Reference PROB 11/163
was based on actuarial principles and it was planned that [8] Dickson (1960): 4
it would be funded by a fixed amount each from workers,
employers, and taxpayers. It was restricted to particular [9] Dickson (1960): 7
industries, cyclical/seasonal industries like construction
[10] Hand in Hand Fire & Life Insurance Society
of ships, and neither made any provision for dependants.
By 1913, 2.3 million were insured under the scheme for [11] “The World’s First Insurance Company”. Retrieved 2012-
unemployment benefit and almost 15 million insured for 12-17.
sickness benefit.
[12] Palmer, Sarah (October 2007). “Lloyd, Edward (c.1648–
This system was greatly expanded after the Second World 1713)". Oxford Dictionary of National Biography. Oxford
War under the influence of the Beveridge Report, to form University Press. doi:10.1093/ref:odnb/16829. Retrieved
the first modern welfare state.[24][27] 16 February 2011.
In the United States, until the passage of the Social Se- [13] Anzovin, Steven, Famous First Facts 2000, item # 2422,
curity Act in 1935, the federal government did not man- H. W. Wilson Company, ISBN 0-8242-0958-3 p. 121
date any form of insurance upon the nation as a whole. The first life insurance company known of record was
With the passage of the Act the new program expanded founded in 1706 by the Bishop of Oxford and the financier
the concept and acceptance of insurance as a means to Thomas Allen in London, England. The company, called
achieve individual financial security that might not oth- the Amicable Society for a Perpetual Assurance Office, col-
lected annual premiums from policyholders and paid the
erwise be available. That expansion experienced its first
nominees of deceased members from a common fund.
boom market immediately after the Second World War
with the original VA Home Loan programs that greatly [14] Amicable Society, The charters, acts of Parliament, and
expanded the idea that affordable housing for veterans by-laws of the corporation of the Amicable Society for a
was a benefit of having served. The mortgages that were perpetual assurance office, Gilbert and Rivington, 1854,
underwritten by the federal government during this time p. 4
included an insurance clause as a means of protecting the [15] Amicable Society, The charters, acts of Parliament, and
banks and lending institutions involved against avoidable by-laws of the corporation of the Amicable Society for a
losses. During the 1940s there was also the GI life insur- perpetual assurance office, Gilbert and Rivington, 1854
ance policy program that was designed to ease the burden Amicable Society, article V p. 5
of military losses on the civilian population and survivors.
[16] Price, pp 158-171
[17] “Importance of the archive”. The Actuarian Profession.

4 Notes 2009-06-25. Retrieved 2014-01-24.
[18] “Today and History:The History of Equitable Life”.

[1] See, e.g., Vaughan, E. J., 1997, Risk Management, New
2009-06-26. Retrieved 2009-08-16.
York: Wiley.
[2] “Insurance in Ancient Iran”. [19] Lord Penrose (2004-03-08). “Chapter 1 The Equitable
Life Inquiry” (PDF). HM Treasury. Retrieved 2009-08-
[3] “Lex Rhodia: The Ancient Ancestor of Maritime Law - 20.
800 BC”.
[20] Howstuffworks: How Health Insurance Works.
[4] Franklin, J., 2001, The Science of Conjecture: Evidence
and Probability Before Pascal, Baltimore: Johns Hopkins [21] “Encarta: Health Insurance”. Archived from the original
University Press, 259. on 2009-11-01.
[5] J. Franklin, The Science of Conjecture: Evidence and Prob- [22] “Railway Passengers Assurance Company Ltd”. Re-
ability Before Pascal (Baltimore: Johns Hopkins Univer- trieved 2012-12-17.
sity Press, 2001), 274-277.
[23] A. P. Woodward. “The Disability Insurance Policy”.
[6] Franklin, Science of Conjecture, 277 Sage. Retrieved January 4, 2014.
6 5 REFERENCES
[24] E. P. Hennock, The Origin of the Welfare State in Eng- • Stalson, J. Owen. Marketing Life Insurance: Its His-
land and Germany, 1850–1914: Social Policies Compared tory in America (Harvard U.P. 1942)
(2007)
• Zelizer, Viviana A. Rotman. Morals and Markets:
[25] Hermann Beck, Origins of the Authoritarian Welfare State The Development of Life Insurance in the United
in Prussia, 1815-1870 (1995) States (1979)
[26] The Cabinet Papers 1915-1982: National Health Insur-
ance Act 1911. The National Archives, 2013. Retrieved
30 June 2013.
[27] Bentley B. Gilbert, British social policy, 1914-1939 (1970)
5 References
Primary sources
• Prudential Insurance Company of America, ed. The

Documentary History of Insurance, 1000 B. C. -
1875 A. D. (1915)
Secondary sources
• Alborn, Timothy. Regulated Lives: Life Insur-

ance and British Society, 1800–1914 (U. of Toronto
Press, 2009)
• Buley, R. Carlyle. The American Life Convention,
1906–1952: A Study in the History of Life Insurance
(1953)
• Dickson, P. G. M The Sun Insurance Office, 1710-
1960;: The history of two and a half centuries of
British insurance(1960)
• Feldman, Gerald D. Allianz and the German Insur-
ance Business, 1933-1945 (2006)
• Keller, Morton. The Life Insurance Enterprise,
1855-1910: A Study in the Limits of Corporate
Power (1999)
• Kingston, Christopher. “Marine Insurance in
Britain and America, 1720–1844: A Comparative
Institutional Analysis,” Journal of Economic His-
tory, June 2007, Vol. 67 Issue 2, pp 379–409
• Murphy, Sharon Ann. Investing in Life: Insurance
in Antebellum America (Johns Hopkins University
Press; 2010) 416 pages.
• Murray, John E. Origins of American Health Insur-
ance: A History of Industrial Sickness Funds (2007)
• Pearson, Robin. The Development of International
Insurance (2010)
• Pearson, Robin. Insuring the Industrial Revolution:
Fire Insurance in Great Britain, 1700-1850 (2004)
• Raynes, Harold E. A History of British Insurance
(1948),
Chapter 9
Fundamental
Legal Principles
Agenda
• Principle of Indemnity
• Principle of Insurable Interest
• Principle of Subrogation
• Principle of Utmost Good Faith
• Requirements of an Insurance Contract
• Distinct Legal Characteristics of Insurance
Contracts
• Law and the Insurance Agent
Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-2

Principle of Indemnity
The insurer agrees to pay no more than the

actual amount of the loss
• Purpose:
– To prevent the insured from profiting from a loss
– To reduce moral hazard

• In property insurance, indemnification is

based on the actual cash value (ACV) of the
property at the time of loss
• There are three main methods to determine
actual cash value:
– Replacement cost less depreciation
– Fair market value is the price a willing buyer
would pay a willing seller in a free market
– Broad evidence rule means that the
determination of ACV should include all relevant
factors an expert would use to determine the
value of the property

• There are some exceptions to the principle

of indemnity:
– A valued policy pays the face amount of
insurance if a total loss occurs
– Some states have a valued policy law that
requires payment of the face amount of
insurance to the insured if a total loss to real
property occurs from a peril specified in the law
– Replacement cost insurance means there is no
deduction for depreciation in determining the
amount paid for a loss
– A life insurance contract is a valued policy that
pays a stated sum to the beneficiary upon the
insured’s death

Principle of Insurable Interest
The insured must be in a position to lose

financially if a covered loss occurs
•Purposes:
– To prevent gambling
– To reduce moral hazard
– To measure the amount of the insured’s loss
•An insurable interest can be supported by:
– Ownership of property
– Potential legal liability
– Serving as a secured creditor
– Contractual rights
Principle of Insurable Interest
• When must insurable interest exist?

– Property insurance: at the time of the loss
– Life insurance: only at inception of the policy
• The question of insurable interest does not
arise when you purchase life insurance on
your own life
• Insurable interest in another person’s life
can be shown by close family ties, marriage,
or a pecuniary (financial) interest

Principle of Subrogation
Substitution of the insurer in place of the

insured for the purpose of claiming indemnity
from a third party for a loss covered by
insurance.
• Purpose:
– To prevent the insured from collecting twice for
the same loss
– To hold the negligent person responsible for the
loss
– To hold down insurance rates

Principle of Subrogation
• The insurer is entitled only to the amount it

has paid under the policy
• The insured cannot impair the insurer’s
subrogation rights
• Subrogation does not apply to life insurance
contracts
• The insurer cannot subrogate against its
own insureds

Principle of Utmost Good Faith
A higher degree of honesty is imposed on

both parties to an insurance contract than is
imposed on parties to other contracts
•Supported by three legal doctrines:

– Representations
– Concealment
– Warranty

• Representations are statements made by

the applicant for insurance
– A contract is voidable if the representation is
material, false, and relied on by the insurer
– Material means that if the insurer knew the true
facts, the policy would not have been issued, or
would have been issued on different terms
– An innocent misrepresentation of a material
fact, if relied on by the insurer, makes the
contract voidable

• A concealment is intentional failure of the

applicant for insurance to reveal a material
fact to the insurer
• A warranty is a statement that becomes
part of the insurance contract and is
guaranteed by the maker to be true in all
respects
– Statements made by applicants are considered
representations, not warranties

Requirements of an Insurance
Contract
• To be legally enforceable, an insurance

contract must meet four requirements:
– Offer and acceptance of the terms of the
contract
– Consideration – the value that each party gives
to the other
– Competent parties, with legal capacity to enter
into a binding contract
– The contract must exist for a legal purpose

Distinct Legal Characteristics of
Insurance Contracts
• An insurance contracts is:
– Aleatory: values exchanged are not equal
– Unilateral: only the insurer makes a legally
enforceable promise
– Conditional: policyowner must comply with all
policy provisions to collect for a covered loss
– Personal: property insurance policy cannot be
validly assigned to another party without the
insurer's consent
– A contract of adhesion: the insured must accept
the entire contract with all of its terms and
conditions
Distinct Legal Characteristics of
Insurance Contracts
• Courts have ruled that any ambiguities or

uncertainties in the contract are construed
against the insurer.
• The principle of reasonable expectations
states that an insured is entitled to coverage
under a policy that he or she reasonably
expects it to provide, and that to be
effective, exclusions or qualifications must
be conspicuous, plain, and clear.

Law and the Insurance Agent
• An agent is someone who has the authority

to act on behalf of a principal (the insurer)
• Several laws govern the actions of agents
and their relationship to insureds
– There is no presumption of an agency
relationship
– An agent must be authorized to represent the
principal
– A principal is responsible for the acts of agents
acting within the scope of their authority
– Limitations can be placed on the powers of
agents

• An agent’s authority comes from three

sources
– Express authority
– Implied authority
– Apparent authority
• Knowledge of the agent is presumed to be
knowledge of the principal with respect to
matters within the scope of the agency
relationship
• Insurers can place limitations on the power
of agents by adding a nonwaiver clause to
the application or policy
• Waiver is defined as the voluntary

relinquishment of a known legal right
• Estoppel occurs when a representation of
fact made by one person to another person
is reasonably relied on by that person to
such an extent that it would be inequitable
to allow the first person to deny the truth of
the representation

PRINCIPLE OF INSURABLE INTEREST
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 only the presence of Insurable Interest that
distinguishes a contract of insurance from a wagering
contract and hence it is 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 taken place without an insurable
interest.
It is also defined as, “When the assured is so stipulate
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 determination of any right
recognized by law or in any legal liability there is an
insurable interest to the extent of the possible loss or
liability.”
According to E. W. Patterson, “Insurable Interest is a
relation between insured and the event insured
against such as the occurrence of events will cause
substantial loss or injury of some kind to the insured.”
According to Rodda, “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.”
According to R. N. Ray, “When the assured is so
stipulated that the happening of the event on which the
insurance money is to be payable would as a
approximate result involved in the loss or diminution of
any right recognized by law or any legal liability, there
is an insurable interest to the extent of possible loss or
liability.”
In Lucena v. Craufurd[1], Lawrence J defined
insurable interest. In his words ‘Insurable interest’
means ‘if the event happens, the party will gain
advantage, if it is frustrated, he will suffer a loss’.
CONCEPT OF INSURABLE INTEREST
The existence of insurable interest is an essential
ingredient of any insurance contract. It is a legal right
to insure arising out of a financial relationship
recognized under law, between the insured and the
subject matter of insurance.
The interest should not be a mere sentimental right or
interest, for example love and affection alone cannot
constitute insurable interest. It should be a right in
property or a right arising out of a contract in relation
to the property. The interest must be pecuniary i.e.
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
but this rule not strictly followed in life insurance cases.
The interest must be lawful, that is, it should not be
illegal, unlawful, and immoral or opposed to public
policy and does not harm any others legal justified
claim.
Insurable interest means an interest which can be or
is protected by a contract of insurance. In the case
of Brahma Dutt v. LIC[2], Mukhtar Singha petty
school teacher on salary of Rs 20 took a policy for Rs
35,000 on his life making false statements in the
proposal and nominated a stranger Brahma Dutt for
the policy. The nominee paid the first two quarterly
premiums by which time the life insured died. The
nominee intimated the insured's death and claimed the
sum assured. It was found on evidence that Brahma
Dutt had taken the policy without any insurable interest
in the life of the deceased for his own benefit and that
therefore it was void being a wagering agreement.
Supreme court in case of Suraj Mal Ram Niwas Oil
Mills (Private) Limited v. United India Insurance
Company Limited & Another[3], held that the
objection of the insurer about the non-disclosure of
dispatch of each and every consignment, as pointed
by the second surveyor, learned counsel submitted
that the said condition has to be understood in the
context of the fundamental condition that the
insurance cover was intended to secure only the
‘insurable interest’ of the appellant in the dispatches.
It was urged that the appellant had declared only those
consignments in which they had an "insurable interest"
as in relation to dispatches which had not been
declared, the consignees had desired that their
consignments should be dispatched without an
insurance cover.
In all such cases, the purchasers took the risk of loss
to their goods, and hence the appellant had no
"insurable interest" in them, unlike in the consignment
in question for which due declaration was made.
Reference was made to the decisions of this Court
in New India Assurance Co. Ltd v. G.N. Sainani[4]
and New India Assurance Company Limited v. Hira
Lal Ramesh Chand & Ors[5], wherein it was held that
"insurable interest" over a property is "such interest as
shall make the loss of the property to cause pecuniary
damage to the assured and under this case it will make
a damage to the interest of the insured.
HISTORY OF INSURABLE INTEREST
Essentially, the insurable interest requirement typically
functions as a safeguard to an insurer allowing the
insurer to justify nonpayment after a covered
occurrence has taken place. If the insurer can
successfully prove the insured lacked an insurable
interest in the property, a court will hold the insurance
contract is void on grounds of public policy. Prior to
1745, a pecuniary or emotional interest in the subject
of an insurance policy was not a requirement for the
receipt of a payout from that policy and Roche J
observed that there is nothing in the common law of
England which prohibits insurance even if no interest
exists.
Thus, insurance contracts were held valid,
notwithstanding that the absence of an insurable
interest gave the transaction the characteristics of a
wager.[6] In 1746, the English Parliament outlawed
gambling contracts on marine insurance. And
subsequently in 1774, Parliament extended this
gambling prohibition to life insurance contracts as well.
Accordingly, the original purpose of the doctrine was
Parliament’s attempt to remit the use of insurance
contracts as a vehicle to gamble. The insurable
interest doctrine developed in response to the
common law’s validation of such contracts in an effort
to both prevent wagers on the lives of individuals and
to quell attempts to destroy the subject of an insurance
policy.
WAGER AND INSURANCE CONTRACT
In a contract of wager all the parties does not have any
interest in happening of the event other than the sum
or stake he will win or lose. This is what marks the
difference between a wagering agreement and a
contract of insurance because every contract of
insurance requires for its validity the insurable interest.
Insurance affected without insurable interest is no
more than a wagering agreement and therefore void.
‘Insurable interest’ means the risk of lose to which the
assured is likely to be exposed by the happening of
the event assured against. In a wager on the other
hand neither party is running any risk of loss except
that which is created by the agreement between two
or more than two parties.
We all also know that wagering is illegal in India and
against to the norms of society or in short wagering is
against public policy and distinction between a
insurance and a wager is that a insurance is properly
speaking a contract to indemnify the insured in respect
of some interest which he has against perils which he
contemplates it will be liable to.
In case of Alamani v. Positive Govt. Security Life
Insurance Co[7] the plaintiff’s husband took a policy
of insurance on the life of Mehbub Bi, the wife of a clerk
working under him and about a week later got the
policy assigned in the favor of the plaintiff, Mehbub Bi
died a month later and the plaintiff as assignee
claimed the sum assured and in this case court find
that there was no insurable interest present in this
case and hence this insurance contract held to be
contract of wager and held to be void.
NATURE OF INSURABLE INTEREST
The court in Castellain v Preston[8] stated that an
insured’s insurable interest is the object of the
insurance and that only those who have an insurable
interest can recover. To this, the court added that an
insured could recover only to the extent to which his
insurable interest had been impaired by the insured
peril.
In Lucena v. Craufurd[9], it has been pointed out that
the interest must be enforceable by law. Mere hope,
however strong it may be, is not sufficient.
There is a requirement that an insurable interest must
be in the nature of a legal right or liability. The insured
must have a legal or equitable relation to the object
insured. In Macaura v Northern Assurance Co
Ltd[10] Macaura insured a quantity of timber in his
own name. The timber was owned by a company in
which Macaura was the sole shareholder. It was held
that the shareholder had no insurable interest in the
assets of a company because he stood in no legal or
equitable relation to the timber insured in his name
which was the sole asset of the company. Here it is
the company that possesses the insurable interest and
Macaura’s claim failed for a lack of insurable interest
even though he was financially prejudiced when the
property was destroyed.
TYPES OF INSURABLE INTEREST
There are basically two types of insurable interest: (1)
Contractual (2) Statutory
1. Contractual: If the insurable interest is absent,
the insurance contract is illegal or void and no
agreement between the parties dispensing with
this requirement can be effective. Contractual
insurable interest is an interest which is being
required by contract of insurance by itself. In an
action upon such a contract if the insurer does not
raise the plea of want of interest nevertheless the
court of its own motion may refuse to enforce the
contract.
2. Statutory: As we have seen in some cases that
interest in the subject matter of insurance is
required by law itself for the validity of the policy,
whether by express statutory law as in the Marine
Insurance Act 1906 or as by section 30 of the
Indian Contract Act which merely declares that all
contracts by way of wager is void. This is the
interest required by statue.
CREATION OF INSURABLE INTEREST
There are three ways by which insurable interest will
arise or can be created. Which are given below:–
• BY COMMON LAW: Where the essential elements
of insurable interest are automatically present, the
same can be described as having arisen at
common law. The most straight forward example
is ownership. One can own a house, and
therefore there is entitlement to insure it. Like the
use or driving of a motor vehicle in a public place
is sufficient insurable interest for the purpose of
effecting insurance in the favor of the third party.
• BY CONTRACT: In some contracts a person will
agree to be liable for something, which he or she
would not ordinarily be liable for. A landlord is
normally liable for the maintenance of property he
owns rather than the tenants. A lease may,
however, make the tenant responsible for the
maintenance, repair etc. of the building. Such a
contract places the tenant in legally recognized
relationship to the building. This gives him an
insurable interest, which would not be present if
the contract had not been entered into so these
kinds of special contractual relationships give
arise to the insurable interest on something on
which otherwise one does not have any kind of
insurable interest.
• BY STATUTE: Some time an act of parliament will
create an insurable interest either by granting

some benefit or imposing a duty. While the statute
may create insurable interest where none would
otherwise exist. There can be some statutes
which can restrict liability and thereby also restrict
insurable interest. Like compulsory insurance of
the employees by the employer of a company.
WHEN INSURABLE INTEREST MUST EXIST
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 but as we have
seen 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 risk. So it should be there
in life insurance policies at the time of taking the policy
it need not exist at the time when the lose take place
or even when the claim is made under the policy. Life
insurance contracts are not strictly speaking contracts
of indemnity. In case of Dalby v. India and London
Life Insurance Co.[11] Court held that the insurable
interest should be present at the time of the contract
though not at the time of the loss in life insurance
policies.
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. The insurance interest is necessary at both
the times because it is treated as a personal contract
and also a contract of indemnity. And even the onus
that the fire was intentional is on the insurer not on
insured. The insurance interest required both at the
commencement of the policy and at the time when the
risk occurs in motor insurance also.
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 does not have
any insurable interest at the time when the marine
insurance policy was taken.
INSURABLE INTEREST IN LIFE INSURANCE
The general rule is that every person has an insurable
interest in his own life. Accordingly, a person may
purchase a life insurance policy on his own life, making
the proceeds payable to anyone he wishes. Life
insurance contract is not a contract of indemnity and a
person affecting a policy must have an insurable
interest in the life to be assured. But when a person
seeks insurance on his own life, the question of
insurable interest is immaterial. 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.
In case of Liberty National Life Insurance v.
Weldon[12], the aunt of the of a two year old child who
was a nurse by profession, managed 3 life insurance
policies by different 3 companies on the life of the
child. One day she mixed some poisonous thing into
the milk and by that milk child was died. And the lady
claimed a huge amount from three companies. The
father filed a case against all the insurance companies
that without knowing the fact that whether she had any
insurable interest in the life of child they issued the life
insurance policies. In this case Court held that the aunt
has no insurable interest in the life of child therefore
the companies were not liable but the companies are
liable to pay compensation to father of the child.
In the life insurance policy persons having relationship
by marriage, blood or adoption have been recognized
as having insurable interest.
Few example of relationship which has insurable
interest in the life of other:–
1. Husband and Wife: Husband and wife have an
insurable interest of life of each other. In case
of Griffith v. Flemming[13], Griffith and his wife
each signed a proposal from for a joint life policy
on their life and both contributed towards the
premium. After the policy was taken, the wife
committed suicide and the husband claimed the
sum assured. The insurer alleged that at the time
of taking the policy the husband had no insurable
interest in his wife’s life as required by the Life
Assurance Act, 1774. In this case Vaughan
Williams L.J. held that ‘the husband has an
interest in his wife’s life which ought to be
presumed’.
2. Child and Parents: In England only children
have an insurable interest on the life of parents,
but parents does not have any insurable interest
in life of the child. But in India Child and parents
both have the insurable interest in life of each
other. In case of Halford v. Kymer,[14] it was
held that a father has no insurable interest in the
life of his son unless he is getting some pecuniary
benefit from him.
3. Debtor and Creditor: Creditor has the insurable
interest on life of the debtor to that extent on which
amount he has the position to recover from
debtor. It was held in case of Godsall v.
Boldero[15], that if a creditor affects a policy of
insurance upon the life of his debtor for greater
amount than due, then he will not be able to
recover any greater sum than the amount or value
of his interest. In Beauford v. Saunders[16], it was
held that if the debt has been guaranteed by a
surety, the creditor will have interest in the life of
the surety as well.
4. Bailor and Bailee: A bailor has an insurable
interest in the property bailed to the extent of
possible loss. The bailor has a potential loss from
two sources. Compensation as provided for in the
contract of bailment might be lost. Second, the
bailee may be held legally liable to the owner if
the bailee’s negligence cause the loss.
5. Mortgagee and Mortgagor: The mortgagee has
an insurable interest in the life of mortgagor to the
extent of the property mortgaged.
6. Employer and Employee: An employee has an
insurable interest in his employer’s life to the
extent of his salary as held in case of Hebdon v.
West[17].
INSURABLE INTEREST IN NON-LIFE INSURANCE
For all the insurance policy other than life insurance,
the person taking the insurance policy must have an
insurable interest in the property insured. Insurable
interest is not confined to legal ownership only but
there are certain other conditions when a person other
than a legal owner has the insurable interest in the
property. Which are described as under different
policies of insurances:–
MARINE INSURANCE: Insurable interest is a special
requirement of the marine insurance contract and any
valid contract of marine insurance can be entered into
by person only if he has insurable interest in the
marine adventure. And what is important for insurable
interest is that (1) there should be a physical object
which is exposed to the marine perils and (2) the
assured must have some legally recognized
relationship with that object in consequences of which
he benefits by its preservation and is prejudiced by its
loss or damage.
In Wilson v. Jones[18], it was held that a contingent
buyer of goods, who has not obtained property, risk or
possession, has no insurable interest in the goods
themselves even though he expects at a future date to
acquire it.
FIRE INSURANCE: ‘A contract of fire insurance, like
all other contracts of insurance, requires an insurable
interest in the subject-matter of the insurance to
support it; in the absence of an insurable interest, the
assured can suffer no loss, and the contract becomes
a mere wager.'[19] In fire insurance, a person is said
to have interest in a property if he is liable to suffer a
direct loss upon its destruction. But a person who is so
connected with a property that he might suffer loss
upon its destruction may not be said to be interested
in it. As the House of Lords in case of Macaura v.
Northern Assurance Co.[20] ruled that neither a
shareholder nor a simple creditor of a company has
any insurable interest in any particular asset of the
company although both the shareholder and creditor
may suffer loss upon destruction of their company’s
property.
Few example of peoples those can have insurable
interest in any insured property by fire.
• Owner of the property, joint owner, sole owner, or
a firm owning the property.
• Lessor and lessee both have insurable interest on
any property.
• The vendor and the purchaser both have the
insurable interest.
• The mortgagor and mortgagee.
• Trustees are legal owners and beneficiaries or the
beneficial owner of the trust property and each

can insure it.
• Bailees such as carriers, pawnbrokers or
warehouse men are responsible for the safety of
the property entrusted in them and so can insure
it.
OTHER PROPERTY INSURANCE: In other types of
insurance policies such as burglary insurance, flood
insurance, vehicle insurance, agricultural insurance
etc. the person making the insurance policies must
have the insurable interest in the property being
insured at the time of the taking policies.
PUBLIC POLICY AND INSURABLE INTEREST
IN LIFE INSURANCE*
GARY I. SALZMAN
There are two well-established rules of insurance law in relation to the topic
to be discussed. One, that an applicant-beneficiary must possess an insurable inter~
est in the life of the person to be insured. Two, that the issuance of a life insurance
policy to an applicant-beneficiary having no insurance interest is contrary to pubfic
policy and therefore void.
Historically, there is some uncertainty as to whether or not the English com-
mon law required that a beneficiary of a life insurance contract must have an in-
surable interest in the life of the insured. 1 The uncertainty, however, ends with
the passing of the statute of 14 George III, c. 48(1774), which provided that no
insurance shall be issued without the beneficiary having an insurable interest; and, if
issued, shall be null and void.2
Whether this statute was declaratory of the common law or not; the courts of
the American states have generally held that wager policies are against public policy
and void. 3
An insurable interest, generally, is that interest (required by law} created by
the relation between the insured and the contingent event insured against which
would cause a loss to the insured should the event actually occur. 4 It is also such
an interest which precludes any wagering intent on the part of the person who will
benefit by the event occurring.5 · ·
In property insurance, this requiremen t is intended to indemnify the insured

is not intended for indemnifica tion. 7 Gen-
against loss, 6 whereas in life insurance it
erally, in property insurance, it need not exist when the policy is issued, but must
exist at the time the event insured against occurs,s whereas in life insurance, gen-
*This article is based on a thesis offered for the degree of Master of Laws at the University
of Miami.
liiJ The American and English Encyclopaedia of Law 930-931 (2d ed. 1897).
2Patterson and Young, The Law of Insurance 226-227 (4th ed. 1961) .
3Vance, Insurance 184 (3d ed. 1951).
4Patterson, Essentials of Insurance Law, 109 (2d ed. 1957).
5Vance, Insurance 157 (3d ed. 1951).
6Riegel and Miller, Insurance Principles and Practices 109 (3d ed. 1947) .
7[bid.
8Patterson, Essentials of Insurance Law 153 ( 2d ed. 1957).
37
AMERICAN BUSINESS LAW ASSOCIATION BULLETIN
erally, it must exist when the policy is issued but need not exist at the time the event
insured against occurs.9
In Warnock v. Davis the United States Supreme Court has said,
"It is not easy to define with precision what will in all cases constitute an
insurable interest, so as to take the contract out of the class of wager
policies.... But in all cases there must be a reasonable ground, founded
upon the relations of the parties to each other, either pecuniary or of blood
or affinity, to expect some benefit or advantage from the continuance of
the life of the assured. Otherwise the contract is a mere wager, by which
the party taking the policy is directly interested in the early death of the
assured. Such policies have a tendency to create a desire for the event.
They are, therefore, independently of any statute on the subject, con-
demned, as being against public policy.10"
General rule requires that an applicant-beneficiary have an insurable interest

in the insured at the time of the purchase of the life insurance policy. This rule
does not prevent the applicant-beneficiary from buying a policy. 11 It merely makes
the policy void and unenforceable, 12 if it is subsequently found that he did not have
an insurable interest at the inception of the policy.
The recent Liberty National Life Insurance Co. v. Weldon case13 has renewed
interest in the question of public policy in relation to insurable interest in life
insurance. Gaston Weldon sued the Liberty National Life Insurance Co. et al. to
recover damages of $100,000.00 for the wrongful death of his minor child. The
Supreme Court of Alabama affirmed a $75,000.00 judgment of the lower court.
Weldon's daughter, Shirley Dianne, approximately two and one-half years
of age, died on May 1, 1952. There were three life insurance policies, issued by
three different companies, on her life, totalling $6,500.00 of insurance. The
policies were issued on December 1, 1951, April 23, 1952, and in the latter part of
March, 1952.14
Mrs. Earle Dennison, Shirley's aunt-in-law (the widow of a brother of Shir-
ley's mother), was the applicant purchasing the insurance in each case. She was
also designated as beneficiary in each policy. She paid the premiums for each policy,
and Shirley's parents did not know of the existence of, nor did they consent to, any
one of these policies. The aunt-in-law did not provide for the child in any way
whatever, and the child did not live with her. Shirley died from arsenic poisoning.
Her aunt-in-law was tried, convicted, and executed for her murder.
All the applications listed Mrs. Dennison as aunt, rather than aunt-in-law.
None of the three companies made any reasonable effort to ascertain whether the
aunt-in-law had an insurable interest in Shirley's life. In Alabama the aunt re-
9Jbid., 188.
10104 u.s. 775, 779 (1881).
11Mowbray and Blanchard, Insurance, Its Theory and Practice in the U.S. 56 (4th ed. 1955).
12Ibid.
13100 So. 2d 696 (Ala. 1957).
14Liability on these policies was not an issue. All parties to the action conceded they were
void, and the case was tried as an ordinary negligence case.
38
PUBLIC POLICY AND INSURABLE INTEREST IN LIFE INSURANC E
lationship, by itself, does not constitute an insurable interest,15 Also, the in-law
relationship alone is not considered to create an insurable interest,16
"After the death of Shirley Dianne the family became extremely suspicious
concerning the deaths of two other children. Their remains were exhumed and
examination revealed that they also contained arsenic. Mrs. Dennison had insured
them and had collected."17
Both counsel for the plaintiff and counsel for the defendants, in the Weldon
case, agreed that since the aunt-in-law had no insurable interest in Shirley's life the
policies purchased by Mrs. Dennison were illegal and void as repugnan t to public
policy. The question, however, is again raised-do es the concept of public policy
automatically void a life insurance contract when the applicant-beneficiary has no in-
surable interest?
Public policy is variable. All societies, at any one time, do not agree upon a
similar concept of what public policy should be. The same society, at different times,
may slightly alter or radically change its concept of what its public policy should be.
As the mores of a society change, so does its public policy.
In the matter of insurable interest in the United States there is a consistency of
view that life insurance sold to an applicant-beneficiary without insurable interest
is against public policy. The courts, however, in applying this concept of public
policy to the collateral issues arising from the insurable interest rule, have created
uncertainty, so much so that the question is raised whether the insurable interest
rule is for the protection of the public (a true public policy) or whether it is merely
a defense for the insurer. It is difficult to determine whether the courts are pri-
marily concerned with the safety of those insured or with the protection of the
insurance companies.
Case law, as it has developed in the United States, is inconsistent with the
concept of public policy which is applied. The law which was intended to protect
the public18 has been protecting the companies. If lack of insurable interest in an
applicant-beneficiary is a true public policy issue, it seems inconsistent that the de-
fense must be specially pleaded. "It is generally held that, to be available, the de-
19
fense of lack of insurable interest must be specially pleaded."
If the company does not raise the issue, by specially pleading it, the aspect of
public policy is lost sight of. If the company chooses to pay the proceeds of the
policy to the applicant- beneficiar y, the considera tion of public policy is again dis-
persed. If the company chooses to place the policy proceeds into court by inter-
pleader, public policy again disappears. If public policy is truly the basic considera-
tion, why is control given to the insurance company to elect which course it will
take, among which are courses which eliminate the public policy consideration?
The issuance of life insurance policies to an applicant-beneficiary with a dis-
15Commonwealth Life Ins. Co. v. George, 248 Ala. 649, 28 So. 2d 910 (1947).
16National Life and Accident Ins. Co. v. Middlebrook, 27 Ala. App. 247, 170 So. 84 (1936).
Con-
17From an address ( p. 5) delivered before the Legal Section of The American Life
for the
vention, October 1958, by John W. Gillon (Spain, Gillon, and Young) of counsel
Liberty National Life Ins. Co.
18McCahan, The Beneficiary in Life Ins. 32 (1948).
19Keeton v. National Union, 178 Mo. App. 301, 165 S.W. 1107 (1914).
39
AMERICA N BUSINESS LAW ASSOCIA TION BULLETIN
regard of the insurable interest rule cannot be justified. It is public policy

to dis-
courage inducement to murder. To say mere that the contract is void ad initio
does
not accomplish this. In fact, it may even tend to encourage murder. A truly
sound
public policy will discourage any such temptation by prohibiting the making
of
the contract in the first instance. In the words of Justice Lawson of the Alabama
Supreme Court, "There is no justification for the creation of such a risk
to the
insured and there is no social gain in the writing of a void policy of insurance." 20
It seems the courts retain a strong public policy consideration only in direct re-
lation to the issue of voiding the policy. Yet despite this strong public policy
con-
cern, the courts very early decided that insurable interest does not have to continue
to exist once it has been present at the inception of the policy. 21
The presence of insurable interest in the applicant-beneficiary by itself is in-
sufficient to satisfy public policy considerations. The consent of the person
whose
life is being insured is also required. It probably is true that consent is even
more
important than insurable interest, although consent alone will not eliminate
wager-
ing. Waiver, estoppel, laches, or the incontestible clause are all ineffective
since
the contract is void ab initio as against public policy despite the fact that a company
knowingly issues such a policy and continues to accept premiums.
· The public policy concept is born of the desire to protect the life of the insured
and to avoid wagering (on lives). This concept, then, must apply only in relation
to the appliCant-beneficiary, for it is he who would gain by the death of the insured.
If he does not have an insurable interest in the life insured, public policy
should
defeat his gaining on the wager (assuming insured's death to be natural) ; instead,
it voids the policy. It would, therefore, follow that if the insured's death is
caused
by illness, the policy should not be voided because the applicant-beneficiary had
no
insurable interest at the time of the purchase of the policy. As long as the applican
t-
beneficiary was not a cause of the death, as long as he does not gain by the
death,
the policy payment should revert to the estate of the insured. To void the
policy
is to protect the insurance company against its own negligence in selling a policy
to
one who had no insurable interest. If the applicant-beneficiary without insurable
interest dies prior to the insured and the insured continues to pay the premium
s
and designates himself (or anybody having an insurable interest) as beneficia
ry,
it seems only equitable that the policy should not be technically void because
an in-
surable interest did not exist at the inception of the policy. This can be accompl
ished
by inserting a provision in the original contract, and would better serve
public
policy than the voiding of such a contract.
Furthermore, the applicant-beneficiary's failure to comply with the insurable
20Liberty National Life Ins. Co. v. Weldon, 100 So. 2d 696, 708 (Ala. 1957).
21May, The Law of Insurance 166 ( 1891) says, "In general, it is essential
that the insured
be possessed of an interest, both at the time when the insurance is effected
and at the time of
the loss. . . . This doctrine was early applied to life as well as to marine
and fire policies
( Godsall v. Boldero, M.T. 1809, K.B. 9 East, 72), but has undergone some
modifications in
life insurance ." As the relaxation of the principle of indemnity occurred in
the field of life
insurance the necessity for insurable interest being present at the time of death
of the insured
began to disappear. The U.S. Supreme Court has said that the contract of life
insurance is not
one of indemnity and that insurable interest is required only at its inception
(Phoenix Mutual
Life Ins. Co. of Hartford v. Bailey, 13 Wall (U.S.) 616 ( 1871).
40
PUBLIC POLICY AND INSURABLE INTEREST IN LlFE INSURANCE
interest rule should not release the insurer from his ·contract. Where the insured
dies from any cause other than murder, the voiding of the contract is a mere excuse
not to perform an otherwise enforceable contract. The contract has failed only in
relation to the original applicant-beneficiary (as if he had died) . The insured's
estate should automatically become the beneficiary by terms which should be in the
original contract. It is basically inequitable to permit an accessory (with superior
knowledge and possible negligence) to an illegal contract to keep the advantages
and to escape the risks. In some jurisdictions the insurance company is permitted to
retain the unearned premiums. This may encourage companies to write such policies
though publicly disclaiming such an interest. It may encourage their negligence in
selling to applicant-beneficiaries without insurable interest.
In view of all this it appears only just that public policy considerations should
preclude recovery only on the part of the wrongdoer (the applicant-beneficiary)
and his successors. Public policy did not intend to relieve the insurance company
from its contractual obligations nor should it eliminate the rights of all others.
Public policy should permit reversion of the insurance proceeds to the insured's
estate, or escheat to the state when no heirs are available.
The public policy of conserving human life is more important than the factor
of requiring the insurance companies to check for the existence of insurable interest
at the time of the purchase of the policy rather than at the time of death. This is
no more difficult at the time of the application than at the time of death. Checking
at death-time, however, becomes a possible means of avoiding payment. Checking
at the time of application is taking cognizance of a public policy consideration
which accomplishes what the law originally intended and still does intend.
It is generally admitted that a life insurance contract sold to an applicant-bene-
ficiary without insurable interest is an illegal contract because it is contrary to public
policy. Consequently, there can be no doubt that the life insurance policy issued to
the applicant-beneficiary with no insurable interest is an illegal contract wherever
insurable interest is required by statute or judicial determination. Since the law
usually leaves the parties to such a contract where it finds them, the insurance
company may refuse to pay such applicant-beneficiary.
An insurance policy issued on· the life of a person makes him the subject
matter of a contract. As the subject matter of a contract which may engender risk
to his well-being he should have some rights in the contract as originally made. An
individual's right to be let alone is impaired by making him the subject matter of
a contract, particularly since the insured is given no protection or advantage for
being the subject of the contract. In fact, though it is the insured who may suffer
some detriment, it is the insurer who is permitted to gain by the illegality of the
contract. In this regard courts in the United States hold that fraud by one party to
the contract or mutual mistake common to both may lead to the reformation of a
life insurance contract.22
Knowledge of the applicant-beneficiary's lack of insurable interest may con-
ceivably constitute a fraud on the insurer's part. This fraud should be sufficient
to uphold a reformation of the contract. The contract is against public policy only
22Yablon v. Metropolitan Life Ins. Co., 200 Ga. 693, 38 S.E. 2d 534 ( 1946); American N a-
tional Ins. Co. v. McPhetridge, 28 Tenn. App. 145, 187 S.W. 2d 640 ( 1945).
41
in relation to the applicant-beneficiary without insurable interest. Therefore, the

contract should be void only as to this applicant-beneficiary. The contract is then
left without a beneficiary and should revert to the insured's estate.
It seems reasonable to construe the insurer's duty to investigate whether in-
surable interest exists as an implied condition precedent of the contract. When
the insurer knows the applicant-beneficiary has no insurable interest, he should be
under a duty to refuse to issue the policy.
The insurer's acceptance of periodic premiums, coupled with the promise to
perform inherent in accepting these premiums, should be considered as re-activating
the contract at each payment. The applicant-beneficiary without insurable interest
at inception may develop an insurable interest (for instance, by becoming a creditor
of the insured) which is then present when the next premium payment is made.
Yet this contract is still void under present law.
The courts continue to hold that the contract is illegal, therefore void ab initio.
There seems to be but slight concern for the equities involved, slight concern for
the misuse of the "in pari delicto" concept, little or no concern for justice, little
or no concern for the spirit of the law, little or no concern for unjust enrichment,
and little or no concern for superior knowledge on the insurer's part.
Both murder and wagering are encompassed within the concept of public
policy; both are involved in the insurable interest rule.
In Grigsby v. Russell the court said,
"The very meaning of an insurable interest is an interest in having the
life continued and so one that is opposed to crime and what perhaps is
more important, the existence of such an interest, makes a roughly selected
class of persons who by their general relations with a person whose life is
insured are less likely than criminals at large to attempt to compass
his death. 23"
These words emphasize the need for an insurable interest in order to minimize
or eliminate the potential murder involved in the sale of a life insurance policy to
one who has no concern about the life insured. Much has been written in opinions,
texts, and articles about the need for insurable interest to minimize murder or to
eliminate wagering.
The "text authorities have expressed the view that the prevention of wagering
is the main reason for the rule, and that it is designed only secondarily to lessen
the temptation to commit murder." 24 Patterson says, "The law does not rigorously
forbid the creation of situations in which one person may gain by the death of an-
other."25 It is true that a remainderman can gain by the early death of a life tenant
yet the law does not eliminate the use of a life estate. It is likewise true that an
expectant heir can gain by the early death of his testator, yet the law does not elim-
inate the use of wills. It does not necessarily follow that the desire to minimize
possible murders is the lesser one compared to the general desire to eliminate wager-
ing. It should be emphasized' that even though the wagering concept may be con-
sidered by some as the more important reason for the insurable interest rule, the
2332 Sup. Ct. 58 ( 1911).
241 Couch, Cyclopedi!t of Insurance Law 778 ( 1929).
25Patterson, Essentials of Insurance Law 158 (2d ed. 1957).
42
LIFE INSURA NCE
PUBLIC POLICY AND INSURABLE INTEREST IN
on lives must encompass
subject matter of the wager is human lives and to wager
to the crime of murder is a
the possible murder motive. The risk of inducement
a wager. 26 The two are inseparable.
part of the broader doctrine of invalidity as
the sale of a life insura nce policy in each instance
There is a moral hazard present in
t. If the inducement to
where the applicant-beneficiary has no insurable interes
ly be no less contrary to
murder was not a factor, wagering on lives would possib
just this murde r factor which makes
public policy than parimutuel betting. It is
and empha sises the public policy involved.
wagers on lives the moral risk it is
furthe r argued that since the punish ment for murder is so
Many writers have
rate crime, this alone is
severe and since the beneficiary cannot gain by his delibe insurance
in order to collect the life
sufficient to deter one from committing murder are al-
n nature being what it is, there
proceeds. This is not essentially true. Huma murde r,
ate or risk-lo ving individ uals who will chance
ways some foolish, desper indem nity
with a double
expecting not to be caught. In life insurance contracts
for accidental death the big induce ment in makin g the crime appear as an
clause
receiving the increased
accident is not only escaping punishing for the crime but
proceeds as well.
is not deterred from
It may also well be argued that "a potential criminal who
to stop in the face of
murdering by these well-known rules of law, is not likely clearly estab-
details are by no means
the doctrine of insurable interest whose likewise
t rule will not elimin ate murde r but there
lished."27 The insurable interes
ment to comm murder. it
can be no doubt that it may assist in minimizing the induce
has little concept of
Unless educated to insurance terminology, the average person
have never even heard of the
the meaning of insurable interest. Too many people g about.
by somet hing he knows nothin
term. Certainly nobody can be deterred enforcing
reason for placin g the respon sibility of
This may be all the more it~
does know about
the insurable interest rule on the party to the contract who not inter-
ver, that they are
the insurance company. These companies claim, moreo
ested in selling to one without insurable interest.
his own wrong28 even
It is well-settled law that a murderer cannot benefit from
ed. A potential murderer
when he has an insurable interest in ~he life of the deceas
he could not collect be-
would be deterred from committing the crime if he knew
he were acquitted of the crime.
cause he had no insurable interest, even though
if it is remem bered that for a criminal con-
There are different results possible
r must be found "beyon d a reason able doubt," whereas
viction (or acquittal) murde
e or slightl greater weight
y
in a civil case murder may be proven by a preponderanc
killing the insured may have
of the evidence. Therefore, one who is convicted of
obtain the insura nce proceeds, 29 par-
the matter passed on again in a civil suit to
not be admissible in the
ticularly since the criminal evidence or judgment would
civil proceedings.ao
by ·. a beneficiary
Where the insured is unlawfully and intentionally killed
26Magee, Life Insurance 326 (3d ed. 1958).

276 B.U:L. Rev.l1 4 (1926}.
N .W. 800 (1900) .
28Schmidt v. Northe rn Life Association, 112 Iowa 41, 83
v. Smith, 210 Miss. 28, 48 So. 2d 603 ( 1950) .
29Gholson
53 Pac. 2d 241 ( 1935 ).
30Goodwin v. Continental Casualty Co., 175 Okla. 469,
43
who is subsequently acquitted in a criminal action, the beneficiary generally cannot

collect the insurance.a1 Where the beneficiary must first be convicted of the homi-
cide, an acquittal would permit him to collect the insurance. 32 Or, where a record'
of the conviction of the beneficiary for murdering the insured is held to be prima
facie evidence of his guilt, he cannot collect. 33 On the other hand, a manslaughter
conviction may mean there was no intentional injury and the beneficiary can re-
cover34 and, in other jurisdictions, he still cannot recover because of public policy. 35
If, however, the murderous beneficiary cannot collect the proceeds, who does col-
lect them?
Where the murderous beneficiary had an insurable interest (and the con-
tract, therefore, is not void ab initio) , and no intent to murder existed at the time
of the purchase of the policy, or the policy had no clause specifically voiding it
under these circumstances, the insurance company must still pay the policy pro-
ceeds to the estate of the deceased. This is done under a constructive trust theory
(the beneficiary holding the proceeds in trust for the insured's estate) or under
the concept that the beneficiary having disqualified himself the company will pay
out the proceeds just as if no beneficiary existed at all. Where the murderous appli-
cant-beneficiary has no insurable interest, however, the contract being void ab
initio, the insurance company makes payment to nobody.
The courts generally hold that the murderous beneficiary (with an insurable
interest) forfeits only his rights and the rights of those claiming through him but
that the insurer is not relieved from liability.36 Since one of the important reasons
for the insurable interest rule is to prevent murder, declaring such a contract void
ab initio does not prevent the making of the contract nor have the deterrent effect
relative to the crime. State statutes should require that the presence of insurable
interest be checked by the insurance companies prior to the issuance of the policy,
adding a penalty for the making of the contract.
Especially in relation to policies upon the lives of children must greater care
be taken to see that insurance is sold only to one having the strongest desire to see
that child's life continue. As one court has said,37 "The insurance of children who
are helpless and under the control and authority of others, is susceptible of such
possibilities of evil that it should not be encouraged."
Present law permits the insurer to be relieved of liability under the following
circumstances: First, when the beneficiary procures the policy with the intention to
murder the insured. 38 Every sale of a life insurance policy carries an implied con-
dition that the beneficiary will not murder the insured, or, as Patterson says, "every
life insurance contract in which the insured and the beneficiary are not the same
person creates a temptation to the beneficiary to murder the insured in the sense
31New York Life Ins. Co. v. Murdaugh, 94 F. 2d 104 (S.C. 1938).

32Noller v. Aetna Life Ins. Co., 142 Kan. 35, 46 Pac. 2d ( 1935) .
33Sovereign Camp, W.O.W. v. Gunn, 227 Ala. 400, 158 So. 192 (1934).
34Minasian v. Aetna Life Ins . Co., 295 Mass. 1, 3 N.E. 2d 17 ( 1936).
35Mackowiak v. Polish Union of America, 258 N.Y.S. 134, 236 App. Div. 44 (1932).
36Schmidt v. Northern Life Ass'n., 112 Iowa 41, 83 N.W. 800 ( 1900).
37Prudential Ins. Co. v. Jenkins, 15 Ind. App. 297, 43 N.E. 1056 ( 1896).
38New York Mutual Life Ins. Co. v. Armstrong, 117 U.S. 591, 6 S. Ct. 877 (1886).
44
PUBLIC POLICY AND INSURABLE INTEREST IN LIFE INSURANCE
that the opportunity for gain exists if only the crime can be concealed."39 Second,
when a clause is inserted in the contract providing that murder of the insured by the
beneficiary voids the entire contract. 4 0 Third, when the murderous beneficiary is
the sole heir of the insured. 41 This latter is, of course, open to discussion. Where
the first two con4itions listed above are not present there is always the possibility of
escheat to the state of the face value of the policy.
Justice Holmes recognized that even where an insurable interest was present,
the risk of murder was not excluded. He said, though, that the danger is greatly
increased "if the whole world of the unscrupulous are free to.bet on what life they
choose," 42 adding that "the law has no universal cynic fear of the temptation opened
by a pecuniary benefit accruing upon a death. It shows no prejudice against remain-
ders after life estates, even by the rule in Shelley's case. "43
There are cases on record44 in which one person without insurable interest has
purchased insurance on the life of another for the purpose of murdering him to
recover the proceeds of the policy. This is proof that the evil sought to be avoided
by the insurable interest rule is real.
The mortality tables upon which premium rates are ·based include deaths of all
types. Certainly deaths by murder were not excluded in devising these mortality
tables. All the premium payments received by the companies cover payments in
case of deaths by murder. The companies are, it may be said, unjustly enriched
with each payment, however small, if they are not obligated to pay the policy pro-
ceeds to the insured's estate or the state. Certainly, public policy did not intend
this result.
Both the wagering concept and the murder concept have been subject to dis-
pute and "at one time or another have been assailed as unsound reasons for there-
quirement of insurable interest." 45 Neither one is probably more important than
the other. The point is one cannot be emphasized to the detriment of the other.
Certainly neither one can be completely ignored.
Let it become common knowledge that policies are sold to applicant-bene-
ficiaries having no insurable interest and without the consent of the insured (or
his parents), and many people will begin to question the advisability of it all. This
would be especially true during periods of social and economic stress. It is small
consolation to the murdered (and his family) that the murderer cannot collect on
the policy, or is executed if he is caught.
It has been shown that the public policy concept is basic to the determination
that the contract is illegal and, as such, void ab initio, and the concept of murder v.
wagering has been compared as underlying the public policy idea.
3918 Colum. L. Rev. 381, 389 (1918).

40Markland v. Modern Woodmen of America, Mo. App. 1919, 210 S.W. 921 (1919).
41McDonald v. Mutual Life Ins. Co., 178 Iowa 863, 160 N.W. 289 (1916).
42Grigsby v. Russell, 222 U.S. 149, 155 (1911).
43Jbid.
44New York Mutual Life Ins. Co., v. Armstrong 117 U.S. 591, 6 Sup. Ct. 877 ( 1886);
Goldstein v. New York Life Ins. Co., 225 App. Div. 642, 234 N.Y.S. 250 (1928); Hender-
son v. Life Ins. Co. of Va., 176 S.C. 100, S. E. 680 ( 1935).
45Cooke, Life Insurance Sec. 58 ( 1891).
45
UCT JOURNAL OF SOCIAL SCIENCE AND HUMANITIES RESEARCH 2016(03)
Available online at http://journals.researchub.org
The Principle of Indemnity in Insurance Law
Mohammad Reza Marandi1*, Rajabali Moradmahi2
1
PhD of International Law, Faculty member of Islamic Azad University, Garmi Branch, Germi, Iran
2
Student of Private Law, Islamic Azad University, Garmi Branch, Germi, Iran
AR T IC LE IN FO AB STR ACT
Article history: Objective: The principle of indemnity, as one of the most fundamental principles in damage insurance
Received 13 March 2016 contract is thematic and has a broader subject area than the concept of damage in civil liability.
Received in revised form 15 Apr 2016 Methodology: This is the principle underlying the two effects: first, due to this principle, the policy
Accepted 26 Apr 2016 holder is obligated to compensate a damage that has been resulted due to the occurring a coverage event
on the property of the policy holder in the property insurance and on the people in the insurance of
Keywords: liability. Results: Thus, A defining characteristic of insurance, providing that a loss payment will replace
The principle of indemnity, what is lost, putting the insured back to where it was financially prior to the loss without rewarding or
Insurance, penalizing the insured for its loss. In fact, based on this principle, the resulted damage should be
Law, compensated totally and ideally. This is known as “positive aspect.” Secondly, the compensation should
Iranian law, not lead to the increase in the assets of the victim and it should not be turned into a benefit source for the
injured party (the negative aspect). Anyway, although this principle has two different approaches, positive
and negative, applying it requires the judicial precedent rely on the positive aspect, unless the contrary is
approved. Conclusion: This is a binding principle of damage insurance contracts that insurers are
obligated in administering it to compensate the actual loss (assessed) of the victims according to the
contents and conditions of issued policy up to maximum insurance obligations. In insurance law approved
in 1361, legislator has employed the word “damage” in 15 articles out of 36 articles
(1,7,13,10,14,15,16,19,20,21,22,23,28,29, and 30) indicating that damage is highly important in insurance
law.
1. Introduction
Damage creation is an inevitable fact in human societies, thus, an approach entitled damage compensation has been predicted in law to deal with the
difficulty, and thereby the victim can get rid of this problem. Therefore, followed by the evolutions observed during two last centuries in civil liability
which underlie the development of such a law, the fact of compensation of damage has been freed from any limitation along with the implementation of
justice in some legal systems such as France and causes more protecting of victims of harmful acts and more compensation of damages resulted on them.
These protections were to the extent that some of the authors such as Rapersays in this regard that: “today, the responsibility is nothing but damage
compensation and current law tends to it to replace the thought of damage compensation with the thought of responsibility” (Badini, 2005).
Studying the historical evolution of damage compensation in various communities and legal systems worldwide indicates appearing wondrous evolutions
from the viewpoint of legal experts and legislators. These evolutions have been generated by science, industry, and business growth and consequently the
increase of damaging dangers and events that threaten the properties and people, in one side, and in some cases can lead to a loss and implementation and
responsibility of an individual, in the other side, who is as faultless as the victim in occurrence of the accident. In fact, development of the concept fault
and considering the behaviors as error in the modern machine life is an inevitable fact for any common person or development of liability cases without
any error and based on the risk or guarantee causes imposing of damage on those who were not really faulty, rather they have taken attempts to produce
goods and offer services to other people of the society and booming of market and economical activities (Babayi, 2001), but avoiding unilateral support of
the victims led the lawyers’, economists’, and businessmen’s mind to propound an appropriate and efficient instrument to balance the protection of the
* Corresponding author: mr.marandi@yahoo.com

DOI: https://doi.org/10.24200/jsshr.vol4iss03pp61-64
62 UCT JOURNAL OF SOCIAL SCIENCES AND HUMANITIES RESEARCH 4(3) (2016) 61–64,
victims and agents of the loss. This helpful tool was the insurance whose main function, in the present societies, is to divide the danger driven from the
damages and events; though the probability of persuading people to negligenceis one of the objections regarded by critics to this method of damage
compensation (Clarke, 1997).
Therefore, in the present law, there are various mechanisms more efficientthan previous to compensate the damages of the injured party; some of them are
as insurance of properties, insurance of persons, insurance of liability and social insurance which generally the lawyers call them alternative designs of
civil liability system and divide it into two main types “commercial insurances” and “Social security system" (Badini, 2005).
Damage domain in insurance law is broader than civil liability. In other words, in insurance law fulfillment of damage is feasible without the
implementation of elements of civil liability. Fulfillment of civil liability is subject to the ascertainment of damage but damage fulfillment is not
secondary to the fault expression or existence of responsible.
In some of the legal systems, necessity of full compensation of all damages on the victim has been accepted as two basic principles of law. According to
the principle of indemnity when a person causes unduelosses, whether financial, spiritual, life, or physical, he is bound to compensate the damage; either
the legislator orders its compensation or not. According to the principle of full indemnity the compensation of loss should be to the extent that the victim’s
loss is fully compensated and put him back in a situation similar to the pre-damaged days (Babayi, 2005).
Sustaining and proof of loss has been always introduced as one of the elements of fulfilling civil liability (Katooziyan, 2003; Safaee and Rahimi, 2010)
and compensating the damage is the most important purpose of this liability. Thus, it is obvious that determining compensable damage and reparability
area of these damages are highly important in civil liability and dedicated main topics of this problem to itself. Also, the principle of indemnity, as one of
the basic principles in damage insurance contract, has a thematic function and a broader theme domain to the concept damage in civil liability. The present
article aims at studying the principle of full indemnity in insurance law.
2. Materials and methods
2.1 Definition of Concepts:

Damage: this literally means lose money, sustain a loss and loss and damage. In Islamic texts, loss means personal injury to one’s own and other one
whether loss, wound or murder, to waste and mar one’s own and other’s property, and encroaching like usurpation, abuse of confidence (MakaremShirazi,
1990). And, in legal terms where there is a breach of properties or an absolute benefit is lost or a person harms in health, honor, and emotions, it is said
that there is a loss; on the other hand, reducing a person’s property and preventing its increase for any reason will cause a loss (Katooziyan, 2003).
In insurance law, the word damage, sometimes, is defined as “claim” and sometimes as “loss and damage” or as “reparation” in insurance term, but, no
comprehensive definition has been proposed for it. In terms of insurance law, damage has a wider meaning and concept. Atohagen, a German lawyer says
that: “damage is occurrence of danger or realization of something that the insurer obligates to compensate its outcomes in insurance contract (cited by
MahmoodSalehi, 2011). According to JuliosFingirke, another German lawyer, an event or an accident that causes fulfillment of original obligation of the
insurer is called damage (MahmoodSalehi, 2011).
Compensation: this word literally means emendation of loss and in Islamic law it means recovering the situation of the injured party to the previous
condition. Therefore, such a term is relevant in private law when, first and foremost, a person sustains a loss and then that damage is from a person other
than the parties to the dispute, also, that person should be liable for it. The damage will not be compensated if none of the aforementioned cases are
implemented, because if a person makes himself intentionally sustain a loss, it is a damage that was resulted by himself and he should bear it. Moreover,
any other person cannot afford the damages resulted to a person, rather he should be a person whose obligation is liable. So, if a person’s pet damages a
person without the negligence of its owner, or when a person entrusts a fool a property and the fool wastes it, the foolish is not responsible for it (Ansari
and Taheri, 2005).
Insurance: Imam Khomeini says in Problem 1131: “insurance is a contract between policy holder and insurer company, institution or person which accepts
the insurance and this contract requires offer and acceptance as other contracts and conditions that are valid in other contracts’ motive and contractibility
are also valid in this kind of contract and this contact can be executed with any kind of wording or language (Moosavi Khomeini, 1999).
Insurance is a contract between policy holder and a company or a person as insurer. Based on this, s/he pays the company or that person to compensate
damages. So, this is an independent contract and transaction which is in compatible with conditions coming in the future, whether insurance of
commercial goods, building, automobiles, civil servants insurance and workmen’s compensation insurance or life insurance and so on which are typical
and common in wise custom (MakaremShirazi, 2015).
2.2 The Philosophy of Damage Compensation in Insurance Law:

The first justification that can cause the appearance of the principle of indemnity in insurance law is the observance of justice or preserving it in the
society because justice requires that any victim receive reparation to the extent that has sustained a loss, not more, not less (Bariklo, 2008). However, other
justifications have also been offered in the necessity of the mentionedprinciple. Some lawyers regard the existence of the social order and security (public
order) involved in and they believe that if the principle of indemnity is not the basis of the payment, insurance can be as a source of use for the policy
holder and amotivation for intentional damages and this can, in turn, be followed by corruption and disturbance of public good order (Karimi, 1998). This
theory can be understood by judicial precedent of France based on the annulment of contract of civil irresponsibility referring to the public order of rules
(Bariklo, 2008).
Some other believes that the mentioned principle is driven from the socialization approach of the dangers (Bariklo, 2008). Based on this attitude, full
indemnity of the injured party is possibly only if he is supported socially and this indicates that the victim first should refer to the social institutions to
compensate his damages. Followers of this principle view the social correlation necessary and use the “distribution justice” as a tool for fulfilling it.
UCT JOURNAL OF SOCIAL SCIENCES AND HUMANITIES RESEARCH 4(3) (2016) 61–64, 63
According to this attitude, the facilities of the society, whether financial or non-financial such as social opportunities, should be distributed throughout the
society so that everyone can benefit from it based on his/her merits. Indeed, talent and qualification of the person is the basis of receiving the advantages.
Yet, it is not the facilities and asses of the society to be distributed, but the losses and damages should also be for all the people of the society, in general.
So, all the people should share them. Upon this, in job accidents and motor vehicles, the obligatory insurance is applied.
2.3 Dimension of the Principle of Indemnity:

The principle of indemnity has two dimensions: positive and negative. According to the positive dimension, all the damages should be compensated and
according to the negative aspect, no injured party should profit from the harmful act or the insured event and his situation improves more than past. The
only thing that should be considered in the relations of insurer and policy holder id the positive dimension, unless the insurer improves its contrary. Thus,
the victim’s damage is viewed independent from the severity of the event factor. Fault which is the most important element in civil liability and is divided
into the light and heavy should not be regarded unless the insurer relies on it. Therefore, the function of the fault is less important in the insurance law and
the causality factor between the risk of the event occurrence and the resulted loss is the principal criterion and the degree of the faultiness of the event
agent has no effect on the paid reparation.
Insurer has no role in limitation and adjustment of damages of the price of the damage unless this is a part of the conditions of the contract based on the
agreement with the policy holder. Thus, the price that should be paid as compensation should be exactly adapted with the resulted loss followed by a
harmful event. In fact, the insurer should compensate all the losses relying on the positive dimension of the principle of indemnity because the balance
between the resulted loss and the paid damage is efficient in justice, morality, and economic (Safiyan, 2006).
3. Discussion and results
3.1 Domain of the Principle of Indemnity in Insurance Law:

The principle of indemnity which determines the scope and the way of compensating the victim’s loss in civil liability law (Katooziyan, 2003) and is
declared as the most important purpose of civil liability rules, according to some authors, technically liability is declared by the debt related to the damage
compensation (Katooziyan, 2003). In other words, liability of damage requires sustaining a loss and the responsible is obliged to pay debt. Also, liability
action can never be regarded as the profiteering device. In fact, subject matter of civil liability is not the punishment of the faulty;rather damage
compensation is originated by it (Katooziyan, 2003).
Damage insurance is also a contract that is concluded along with the fulfillment of the goal of civil liability because its objective is to compensate the
resulted damage to the property and assets of the policy holder or a person who is responsible for it based on the rules of civil liability. Thus, the principle
of indemnity (MahmoodSalehi, 2011) dominates these kinds of insurance contracts. According to the principle of indemnity the resulted losses to policy
holder or third person should be completely compensated. In fact, in administering the principle the insurer obligates to compensate the actual loss
(assessed) of the victims according to the contents and conditions of issued policy up to maximum insurance obligations and recovers the victim’s pre-
event situation as possible. Therefore, coverage such insurance should not be resulted in increase of the victim’s assets and improves his situation better
than the past (Clarke, 1997). As a matter of fact, insurer obligates to compensate damage and remove imbalance appearing in insurer’s financial situation
after occurring an event for insurance subject matter. If the principle is not the criterion of damage payment, then insurance will be regarded as a device
for profiteering and leads to corruption and disturbance of public good order and encourages intentional damages.
3.2 Comparison of the Principle of Indemnity in Insurance Contracts with Compensating Civil Damage:
although the principle of indemnity in civil liability is similar to the principle of indemnity in insurance law regarding their objective, they are different in
legal and theoretical foundations; because, first, damage compensation in civil liability is based on non-contractual liability and tortious liability. While,
damage compensation in insurance law is based on the contractual liability and in line with the concluded insurance contract between insurer and policy
holder.
Secondly, as damage compensation in civil liability is driven from the tortious liability and non-contractual, it lacks consideration and is obliged to pay it
due to law. However, damage compensation in insurance law is in exchange for paying premium from policy holder and is one of the contractual
obligations of the insurer.
Thirdly, civil liability law has been founded on the personal compensation of damage by the liable person for the event and its aim is to accomplish
reparation justice for the rights of the victim and all liability insurances have been enacted based on this end. But, in principle, damage insurances are
based on the distribution justicewhich each has a different foundation and approach.
Fourth, althoughcivil liability has been widely replaced with insurance in compensating damage; it cannot be replaced with civil liability in protecting the
norms of morality (Katooziyan and Izanlo, 2007). Contrary to civil liability law which deals with protecting norms of socio-morality and damage
protection, insurance development may lead policy holder whoexempts himself from the bearing damages from negligence and errors by transferring risk
liability to the insurer act carelessly and recklessly against others’ rights, life, and property. As a matter of fact, exemption from liability and non-bearing
the pressure of damage compensation makes policy holder ignore other people’s rights, life, and property and encroach and excess his functions.
64 UCT JOURNAL OF SOCIAL SCIENCES AND HUMANITIES RESEARCH 4(3) (2016) 61–64,
4. Conclusion
Industry and technology development during several recent centuries have led to many dangers and heavy damages originated from economic activities
and this necessitates insurance law in the society. In the last times, as the tribal life was common and every person was supported by his/her own tribe;
but, due to the changes in the context of the society and discretion of ethnic ties, these days the main discussion is providing financial and psychological
security for the people in a society. One of the common ways is insurance.
Insurer often is not related to the agents of the damage. So, he cannot be viewed as the only responsible for compensating the damage based on civil
liability rules and the basis of his obligation in damage compensation should be founded in another category. Upon this, damage should be interpreted as
civil liability without confusing its concept. In insurance law approved in 1316, legislator has used the word “damage” in 15 articles (1, 7, 13, 10, 14, 15,
16, 19, 20, 21, 22, 23, 28, 29, and 30) out of 36 ones and this indicates the importance of damage in insurance rules.
The main purpose in insurance contract especially damage compensation is to compensate the victim’s actual damages. Indeed, reparation and returning
the initial situation of the victim and restoration the disturbed relations to the normal condition is the raison d’etre of the insurance contract. Insurance
functions have led many positive effects in fulfilling damage compensation in the field of economy. However, in the other side, covering such insurance
should not increase the property of the injured party and improves his position better than the days before the event. Otherwise, insurance contract will be
profiteering source for policy holder and as a result will result in corruption and will encourage intentional damages and reckless activities and this is an
applicability of unlawful ownership. This indicates the basic, common, and traditional principle in insurance law which is known as the principle of
indemnity.
REFERENCES
Ansari, M. & Taheri, M. A. 2005.Law Terminology. Tehran: Mehrabefekr publications.

Babayi, I. 2001. Civil liability and insurance. Research and politics journal. 4, 62-92
Babayi, I. 2005.Conditions of remittable damage. Bija, research project at AllameTabaTabaee University publications
Badini, H. 2005. The philosophy of civil liability.Tehran: Enteshar Inc.
Bariklo, A. R. 2008. Civil liability.Tehran: Mizan publications
Clarke, M. 1997. Policies and perceptions of Insurance law in the twenty-first century, first published, New York, Oxford University Press Inc.
Katooziyan, N. & Izanlo, M. 2007. Civil liability.Tehran: Tehran university press
Karimi, A. 1998. Insurance of property and liability. Tehran: economy college publications
Katooziyan, N. 2003. Obligations out of contract. Tehran: Tehran universirt publications
MahmoodSalehi, J. 2011. Idioms of insurance and commercials. Tehran: insurance research center
MakaremShirazi, N. 1990. Islamic law. Imam Amir Al Momenin school. Tehran university press
MakaremShirazi, N. 2015. Thesis of Tozih Al Masael. Tehran: Imam Ali Bin AbiTalib publications
Moosavi Khomeini, R. 1999. Thesis of Tozih Al Masael. Qom: Hashemiyoon
Safaee, H. & Rahimi, H. 2010. Civil liability. Tehran: SAMT publications
Safiyan, S. 2006. The principle of indemnity and its function in insurance actions, dadarasi month-periodical, 10, 1-60
How to Cite this Article:
Marandi M., Moradmahi R., The Principle of Indemnity in Insurance Law, Uct Journal of Social Sciences and
Humanities Research 4(3) (2016) 61–64.
Page 3682 - 3691 DOI: https://doij.org/10.10000/IJLMH.11833
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3682 International Journal of Law Management & Humanities [Vol. 4 Iss 3; 3682]
A Critical Evaluation of the Dual Doctrines

of Subrogation & Contribution in Fire
Insurance
PRIYA DHARSHINI A1
ABSTRACT
A Fire Insurance is a contract of indemnity between the insured and the insurer. The
Doctrine of Subrogation and Contribution are an extension of the principle of indemnity.
This article primarily focuses on the fact that insurance contracts are contracts of
indemnity wherein there is no gain or profit in any way to the insured as a consequence of
an accident or loss. Fire Insurance is an insurance against any loss caused by fire. This
article initially discussed the different aspects of how the doctrine of Subrogation and
Contribution operate with regards to Fire Insurance. Then it moves on the to specifics as
regards fire insurance such as a Special Perils Policy, Standard Fires, Policy Coverage,
Depreciation and Status of Salvage Value. By way of this analysis the article aims in
arriving at the courts take on different aspects of such applications of the principle of
indemnity in Fire Insurance. The Primary focus is on the stance of the Indian Courts while
also discussing International Decisions. The Ramifications of Indemnity on Fire Insurance
Contracts is discussed through both an individual analysis and a study of the doctrines.
Finally, The Author also suggests recommendations after discussions involving the
doctrine of Subrogation and Contribution.
Keywords: Contribution, Fire Insurance, Indemnity, Perils, Subrogation.
I. INTRODUCTION
Subrogation is the transfer of the legal right to recover damages from the insured to the insurer2.
Contribution is that right vested with insurers who have already paid for a particular loss of the
insured, these insurers have a right to claim a proportionate amount from the other insurers
who are liable for the same loss3. These doctrines clearly exhibit the principle of indemnity in
ensuring that the insured does not profit from a contract of indemnity4. The Fire Insurance is a
1
Author is a student at Symbiosis Law School, Pune, India.
2
Hasson, R. ( 1985), Subrogation in Insurance Law-A Critical Analysis, Oxford Journal of Legal Studies, 416-
438.
3
Hasson R. (1985), Supra 1.
4
Parkinson, M. A. (1981), Insurance Law, London, Sweet & Maxwell, p. 471-512.
© 2021. International Journal of Law Management & Humanities [ISSN 2581-5369]

Contract of Indemnity5. Indemnity is provided by means of (a) Cash Payments, (b) Repairs, (c)
Replacements, (d) Reinstatement. As Regards Subrogation in the absence of this doctrine the
insured might recover an insurance claim and also damages as the aggrieved party from the
third party6. This creates a profit for the insured, thus Subrogation cannot be denied when the
contract is one of indemnity, as the insured is, for the Fire Insurance7. As Regards Contribution
in the absence of this doctrine the insured might recover the insurance claim from all the
insurers as he is eligible to do so in the absence of this doctrine, thus effectively preventing a
profit out of insurance contracts8. Denial of the right of Subrogation rests on the Fact that a
particular contract is not one of Indemnity9. Such as a Life Insurance is not a contract of
Indemnity. In such instances Subrogation feature has no application. In India there is no statute
governing Fire Insurance it is regulated by the Indian Insurance Act, 198310. The Term Fire
Insurance is defined under Section 2 (6A) of the Insurance Act11. A Fire Insurance is a Contract
as per the Law, with a few additional principles governing it which is meant for insurance
transactions such as Utmost Good Faith, Insurable Interest, Contribution, Subrogation,
Indemnity and Proximate Cause12.
(A) Research Methodology
The Research Methodology is in the form of doctrinal Research, wherein the Secondary
Sources used to collect information is through research papers, journals, research articles,
insurance law books, Newspaper and other Online resources. This paper is strictly limited to
the theoretical underpinning as regards the present topic.
(B) Research Objectives
The author has inferred from this article that the doctrines of subrogation and contribution often
alluded to Lord Mansfield13 as to have been pronounce in the process of making these concepts
so profound that it is indispensable in the study of the law of insurance. The author has further
dived into the present scenario in India and has compared how these principles operate and has
provided thorough analysis. Through this research the author aims in creating a simple
5
Lucena v. Crawford, 127 Eng Rep. 1805, p. 180.
6
Ivamy. (1979), General Principles of Insurance Law, London: Butterworths.
7
Patterson, S. (1957), Essentials of Insurance Law. New York: McGraw-Hill Book Co.
8
LJ., J. (1966), The Collateral Source Rule and Loss Allocation in Tort Law, Calif L Rev, 1478.
9
Driscoll v. Driscoll, 1 Ir. 1918, p. 152-159.
10
Danzon, P. (1984). Tort Reform and the Role of Government in Private Insurance Markets. The Journal of
Legal Studies, 517, 548.
11
Ibid.
12
Singh, Avtar, (2017)., Law of Insurance, New Delhi, Lexis Nexis.
13
Castellian v. Preston, 380 ( QBD 11 1883).

understanding of these concepts in the fire insurance regime for both the insured and the insurer
to thereby benefit.
II. BRIEF HISTORICAL DEVELOPMENT OF FIRE INSURANCE

Fire Insurance was popular after the development of Marine Insurance, its origin could be dated
to the Great Fire in London which caused a loss of about € 10 Million, at a time where London’s
annual income was € 12,000. This led to the Poor Relief Act, 1666. Thus, by the end of the 17th
century there was Nicholas Barbon’s Fire Office, 1680 and the Friendly Society established at
168314. The First Fire Insurance Company in the United States was installed in Charles Town,
South Carolina, in 1732. Colonization was also a contributing factor which led to the spread of
the idea of Fire Insurance15. Presently, in India there exists a fire insurance policy which also
includes other perils such as storms, lightning, Strike, Aircraft Damage etc., and is covered
under the header of ‘Standard Fire and Allied Perils Policy’. Fire insurance are more prevalent
in the non-life insurance category because the unexpected occurrence can leave behind heavy
damages16. Fire Insurance helps rebuild the economy by providing jobs in the insurance sector
at the same time covering heavy losses incurred by businesses and thereby at times even help
restoring damages and reinstate to original17.
III. SUBROGATION
When a Loss occurs, there are three legally valid approaches that can be pursued, the insured
party can be allowed to keep both the insurance proceeds and full recovery against the third
party18. Or the insured party can be allowed to recover its own loss and the insurance company
can be denied the right to undertake proceeding against a certain defaulter, it can be a contract
breaker or tortfeasor19. Or the insured can recover from the insurer and the insurer can use the
insured’s name to recover from a third party for liability or any such breach. Subrogation is the
third option, and is most relevant in the eyes of law20. The English Law states that Insurance
Contracts are personal contracts between the insured and the insurer. The Rationale is from the
case law Rayner v. Preston.21, The American Courts after several vendor-purchaser contract
cases state that insurance was not a personal contract. The field of insurance law is dominated
14
Marasinghe, (1975), An Historical Introduction to the Doctrine of Subrogation (Parts I & II), Valparaiso U L
Rev, 45, 275
15
Keeton, (1971), Insurance Law, St Paul, Minn, West: 157-8.
16
Ibid.
17
Supra., n 11.
18
Davis, S. L., (1962), The Extension of Insurance Subrogation, Michigan Law Review, 33.
19
20
Andrews, N, (1993), Subrogation and Contracts of Insurance, Cambridge Law Journal, 223-225.
21
Rayner v Preston, 18 CH D 1881.

by the third and first legally permissible approaches. Each of these approaches have their own
drawbacks as the first has the drawback wherein the insured is over compensated, while in the
third option usually insurance rates are not fixed to anticipate such recoveries by the way of
subrogation22. The Second Option has a major drawback if insurance contracts are considered
to be personal contracts between the insured and the insurer. In Padmanabha Pillai Case
(Krishna Pillai Rajasekharan Nair v. Padmanabha Pillai, 2004), the Supreme Court has held
that Subrogation arises out of doctrine of equity and the principles of natural justice but not out
of the privity of contract. The principles of Subrogation as applicable under the Indian
Insurance Regime has been dealt with under Charan Spinning Mills (P) Ltd. Case (Economic
Transport Organization v. Charan Spinning Mills (P) Ltd, 2010), wherein the rights of the
insured and the insurer have been delimited as regards subrogation and there has also been
discussions on letters of subrogation wherein the insured and the insurer can make more
specific terms as regards Subrogation rights and thus be governed by the same.
Subrogation arises out of (a) Tort, (b) Contract, (c) Statute, (d) Subject Matter of Insurance.
Subrogation allows the insured party to be indemnified for the damages from the insurer. In
return the insurer obtains the legal right to pursue compensation on behalf of the claim of the
insured23. This compensation to damages is something the insured is entitled to, however, sine
the insurer has already paid for damages arising out of the fire, on the basis of the policy, the
insurer becomes entitled to institute a legal process against the third party to obtain
compensation. It is pertinent to note that the insured has to co-operate with the insurance
company when the company institutes such suits24. Originally, the transfer of legal rights from
insured to insurer happens only when the insurer has indemnified the insured, however, in
recent circumstances taking cognisance of the need to act immediately to obtain relief from the
courts, the insurance company may issue a note to pay at the earliest and initiate a suit25. Even
in these instances the insured needs to be validly compensated by the insurer as per terms of
the policy. If the claims out of the suit is higher than what was paid to the insured, where there
is a excess interest etc. If the insured cannot make a profit neither can the insurer, because even
if there exists a transfer of legal rights the claim still originates from the damage which was
incurred by the insured.
22
Patton, T. R, (1999), Recent Developments in Title Insurance Law, Tort & Insurance Law Journal, 695-706.
23
Rinaldi, E. M, (1994), APPORTIONMENT OF RECOVERY BETWEEN INSURED AND INSURER IN A
SUBROGATION CASE, Tort & Insurance Law Journal, 803-817.
24
25
Veal, G. R., (1992), Subrogation: The Duties and Obligations of the Insured and Rights of the Insurer Revisited,
Tort & Insurance Law Journal, 69-89.

Life Insurance Contracts26 and Accident Insurance Contracts27 are not Contracts of Indemnity
thus the doctrines of Subrogation and Contribution cannot be applicable to the same. In Rahee
Industries Ltd. Case28, variance from ordinary policy of subrogation is permitted in a pre-
agreed arrangement between the insured and the insurer. Further Salvage and Abandonment
are extremely important concepts when it comes to discuss Subrogation rights. Salvage is the
property that is saved after loss from fire. While in such cases insurers pay only to the amount
that is required to compensate damages and excludes that would be recovered if there was no
salvage. In cases of abandonment the insurance companies get to possess the Salvage and the
full amount is paid to the insured. This Principle is laid down in Kaltenbach v. Mackenzie
Case.29 It is important to note that in subrogation the insurer can initiate a suit on the behalf of
the insured but the insurer is not the plaintiff but only entitled to the recoveries. It is a practice
that for a legal claim the insurer cannot get compensated by the insured for ensuring his legal
right is used to obtain compensation for damages., the burden to initiate the suit is with the
insurer. This concept has been clarified in the Oberoi Forwarding Agency Case.30, Wherein the
insurer cannot obtain the legal status of the consumer although he has initiated the suit. Initially
there existed a confusion wherein in the United Insurance Case. 31, the apex court said that the
insurer can file complaint against a tortfeasor. The Supreme Court has reiterated its judgement
in Economic Transport Organization Case, wherein it firmly laid down that the Insurer can
only apply on behalf of the insured and not as a party to the suit.
Can Insurance Companies Sue the Employees of a company under Subrogation under Fire
Insurance? I found this question very relevant. There are two courses and outcomes firstly the
insurance company is only on a contract with the insured and he is eligible to sue others for
compensation32. The other approach taken by the courts was in instances of a fire caused by
negligence of employees the insurance company cannot undertake a suit against the
employees33. However, then the question was whether the firm will eligible to be duly
compensated the answer was in the positive and dependent on the circumstances of the
Insurance Policy. In Greenwood Shopping Plaza Case., the fire was caused by negligence of
tenant it was held that the insurer cannot undertake a suit against the tenant. However, in Lister
26
Dalby v. India and London Life Assurance Co., 15 CB 365 1854.
27
Bradburn v. Great Western Railway Co., 20 LR 10 1874.
28
Rahee Industries Ltd v. Export Credit Guarantee Corporation of India Ltd., 2 SCC 138 2009.
29
Kaltenbach v. Mackenzie, 3 CPD 467 1878.
30
Oberoi Forwarding Agency v. New India Assurance Co. Ltd, 2 SCC 407 2020.
31
Taj Mahal Hotel v. United India Insurance Co. Ltd., 2 SCC 224 2000.
32
Lister v. Romford, I NZLR 46 1981.
33
Greenwood Shopping Plaza v Buchanan et al., 99 DLR 3d 289 1979.

Case34. it was firmly established that individuals who cause damages to a firm can be sued by
the insurer under subrogation. Further in Marlborough Properties Case.35, the tenant paid fire
insurance in the name of the landlord and a fire was caused due to the negligence of the tenant
but the insurer paid the fire insurance pay-out and it was restored. In this case the insurer
proceeded to undertake claims against the tenant, it was firmly laid down by the New Zealand
Courts that it would not be possible to do so. Another important concept is that an insurer can
only procced against a third party if the insured has a right to do so. In Som Prakash Case.36,
the insurer was not allowed to recover from the wife of the insured as the insured did not have
the right to recover form his wife for damages caused due to the fire.
IV. CONTRIBUTION
Common Law allows the insured to recover full amount from any one of the insurers and the
insurers can then later claim the remaining from the other insurers37. It is important to not here
that the several conditions must be justified for there to be contribution38. Firstly, there must
be in existence two or more contracts of insurance. Secondly, there should be a common policy
covering a common peril for loss and with a common subject matter. Lastly, such policies
should be in operation at the same time. The insurance policies need not be identical but need
to be similar in subject matter and policy39. At present to avoid law suits wherein other
insurance companies suggest that one has taken the responsibility to pay the full amount to the
insured this relieving the others to prevent unnecessary suits at present the insurance companies
are only entitled to pay their rate-able proportion of loss as regards the policy entered into with
the insured40. As for the remaining claim the insured should take it to the other insurer with
whom there has been a insurance policy41. If an insured enters into a Fire Insurance Policy with
three insurance companies A, B and C to the extent of $ 10,000, $20,000 and $30,000 and there
arises a claim of $ 6,000. As regards the rate-able proportion theorem the insurance companies
will have to pay as they would be thus liable. A would have to compensate to the extent of
$1,000, B to the extent of $ 2,000 and C to the extent of $ 3,000. In QBE Insurance Case. 42, it
has validly been stated that the common law approach to contribution and the fire insurance
policy differs. Under common law it is said that insured can obtain claim from any one insurer
34
Lister v. Romford, I (NZLR 46 1981).
35
Marlborough Properties v Marlborough Fibreglass, I NZLR 464 1981.
36
Economy Fire and Casualty Co. v. Som Prakash, 2 SCC 287 2017.
37
North British v. London, Liverpool and Globe, 569 CH 5 1855.
38
Srinivasan, M. (2009), Principles of Insurance Law, New delhi, Butterworths.
39
American Surety Co. v Irrighton, 91 TLR 12 1910.
40
Sarma, K. (2009), Modern Law of Insurance in India, New Delhi, Lexis Nexis.
41
Jenkins v. Deane, 103 LKBJ 4 1933.
42
QBE Insurance (Australia) Limited v. Lumley General Insurance Ltd., 2 VSCA 223 2009.

and later the insurer can obtain compensation from other insurers to the extent the other insurers
are liable. However, under Fire Insurance Policy the pay-out to the insured from the insurers is
in a Rate-able proportion as per individual policy agreements entered into between the insured
and the respective insurers.
V. TYPES OF FIRE INSURANCE POLICIES – VALUES AND UNVALUED

Valued Fire Insurance Policies are policies when the subject matter is values while entering
into the policy and complete pay-out is possible in cases of total loss. As regards partial loss
pay-out is made to the extent of the loss incurred43. Further a Valued Fire Insurance policy is
void if it is based on a fraud or misstatement. Unvalued Fire Insurance Policies are policies
wherein the subject matter is analysed on its intrinsic value based upon the present market
fluctuations. i.e., the marker value of the subject matter is calculated as it would have been on
the date of fire44. India recognizes open policies as comparable to valued policies because
valued policies have a higher risk of profit or loss for the insured and it defeats the purpose of
indemnity.
(A) Calculations of Indemnity as Regards Fire Insurance
1. Actual Cost Value
Actual Cost Value is a principle which is to ensure that the damages are so payable such as the
insured is brought back to the original condition before the loss. (a) Market Value:
Indemnification can be calculated on the basis of the effect the damage had on the market value
of a particular property. (b) Replacement Value – Depreciation: the damaged property will be
replaced with similar materials that existed at the time of loss. It is not as popular as the market
value approach45.
When we compare the actual cost value and the replacement cost value approaches it is seen
that in the actual cost value approach, depreciation cost is included and then pay-out is
provided. While in replacement cost value policies the premiums are a bit higher. The former
approach can cause distress to a business if the cost of apparatus was high initially and thus is
subject to depreciation later46.
43
Combe, M. M., (2013). Insurance, Commercial Law Essentials, Edinburg: Edinburg University Press, p. 121-
151.
44
Greenberg, A. S., (1998), Ensuring Preotections: Fire Insurance and the Era of Steam Engine, Cause for alarm:
Fire in the 19th Ce. p. 125-151.
45
Betts, W. C., (1903), Fire Insurance Rates and Methods, The Annals of American Academy of Political and
Social Science, 1-14.
46
Ibid.

2. Underinsurance
It is usually a case where the insurance amount will not cover the total damage claim. In such
cases it is a cause of lose to the insured47. This insufficiency causes monetary losses to the
insured48.
3. Limited Interest
The insureds recovery on damages depends on the interest he holds in a particular property.
Insurable interest need not only arise on ownership it can also arise on a person having a
financial interest in a particular property49. This is decided by the courts on the basis of firstly
when a person has limited interest in a property when there are damages caused by way of fire,
the insurance company calculates the pay-out for damages for indemnification. At times there
are also cases of restoration of the property to the original condition by a third party in cases
of fire. There limited interest relationships can be one of bailees, mortager-mortagee, trustees,
part ownerships, agents, husband and wife, vendor-vendee etc.
VI. RECOMMENDATIONS
1. It is to be noted that Subrogation is necessary for the insurance industry to stay afloat:
Subrogation helps replenish the funds of insurance companies to a certain extent.
Subrogation does not mean the insurance companies will be able to obtain the complete
amount given to the insured, however even a partial recovery from pay-out will help
the health of the insurer in the long run.
2. Subrogation is a cost saver both directly and indirectly: Subrogation entails lower
premiums for the insured and the insurers can be indemnified for the pay-out to the
insured. This is a saver for both the insurer and the insured. The insured gets a timely
pay-out, for a lesser premium and the insurer gets indemnified later by the tortfeasor.
3. Subrogation could be viewed as a deterrent from negligent behaviour: It is seen that
such pursuits by insurance companies can be seen to be deterrents against negligent
behaviour and damage thus caused. People would be more cautious and this would lead
to lesser opportunities for accidents.
4. It is necessary to note that people who have underinsured need to take care of their own
loss, otherwise this underwriting could be prone to litigation.
47
Sikka Papers Ltd. v National Insurance Co Ltd, 7 SCC 777 2009.
48
Commercial Union Assurance Co. v. Lister, 483 CH App CR 9, 1874.
49
Mcaura v. Northern Assurance Co., 619 HL 3 1925.

5. There needs to be a separate law to deal with real and personal property. Relationships
such as vendee-vendor, lease, mortgage are oft under litigation.
6. It is important to note that in Contribution the Rate-able proportion function must be
used to avoid confusion. There have been several suits between insurance companies
when it came to contribution as to what extent and whether the other company was
liable. Thus, it is in fact better if the insurance companies paid to the extent of the
liability and asked the insured to claim from the other insurers.
7. The Insured must accordingly help the insurer at due times as regards the subrogation
suit. There have been instances when the insurer filed a suit on behalf of the insured
was unable to obtain due compensation because of date of limitation and other
practicalities. This should be avoided for subrogation doctrine to work efficiently in
practice.
VII. CONCLUSION
It is to be noted that in fire insurance policy a fire that is used for domestic manufacturing
purposes is not a fire as long as it can be contained. Fire is meant to be the production of heat
and light caused due to combustion or burning50. It is to be noted that the valued policy which
has been discussed in this paper is not prevalent much in India. It is only used for artwork,
sculpture and things whose value fluctuates and is not easily determinable thus a valued
insurance policy would be easier to claim. Fire Insurances policies usually do not cover fires
caused due to riots, civil revolts, rebellions etc. However sometimes they might include
comprehensive perils for homeowners. Fire Insurance is one of the areas of Insurance law that
has always been under constant litigation. There is a need for clarity in the area of fire insurance
as regards concepts such as subrogation and contribution. Especially, at times insurance
companies may fail to make pay-outs for claims they believe not in the purview of the fire
insurance policy. In Fire Insurance the insurer adheres mostly to the abovementioned
approaches to indemnify. Fire Insurance mostly works on indemnification, however, in
instances wherein the insured who owns a partial claim on a property receives pay-outs from
the insurance company this at times goes against the grain of the principle of indemnity. There
have been instances where a tenant for repair costs has been provided complete pay-out of total
damages which at times exceeds the repair cost. And also examples wherein the tenant and the
other party receives complete compensation of total cost. These are the lacunae in the area of
indemnity operations in Fire Insurance and there needs to be a well-defined policy that aims to
50
Bernstein, H. B. (1926), Fire Insurance Terminology, American Speech, 523-528.

cover entities such with limited interests in a particular property. Thus, to conclude fire
insurance is one of the insurance policies that help in the growth of the economy due to an
operation of different factors and there needs to be a more structured legislation to govern the
same and delimit the extent of liability at the same time defining a comprehensive indemnity
paradigm to ensure that at the end of the day neither the insured nor the insurer end up making
a profit. (Well to quote Jeffrey Archer, ‘Not a Penny More, Not a Penny Less’.)
*****

Definitive global law guides offering
comparative analysis from top-ranked lawyers
Insurance &
Reinsurance 2022
India: Law & Practice
Neeraj Tuli, Celia Jenkins and Rajat Taimni
Tuli & Co
practiceguides.chambers.com
INDIA
Law and Practice Pakistan
Nepal
Delhi
China
Bangladesh
Contributed by: India Myanmar
Neeraj Tuli, Celia Jenkins and Rajat Taimni
Tuli & Co see p.21
Sri Lanka
CONTENTS
1. Basis of Insurance and Reinsurance Law p.3 8. Interpreting an Insurance Contract p.10
1.1 Sources of Insurance and Reinsurance Law p.3 8.1 Interpretation of Insurance Contracts and Use
of Extraneous Evidence p.10
2. Regulation of Insurance and Reinsurance p.3
8.2 Warranties p.11
2.1 Insurance and Reinsurance Regulatory Bodies
8.3 Conditions Precedent p.11
and Legislative Guidance p.3
2.2 The Writing of Insurance and Reinsurance p.4 9. Insurance Disputes p.11
2.3 The Taxation of Premium p.4 9.1 Insurance Disputes over Coverage p.11
9.2 Insurance Disputes over Jurisdiction and
3. Overseas Firms Doing Business in the
Choice of Law p.12
Jurisdiction p.4
9.3 Litigation Process p.13
3.1 Overseas-Based Insurers or Reinsurers p.4
9.4 The Enforcement of Judgments p.13
3.2 Fronting p.5
9.5 The Enforcement of Arbitration Clauses p.14
4. Transaction Activity p.5 9.6 The Enforcement of Awards p.14
4.1 M&A Activities Relating to Insurance Companies p.5 9.7 Alternative Dispute Resolution p.15
5. Distribution p.6 9.8 Penalties for Late Payment of Claims p.16
5.1 Distribution of Insurance and Reinsurance 9.9 Insurers’ Rights of Subrogation p.16
Products p.6
10. Insurtech p.16
6. Making an Insurance Contract p.7 10.1 Insurtech Developments p.16
6.1 Obligations of the Insured and Insurer p.7 10.2 Regulatory Response p.17
6.2 Failure to Comply with Obligations of an
11. Emerging Risks and New Products p.17
Insurance Contract p.9
11.1 Emerging Risks Affecting the Insurance Market p.17
6.3 Intermediary Involvement in an Insurance
Contract p.9 11.2 New Products or Alternative Solutions p.17
6.4 Legal Requirements and Distinguishing 12. Recent and Forthcoming Legal
Features of an Insurance Contract p.9 Developments p.18
6.5 Multiple Insured or Potential Beneficiaries p.10 12.1 Developments Impacting on Insurers or
6.6 Consumer Contracts or Reinsurance Contracts p.10 Insurance Products p.18
7. Alternative Risk Transfer (ART) p.10 13. Other Developments in Insurance Law p.18
7.1 ART Transactions p.10 13.1 Additional Market Developments p.18
7.2 Foreign ART Transactions p.10
2
INDIA Law and Practice
Contributed by: Neeraj Tuli, Celia Jenkins and Rajat Taimni, Tuli & Co
1. BASIS OF INSURANCE and insurance intermediaries. The Indian insur-

AND REINSURANCE LAW ance sector is highly regulated. The regulations
issued by the IRDAI govern a wide range of
1.1 Sources of Insurance and aspects, including:
Reinsurance Law
The primary legislation regulating the Indian • registration of Indian insurers;
insurance sector comprises of the Insurance Act • the assets and solvency margins required to
1938 (Insurance Act) and the Insurance Regula- be maintained by insurers;
tory and Development Authority Act 1999 (IRDA • issuance of capital;
Act). • manner of preparation of financial statements;
• commission/remuneration structures;
The Marine Insurance Act 1963 has its basis in • outsourcing arrangements; and
the UK Marine Insurance Act 1906. Though the • registration requirements and corporate gov-
Marine Insurance Act primarily regulates marine ernance norms for companies operating in
insurance, the Indian courts (in a manner akin the insurance sector.
to the courts in the UK) have extended some
of the principles of the Marine Insurance Act to The regulations issued by the IRDAI govern all
non-marine insurance contracts. insurers, that is:
Indian courts are constitutionally mandated to • life insurers;

follow the precedent system, which is based • general insurers;
on the doctrine of stare decisis so far as ques- • stand-alone health insurers; and
tions of law are concerned. The lower courts • reinsurers.
are bound to follow the decisions of the courts
above them in the hierarchy. Therefore, the deci- In addition, the IRDAI regulations govern all
sions of the Supreme Court of India are binding insurance intermediaries:
on all lower courts. However, it is not uncommon
to see conflicting decisions. • insurance brokers;
• corporate agents;
• web aggregators;
2 . R E G U L AT I O N O F • third-party administrators;
INSURANCE AND • surveyors and loss assessors; and
REINSURANCE • insurance marketing firms.
2.1 Insurance and Reinsurance Further, the Foreign Exchange Management

Regulatory Bodies and Legislative (Insurance) Regulations 2015 (FEMA Insurance
Guidance Regulations) regulate the manner in which a per-
Insurance and reinsurance companies and son resident in India (that is, a person who has
insurance intermediaries in India are governed been residing in India for more than 182 days in
by the Insurance Regulatory and Development the preceding financial year) can take or con-
Authority of India (IRDAI). Pursuant to the pow- tinue to hold a general insurance or a life insur-
ers granted to it under the IRDA Act, the IRDAI ance policy issued by an insurer outside India.
has issued various regulations for governing the
licensing and functioning of insurers, reinsurers
3
Law and Practice INDIA
The Reserve Bank of India (RBI) has also issued The applicant must also provide adequate docu-
the Master Direction – Insurance of 1 January mentation in support of its application as pre-
2016 (as amended), which, read with the For- scribed under the Registration Regulations.
eign Exchange Management (Insurance) Regula-
tions 2015, provides guidance on various issues Foreign Reinsurers
including issuing policies, collecting premiums The Insurance Act also permits the establish-
and settling claims with respect to general, life ment of foreign reinsurer branches as well as
and health insurance policies. setting up of service companies under the
Lloyd’s India framework. Foreign insurers may
2.2 The Writing of Insurance and apply for the registration of a foreign reinsurer
Reinsurance branch in accordance with the IRDAI (Registra-
Under the Insurance Act, an Indian insurance tion and Operations of Branch Offices of Foreign
company is permitted to carry on insurance Reinsurers Other than Lloyd’s) Regulations 2015
business in India. An Indian insurance company (Branch Office Regulations), and syndicates of
is a public limited company formed under the Lloyd’s may participate under the Lloyd’s India
Companies Act 2013, which exclusively carries framework (Syndicates of Lloyd’s India) through
on life insurance business or general insurance a service company set up in India in accordance
business or health insurance business or rein- with the IRDAI (Lloyd’s India) Regulations 2016.
surance business. An entity desirous to carry on
insurance business is required to apply for a cer- The Branch Office Regulations specify the eligi-
tificate of registration from the IRDAI in accord- bility criteria of a foreign reinsurer, such as credit
ance with a three-stage process set out under rating, infusion of minimum assigned capital into
the IRDA (Registration of Indian Insurance Com- the foreign reinsurer branch, in-principle clear-
panies) Regulations 2000, as amended (Regis- ance from home country regulator, and commit-
tration Regulations). ment to meet all liabilities of the foreign reinsurer
branch.
A certificate for registration is required for each
category of insurance business (ie, life, general, 2.3 The Taxation of Premium
standalone health and reinsurance). In addition, Premiums received on account of insurance and
the Registration Regulations also set out the reinsurance business attract applicable taxes,
essential requirements that an applicant apply- including goods and services tax. Income tax
ing for registration is required to fulfil, including, laws provide deductions to the policyholder on
but not limited to: life and health insurance premiums paid.
• permissible foreign investment limits;

• minimum capitalisation requirements; 3. OVERSEAS FIRMS
• minimum qualifications of the directors and DOING BUSINESS IN THE
principal officers; JURISDICTION
• planned infrastructure; and
• general track record of conduct and perfor- 3.1 Overseas-Based Insurers or
mance of each of the Indian promoters and Reinsurers
foreign investors in the business or profession Overseas, non-admitted insurers cannot write
they are engaged in. direct insurance business in India. As a general
rule, the purchasing of insurance from overseas
4
insurers by Indian residents is prohibited in India, 4. TRANSACTION ACTIVITY

unless the purchase falls within the general or
specific approval of the RBI. 4.1 M&A Activities Relating to
Insurance Companies
However, Indian residents are permitted to pur- Acquiring Stakes
chase health insurance policies from overseas The insurance sector has, in recent years, been
insurers provided the aggregate remittance abuzz with the news of new players looking
(including premium) does not exceed the limits to acquire stakes in insurance companies and
prescribed by the RBI under the LRS from time insurance intermediaries. While such restructur-
to time. Indian residents are also permitted to ing involves a complicated process in itself, the
purchase insurance policies in respect of any approval requirements stipulated by the IRDAI,
property in India or any ship, vessel or aircraft additionally extend the process. Sections 35, 36
registered in India with an insurer whose princi- and 37 of the Insurance Act prescribe the pro-
pal place of business is outside India only with cedure for obtaining the approval of the IRDAI
IRDAI’s prior permission. for amalgamation and transfer of insurance busi-
ness of insurers. The IRDAI has also notified the
Non-admitted insurers who have registered scheme rules which prescribe the procedure
with IRDAI as cross-border reinsurers can which is required to be complied with by insurers
write reinsurance of Indian risks from overseas for the purpose of amalgamations and transfer
in accordance with the IRDAI’s regulations on of business.
the reinsurance of life and general insurance
business. Further to the above, the IRDAI has The parties are required to prepare a scheme
recently issued the “Guidelines on Cross Border which sets out the agreement under which
Re-insurers” of 22 January 2021 which aim to the transfer or amalgamation is proposed to
streamline the regulatory process with respect be effected, and containing such further pro-
to cross border reinsurers and will supersede the visions as may be necessary for giving effect
existing guidelines of 19 January 2016. to the scheme. Two months prior to making
an application to the IRDAI for the approval of
3.2 Fronting such scheme, a notice of intention to make such
The overarching regulatory framework for the application is required to be sent to the IRDAI,
reinsurance of risks is laid down by the IRDAI along with a statement of the nature of transac-
(Re-insurance) Regulations 2018 (Reinsurance tion and the reasons thereof and four certified
Regulations). The guiding principle is maximis- copies of the following documents:
ing retention within India, so each insurer must
maintain the maximum possible retention com- • a draft of the agreement or deed under which
mensurate with its financial strength and volume it is proposed to effect the amalgamation or
of business, and ensure that it is not merely transfer;
“fronting” for a reinsurer or retrocessionaire. • balance sheets in respect of the insurance
business of each of the insurers concerned in
In this regard, fronting is defined to mean a such amalgamation or transfer;
process of transferring risk in which an Indian • a report on the proposed amalgamation or
insurer cedes or retro-cedes most of or all of the transfer, prepared by an independent actuary
assumed risk to a re-insurer or retrocessionaire. who has never been professionally connected
with any of the parties concerned in the
5
amalgamation or transfer in the preceding five Press reports indicate that Raheja QBE Gen-
years; eral Insurance Company Limited, is set to be
• actuarial reports and abstracts in respect of acquired by a payment bank group. In addition,
the insurance business of each of the insur- press reports also indicate that ICICI Lombard
ers; and General Insurance Company Limited has now
• any other reports on which the scheme of received final approval from the IRDAI to acquire
amalgamation or transfer was founded. Bharti Axa General Insurance Company Limited.
The statutory and regulatory framework lays

down, the manner in which approval of the IRDAI 5. DISTRIBUTION
may be sought, the documents required as well
as the pre and post approval actions required to 5.1 Distribution of Insurance and
be complied with by the parties. Reinsurance Products
The IRDAI has issued regulations setting out
Amalgamations the licensing or registration requirements and
In addition to the foregoing, pursuant to the procedures for all recognised intermediaries,
powers conferred under Section 37A of the including insurance agents, corporate agents,
Insurance Act, the IRDAI also has the power to brokers, surveyors, third-party administrators,
prepare a scheme of amalgamation of an insurer web aggregators, insurance repositories and
with another insurer, where the IRDAI is satisfied insurance marketing firms. Foreign investment
that such an amalgamation is necessary in the in Indian insurance companies is permitted up
public interest, in the interest of policyholders, to 74%, and up to 100% for Indian insurance
in order to secure the proper management of an intermediaries. With the foreign investment
insurer or in the interest of insurance business ceiling being increased from 49% to 74%, the
of the country as a whole. guidelines on “Indian owned and controlled”
have been withdrawn.
Transfer of amalgamation of business of an
insurer without the approval of the IRDAI is also Individual Insurance Agents
a ground for suspension of certificate of an An application for a licence as an individual
insurer as issued by the IRDAI. Through a cir- insurance agent has to comply with the con-
cular titled “Transfer of Shares of the Insurance ditions provided under the Insurance Act and
Companies” of 23 July 2020, the IRDAI clarified regulations notified by the IRDAI in this regard.
that provisions with respect to transfer of shares Individual agents are required to have complet-
will apply mutatis mutandis to the creation of a ed practical training and possess the requisite
pledge or any other kind of encumbrance over knowledge for soliciting insurance business
shares of an insurer, by its promoters. before applying for a licence. Individual agents
are expected to only engage in insurance distri-
Earlier last year, Apollo Munich Health Insurance bution services and are permitted to solicit busi-
Ltd was acquired by HDFC group, and has been ness for only one insurance company engaged
merged with HDFC ERGO General Insurance in each class of insurance business.
Company Limited. In addition, Star Health and
Allied Insurance Company Ltd was taken over Corporate Agents
by a consortium of investors. Entities eligible to operate as corporate agents
include firms, banks, non-banking financial
6
companies, co-operative societies, NGOs and Web Aggregators

companies. Corporate agents are permitted to An entity such as a company or a limited liability
engage in any other business as its main busi- partnership that is registered as a web aggrega-
ness other than insurance distribution. However, tor is permitted to display on its website informa-
if a corporate agent has a main business other tion on insurance products of those insurers with
than insurance distribution, the corporate agent whom the web aggregator has entered into an
is not permitted to make the sale of its products agreement. The web aggregator is also permit-
contingent on the sale of an insurance product, ted to display product comparisons on its web-
or vice versa. Corporate agents are allowed to site, carry out activities for lead generation and
have arrangements with a maximum of three share leads with insurers. A web aggregator is
insurers in each class of insurance business. required to have a minimum capital of INR2.5
million.
Insurance Brokers
Insurance brokers are required to exclusively POSP
carry on the distribution of insurance products. The IRDAI has issued guidance for the appoint-
Any company, limited liability partnership or co- ment of a Point of Sales Person (POSP) for solic-
operative society may apply to the IRDAI for itation and servicing of point of sale products
grant of an insurance broker certificate of reg- on behalf of life, general and health insurers. A
istration. Applicants can register as direct bro- POSP may be appointed by either an insurer or
kers, reinsurance brokers, or composite brokers an insurance intermediary. The entity engaging
(involved in both direct and reinsurance brok- the POSP is required to train the POSP and con-
ing). The minimum capital for direct brokers is duct an in-house examination of such POSP, in
INR7.5 million, INR40 million for reinsurance bro- accordance with the norms issued by the IRDAI.
kers and INR50 million for composite brokers. All
insurance brokers are required to be part of the MISP
Insurance Brokers Association of India. The IRDAI has notified the Guidelines on Motor
Insurance Service Providers (MISP Guidelines)
Insurance Marketing Firms to regulate the role of automobile dealers in
Entities that are licensed as insurance marketing the distribution and servicing of motor insur-
firms are permitted to distribute insurance prod- ance products. Pursuant to the notification of
ucts along with mutual funds, pension products the MISP Guidelines, a duly registered MISP is
and certain other financial products, provided permitted to solicit, procure and service motor
that permissions are in place to distribute those insurance policies for insurers or insurance inter-
financial products from the respective regula- mediaries, as the case may be, in accordance
tor. IMFs are required to have a minimum net with the provisions of the MISP Guidelines.
worth of INR1 million. They are also permitted
to undertake survey functions through licensed
surveyors on its rolls, policy servicing activities, 6. MAKING AN INSURANCE
and other activities which are permitted to be CONTRACT
outsourced by insurers under the applicable
regulatory framework. 6.1 Obligations of the Insured and
Insurer
All insurance policies in India contain insuring
clauses, general conditions, exclusions and defi-
7
nition sections. The insuring clause, exclusions and presentation of health insurance policies,
and definition wording depend on the type of making these policies highly regulated.
policy being issued and cover requested, though
the conditions are fairly standard in that they Policy Terms
will include notification, co-operation, consent, There are also extraneous rules that impact
changes in material risk and other insurance policy terms. For example, the Insurance Act
clauses. These clauses can be deleted or modi- gives the policyholder a right to override con-
fied by way of endorsements. trary policy terms in favour of Indian law. The
IRDAI (Protection of Policyholders’ Interests
Insurance contract wordings are highly regulated Regulations) 2017 (Policyholders Regulations)
in India. In relation to various forms of general prescribe certain matters to be mandatorily
insurance, it is noted that the erstwhile Tariff incorporated in life insurance, general insurance
Advisory Committee (TAC), a statutory body that and health insurance policies. Some of the key
was established under the Insurance Act, issued requirements are as follows:
a standard form of policy terms and conditions
relating to fire, marine (hull), motoring, engineer- • the name and unique identification number
ing, industrial risks and workmen compensation, (UIN) allotted by the IRDAI for the product,
which cannot be deviated from by insurers, and its terms and conditions, details of the sales
are still required to be followed till date for most person;
businesses. • benefits payable and the contingencies upon
which these are payable and the other terms
However, the tariff general regulations, terms, and conditions of the insurance contract,
conditions, clauses, warranties, policy, add- including any riders/endorsements;
ons, endorsement wordings and proposal form • details of the nominee(s);
applicable to specific coverage under Fire and • the premiums payable, frequency of pay-
Allied Perils insurance business governed by ment, grace period allowed, the implication of
the erstwhile All India Fire Tariff 2001, have been discontinuing the payment of an instalment of
de-notified with effect from 1 April 2021. In this the premium;
context, the IRDAI has also issued the “Guide- • any special clauses, exclusions or conditions
lines for Standard Products for Fire and Allied imposed on the policy;
Perils for Dwellings, Small and Micro Business- • the address and e-mail of the insurer to which
es” in accordance with which insurers are now all communications in respect of the policy
required to replace the policy wordings of the must be sent;
identified categories with the following standard • details of the insurer’s internal grievance
terms and conditions issued thereunder. redressal mechanism, along with the right
of the insured to approach the insurance
In addition, for health insurance policies, the ombudsman with requisite territorial jurisdic-
IRDAI has specified a standard set of definition;
tions, general conditions, exclusions, standard • the list of documents that are normally
nomenclature for critical illness, and a stand- required to be submitted in case of a claim.
ard list of generally excluded expenses. The
IRDAI has also specified a number of regulatory Where exclusions are to be stipulated in the pol-
requirements and conditions vis-a-vis coverage icy, the Policyholders Regulations require that,
8
wherever possible, insurers must endeavour to Further, the Indian Marine Insurance Act 1963
classify the exclusions into the following: and the Policyholders Regulations mandate that
an insured is under an obligation to disclose all
• standard exclusions applicable in all policies; material information sought by the insurer in the
• exclusions specific to the policy which cannot proposal before the inception of the policy. An
be waived; and insurer is therefore entitled to receive full and
• exclusions specific to the policy, which can fair disclosure of the material information that
be waived on payment of an additional pre- would influence the judgment of the insurer in
mium. determining whether to accept or reject the risk.
The insured’s duty to disclose is not confined to
Similarly, to give clarity and understanding of the the facts which are within his knowledge but,
conditions to the policyholder, insurers are also extends to all material information which the
required to try to broadly categorise policy con- insured ought to have known. The duty of good
ditions into the following: faith is of a continuing nature.
• conditions precedent to the contract; 6.2 Failure to Comply with Obligations

• conditions applicable during the contract; of an Insurance Contract
• conditions when a claim arises; and An insurer is entitled to receive fair presenta-
• conditions for the renewal of the contract. tion of the risk. If there is a misrepresentation
or non-disclosure of a material fact, the insurer
While a broad product classification on the basis has the right to avoid the policy ab initio. Unless
of the target customer base exists under gen- the misrepresentation or non-disclosure was
eral insurance and health insurance policies in fraudulent, the premium must be returned to the
India, the requirements above apply uniformly policyholder. In case of life insurance policies,
to consumer contracts as well as commercial the policy cannot be called into question on any
contracts. grounds (including fraud) after the completion of
three years from the date of the issuance or the
In the year 2020-21, the IRDAI has also stand- revival of the policy.
ardised various general, health, life insurance
policy wordings for insurers across the board to 6.3 Intermediary Involvement in an
adhere to. Insurance Contract
An insurance intermediary involved in the nego-
Good Faith and Other Obligations tiation of contract is required to recommend
It is fundamental principle of insurance law that insurance to a prospect taking into considera-
utmost good faith (Uberrimae Fide) must be tion the needs of the prospect. Intermediaries
observed by the contracting parties. The duty are expected to act in the interest of policyhold-
of utmost good faith places an obligation on the ers.
insured to voluntarily disclose all material facts
which are relevant to the risk being insured. If 6.4 Legal Requirements and
there has been a misrepresentation or non-dis- Distinguishing Features of an Insurance
closure of a material fact, an insurer can avoid Contract
the policy from the beginning. Even though a Insurance is a contract of indemnity. Though
policy may not expressly say so, all insurance insurance is a contract, in order to be a valid
policies are based on this principle. insurance contract it should have something
9
more than what in general is required under a submit such proposals to the IRDAI. The IRDAI
normal contract as per the Indian Contract Act, shall, after necessary examination and on being
1872. It is not sufficient for an insurance contract satisfied with the type of ART solution, may allow
that the contracting parties should have capacity the ART proposal on a case to case basis. The
to contract, a person entering into a contract of Reinsurance Regulations do not expressly set
insurance must also have insurable interest in out the benchmarks on which the IRDAI shall
the subject-matter of the contract. The element examine these proposals.
of insurable interest must be present in all types
of insurance, failing which it would simply be a 7.2 Foreign ART Transactions
wagering contract that would be void. Per the directions of the IRDAI issued in 2004,
any ART arrangement has to be accounted
An insurance contract is required to contain cer- for based on the principle of “substance over
tain mandatory clauses as enumerated in 6.1 form”. If the agreement is in the nature of re-
Obligations of the Insured and Insurer. insurance coupled with financing arrangement,
and the components are capable of separation,
6.5 Multiple Insured or Potential each element should be accounted for as per
Beneficiaries the Generally Accepted Accounting Principles
The present regulatory framework does not set (GAAP).
out express norms on the payment of claims to
unnamed insureds, so, typically, coverage of However, in cases where the aforesaid compo-
such parties largely depends on the terms and nents are not separable, the entire arrangement
conditions of the underlying insurance policy. should be treated as a financial transaction and
should be accounted for accordingly. All non-
6.6 Consumer Contracts or life insurers are required to account for the ART
Reinsurance Contracts arrangements by looking into the “substance
The reinsurance regulations issued by the IRDAI over form”, and account for the same as per the
define a contract of reinsurance as a legally bind- GAAP.
ing document on all the parties that provides a
complete, accurate and definitive record of all
the terms and conditions and other provisions of 8. INTERPRETING AN
the reinsurance contract. Reinsurance arrange- INSURANCE CONTRACT
ments do not need to be pre-approved by the
IRDAI, but they need to be documented and filed 8.1 Interpretation of Insurance
with the IRDAI within the stipulated time period. Contracts and Use of Extraneous
Evidence
Indian Courts while interpreting the Insurance
7 . A LT E R N AT I V E R I S K contracts have held that while construing the
TRANSFER (ART) terms of a contract of insurance, the words
used therein must be given paramount impor-
7.1 ART Transactions tance, and it is not permitted for the Court to
ART was expressly recognised in India by way add, delete or substitute any words. It has
of the Reinsurance Regulations in 2018. The also observed that, because upon issuance of
Reinsurance Regulations stipulate that an Indian an insurance policy the insurer undertakes to
insurer intending to adopt ART solutions, shall indemnify the loss suffered by the insured on
10
account of risks covered by the policy, its terms 9. INSURANCE DISPUTES

have to be strictly construed in order to deter-
mine the extent of the liability of the insurer. 9.1 Insurance Disputes over Coverage
Insurance policies are structured to incorporate
The general rule is that, where the contract is comprehensive mechanisms for dispute resolu-
expressed in writing, oral evidence is inadmis- tion both in respect of coverage and quantum
sible to explain or vary the terms of a written disputes. Insurance policies typically include
contract. Although a contract must always be details of the Insurance Ombudsman, who are
construed according to the intention of the par- appointed to address complaints by the insured,
ties, that intention can only be ascertained from inter alia in relation to the settlement of claims.
the instrument itself and all other evidence of
intention is excluded because, when an agree- The Insurance Regulatory and Development
ment is reduced to writing, the parties thereto Authority of India (IRDAI) requires insurers to
are bound by the terms and conditions of it. formulate a grievance redressal policy and file
it with the IRDAI. An insurer is also required
In the event that any policy provision is ambigu- to provide the details of the grievance redres-
ous or there is uncertainty as to the meaning or sal mechanism within the policy. Policyholders
intention of the provision then the same is to be who have complaints against insurers are first
construed contra proferentem, that is, against required to approach the grievance or customer
the maker of the document. complaints department of the insurer.
8.2 Warranties Insurers are required to necessarily form a part of

Warranties are the clauses which forms the basis the Integrated Grievance Management System
of the contract of Insurance. Usually, clauses (IGMS) put in place by the IRDAI to facilitate the
which are meant to operate as warranties are registering/tracking of complaints online by the
expressly stated to be as such in the insurance policyholders. In cases of delay or no response
policies. All warranties under an insurance policy relating to policies and claims, the IRDAI can
must be strictly complied with, whether material take up matters with the insurers to ensure
to the risk or not. If a warranty is breached, an speedy resolution. While policyholders, claim-
insurer is discharged from all liability under the ants or the insured can approach the IRDAI for
policy. assistance, advocates, agents and other third
parties are not allowed to approach the IRDAI.
8.3 Conditions Precedent
Usually, an insurance policy will expressly Insureds
state the provisions which are condition prec- Insureds have no exclusive judicial venues avail-
edent to liability. If any condition precedent has able to them for resolution of insurance or rein-
been breached then, the insurer has the right surance disputes. Insureds however are treated
to repudiate the claim. However, in the event it in law as consumers of insurance services and
is not expressly stated then, the Indian Courts therefore can approach the Consumer Courts for
will make efforts to decide whether a particular relief. Insureds can also approach commercial
clause is merely a condition or a condition prec- courts, civil courts, depending upon the value
edent to the insurer’s liability. of the claim or invoke arbitration for recovering
monies under an insurance policy, provided the
insurance policy contains an arbitration clause.
11
The Consumer Courts follow a 3-tier hierarchy disputes as commercial disputes over a value
which in ascending order is District, State and of approximately INR300,000 and provides for
National Consumer Dispute Redressal Com- a fast track procedure for adjudicating disputes.
mission. The Central Government introduced
the Consumer Protection Act 2019, which was Coverage, Limitation Periods and
brought in force on 20 July 2020. The Consumer Beneficiaries
Protection Act 2019 has revised the pecuniary Disputes pertaining to coverage are rarely arbi-
jurisdiction of the Consumer Courts. According trated. Insurance policies generally provide for
to the amended provisions, the premium paid by arbitration in the case of quantum disputes only
an insured determines the pecuniary jurisdiction and coverage disputes are usually excluded. The
of the consumer forum. exception to such exclusion, in certain cases,
can be liability policies.
There are 629 District Consumer Dispute Redres-
sal Commissions, which can accept claims up to The limitation period for making an insurance
a value of INR10 million and 36 State Consumer claim before a consumer forum is two years. For
Dispute Redressal Commission that can accept commercial suits and arbitration, the limitation
claims where the premium paid exceeds the period is three years from the date of rejection
sum of INR10 million but up to a value of INR100 of the claim by an insurer or from the date on
million. Appeals against the order of the District which the claim arose.
Commissions lie before the State Commission.
At the apex lies the National Consumer Dispute Unnamed beneficiaries or third parties cannot
Redressal Commission (NCDRC) which accepts enforce rights under a general insurance con-
matters where the premium paid by an insured tract. Typically, general insurance contracts have
exceeds the value of INR100 million. Appeals clauses which prohibit assignment of rights
against the decisions of the State Commissions under an insurance contract to a third party with-
are heard by the NCDRC. An appeal from the out the consent of the insurer.
decision of the NCDRC lies before the Supreme
Court of India. The consumer fora follows a sum- 9.2 Insurance Disputes over
mary procedure to ensure quick adjudication of Jurisdiction and Choice of Law
disputes. Indian courts are increasingly enforcing the
choice of law and jurisdiction made by parties
Insureds can also approach the Insurance in a contract. Party autonomy is respected save
Ombudsman for disputes relating to or defi- where public interest issues are involved. Where
ciency of performance arising out of the Policy an express choice of law and jurisdiction has
or any other violation of the Insurance Act,1938 not been expressed in a contract, Indian courts
against the insurer, its agents and intermediar- will usually apply conflict of law principles to
ies The right to raise a dispute against insur- determine the forum and law which is closest to
ance brokers was recently introduced by way the dispute. Even in case of arbitration, a similar
an amendment to the Insurance Ombudsman approach has been followed, and courts refuse
Rules, 2017. to intervene in matters where the parties have
decided that the seat of arbitration will be in a
Insureds can also file a Commercial Suit against foreign jurisdiction. India is a signatory to the
an insurer for enforcing its claims. The Com- New York convention for enforcement of foreign
mercial Courts Act 2015, recognises insurance awards.
12
9.3 Litigation Process The commercial courts originally had jurisdic-

Proceedings before the consumer courts are tion over disputes having a value of INR10 mil-
summary in nature. This means that no cross lion. This was changed recently to a minimum
examination of witnesses takes place and the pecuniary threshold of INR300,000. Appeals
dispute is adjudicated based on the documents against the orders of the commercial courts of
filed and arguments led by the parties. first instance lie before the Commercial Appel-
late Courts or the Commercial Appellate Division
The broad ascending hierarchy of the civil courts of the concerned High Court (as the case may
is similar to the consumer courts. It comprises be), and the Commercial Courts Act 2015 does
of 672 District Courts, 25 High Courts and the not allow for any further appeals from the orders
Supreme Court (highest court in India). Amongst of either the Commercial Appellate Court or the
25 High Courts, four are termed Charter High Commercial Appellate Division of a High Court.
Courts (ie, Calcutta, Madras, Bombay and Delhi
High Courts) which have original jurisdiction to Indian litigation is slow and time consuming. The
accept and hear matters which fall above cer- number of reported pending cases is close to
tain pecuniary thresholds, exempting the Dis- circa 37 million. Attempts to clear the backlog
trict Courts from hearing these matters due to have not yielded the desired results, even though
a higher pecuniary limit. The rest of the District the inception of Commercial Courts expedited
Courts have unlimited pecuniary jurisdiction, as the trial process. Overall, no consistent improve-
do the competent courts of first instance to hear ment has been noticed and the COVID-19 pan-
any insurance dispute falling under their territo- demic is likely to increase the backlog before
rial jurisdiction. the courts.
Trials before the civil courts follow the usual pro- 9.4 The Enforcement of Judgments
cess of pleadings, evidence and arguments as The Indian Code of Civil Procedure, 1908 (CPC),
in other common law jurisdictions and can take lays down the procedure for enforcement of
an unusually long time to conclude. Indian and foreign judgments. The basic prin-
ciples which are followed while enforcing a for-
Special Benches eign judgment or decree in India is to examine
The Commercial Courts Act 2015 carves out if the foreign judgment or decree is a conclu-
special benches in all existing civil courts which sive one, passed on the merits of the case and
adjudicate commercial matters exclusively. by a superior court having competent jurisdic-
Since the Commercial Courts Act 2015, rec- tion. Furthermore, a foreign judgment can be
ognises insurance disputes as commercial dis- enforced in India by filling an execution petition
putes, all insurance disputes are now required under Section 44-A of the CPC, if the judgment
to be filed before a commercial court and are no is passed by a court in a reciprocating territory.
longer filed before civil courts. There are fixed
timelines that all commercial courts need to fol- In case of a judgment passed by a court in a
low and the legislation is meant to speed up the non-reciprocating territory, a suit may be filed
adjudication process. The statute also provides upon the foreign judgment or decree. To add,
for compulsory mediation for parties before filing in such situations the foreign judgment is con-
of a commercial suit, except where a party seeks sidered of evidentiary value only. The process
urgent interim relief. of enforcement of judgments can also prove to
be slow.
13
9.5 The Enforcement of Arbitration also those “claiming through or under” the sig-
Clauses natories to the arbitration agreement.
Domestic Arbitration
Arbitration clauses are enforceable and most Furthermore, in relation to domestic arbitration,
courts will enforce the arbitration clause or the ACA bars intervention by the courts except
agreement unless the existence of the arbitra- for some specific instances where the courts are
tion agreement is disputed. In case the making allowed to intervene – for example, for interim
of the arbitration agreement is affected by fraud, relief, reference to arbitration when an action has
Indian courts may refuse to enforce it. Further, been instituted before the court, for the appoint-
if a dispute involves allegations of fraud which ment of arbitrators, where parties have failed to
have implications in the public domain such as nominate arbitrators within the stipulated time
allegations of arbitrary or fraudulent conduct frame and providing assistance in recording of
made against the state or its instrumentalities, evidence before the arbitral tribunal.
then the Courts may again refuse to enforce an
arbitration agreement. Foreign Arbitration
As far as foreign seated arbitration is concerned,
The Indian Arbitration and Conciliation Act 1996 the Indian Courts subsequent to the judgment of
(ACA) is based on the UNCITRAL model law. the Constitutional Bench of the Supreme Court
The ACA preserves party autonomy in relation of India in Bharat Aluminium case have consist-
to most aspects of arbitration, such as the free- ently declined to intervene. The scope for the
dom to agree upon the qualification, nationality, Indian courts to intervene in foreign seated arbi-
number of arbitrators, the place of arbitration trations stands curtailed save in cases where a
and the procedure to be followed by the Tribu- party seeks interim relief or in the appointment
nal. The principle of party autonomy has been of arbitrators.
consistently confirmed by the Supreme Court in
various decisions, including the Constitutional In recent years, there has been an attempt to
Bench decision in Bharat Aluminium Co. v Kaiser encourage institutional arbitration in the country.
Aluminium Technical Service, Inc. [(2012) 9 SCC
552] (Bharat Aluminium). 9.6 The Enforcement of Awards
India prior to the constitutional bench judgment
An arbitration agreement, as per the ACA, needs of the Supreme Court of India in 2012 in the
to be in writing and should reflect the intention of Bharat Aluminium case was not seen as a pro-
the parties to submit their dispute(s) to arbitra- arbitration jurisdiction.
tion. There is no prescribed form required for the
purpose of an arbitration agreement. An arbitra- That dynamic has changed since 2012 and Indi-
tion agreement can come into existence if it is an Courts have consistently refused to intervene
contained in a subsequent exchange of letters, in arbitrations. The ACA, as amended in 2015
telex, telegrams or other means of telecom- and then again in 2019, reduces the court’s inter-
munication, including communication through vention in the arbitration process.
electronic means which provide a record of the
agreement. An arbitration agreement can also A key dynamic that has assisted in the enforce-
be incorporated by reference. The ACA contem- ment of arbitration awards is that an arbitration
plates arbitration not only between parties who award is no longer automatically stayed on pro-
are signatories to the arbitration agreement, but nouncement. Prior to the 2015 amendment, the
14
execution of an arbitration award was automati- has been watered down to reduce the scope of
cally stayed on pronouncement, this meant that court intervention.
the winning party had to wait for one stage of
the challenge process to be completed before 9.7 Alternative Dispute Resolution
it could take steps towards execution. After the The Indian law recognises arbitration, mediation
2015 amendment the position has changed and conciliation as means of alternative dispute
and there is no automatic stay on an arbitration resolution (ADR) under the ACA. These modes
award. The losing party is now required to obtain of ADR are being increasingly adopted, even in
a stay on the execution of the award which is insurance and reinsurance disputes.
granted only after the losing party deposits the
entire award sum or a percentage of it in court Section 89 of the CPC sets out the provision for
as security. This has resulted in quicker execu- settlement of disputes outside the court, keep-
tion of arbitration awards. However, in 2020, the ing in mind the delay in legal procedures and
ACA was further amended empowering courts the limited number of judges available. Courts in
to grant unconditional stay of the arbitral awards India are now progressively encouraging, parties
in case it is satisfied on a prima facie basis that to explore the possibilities of an out-of-court set-
the arbitration agreement or the arbitral award tlement with a view to end litigation between the
were obtained by fraud or corruption. parties at an early date. The courts usually have
an in-house mediation centre where experienced
Conventions senior lawyers are appointed to act as mediators
India is a party to the New York and Geneva to try and resolve long pending disputes.
Convention, and therefore if the seat of arbitra-
tion is a country which is signatory to the New All proceedings at the mediation centre and set-
York or the Geneva Convention dealing with tlement discussions are kept confidential from
recognition and enforcement of foreign awards, the court and do not prejudice either party in
Indian courts would be in a position to enforce case mediation fails. In certain circumstances,
convention awards. The grounds for refusing however, the mediator may file a report before
enforcement of a foreign award in India are the the court if directed to do so. Parties are of
same as those laid down in the New York Con- course free to return to the court process.
vention. These include:
Pre-institution Mediation
• incapacity of parties; The amended Commercial Courts Act 2015
• violation of principles of natural justice; now requires a plaintiff (to a suit) to mandatorily
• dispute is not covered by the award; exhaust the remedy of “pre-institution media-
• composition of the tribunal is not in accord- tion” before it can institute the suit, provided that
ance with the agreement between the parties; urgent interim relief(s) are not sought in the suit.
• the award has not yet been binding between The Commercial Courts (Pre-Institution Media-
parties or has been set aside or suspended; tion and Settlement) Rules, 2018 (the “Rules”)
and were notified, pursuant to the Commercial
• public policy. Courts Act 2015. The consent of the parties is a
condition precedent to the reference to media-
In addition, under Indian law, public policy is also tion. There are no formal sanctions if proceed-
a ground for refusing enforcement. In the context ings are not followed through to their logical end.
of a foreign arbitration, the scope of public policy However, a dispute falling under the Commercial
15
Courts Act 2015 will not be entertained by the obligate an insured to assist its insurer in recov-
court if the statutorily required mediation has not ery proceedings, if the insurer so requires.
been exhausted.
The Consumer Protection Act 2019 recognises 10. INSURTECH

the importance of mediation in consumer mat-
ters to encourage the parties to undergo media- 10.1 Insurtech Developments
tion after a consumer case has been admitted or Applications, artificial intelligence, telemat-
at any later stage. Consumer Protection Media- ics and internet of things (IoT) are examples of
tion Rules 2020 have also been notified. insurtech which are being utilised by insurers in
India for transforming the way insurers do busi-
9.8 Penalties for Late Payment of ness in India. Some of the examples of use of
Claims insurtech are detailed below.
The Insurance Regulatory and Development
Authority of India (Protection of Policyholders’ Websites and Apps
Interest) Regulations, 2017 (the “Policyholder’s Indian insurers and intermediaries are partner-
Regulations 2) prescribe the claims procedure ing with tech companies to develop websites
that is required to be followed by the insurers to and mobile applications to facilitate the sale and
ensure expeditious processing of claims. These servicing of insurance policies online. Insurers
regulations work towards ensuring that insurers are also collaborating with various tech compa-
settle the claims on time. Insurers are required to nies to digitise customer verification, underwrit-
pay interest at the rate of 2% above the preva- ing, premium payment and claims processing
lent bank rate in cases where there is delayed functions and automate the policy issuance and
payment of the claim amount. claims settlement processes.
9.9 Insurers’ Rights of Subrogation Health Insurance

There is statutory and judicial recognition to the Health insurers are collaborating with fitness
right of subrogation. As for statutes, the Marine technology firms to track user’s behaviours and
Insurance Act 1963, specifically Section 79 pro- offer insurance discounts to those who have
vides for the insurer’s right to subrogation. a healthier lifestyle. General insurers are col-
laborating with tech companies to explore IoT
Equally, Indian courts have recognised subroga- solutions to track, inter alia, cargo, theft, hijack
tion as an equitable corollary of the principle of attempts and wastage.
indemnity, under which the rights and remedies
of the insured against the wrongdoer are trans- Blockchain
ferred to and vested in the insurer. Indian insurers have started contemplating vari-
ous ways in which blockchain technology may
No separate contractual clause is required to be implemented to facilitate ease of business
trigger it, however, in practice, policies do also and to counteract against insurance fraud and
contain subrogation clauses and the insurers money laundering. It is reported that a con-
will frequently obtain “subrogation letters” and sortium of the 15 leading Indian life insurers
an “assignment” of the third-party claim from have partnered with a global technology firm to
the insured. The Policyholder’s Regulations also develop a blockchain solution facilitating cross-
company data sharing.
16
10.2 Regulatory Response insurance with model policy wordings for Per-
The IRDAI has issued various norms to address sonal Cyber Insurance Cover vide its circular
technological advancements and to regulate “Product Structure for Cyber Insurance” of 8
insurtech developments. The key regulatory September 2021.
changes are summarised below: • The IRDAI has also issued its circular on
“Product Structure for Insurance of Remotely
• With the significant increase in e-commerce Piloted Aircraft System (RAPS)/Drones” of
transactions over recent years, the IRDAI has 11 February 2021, which provide the model
recognised the sale and servicing of insur- policy wordings. General Insurers have flex-
ance products online as well as the issuance ibility to design and develop their own prod-
of e-insurance policies. The “Guidelines on uct keeping in view the minimum coverage
Insurance e-commerce” of 9 March 2017, specified in the Guidelines.
lay down provisions for setting up Insurance
Self-Network Platforms by insurers and insur-
ance intermediaries for undertaking sale and 11. EMERGING RISKS AND
servicing of insurance activities in India. NEW PRODUCTS
• To counteract issues of data privacy and data
breach, the IRDAI has notified the “Guidelines 11.1 Emerging Risks Affecting the
on Information and Cyber Security for Insur- Insurance Market
ers” of 7 April 2017, to stipulate the norms There has been a growing number of cyber-
on, inter alia, information asset management, insurance covers being issued and claims
data security, application security, endpoint being made under them. This has also led to
security, cloud security and incident manage- an increased requirement for forensic expert
ment, which are required to be complied with analysis for the purposes of assessment of cov-
by insurers and reinsurers. erage under such policies. This trend is likely
• The IRDAI has notified the exposure draft on to continue in view of the growing cyber-risks.
“Revisiting the product structure for Motor However, since the cybercover is comparatively
Own Damage” of 25 November 2019, which recent in this jurisdiction, there is yet to be any
discusses the adoption of telematics for litigation involving cyberpolicies.
motor insurance. It is further proposed that a
central repository of telematics data be cre- Also of note is the emergence of mental health
ated. insurance covers being offered by general and
• In order to address issues arising in complet- health insurers, in compliance with the provi-
ing physical verification due to COVID-19 sions of the Mental Healthcare Act 2017 and the
pandemic, the IRDAI introduced video-based IRDAI’s directions, which require insurers to offer
verification process through the circular on insurance for mental illness on the same basis
“Video Based Identification Process (VBIP)” as that presently available for physical ailments.
of 21 September 2020, with an aim to simplify
the process of identity verification by leverag- 11.2 New Products or Alternative
ing various electronic platforms. Solutions
• In pursuance of the recommendation of the Recently, the Indian insurance industry has seen
“Working Group to Study Cyber Liability a wave of new insurance products, partly due to
Insurance”, the IRDAI has issued a guidance regulatory and/or statutory changes or due to
document on the product structure for cyber- new risks emerging through innovations in oth-
17
er industries. While the industry has been typi- Products

cally slow to immediately adapt and embrace The IRDAI (Unit Linked Insurance Products)
new trends in terms of product offerings, new Regulations 2019 and the IRDAI (Non-Linked
products have been filed in terms of long term Insurance Products) Regulations 2019 define
insurance covers, health insurance covers for revised norms vis-à-vis the design and issuance
mental illness, standard life insurance products, of linked and non-linked life insurance policies
standard COVID-19 health insurance product, by life insurers in India. Further, administration
telematics based riders, specific endorsements of group life insurance products are now gov-
for data protection and impersonation frauds erned by the “Circular on Group Life Insurance
(which even cover the resultant fund transfers) Products and other operational matters” of 26
in both cyber and crime insurance, as well as September 2019.
a new range of fitness and wellness focussed
products in the health sector. Recently, the IRDAI has notified a guidance note
on product structure of cyber-insurance to ena-
ble insurers to evaluate new technologies posing
12. RECENT AND heightened cyber-risk, identify protection gaps
FORTHCOMING LEGAL in the existing products and address the chang-
DEVELOPMENTS ing needs of market. In addition, the IRDAI has
also notified the “Guidelines on Wellness and
12.1 Developments Impacting on Preventive Benefits” of 4 September 2020 which
Insurers or Insurance Products significantly broaden the scope of wellness and
COVID-19-Related Measures preventive features that are now permitted to be
Since March 2020, the IRDAI has issued direc- offered by insurers. Further, the IRDAI has stand-
tions to address the COVID-19 pandemic situ- ardised various general, health, life insurance
ation and ensure business continuity of insur- policy wordings for insurers across the board to
ers and other insurance entities. The IRDAI adhere to. Specifically, the IRDAI has also issued
has issued norms on, inter alia, handling of standard form definitions, exclusions and stand-
COVID-19 claims, extension of grace periods ard terms and clauses for health insurance and
for premium payment, relaxation of regulatory critical illness policies, and a standard format for
timelines, issuance of electronic policies and presentation of health insurance policies.
dispensing requirement for physical signatures,
and expeditious servicing of insurance policies.
13. OTHER
The IRDAI has advised to devise comprehensive DEVELOPMENTS IN
health insurance products for workers at indus- INSURANCE LAW
trial and commercial establishments (IRDAI’s
Circular re: “Providing mandatory medical insur- 13.1 Additional Market Developments
ance coverage to workers as part of the National Recent years have been significant for the insur-
Directives of MHA, GOI” of 16 April 2020). IRDAI ance sector as it witnessed the notification of
has also asked the insurers to mandatorily offer several regulations and guidelines issued by the
a standard COVID-19 health insurance product. IRDAI, including the following:
• The IRDAI (Trade Credit Insurance) Guidelines

2021 revise norms on trade credit insurance
18
policies to promote sustainable and healthy • The IRDAI, by a circular of 5 May 2021, has
development of the business. These Guide- issued “Guidelines on Standard Domestic
lines supersede the erstwhile Guidelines on Travel Insurance Product (SDTIP)” which
Trade Credit Insurance of 2016. specifies the basic mandatory covers to be
• The IRDAI has introduced “Title Insurance” uniform across the market and optional cov-
products along with specimen policy word- ers as specified in these guidelines.
ings pursuant to the recommendations of • From time to time, IRDAI has issued guide-
“Report of the Working Group (WG) to revisit lines for quick and timely settlement of
the product structure of Title Insurance” of 10 insurance claims of victims of various
March 2021, in order to expand the current natural calamities including Cyclone Nivar
title insurance products suitable to promo- (“Guidelines on Insurance claims of victims
tors/developers and retail property buyers. of Cyclones Nivar (Nov 2020) in the calam-
• In order to address the promotion and ity affected areas” of 2 December 2020),
regulation of surety insurance business in Cyclone Tauktae and Yaas (“Guidelines
India, norms under the IRDAI (Surety Insur- on Insurance claims of victims of Cyclone
ance Contracts) Guidelines 2021 have been Tauktae and Cyclone Yaas in the calamity
proposed. affected areas” of 29 May 2021) and flood in
• The IRDAI (Insurance Advertisements and Maharashtra (“Guidelines on settlement of
Disclosure) Regulations, 2021 have been Life Insurance Claims to the victims of Flood
notified, which repeal the earlier IRDA (Insur- in Maharashtra” of 6 August 2021).
ance Advertisements and Disclosure) Regula- • The draft “IRDAI (General Insurance Prod-
tions 2000. The 2021 Regulations compile the ucts) Regulations 2021” have been issued
norms prescribed under the Master Circular for stakeholders’ comments. The proposed
on Insurance Advertisements of 31 August regulations provide the basic framework
2019 and introduces norms on, inter alia, and reflect the fundamental principles to be
advertisements on the internet or through followed in respect of product design and
electronic media. pricing.
• New norms on the manner of assessment of
compensation to shareholders or members In terms of claims, while the focus used to be
whose interest in/rights against the transferee on more traditional lines of insurance, such as
insurer resulting from amalgamation are less catastrophe, life, health and motor insurance,
than his interest in/rights against the original over the past decade or so the Indian insurance
insurer have been introduced under the IRDAI market has evolved and liability products such
(Manner of Assessment of Compensation to as PI, D&O, cyber policies and EPL have come
Shareholders or Members on Amalgamation) to the forefront. There is familiarity and demand
Regulations 2021. for these products and consequently signifi-
• Various provisions of the IRDAI (Insurance cant claims activity. Among the liability prod-
Surveyors and Loss Assessors) Regulations ucts, experience over the past five years shows
2015, including but not limited to reports to there has been a steady upward trend in claims
be submitted by insurers in specific formats made under PI policies and it remains the busi-
were amended by the IRDAI (Insurance est claims area, followed closely by D&O. Not
Surveyors and Loss Assessors) (Amendment) only has there been an upsurge in the frequen-
Regulations 2020. cy of claims, but there has also been a sharp
increase in the quantum being claimed by the
19
insured, which means that claims severity is also There has also been a recent emergence in
on the rise. Also being witnessed is a growing number of mental health insurance covers being
number of cyber-insurance covers being issued offered by general and health insurers, in compli-
and claims being made under them. This has ance with the provisions of the Mental Health-
also led to an increased requirement for forensic care Act 2017 and the IRDAI’s directions, which
expert analysis for the purposes of assessment require insurers to offer insurance for mental ill-
of coverage under such policies. ness on the same basis as is presently available
for physical ailments.
20
Tuli & Co was established in 2000, in associa- The firm’s primary aim is to provide clear, com-
tion with Kennedys of London, to service the mercially aware and pragmatic advice, working
Indian insurance industry. Tuli & Co currently in partnership with clients. Tuli & Co offers a
has offices in New Delhi and Mumbai as well “cradle to grave” service within the insurance
as working relations with other firms in all major sector, from drafting and revising policy word-
centres in India and an international network of ings, interpretation and handling of coverage
associated offices to service international cas- disputes, to setting up distribution and service
es. The firm’s focus on the insurance industry networks and providing industry-specific cor-
propogates a deep understanding of the legal, porate and commercial advice.
commercial and regulatory issues clients face.
AUTHORS
Neeraj Tuli is the senior partner Celia Jenkins heads Tuli & Co’s
of Tuli & Co and has over 33 non-contentious practice. She
years of experience in the has over 15 years of experience
contentious and non- and specialises in product
contentious aspects of the development, insurance
insurance and reinsurance regulatory advisory and
industry. He has been regularly and widely corporate commercial work for insurers,
recognised for his expertise by leading legal reinsurers and insurance intermediaries, as well
rankings and publications. Neeraj assists as general clients. She has been widely
clients with regulatory advice, product recognised by leading publications for her
development and insurance coverage issues. expertise. Celia assists insurers and insurance
He is a director of Kennedys Dubai, and intermediaries in dealing with disciplinary
divides his time between Dubai and India. actions, advises overseas reinsurers and Indian
Neeraj also acts as an arbitrator and was financial companies on a range of corporate
invited to be the first President of the Insurance issues and has been involved in assisting
Law Association of India being formed in reinsurers in setting up branch offices in India.
association with the British Insurance Law Recently, Celia has assisted insurers with
Association. strategy advice and regulatory process for
appeal before the IRDAI and the Securities
Appellate Tribunal (SAT).
21
Rajat Taimni heads Tuli & Co’s

dispute resolution practice. He
has over 20 years of experience
and his core practice involves
handling disputes involving
insurance and reinsurance,
investment treaties, sovereign funds,
charterparties, sports and media, white-collar
issues, joint venture disputes, railways, aviation
and defence contracts. He appears regularly
before the Supreme Court of India, High
Courts, District Courts, consumer fora and
other tribunals. Rajat also specialises in
high-value and complex ad hoc arbitration and
institutional arbitration arising from the LCIA,
ICC, SIAC, DIAC, CIETAC, JAMS, ICA,
International Cotton Association, AAA Rules,
UNCITRAL Arbitration Rules and ICDR,
amongst others. Rajat has been consistently
recognised as a notable practitioner in legal
publications.
Tuli & Co
14B Max Towers
Sector 16B
Noida, UP, 201301
India
Tel: + 91 120 693 4000

Fax: +91 120 693 4001
Email: lawyers@tuli.co.in
Web: www.tuli.co.in
22
1. BASIS OF INSURANCE and insurance intermediaries. The Indian insur-

AND REINSURANCE LAW ance sector is highly regulated. The regulations
issued by the IRDAI govern a wide range of
1.1 Sources of Insurance and aspects, including:
Reinsurance Law
The primary legislation regulating the Indian • registration of Indian insurers;
insurance sector comprises of the Insurance Act • the assets and solvency margins required to
1938 (Insurance Act) and the Insurance Regula- be maintained by insurers;
tory and Development Authority Act 1999 (IRDA • issuance of capital;
Act). • manner of preparation of financial statements;
• commission/remuneration structures;
The Marine Insurance Act 1963 has its basis in • outsourcing arrangements; and
the UK Marine Insurance Act 1906. Though the • registration requirements and corporate gov-
Marine Insurance Act primarily regulates marine ernance norms for companies operating in
insurance, the Indian courts (in a manner akin the insurance sector.
to the courts in the UK) have extended some
of the principles of the Marine Insurance Act to The regulations issued by the IRDAI govern all
non-marine insurance contracts. insurers, that is:
Indian courts are constitutionally mandated to • life insurers;

follow the precedent system, which is based • general insurers;
on the doctrine of stare decisis so far as ques- • stand-alone health insurers; and
tions of law are concerned. The lower courts • reinsurers.
are bound to follow the decisions of the courts
above them in the hierarchy. Therefore, the deci- In addition, the IRDAI regulations govern all
sions of the Supreme Court of India are binding insurance intermediaries:
on all lower courts. However, it is not uncommon
to see conflicting decisions. • insurance brokers;
• corporate agents;
• web aggregators;
2 . R E G U L AT I O N O F • third-party administrators;
INSURANCE AND • surveyors and loss assessors; and
REINSURANCE • insurance marketing firms.
2.1 Insurance and Reinsurance Further, the Foreign Exchange Management

Regulatory Bodies and Legislative (Insurance) Regulations 2015 (FEMA Insurance
Guidance Regulations) regulate the manner in which a per-
Insurance and reinsurance companies and son resident in India (that is, a person who has
insurance intermediaries in India are governed been residing in India for more than 182 days in
by the Insurance Regulatory and Development the preceding financial year) can take or con-
Authority of India (IRDAI). Pursuant to the pow- tinue to hold a general insurance or a life insur-
ers granted to it under the IRDA Act, the IRDAI ance policy issued by an insurer outside India.
has issued various regulations for governing the
licensing and functioning of insurers, reinsurers
3
The Reserve Bank of India (RBI) has also issued The applicant must also provide adequate docu-
the Master Direction – Insurance of 1 January mentation in support of its application as pre-
2016 (as amended), which, read with the For- scribed under the Registration Regulations.
eign Exchange Management (Insurance) Regula-
tions 2015, provides guidance on various issues Foreign Reinsurers
including issuing policies, collecting premiums The Insurance Act also permits the establish-
and settling claims with respect to general, life ment of foreign reinsurer branches as well as
and health insurance policies. setting up of service companies under the
Lloyd’s India framework. Foreign insurers may
2.2 The Writing of Insurance and apply for the registration of a foreign reinsurer
Reinsurance branch in accordance with the IRDAI (Registra-
Under the Insurance Act, an Indian insurance tion and Operations of Branch Offices of Foreign
company is permitted to carry on insurance Reinsurers Other than Lloyd’s) Regulations 2015
business in India. An Indian insurance company (Branch Office Regulations), and syndicates of
is a public limited company formed under the Lloyd’s may participate under the Lloyd’s India
Companies Act 2013, which exclusively carries framework (Syndicates of Lloyd’s India) through
on life insurance business or general insurance a service company set up in India in accordance
business or health insurance business or rein- with the IRDAI (Lloyd’s India) Regulations 2016.
surance business. An entity desirous to carry on
insurance business is required to apply for a cer- The Branch Office Regulations specify the eligi-
tificate of registration from the IRDAI in accord- bility criteria of a foreign reinsurer, such as credit
ance with a three-stage process set out under rating, infusion of minimum assigned capital into
the IRDA (Registration of Indian Insurance Com- the foreign reinsurer branch, in-principle clear-
panies) Regulations 2000, as amended (Regis- ance from home country regulator, and commit-
tration Regulations). ment to meet all liabilities of the foreign reinsurer
branch.
A certificate for registration is required for each
category of insurance business (ie, life, general, 2.3 The Taxation of Premium
standalone health and reinsurance). In addition, Premiums received on account of insurance and
the Registration Regulations also set out the reinsurance business attract applicable taxes,
essential requirements that an applicant apply- including goods and services tax. Income tax
ing for registration is required to fulfil, including, laws provide deductions to the policyholder on
but not limited to: life and health insurance premiums paid.
• permissible foreign investment limits;

• minimum capitalisation requirements; 3. OVERSEAS FIRMS
• minimum qualifications of the directors and DOING BUSINESS IN THE
principal officers; JURISDICTION
• planned infrastructure; and
• general track record of conduct and perfor- 3.1 Overseas-Based Insurers or
mance of each of the Indian promoters and Reinsurers
foreign investors in the business or profession Overseas, non-admitted insurers cannot write
they are engaged in. direct insurance business in India. As a general
rule, the purchasing of insurance from overseas
4
insurers by Indian residents is prohibited in India, 4. TRANSACTION ACTIVITY

unless the purchase falls within the general or
specific approval of the RBI. 4.1 M&A Activities Relating to
Insurance Companies
However, Indian residents are permitted to pur- Acquiring Stakes
chase health insurance policies from overseas The insurance sector has, in recent years, been
insurers provided the aggregate remittance abuzz with the news of new players looking
(including premium) does not exceed the limits to acquire stakes in insurance companies and
prescribed by the RBI under the LRS from time insurance intermediaries. While such restructur-
to time. Indian residents are also permitted to ing involves a complicated process in itself, the
purchase insurance policies in respect of any approval requirements stipulated by the IRDAI,
property in India or any ship, vessel or aircraft additionally extend the process. Sections 35, 36
registered in India with an insurer whose princi- and 37 of the Insurance Act prescribe the pro-
pal place of business is outside India only with cedure for obtaining the approval of the IRDAI
IRDAI’s prior permission. for amalgamation and transfer of insurance busi-
ness of insurers. The IRDAI has also notified the
Non-admitted insurers who have registered scheme rules which prescribe the procedure
with IRDAI as cross-border reinsurers can which is required to be complied with by insurers
write reinsurance of Indian risks from overseas for the purpose of amalgamations and transfer
in accordance with the IRDAI’s regulations on of business.
the reinsurance of life and general insurance
business. Further to the above, the IRDAI has The parties are required to prepare a scheme
recently issued the “Guidelines on Cross Border which sets out the agreement under which
Re-insurers” of 22 January 2021 which aim to the transfer or amalgamation is proposed to
streamline the regulatory process with respect be effected, and containing such further pro-
to cross border reinsurers and will supersede the visions as may be necessary for giving effect
existing guidelines of 19 January 2016. to the scheme. Two months prior to making
an application to the IRDAI for the approval of
3.2 Fronting such scheme, a notice of intention to make such
The overarching regulatory framework for the application is required to be sent to the IRDAI,
reinsurance of risks is laid down by the IRDAI along with a statement of the nature of transac-
(Re-insurance) Regulations 2018 (Reinsurance tion and the reasons thereof and four certified
Regulations). The guiding principle is maximis- copies of the following documents:
ing retention within India, so each insurer must
maintain the maximum possible retention com- • a draft of the agreement or deed under which
mensurate with its financial strength and volume it is proposed to effect the amalgamation or
of business, and ensure that it is not merely transfer;
“fronting” for a reinsurer or retrocessionaire. • balance sheets in respect of the insurance
business of each of the insurers concerned in
In this regard, fronting is defined to mean a such amalgamation or transfer;
process of transferring risk in which an Indian • a report on the proposed amalgamation or
insurer cedes or retro-cedes most of or all of the transfer, prepared by an independent actuary
assumed risk to a re-insurer or retrocessionaire. who has never been professionally connected
with any of the parties concerned in the
5
amalgamation or transfer in the preceding five Press reports indicate that Raheja QBE Gen-
years; eral Insurance Company Limited, is set to be
• actuarial reports and abstracts in respect of acquired by a payment bank group. In addition,
the insurance business of each of the insur- press reports also indicate that ICICI Lombard
ers; and General Insurance Company Limited has now
• any other reports on which the scheme of received final approval from the IRDAI to acquire
amalgamation or transfer was founded. Bharti Axa General Insurance Company Limited.
The statutory and regulatory framework lays

down, the manner in which approval of the IRDAI 5. DISTRIBUTION
may be sought, the documents required as well
as the pre and post approval actions required to 5.1 Distribution of Insurance and
be complied with by the parties. Reinsurance Products
The IRDAI has issued regulations setting out
Amalgamations the licensing or registration requirements and
In addition to the foregoing, pursuant to the procedures for all recognised intermediaries,
powers conferred under Section 37A of the including insurance agents, corporate agents,
Insurance Act, the IRDAI also has the power to brokers, surveyors, third-party administrators,
prepare a scheme of amalgamation of an insurer web aggregators, insurance repositories and
with another insurer, where the IRDAI is satisfied insurance marketing firms. Foreign investment
that such an amalgamation is necessary in the in Indian insurance companies is permitted up
public interest, in the interest of policyholders, to 74%, and up to 100% for Indian insurance
in order to secure the proper management of an intermediaries. With the foreign investment
insurer or in the interest of insurance business ceiling being increased from 49% to 74%, the
of the country as a whole. guidelines on “Indian owned and controlled”
have been withdrawn.
Transfer of amalgamation of business of an
insurer without the approval of the IRDAI is also Individual Insurance Agents
a ground for suspension of certificate of an An application for a licence as an individual
insurer as issued by the IRDAI. Through a cir- insurance agent has to comply with the con-
cular titled “Transfer of Shares of the Insurance ditions provided under the Insurance Act and
Companies” of 23 July 2020, the IRDAI clarified regulations notified by the IRDAI in this regard.
that provisions with respect to transfer of shares Individual agents are required to have complet-
will apply mutatis mutandis to the creation of a ed practical training and possess the requisite
pledge or any other kind of encumbrance over knowledge for soliciting insurance business
shares of an insurer, by its promoters. before applying for a licence. Individual agents
are expected to only engage in insurance distri-
Earlier last year, Apollo Munich Health Insurance bution services and are permitted to solicit busi-
Ltd was acquired by HDFC group, and has been ness for only one insurance company engaged
merged with HDFC ERGO General Insurance in each class of insurance business.
Company Limited. In addition, Star Health and
Allied Insurance Company Ltd was taken over Corporate Agents
by a consortium of investors. Entities eligible to operate as corporate agents
include firms, banks, non-banking financial
6
companies, co-operative societies, NGOs and Web Aggregators

companies. Corporate agents are permitted to An entity such as a company or a limited liability
engage in any other business as its main busi- partnership that is registered as a web aggrega-
ness other than insurance distribution. However, tor is permitted to display on its website informa-
if a corporate agent has a main business other tion on insurance products of those insurers with
than insurance distribution, the corporate agent whom the web aggregator has entered into an
is not permitted to make the sale of its products agreement. The web aggregator is also permit-
contingent on the sale of an insurance product, ted to display product comparisons on its web-
or vice versa. Corporate agents are allowed to site, carry out activities for lead generation and
have arrangements with a maximum of three share leads with insurers. A web aggregator is
insurers in each class of insurance business. required to have a minimum capital of INR2.5
million.
Insurance Brokers
Insurance brokers are required to exclusively POSP
carry on the distribution of insurance products. The IRDAI has issued guidance for the appoint-
Any company, limited liability partnership or co- ment of a Point of Sales Person (POSP) for solic-
operative society may apply to the IRDAI for itation and servicing of point of sale products
grant of an insurance broker certificate of reg- on behalf of life, general and health insurers. A
istration. Applicants can register as direct bro- POSP may be appointed by either an insurer or
kers, reinsurance brokers, or composite brokers an insurance intermediary. The entity engaging
(involved in both direct and reinsurance brok- the POSP is required to train the POSP and con-
ing). The minimum capital for direct brokers is duct an in-house examination of such POSP, in
INR7.5 million, INR40 million for reinsurance bro- accordance with the norms issued by the IRDAI.
kers and INR50 million for composite brokers. All
insurance brokers are required to be part of the MISP
Insurance Brokers Association of India. The IRDAI has notified the Guidelines on Motor
Insurance Service Providers (MISP Guidelines)
Insurance Marketing Firms to regulate the role of automobile dealers in
Entities that are licensed as insurance marketing the distribution and servicing of motor insur-
firms are permitted to distribute insurance prod- ance products. Pursuant to the notification of
ucts along with mutual funds, pension products the MISP Guidelines, a duly registered MISP is
and certain other financial products, provided permitted to solicit, procure and service motor
that permissions are in place to distribute those insurance policies for insurers or insurance inter-
financial products from the respective regula- mediaries, as the case may be, in accordance
tor. IMFs are required to have a minimum net with the provisions of the MISP Guidelines.
worth of INR1 million. They are also permitted
to undertake survey functions through licensed
surveyors on its rolls, policy servicing activities, 6. MAKING AN INSURANCE
and other activities which are permitted to be CONTRACT
outsourced by insurers under the applicable
regulatory framework. 6.1 Obligations of the Insured and
Insurer
All insurance policies in India contain insuring
clauses, general conditions, exclusions and defi-
7
nition sections. The insuring clause, exclusions and presentation of health insurance policies,
and definition wording depend on the type of making these policies highly regulated.
policy being issued and cover requested, though
the conditions are fairly standard in that they Policy Terms
will include notification, co-operation, consent, There are also extraneous rules that impact
changes in material risk and other insurance policy terms. For example, the Insurance Act
clauses. These clauses can be deleted or modi- gives the policyholder a right to override con-
fied by way of endorsements. trary policy terms in favour of Indian law. The
IRDAI (Protection of Policyholders’ Interests
Insurance contract wordings are highly regulated Regulations) 2017 (Policyholders Regulations)
in India. In relation to various forms of general prescribe certain matters to be mandatorily
insurance, it is noted that the erstwhile Tariff incorporated in life insurance, general insurance
Advisory Committee (TAC), a statutory body that and health insurance policies. Some of the key
was established under the Insurance Act, issued requirements are as follows:
a standard form of policy terms and conditions
relating to fire, marine (hull), motoring, engineer- • the name and unique identification number
ing, industrial risks and workmen compensation, (UIN) allotted by the IRDAI for the product,
which cannot be deviated from by insurers, and its terms and conditions, details of the sales
are still required to be followed till date for most person;
businesses. • benefits payable and the contingencies upon
which these are payable and the other terms
However, the tariff general regulations, terms, and conditions of the insurance contract,
conditions, clauses, warranties, policy, add- including any riders/endorsements;
ons, endorsement wordings and proposal form • details of the nominee(s);
applicable to specific coverage under Fire and • the premiums payable, frequency of pay-
Allied Perils insurance business governed by ment, grace period allowed, the implication of
the erstwhile All India Fire Tariff 2001, have been discontinuing the payment of an instalment of
de-notified with effect from 1 April 2021. In this the premium;
context, the IRDAI has also issued the “Guide- • any special clauses, exclusions or conditions
lines for Standard Products for Fire and Allied imposed on the policy;
Perils for Dwellings, Small and Micro Business- • the address and e-mail of the insurer to which
es” in accordance with which insurers are now all communications in respect of the policy
required to replace the policy wordings of the must be sent;
identified categories with the following standard • details of the insurer’s internal grievance
terms and conditions issued thereunder. redressal mechanism, along with the right
of the insured to approach the insurance
In addition, for health insurance policies, the ombudsman with requisite territorial jurisdic-
IRDAI has specified a standard set of definition;
tions, general conditions, exclusions, standard • the list of documents that are normally
nomenclature for critical illness, and a stand- required to be submitted in case of a claim.
ard list of generally excluded expenses. The
IRDAI has also specified a number of regulatory Where exclusions are to be stipulated in the pol-
requirements and conditions vis-a-vis coverage icy, the Policyholders Regulations require that,
8
wherever possible, insurers must endeavour to Further, the Indian Marine Insurance Act 1963
classify the exclusions into the following: and the Policyholders Regulations mandate that
an insured is under an obligation to disclose all
• standard exclusions applicable in all policies; material information sought by the insurer in the
• exclusions specific to the policy which cannot proposal before the inception of the policy. An
be waived; and insurer is therefore entitled to receive full and
• exclusions specific to the policy, which can fair disclosure of the material information that
be waived on payment of an additional pre- would influence the judgment of the insurer in
mium. determining whether to accept or reject the risk.
The insured’s duty to disclose is not confined to
Similarly, to give clarity and understanding of the the facts which are within his knowledge but,
conditions to the policyholder, insurers are also extends to all material information which the
required to try to broadly categorise policy con- insured ought to have known. The duty of good
ditions into the following: faith is of a continuing nature.
• conditions precedent to the contract; 6.2 Failure to Comply with Obligations

• conditions applicable during the contract; of an Insurance Contract
• conditions when a claim arises; and An insurer is entitled to receive fair presenta-
• conditions for the renewal of the contract. tion of the risk. If there is a misrepresentation
or non-disclosure of a material fact, the insurer
While a broad product classification on the basis has the right to avoid the policy ab initio. Unless
of the target customer base exists under gen- the misrepresentation or non-disclosure was
eral insurance and health insurance policies in fraudulent, the premium must be returned to the
India, the requirements above apply uniformly policyholder. In case of life insurance policies,
to consumer contracts as well as commercial the policy cannot be called into question on any
contracts. grounds (including fraud) after the completion of
three years from the date of the issuance or the
In the year 2020-21, the IRDAI has also stand- revival of the policy.
ardised various general, health, life insurance
policy wordings for insurers across the board to 6.3 Intermediary Involvement in an
adhere to. Insurance Contract
An insurance intermediary involved in the nego-
Good Faith and Other Obligations tiation of contract is required to recommend
It is fundamental principle of insurance law that insurance to a prospect taking into considera-
utmost good faith (Uberrimae Fide) must be tion the needs of the prospect. Intermediaries
observed by the contracting parties. The duty are expected to act in the interest of policyhold-
of utmost good faith places an obligation on the ers.
insured to voluntarily disclose all material facts
which are relevant to the risk being insured. If 6.4 Legal Requirements and
there has been a misrepresentation or non-dis- Distinguishing Features of an Insurance
closure of a material fact, an insurer can avoid Contract
the policy from the beginning. Even though a Insurance is a contract of indemnity. Though
policy may not expressly say so, all insurance insurance is a contract, in order to be a valid
policies are based on this principle. insurance contract it should have something
9
more than what in general is required under a submit such proposals to the IRDAI. The IRDAI
normal contract as per the Indian Contract Act, shall, after necessary examination and on being
1872. It is not sufficient for an insurance contract satisfied with the type of ART solution, may allow
that the contracting parties should have capacity the ART proposal on a case to case basis. The
to contract, a person entering into a contract of Reinsurance Regulations do not expressly set
insurance must also have insurable interest in out the benchmarks on which the IRDAI shall
the subject-matter of the contract. The element examine these proposals.
of insurable interest must be present in all types
of insurance, failing which it would simply be a 7.2 Foreign ART Transactions
wagering contract that would be void. Per the directions of the IRDAI issued in 2004,
any ART arrangement has to be accounted
An insurance contract is required to contain cer- for based on the principle of “substance over
tain mandatory clauses as enumerated in 6.1 form”. If the agreement is in the nature of re-
Obligations of the Insured and Insurer. insurance coupled with financing arrangement,
and the components are capable of separation,
6.5 Multiple Insured or Potential each element should be accounted for as per
Beneficiaries the Generally Accepted Accounting Principles
The present regulatory framework does not set (GAAP).
out express norms on the payment of claims to
unnamed insureds, so, typically, coverage of However, in cases where the aforesaid compo-
such parties largely depends on the terms and nents are not separable, the entire arrangement
conditions of the underlying insurance policy. should be treated as a financial transaction and
should be accounted for accordingly. All non-
6.6 Consumer Contracts or life insurers are required to account for the ART
Reinsurance Contracts arrangements by looking into the “substance
The reinsurance regulations issued by the IRDAI over form”, and account for the same as per the
define a contract of reinsurance as a legally bind- GAAP.
ing document on all the parties that provides a
complete, accurate and definitive record of all
the terms and conditions and other provisions of 8. INTERPRETING AN
the reinsurance contract. Reinsurance arrange- INSURANCE CONTRACT
ments do not need to be pre-approved by the
IRDAI, but they need to be documented and filed 8.1 Interpretation of Insurance
with the IRDAI within the stipulated time period. Contracts and Use of Extraneous
Evidence
Indian Courts while interpreting the Insurance
7 . A LT E R N AT I V E R I S K contracts have held that while construing the
TRANSFER (ART) terms of a contract of insurance, the words
used therein must be given paramount impor-
7.1 ART Transactions tance, and it is not permitted for the Court to
ART was expressly recognised in India by way add, delete or substitute any words. It has
of the Reinsurance Regulations in 2018. The also observed that, because upon issuance of
Reinsurance Regulations stipulate that an Indian an insurance policy the insurer undertakes to
insurer intending to adopt ART solutions, shall indemnify the loss suffered by the insured on
10
account of risks covered by the policy, its terms 9. INSURANCE DISPUTES

have to be strictly construed in order to deter-
mine the extent of the liability of the insurer. 9.1 Insurance Disputes over Coverage
Insurance policies are structured to incorporate
The general rule is that, where the contract is comprehensive mechanisms for dispute resolu-
expressed in writing, oral evidence is inadmis- tion both in respect of coverage and quantum
sible to explain or vary the terms of a written disputes. Insurance policies typically include
contract. Although a contract must always be details of the Insurance Ombudsman, who are
construed according to the intention of the par- appointed to address complaints by the insured,
ties, that intention can only be ascertained from inter alia in relation to the settlement of claims.
the instrument itself and all other evidence of
intention is excluded because, when an agree- The Insurance Regulatory and Development
ment is reduced to writing, the parties thereto Authority of India (IRDAI) requires insurers to
are bound by the terms and conditions of it. formulate a grievance redressal policy and file
it with the IRDAI. An insurer is also required
In the event that any policy provision is ambigu- to provide the details of the grievance redres-
ous or there is uncertainty as to the meaning or sal mechanism within the policy. Policyholders
intention of the provision then the same is to be who have complaints against insurers are first
construed contra proferentem, that is, against required to approach the grievance or customer
the maker of the document. complaints department of the insurer.
8.2 Warranties Insurers are required to necessarily form a part of

Warranties are the clauses which forms the basis the Integrated Grievance Management System
of the contract of Insurance. Usually, clauses (IGMS) put in place by the IRDAI to facilitate the
which are meant to operate as warranties are registering/tracking of complaints online by the
expressly stated to be as such in the insurance policyholders. In cases of delay or no response
policies. All warranties under an insurance policy relating to policies and claims, the IRDAI can
must be strictly complied with, whether material take up matters with the insurers to ensure
to the risk or not. If a warranty is breached, an speedy resolution. While policyholders, claim-
insurer is discharged from all liability under the ants or the insured can approach the IRDAI for
policy. assistance, advocates, agents and other third
parties are not allowed to approach the IRDAI.
8.3 Conditions Precedent
Usually, an insurance policy will expressly Insureds
state the provisions which are condition prec- Insureds have no exclusive judicial venues avail-
edent to liability. If any condition precedent has able to them for resolution of insurance or rein-
been breached then, the insurer has the right surance disputes. Insureds however are treated
to repudiate the claim. However, in the event it in law as consumers of insurance services and
is not expressly stated then, the Indian Courts therefore can approach the Consumer Courts for
will make efforts to decide whether a particular relief. Insureds can also approach commercial
clause is merely a condition or a condition prec- courts, civil courts, depending upon the value
edent to the insurer’s liability. of the claim or invoke arbitration for recovering
monies under an insurance policy, provided the
insurance policy contains an arbitration clause.
11
The Consumer Courts follow a 3-tier hierarchy disputes as commercial disputes over a value
which in ascending order is District, State and of approximately INR300,000 and provides for
National Consumer Dispute Redressal Com- a fast track procedure for adjudicating disputes.
mission. The Central Government introduced
the Consumer Protection Act 2019, which was Coverage, Limitation Periods and
brought in force on 20 July 2020. The Consumer Beneficiaries
Protection Act 2019 has revised the pecuniary Disputes pertaining to coverage are rarely arbi-
jurisdiction of the Consumer Courts. According trated. Insurance policies generally provide for
to the amended provisions, the premium paid by arbitration in the case of quantum disputes only
an insured determines the pecuniary jurisdiction and coverage disputes are usually excluded. The
of the consumer forum. exception to such exclusion, in certain cases,
can be liability policies.
There are 629 District Consumer Dispute Redres-
sal Commissions, which can accept claims up to The limitation period for making an insurance
a value of INR10 million and 36 State Consumer claim before a consumer forum is two years. For
Dispute Redressal Commission that can accept commercial suits and arbitration, the limitation
claims where the premium paid exceeds the period is three years from the date of rejection
sum of INR10 million but up to a value of INR100 of the claim by an insurer or from the date on
million. Appeals against the order of the District which the claim arose.
Commissions lie before the State Commission.
At the apex lies the National Consumer Dispute Unnamed beneficiaries or third parties cannot
Redressal Commission (NCDRC) which accepts enforce rights under a general insurance con-
matters where the premium paid by an insured tract. Typically, general insurance contracts have
exceeds the value of INR100 million. Appeals clauses which prohibit assignment of rights
against the decisions of the State Commissions under an insurance contract to a third party with-
are heard by the NCDRC. An appeal from the out the consent of the insurer.
decision of the NCDRC lies before the Supreme
Court of India. The consumer fora follows a sum- 9.2 Insurance Disputes over
mary procedure to ensure quick adjudication of Jurisdiction and Choice of Law
disputes. Indian courts are increasingly enforcing the
choice of law and jurisdiction made by parties
Insureds can also approach the Insurance in a contract. Party autonomy is respected save
Ombudsman for disputes relating to or defi- where public interest issues are involved. Where
ciency of performance arising out of the Policy an express choice of law and jurisdiction has
or any other violation of the Insurance Act,1938 not been expressed in a contract, Indian courts
against the insurer, its agents and intermediar- will usually apply conflict of law principles to
ies The right to raise a dispute against insur- determine the forum and law which is closest to
ance brokers was recently introduced by way the dispute. Even in case of arbitration, a similar
an amendment to the Insurance Ombudsman approach has been followed, and courts refuse
Rules, 2017. to intervene in matters where the parties have
decided that the seat of arbitration will be in a
Insureds can also file a Commercial Suit against foreign jurisdiction. India is a signatory to the
an insurer for enforcing its claims. The Com- New York convention for enforcement of foreign
mercial Courts Act 2015, recognises insurance awards.
12
9.3 Litigation Process The commercial courts originally had jurisdic-

Proceedings before the consumer courts are tion over disputes having a value of INR10 mil-
summary in nature. This means that no cross lion. This was changed recently to a minimum
examination of witnesses takes place and the pecuniary threshold of INR300,000. Appeals
dispute is adjudicated based on the documents against the orders of the commercial courts of
filed and arguments led by the parties. first instance lie before the Commercial Appel-
late Courts or the Commercial Appellate Division
The broad ascending hierarchy of the civil courts of the concerned High Court (as the case may
is similar to the consumer courts. It comprises be), and the Commercial Courts Act 2015 does
of 672 District Courts, 25 High Courts and the not allow for any further appeals from the orders
Supreme Court (highest court in India). Amongst of either the Commercial Appellate Court or the
25 High Courts, four are termed Charter High Commercial Appellate Division of a High Court.
Courts (ie, Calcutta, Madras, Bombay and Delhi
High Courts) which have original jurisdiction to Indian litigation is slow and time consuming. The
accept and hear matters which fall above cer- number of reported pending cases is close to
tain pecuniary thresholds, exempting the Dis- circa 37 million. Attempts to clear the backlog
trict Courts from hearing these matters due to have not yielded the desired results, even though
a higher pecuniary limit. The rest of the District the inception of Commercial Courts expedited
Courts have unlimited pecuniary jurisdiction, as the trial process. Overall, no consistent improve-
do the competent courts of first instance to hear ment has been noticed and the COVID-19 pan-
any insurance dispute falling under their territo- demic is likely to increase the backlog before
rial jurisdiction. the courts.
Trials before the civil courts follow the usual pro- 9.4 The Enforcement of Judgments
cess of pleadings, evidence and arguments as The Indian Code of Civil Procedure, 1908 (CPC),
in other common law jurisdictions and can take lays down the procedure for enforcement of
an unusually long time to conclude. Indian and foreign judgments. The basic prin-
ciples which are followed while enforcing a for-
Special Benches eign judgment or decree in India is to examine
The Commercial Courts Act 2015 carves out if the foreign judgment or decree is a conclu-
special benches in all existing civil courts which sive one, passed on the merits of the case and
adjudicate commercial matters exclusively. by a superior court having competent jurisdic-
Since the Commercial Courts Act 2015, rec- tion. Furthermore, a foreign judgment can be
ognises insurance disputes as commercial dis- enforced in India by filling an execution petition
putes, all insurance disputes are now required under Section 44-A of the CPC, if the judgment
to be filed before a commercial court and are no is passed by a court in a reciprocating territory.
longer filed before civil courts. There are fixed
timelines that all commercial courts need to fol- In case of a judgment passed by a court in a
low and the legislation is meant to speed up the non-reciprocating territory, a suit may be filed
adjudication process. The statute also provides upon the foreign judgment or decree. To add,
for compulsory mediation for parties before filing in such situations the foreign judgment is con-
of a commercial suit, except where a party seeks sidered of evidentiary value only. The process
urgent interim relief. of enforcement of judgments can also prove to
be slow.
13
9.5 The Enforcement of Arbitration also those “claiming through or under” the sig-
Clauses natories to the arbitration agreement.
Domestic Arbitration
Arbitration clauses are enforceable and most Furthermore, in relation to domestic arbitration,
courts will enforce the arbitration clause or the ACA bars intervention by the courts except
agreement unless the existence of the arbitra- for some specific instances where the courts are
tion agreement is disputed. In case the making allowed to intervene – for example, for interim
of the arbitration agreement is affected by fraud, relief, reference to arbitration when an action has
Indian courts may refuse to enforce it. Further, been instituted before the court, for the appoint-
if a dispute involves allegations of fraud which ment of arbitrators, where parties have failed to
have implications in the public domain such as nominate arbitrators within the stipulated time
allegations of arbitrary or fraudulent conduct frame and providing assistance in recording of
made against the state or its instrumentalities, evidence before the arbitral tribunal.
then the Courts may again refuse to enforce an
arbitration agreement. Foreign Arbitration
As far as foreign seated arbitration is concerned,
The Indian Arbitration and Conciliation Act 1996 the Indian Courts subsequent to the judgment of
(ACA) is based on the UNCITRAL model law. the Constitutional Bench of the Supreme Court
The ACA preserves party autonomy in relation of India in Bharat Aluminium case have consist-
to most aspects of arbitration, such as the free- ently declined to intervene. The scope for the
dom to agree upon the qualification, nationality, Indian courts to intervene in foreign seated arbi-
number of arbitrators, the place of arbitration trations stands curtailed save in cases where a
and the procedure to be followed by the Tribu- party seeks interim relief or in the appointment
nal. The principle of party autonomy has been of arbitrators.
consistently confirmed by the Supreme Court in
various decisions, including the Constitutional In recent years, there has been an attempt to
Bench decision in Bharat Aluminium Co. v Kaiser encourage institutional arbitration in the country.
Aluminium Technical Service, Inc. [(2012) 9 SCC
552] (Bharat Aluminium). 9.6 The Enforcement of Awards
India prior to the constitutional bench judgment
An arbitration agreement, as per the ACA, needs of the Supreme Court of India in 2012 in the
to be in writing and should reflect the intention of Bharat Aluminium case was not seen as a pro-
the parties to submit their dispute(s) to arbitra- arbitration jurisdiction.
tion. There is no prescribed form required for the
purpose of an arbitration agreement. An arbitra- That dynamic has changed since 2012 and Indi-
tion agreement can come into existence if it is an Courts have consistently refused to intervene
contained in a subsequent exchange of letters, in arbitrations. The ACA, as amended in 2015
telex, telegrams or other means of telecom- and then again in 2019, reduces the court’s inter-
munication, including communication through vention in the arbitration process.
electronic means which provide a record of the
agreement. An arbitration agreement can also A key dynamic that has assisted in the enforce-
be incorporated by reference. The ACA contem- ment of arbitration awards is that an arbitration
plates arbitration not only between parties who award is no longer automatically stayed on pro-
are signatories to the arbitration agreement, but nouncement. Prior to the 2015 amendment, the
14
execution of an arbitration award was automati- has been watered down to reduce the scope of
cally stayed on pronouncement, this meant that court intervention.
the winning party had to wait for one stage of
the challenge process to be completed before 9.7 Alternative Dispute Resolution
it could take steps towards execution. After the The Indian law recognises arbitration, mediation
2015 amendment the position has changed and conciliation as means of alternative dispute
and there is no automatic stay on an arbitration resolution (ADR) under the ACA. These modes
award. The losing party is now required to obtain of ADR are being increasingly adopted, even in
a stay on the execution of the award which is insurance and reinsurance disputes.
granted only after the losing party deposits the
entire award sum or a percentage of it in court Section 89 of the CPC sets out the provision for
as security. This has resulted in quicker execu- settlement of disputes outside the court, keep-
tion of arbitration awards. However, in 2020, the ing in mind the delay in legal procedures and
ACA was further amended empowering courts the limited number of judges available. Courts in
to grant unconditional stay of the arbitral awards India are now progressively encouraging, parties
in case it is satisfied on a prima facie basis that to explore the possibilities of an out-of-court set-
the arbitration agreement or the arbitral award tlement with a view to end litigation between the
were obtained by fraud or corruption. parties at an early date. The courts usually have
an in-house mediation centre where experienced
Conventions senior lawyers are appointed to act as mediators
India is a party to the New York and Geneva to try and resolve long pending disputes.
Convention, and therefore if the seat of arbitra-
tion is a country which is signatory to the New All proceedings at the mediation centre and set-
York or the Geneva Convention dealing with tlement discussions are kept confidential from
recognition and enforcement of foreign awards, the court and do not prejudice either party in
Indian courts would be in a position to enforce case mediation fails. In certain circumstances,
convention awards. The grounds for refusing however, the mediator may file a report before
enforcement of a foreign award in India are the the court if directed to do so. Parties are of
same as those laid down in the New York Con- course free to return to the court process.
vention. These include:
Pre-institution Mediation
• incapacity of parties; The amended Commercial Courts Act 2015
• violation of principles of natural justice; now requires a plaintiff (to a suit) to mandatorily
• dispute is not covered by the award; exhaust the remedy of “pre-institution media-
• composition of the tribunal is not in accord- tion” before it can institute the suit, provided that
ance with the agreement between the parties; urgent interim relief(s) are not sought in the suit.
• the award has not yet been binding between The Commercial Courts (Pre-Institution Media-
parties or has been set aside or suspended; tion and Settlement) Rules, 2018 (the “Rules”)
and were notified, pursuant to the Commercial
• public policy. Courts Act 2015. The consent of the parties is a
condition precedent to the reference to media-
In addition, under Indian law, public policy is also tion. There are no formal sanctions if proceed-
a ground for refusing enforcement. In the context ings are not followed through to their logical end.
of a foreign arbitration, the scope of public policy However, a dispute falling under the Commercial
15
Courts Act 2015 will not be entertained by the obligate an insured to assist its insurer in recov-
court if the statutorily required mediation has not ery proceedings, if the insurer so requires.
been exhausted.
The Consumer Protection Act 2019 recognises 10. INSURTECH

the importance of mediation in consumer mat-
ters to encourage the parties to undergo media- 10.1 Insurtech Developments
tion after a consumer case has been admitted or Applications, artificial intelligence, telemat-
at any later stage. Consumer Protection Media- ics and internet of things (IoT) are examples of
tion Rules 2020 have also been notified. insurtech which are being utilised by insurers in
India for transforming the way insurers do busi-
9.8 Penalties for Late Payment of ness in India. Some of the examples of use of
Claims insurtech are detailed below.
The Insurance Regulatory and Development
Authority of India (Protection of Policyholders’ Websites and Apps
Interest) Regulations, 2017 (the “Policyholder’s Indian insurers and intermediaries are partner-
Regulations 2) prescribe the claims procedure ing with tech companies to develop websites
that is required to be followed by the insurers to and mobile applications to facilitate the sale and
ensure expeditious processing of claims. These servicing of insurance policies online. Insurers
regulations work towards ensuring that insurers are also collaborating with various tech compa-
settle the claims on time. Insurers are required to nies to digitise customer verification, underwrit-
pay interest at the rate of 2% above the preva- ing, premium payment and claims processing
lent bank rate in cases where there is delayed functions and automate the policy issuance and
payment of the claim amount. claims settlement processes.
9.9 Insurers’ Rights of Subrogation Health Insurance

There is statutory and judicial recognition to the Health insurers are collaborating with fitness
right of subrogation. As for statutes, the Marine technology firms to track user’s behaviours and
Insurance Act 1963, specifically Section 79 pro- offer insurance discounts to those who have
vides for the insurer’s right to subrogation. a healthier lifestyle. General insurers are col-
laborating with tech companies to explore IoT
Equally, Indian courts have recognised subroga- solutions to track, inter alia, cargo, theft, hijack
tion as an equitable corollary of the principle of attempts and wastage.
indemnity, under which the rights and remedies
of the insured against the wrongdoer are trans- Blockchain
ferred to and vested in the insurer. Indian insurers have started contemplating vari-
ous ways in which blockchain technology may
No separate contractual clause is required to be implemented to facilitate ease of business
trigger it, however, in practice, policies do also and to counteract against insurance fraud and
contain subrogation clauses and the insurers money laundering. It is reported that a con-
will frequently obtain “subrogation letters” and sortium of the 15 leading Indian life insurers
an “assignment” of the third-party claim from have partnered with a global technology firm to
the insured. The Policyholder’s Regulations also develop a blockchain solution facilitating cross-
company data sharing.
16
10.2 Regulatory Response insurance with model policy wordings for Per-
The IRDAI has issued various norms to address sonal Cyber Insurance Cover vide its circular
technological advancements and to regulate “Product Structure for Cyber Insurance” of 8
insurtech developments. The key regulatory September 2021.
changes are summarised below: • The IRDAI has also issued its circular on
“Product Structure for Insurance of Remotely
• With the significant increase in e-commerce Piloted Aircraft System (RAPS)/Drones” of
transactions over recent years, the IRDAI has 11 February 2021, which provide the model
recognised the sale and servicing of insur- policy wordings. General Insurers have flex-
ance products online as well as the issuance ibility to design and develop their own prod-
of e-insurance policies. The “Guidelines on uct keeping in view the minimum coverage
Insurance e-commerce” of 9 March 2017, specified in the Guidelines.
lay down provisions for setting up Insurance
Self-Network Platforms by insurers and insur-
ance intermediaries for undertaking sale and 11. EMERGING RISKS AND
servicing of insurance activities in India. NEW PRODUCTS
• To counteract issues of data privacy and data
breach, the IRDAI has notified the “Guidelines 11.1 Emerging Risks Affecting the
on Information and Cyber Security for Insur- Insurance Market
ers” of 7 April 2017, to stipulate the norms There has been a growing number of cyber-
on, inter alia, information asset management, insurance covers being issued and claims
data security, application security, endpoint being made under them. This has also led to
security, cloud security and incident manage- an increased requirement for forensic expert
ment, which are required to be complied with analysis for the purposes of assessment of cov-
by insurers and reinsurers. erage under such policies. This trend is likely
• The IRDAI has notified the exposure draft on to continue in view of the growing cyber-risks.
“Revisiting the product structure for Motor However, since the cybercover is comparatively
Own Damage” of 25 November 2019, which recent in this jurisdiction, there is yet to be any
discusses the adoption of telematics for litigation involving cyberpolicies.
motor insurance. It is further proposed that a
central repository of telematics data be cre- Also of note is the emergence of mental health
ated. insurance covers being offered by general and
• In order to address issues arising in complet- health insurers, in compliance with the provi-
ing physical verification due to COVID-19 sions of the Mental Healthcare Act 2017 and the
pandemic, the IRDAI introduced video-based IRDAI’s directions, which require insurers to offer
verification process through the circular on insurance for mental illness on the same basis
“Video Based Identification Process (VBIP)” as that presently available for physical ailments.
of 21 September 2020, with an aim to simplify
the process of identity verification by leverag- 11.2 New Products or Alternative
ing various electronic platforms. Solutions
• In pursuance of the recommendation of the Recently, the Indian insurance industry has seen
“Working Group to Study Cyber Liability a wave of new insurance products, partly due to
Insurance”, the IRDAI has issued a guidance regulatory and/or statutory changes or due to
document on the product structure for cyber- new risks emerging through innovations in oth-
17
er industries. While the industry has been typi- Products

cally slow to immediately adapt and embrace The IRDAI (Unit Linked Insurance Products)
new trends in terms of product offerings, new Regulations 2019 and the IRDAI (Non-Linked
products have been filed in terms of long term Insurance Products) Regulations 2019 define
insurance covers, health insurance covers for revised norms vis-à-vis the design and issuance
mental illness, standard life insurance products, of linked and non-linked life insurance policies
standard COVID-19 health insurance product, by life insurers in India. Further, administration
telematics based riders, specific endorsements of group life insurance products are now gov-
for data protection and impersonation frauds erned by the “Circular on Group Life Insurance
(which even cover the resultant fund transfers) Products and other operational matters” of 26
in both cyber and crime insurance, as well as September 2019.
a new range of fitness and wellness focussed
products in the health sector. Recently, the IRDAI has notified a guidance note
on product structure of cyber-insurance to ena-
ble insurers to evaluate new technologies posing
12. RECENT AND heightened cyber-risk, identify protection gaps
FORTHCOMING LEGAL in the existing products and address the chang-
DEVELOPMENTS ing needs of market. In addition, the IRDAI has
also notified the “Guidelines on Wellness and
12.1 Developments Impacting on Preventive Benefits” of 4 September 2020 which
Insurers or Insurance Products significantly broaden the scope of wellness and
COVID-19-Related Measures preventive features that are now permitted to be
Since March 2020, the IRDAI has issued direc- offered by insurers. Further, the IRDAI has stand-
tions to address the COVID-19 pandemic situ- ardised various general, health, life insurance
ation and ensure business continuity of insur- policy wordings for insurers across the board to
ers and other insurance entities. The IRDAI adhere to. Specifically, the IRDAI has also issued
has issued norms on, inter alia, handling of standard form definitions, exclusions and stand-
COVID-19 claims, extension of grace periods ard terms and clauses for health insurance and
for premium payment, relaxation of regulatory critical illness policies, and a standard format for
timelines, issuance of electronic policies and presentation of health insurance policies.
dispensing requirement for physical signatures,
and expeditious servicing of insurance policies.
13. OTHER
The IRDAI has advised to devise comprehensive DEVELOPMENTS IN
health insurance products for workers at indus- INSURANCE LAW
trial and commercial establishments (IRDAI’s
Circular re: “Providing mandatory medical insur- 13.1 Additional Market Developments
ance coverage to workers as part of the National Recent years have been significant for the insur-
Directives of MHA, GOI” of 16 April 2020). IRDAI ance sector as it witnessed the notification of
has also asked the insurers to mandatorily offer several regulations and guidelines issued by the
a standard COVID-19 health insurance product. IRDAI, including the following:
• The IRDAI (Trade Credit Insurance) Guidelines

2021 revise norms on trade credit insurance
18
policies to promote sustainable and healthy • The IRDAI, by a circular of 5 May 2021, has
development of the business. These Guide- issued “Guidelines on Standard Domestic
lines supersede the erstwhile Guidelines on Travel Insurance Product (SDTIP)” which
Trade Credit Insurance of 2016. specifies the basic mandatory covers to be
• The IRDAI has introduced “Title Insurance” uniform across the market and optional cov-
products along with specimen policy word- ers as specified in these guidelines.
ings pursuant to the recommendations of • From time to time, IRDAI has issued guide-
“Report of the Working Group (WG) to revisit lines for quick and timely settlement of
the product structure of Title Insurance” of 10 insurance claims of victims of various
March 2021, in order to expand the current natural calamities including Cyclone Nivar
title insurance products suitable to promo- (“Guidelines on Insurance claims of victims
tors/developers and retail property buyers. of Cyclones Nivar (Nov 2020) in the calam-
• In order to address the promotion and ity affected areas” of 2 December 2020),
regulation of surety insurance business in Cyclone Tauktae and Yaas (“Guidelines
India, norms under the IRDAI (Surety Insur- on Insurance claims of victims of Cyclone
ance Contracts) Guidelines 2021 have been Tauktae and Cyclone Yaas in the calamity
proposed. affected areas” of 29 May 2021) and flood in
• The IRDAI (Insurance Advertisements and Maharashtra (“Guidelines on settlement of
Disclosure) Regulations, 2021 have been Life Insurance Claims to the victims of Flood
notified, which repeal the earlier IRDA (Insur- in Maharashtra” of 6 August 2021).
ance Advertisements and Disclosure) Regula- • The draft “IRDAI (General Insurance Prod-
tions 2000. The 2021 Regulations compile the ucts) Regulations 2021” have been issued
norms prescribed under the Master Circular for stakeholders’ comments. The proposed
on Insurance Advertisements of 31 August regulations provide the basic framework
2019 and introduces norms on, inter alia, and reflect the fundamental principles to be
advertisements on the internet or through followed in respect of product design and
electronic media. pricing.
• New norms on the manner of assessment of
compensation to shareholders or members In terms of claims, while the focus used to be
whose interest in/rights against the transferee on more traditional lines of insurance, such as
insurer resulting from amalgamation are less catastrophe, life, health and motor insurance,
than his interest in/rights against the original over the past decade or so the Indian insurance
insurer have been introduced under the IRDAI market has evolved and liability products such
(Manner of Assessment of Compensation to as PI, D&O, cyber policies and EPL have come
Shareholders or Members on Amalgamation) to the forefront. There is familiarity and demand
Regulations 2021. for these products and consequently signifi-
• Various provisions of the IRDAI (Insurance cant claims activity. Among the liability prod-
Surveyors and Loss Assessors) Regulations ucts, experience over the past five years shows
2015, including but not limited to reports to there has been a steady upward trend in claims
be submitted by insurers in specific formats made under PI policies and it remains the busi-
were amended by the IRDAI (Insurance est claims area, followed closely by D&O. Not
Surveyors and Loss Assessors) (Amendment) only has there been an upsurge in the frequen-
Regulations 2020. cy of claims, but there has also been a sharp
increase in the quantum being claimed by the
19
insured, which means that claims severity is also There has also been a recent emergence in
on the rise. Also being witnessed is a growing number of mental health insurance covers being
number of cyber-insurance covers being issued offered by general and health insurers, in compli-
and claims being made under them. This has ance with the provisions of the Mental Health-
also led to an increased requirement for forensic care Act 2017 and the IRDAI’s directions, which
expert analysis for the purposes of assessment require insurers to offer insurance for mental ill-
of coverage under such policies. ness on the same basis as is presently available
for physical ailments.
20
1
PART – A : INSURANCE
Pink v. Fleming
(1890) 25 Q.B.D. 396
LORD FISHER, J. - It is well settled that by the law of England there is a distinction in this
respect between cases of marine insurance and those of other liabilities. In cases of marine
insurance the liability of the underwriters depends upon the proximate cause of the loss. In the
case of an action for damages on an ordinary contract, the defendant may be liable for damage, of
which the breach is an efficient cause or causa causans; but in cases of marine insurance only the
causa proxima can be regarded. This question can only arise where there is a succession of causes,
which must have existed in order to produce the result. Where that is the case, according to the
law of marine insurance, the last cause only must be looked to and the others rejected, although
the result would not have been produced without them. Here there was such a succession of
causes. First, there was the collision. Without that no doubt the loss would not have happened. But
would such loss have resulted from the collision alone? Is it the natural result of a collision that
the ship should be taken to a port for repairs, and that the cargo should be removed for the
purposes of the repairs, and that, the cargo being of a kind that must be injured by handling, it
should be injured in such removal? A collision might happen without any of these consequences.
If it had not been for the repairs, and for the removal of the cargo for the purposes of such repairs,
and for the consequent delay and handling of the fruit, the loss would not have happened. The
collision may be said to have been a cause, and an effective cause, of the ship’s putting into a port
and of repairs being necessary. For the purpose of such repairs, it was necessary to remove the
fruit, and such removal necessarily caused damage to it. The agent, however, which proximately
caused the damage to the fruit was the handling, though no doubt the cause of the handling was
the repairs, and the cause of the repairs was the collision. According to the English law of marine
insurance only the last cause may be regarded. There is nothing in the policy to say that the
underwriters will be liable for loss occasioned by that. To connect the loss with any peril
mentioned in the policy, the plaintiffs must go back two steps, and that, according to English law,
they are not entitled to do.
For these reasons I think that the judgment of Mathew, J., was right. The case of Taylor v.
Dunbar [LR 4 C.P. 206], seems to me to have been decided upon substantially the same view as
that which I have endeavoured in somewhat different terms to state, and it appears to me to be
really an express authority in favour of our decision. With regard to the American authorities, the
American law on the subject seems to differ materially from our law, and therefore it is not
necessary to consider them.
LINDLEY, J. - It appears to me that the judgment of Mathew, J., was correct. It has long
been the settled rule of English law with regard to marine insurance that only the causa
proxima or immediate cause of the loss must be regarded. The rule is well known, and people
must be taken to have contracted on that footing. In principle the case appears to me to be
governed by the decision in Taylor v. Dunbar. The evidence shows that the damage to the
fruit was due to the joint operation of the handling and the delay.
*****
2
Mithoolal Nayak v. Life Insurance Corporation of India

AIR 1962 SC 814
S.K. DAS, J. - The appellant is Mithoolal Nayak, who took an assignment on 18-10-1945 of a
life insurance policy on the life of one Mahajan Deolal for a sum of Rs 25,000 in
circumstances that we shall presently state. Mahajan Deolal died on 12-11-1946. Thereafter,
the appellant made a demand against the respondent Company for a sum of Rs 26,000 and
odd on the basis of the life insurance policy, which had been assigned, to him. This claim or
demand of the appellant was repudiated by the respondent Company by a letter dated 10-10-
1947, which in substance stated that the insured Mahajan Deolal had been guilty of deliberate
misstatements and fraudulent suppression of material information in answers to questions in
the proposal form and the personal statement, which formed the basis of the contract between
the insurer and the insured. On the repudiation of his claim, the appellant brought the suit out
of which this appeal has arisen. The suit was originally instituted against the Oriental
Government Security Life Assurance Co. Ltd., Bombay, which issued the policy in favour of
Mahajan Deolal on 13-3-1945. Later, on the passing of the Life Insurance Corporation Act,
1956, there was a statutory transfer of the assets and liabilities of the controlled (life) business
of all insurance companies and insurers operating in India to a Corporation known as the Life
Insurance Corporation of India. By an order of this Court made on 16-2-1960 the said
Corporation was substituted in place of the original respondent. For brevity and convenience
we shall ignore the distinction between the original respondent and the said Corporation and
refer to the respondent in this judgment as the respondent Company. The suit was decreed by
the learned Additional District Judge of Jabalpur by his judgment dated 7-5-1949. The
respondent Company then preferred an appeal to the High Court of Madhya Pradesh. This
appeal was heard by a Division Bench of the said High Court and by a judgment dated 28-8-
1956, the appeal was allowed and the suit was dismissed with costs.
2. We now proceed to state some of the relevant facts relating to the appeal and the
contentions urged on behalf of the appellant. Mahajan Deolal was a resident of Village
Singhpur, Tahsil Narsinghpur. It appears that he was a small landholder and possessed several
acres of land. Sometime in December 1942, Mahajan Deolal submitted a proposal through
one Rahatullah Khan, an agent of the respondent Company at Narsinghpur, for the insurance
of his life with the respondent Company for a sum of Rs 10,000 only. Mahajan Deolal’s age
at that time was about 45 as stated by him. In the proposal form that was submitted to the
respondent Company, Mahajan Deolal mentioned the name of one Motilal Nayak, by
profession a doctor, as a personal friend who best knew the state of the health and habits etc.
of the insured. This Motilal Nayak, be it noted, is a brother of the appellant, the evidence in
the record showing that the two brothers lived together in the same house. When Mahajan
Deolal made the proposal for insurance of his life in December 1942, a doctor named Dr D.D.
Desai examined him. This doctor submitted two reports about Mahajan Deolal: one report, it
appears, was submitted with the proposal form through the agent of the respondent Company;
another report was sent in a confidential cover along with a letter from the doctor. In this
letter the doctor explained why he was submitting two medical reports. In substance he said
that the report submitted with the proposal form at the instance of the agent, Rahatullah Khan,
3
was not a correct report and the correct report was the one that he enclosed in the confidential
cover. In that report Dr Desai said that Mahajan Deolal was anaemic, looked about 55 years
old, had a dilated heart and his right lung showed indications of an old attack of pneumonia or
pleurisy. The doctor further said that the general health of Mahajan Deolal was very much run
down and he was a total physical wreck. The doctor opined that Mahajan Deolal’s life was an
uninsurable life. It appears that nothing came out of the proposal made by Mahajan Deolal for
the insurance of his life in December 1942. The evidence of the Inspector of the respondent
Company shows that on receipt of Dr Desai’s reports, the respondent Company directed that
Mahajan Deolal should be further examined by the Civil Surgeon, Hoshangabad and District
Medical Officer, Railways at Jabalpur. Mahajan Deolal could not, however, be examined by
the two doctors aforesaid and according to the rules of the respondent Company the proposal
lapsed on the expiry of six months for want of completion of the medical examination as
required by the respondent Company. Then, on 16-7-1944, a second proposal was made
through the same agent of the respondent Company for the insurance of the life of Mahajan
Deolal, this time for a sum of Rs 25,000. The Inspector of the respondent Company said in his
evidence that this second proposal was made at the instance of the same agent, Rahatullah
Khan, inasmuch as the proposal of 1942 had not been rejected but had only lapsed. It appears
that at the time of the first proposal in 1942 Mahajan Deolal had paid a sum of Rs 571 and
odd towards the first premium due in case the proposal was accepted. In the personal
statement accompanying the second proposal of 16-7-1944, it was stated that an earlier
proposal for insuring the life of Mahajan Deolal was pending with the respondent Company.
Now, in the proposal form there was a question to the following effect:
“Have you within the past five years consulted any medical man for any ailment,
not necessarily confining you to your house? If so, give details and state names and
addresses of medical men consulted.”
The answer given to the question was - “No”. This answer, according to the case of the
respondent, was false and deliberately false, because, according to the evidence of one Dr
P.N. Lakshmanan, Consulting Physician at Jabalpur, Mahajan Deolal was examined and
treated by the said doctor between the dates 7-9-1943, and 6-10-1943, when the doctor found
that Mahajan Deolal was suffering from anaemia, oedema of the feet, diarrhoea and panting
on exertion. We shall advert in greater detail to the evidence of Dr Lakshmanan at a later
stage. In his personal statement accompanying the second proposal Mahajan Deolal answered
in the negative Question 12(b), the question being as to when he was last under medical
treatment and for what ailment and how long. In the same personal statement with regard to
questions, for example, Question 5(a), 5(b) etc., as to whether he suffered from shortness of
breath, anaemia, and asthma etc., Mahajan Deolal gave negative answers. The contention on
behalf of the respondent Company was that these answers in the personal statement were also
deliberately false and constituted a fraudulent suppression of material particulars relating to
the health of the insured. With regard to the second proposal and the personal statement
accompanying it, Dr Motilal Nayak, brother of the appellant, gave a friend’s report, in which
he said that Mahajan Pedal’s health was good and that he had never heard that Mahajan
Deolal suffered from any illness. It is worthy of note here that Dr Motilal Nayak himself took
Mahajan Deolal to Dr Lakshmanan for treatment at Jabalpur in September-October, 1943. On
4
receipt of the second proposal in July 1944, Mahajan Deolal was examined by Dr Kapadia,
who was the District Medical Officer of the Railways at Jabalpur. Dr Kapadia reported that
Mahajan Deolal was a healthy man and looked about 52 to 54 years old. He recommended
that Mahajan Deolal might be given a policy for fourteen years. In his report Dr Kapadia
noted that Mahajan Deolal had stated that he had suffered from pneumonia four or five years
ago, and that he had also cholera some years ago. No mention, however, was made of
anaemia, asthma, shortness of breath etc. On 29-12-1944 Mahajan Deolal, made a further
declaration of his good health and so also on 12-2-1945. On 13-3-1945, the respondent
Company issued the policy. It contained the usual terms of such life insurance policies, one of
which was that in case it would appear that any untrue or incorrect averment had been made
in the proposal form or personal statement, the policy would be void. The first premium due
on the policy was taken from the amount that was already in deposit with the respondent
Company in connection with the proposal made in 1942. Then, on 22-5-1945, Mahajan
Deolal wrote a letter to the respondent Company in which he said that his financial condition
had become suddenly worse and that he would not be able to pay the premium for the policy.
He requested that the policy be cancelled. In the meantime the premium for 1945 not having
been paid, the policy lapsed. Then, on 28-10-1945 Mahajan Deolal made a request for revival
of the policy, but a few days before that, namely on 18-10-1945, the policy was assigned in
favour of the appellant, by an endorsement made on the policy itself. This assignment was
duly registered by the respondent Company by means of its letter dated 1-11-1945 in which
the respondent Company said that it accepted the assignment without expressing any opinion
as to its validity or effect.
The respondent Company also made an enquiry from the appellant as to whether the latter
had any insurable interest in the life of the insured and what consideration had passed from
him to the insured. To this the appellant replied that he had no insurable interest in the life of
Mahajan Deolal, except that the latter was a friend and he (the appellant) had purchased the
policy for a sum of Rs 427.12 n.p. being the premium paid by him so far, because Mahajan
Deolal did not wish to continue the policy. On his request for a revival of the policy Mahajan
Deolal was again medically examined, this time by one Dr Belapurkar. Later on 25-2-1946 he
was examined by Dr Clarke. The policy was then revived on payment of all arrears of
premium, these arrears having been paid by the present appellant. On receipt of the revival
fee, the policy appears to have been revived some time in July 1946. We have already stated
that Mahajan Deolal died in November, 1946. The certificate of Dr Clarke, who was the
medical attendant at the time when Mahajan Deolal died, showed that the primary cause of
death of Mahajan Deolal was malaria followed by severe type of diarrhoea; the secondary
cause was anaemia, chronic bronchitis and enlargement of liver. In the certificate that Dr
Clarke gave there was mention of certain other medical practitioners who had attended
Mahajan Deolal at the time of his death. One of such medical practitioners mentioned in the
certificate was Dr Lakshmanan. On receipt of this certificate the respondent Company got into
touch with Dr Lakshmanan and discovered from him that Mahajan Deolal had been treated in
September-October 1943 by Dr Lakshmanan for ailments which, according to the doctor,
were of a serious nature.
5
3. Several issues were tried between the parties in the trial court. But the four questions
which were argued in the High Court and on which the fate of the appeal depends were these:
(1) Whether the policy was vitiated by fraudulent suppression of material facts by
Mahajan Deolal?
(2) Whether the present appellant had no insurable interest in the life of the
insured, and if so, can he sue on the policy?
(3) Whether the respondent Company had issued the policy with full knowledge
of the facts relating to the health of the insured and if so, is it estopped from
contesting the validity of the policy? and
(4) Whether in any event the appellant is entitled to refund of the money he had
paid to the respondent Company?
5. So far as the first question is concerned, the learned trial Judge found that though
Mahajan Deolal had given a negative answer to Question 13 in the proposal form and to
Questions 5(a), 5(b), 5(f) and 12(b) in the personal statement, these answers though not
strictly accurate, furnished no grounds for repudiating the claim of the appellant by the
respondent Company, inasmuch as Section 45 of the Insurance Act, 1938 (Act 4 of 1938)
applied and the answers did not amount to a fraudulent suppression of material facts by the
policy-holder within the meaning of that section. The learned trial Judge found that the
ailments for which Dr Lakshmanan treated Mahajan Deolal in September-October 1943 were
of a casual or trivial nature and the failure of the policy-holder to disclose those ailments did
not attract the second part of Section 45 of the Insurance Act. The High Court came to a
contrary conclusion and held that even applying Section 45 of the Insurance Act, the policy-
holder was guilty of a fraudulent suppression of material facts relating to his health within the
meaning of that section and the respondent Company was entitled to avoid the contract on
that ground.
7. We shall presently consider the evidence, but it may be advantageous to read first
Section 45 of the Insurance Act, 1938, as it stood at the relevant time. The section, so far as it
is relevant for our purpose, is in these terms:
“No policy of life insurance effected before the commencement of this Act shall
after the expiry of two years from the date of commencement of this Act and no
policy of life insurance effected after the coming into force of this Act shall, after the
expiry of two years from the date on which it was effected, be called in question by
an insurer on the ground that a statement made in the proposal for insurance or in any
report of a medical officer, or referee, or friend of the insured, or in any other
document leading to the issue of the policy, was inaccurate or false, unless the insurer
shows that such statement was on a material matter or 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….”
It would be noticed that the operating part of Section 45 states in effect that no policy of
life insurance effected after the coming into force of the Act shall, after the expiry of two
years from the date on which it was effected, be called in question by an insurer on the ground
6
that a statement made in the proposal for insurance or in any report of a medical officer, or
referee, or friend of the insured, or in any other document leading to the issue of the policy,
was inaccurate or false; the second part of the section is in the nature of a proviso which
creates an exception. It says in effect that if the insurer shows that such statement was on a
material matter or 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, then
the insurer can call in question the policy effected as a result of such inaccurate or false
statement. In the case before us the policy was issued on 13-3-1945 and it was to come into
effect from 15-1-1945. The amount insured was payable after 15-1-1968 or at the death of the
insured, if earlier. The respondent Company repudiated the claim by its letter dated 10-10-
1947. Obviously, therefore, two years had expired from the date on which the policy was
affected. We are clearly of the opinion that Section 45 of the Insurance Act applies in the
present case in view of the clear terms in which the section is worded, though learned counsel
for the respondent Company sought, at one stage, to argue that the revival of the policy some
time in July 1946 constituted in law a new contract between the parties and if two years were
to be counted from July, 1946, then the period of two years had not expired from the date of
the revival. Whether the revival of a lapsed policy constitutes a new contract or not for other
purposes, it is clear from the wording of the operative part of Section 45 that the period of two
years for the purpose of the section has to be calculated from the date on which the policy was
originally effected; in the present case this can only mean the date on which the policy (Ex. P-
2) was effected. From that date a period of two years had clearly expired when the respondent
Company repudiated the claim. As we think that Section 45 of the Insurance Act applies in
the present case, we are relieved of the task of examining the legal position that would follow
as a result of inaccurate statements made by the insured in the proposal form or the personal
statement etc. in a case where Section 45 does not apply and where the averments made in the
proposal form and in the personal statement are made the basis of the contract.
8. The three conditions for the application of the second part of Section 45 are -
(a) the statement must be on a material matter or must suppress facts which it
was material to disclose;
(b) the suppression must be fraudulently made by the policy-holder; and
(c) the policy-holder must have known at the time of making the statement that it
was false or that it suppressed facts which it was material to disclose.
The crucial question before us is whether these three conditions were fulfilled in the
present case. We think that they were. We are unable to agree with the learned trial Judge that
the ailments for which Mahajan Deolal was treated by Dr Lakshmanan in September-October
1943 were trivial or casual ailments. Nor do we think that Mahajan Deolal was likely to forget
in July 1944 that he had been treated by Dr Lakshmanan for certain serious ailments only a
few months before that date. This brings us to a consideration of the evidence of Dr
Lakshmanan. That evidence is clear and unequivocal. Dr Lakshmanan says that Dr Motilal
Nayak brought the patient to him at Jabalpur. We have already referred to the fact that Dr
Motilal Nayak had himself made a false statement in his friend’s report dated 17-7-1944,
when he said that he had never heard that the insured had suffered from any illness. It is
7
impossible to believe that Dr Motilal Nayak would not remember that he had himself taken
the insured to Jabalpur for treatment by Dr Lakshmanan who was an experienced consulting
physician. Dr Lakshmanan said that when he first examined Mahajan Deolal on 7-9-1943 he
found that his condition was serious as a result of the impoverished condition of his blood,
and that Mahajan Deolal was suffering from anaemia, oedema of the feet, diarrhoea and
panting on exertion. The doctor asked for an examination of the blood. The pathological
report supported the diagnosis that Mahajan Deolal was suffering from secondary anaemia
meaning thereby that anaemia was due to lack of iron and malnutrition. Dr Lakshmanan
further found that from the symptoms disclosed the disease was a major one. Mahajan Deolal
had also cardiac asthma, which was a symptom of anaemia and due to dilatation of heart. Dr
Lakshmanan saw the patient again on 9-9-1943, and then again on 16-9-1943. On 6-10-1943,
Mahajan Deolal himself went to Dr Lakshmanan. On that date Dr Lakshmanan found that
anaemia had very greatly disappeared. In cross-examination Dr Lakshmanan admitted that the
anaemia, dilatation of heart and cardiac asthma from which Mahajan Deolal was suffering
constituted a passing phase that might disappear by treatment. He further admitted that he did
not mention cardiac asthma in his letter addressed to the respondent Company. We have given
our very earnest consideration to the evidence of Dr Lakshmanan and we are unable to hold
that the ailments from which Mahajan Deolal was then suffering were either trivial or casual
in nature. The ailments were serious though amenable to treatment. Mahajan Deolal’s son
gave evidence in the case and he said in his evidence that though Dr Lakshmanan prescribed
some medicine, his father did not take it. He further said that his father was a strict vegetarian.
This evidence was given by the son with regard to what the doctor had said that he prescribed
fresh liver juice made at home according to his directions three times a day. He also
prescribed iron sulphate in tablet form with plenty of water. The son further said that during
his stay at Jabalpur his father felt weak, though he used to move about freely and was never
confined to bed. The son tried to make it appear in his evidence that his father was suffering
from nothing serious. Dr Lakshmanan said in his evidence that his fees for visiting a patient at
Jabalpur were Rs 16 per visit. We agree with the High Court that if Mahajan Deolal was not
suffering from any serious ailment, he would not have been taken by his physician, Dr Motilal
Nayak, from his village to Jabalpur nor would he have consulted Dr Lakshmanan, a
consulting physician of repute, for so many days on payment of Rs. 16 per visit. No doubt,
Mahajan Deolal’s son now tries to make light of the illness of his father, but Dr
Lakshmanan’s evidence shows clearly enough that in September-October 1943 Mahajan
Deolal was suffering from a serious type of anaemia for which he was treated by Dr
Lakshmanan. Mahajan Deolal could not have forgotten in July, 1944 that he was so treated
only a few months earlier and furthermore, Mahajan Deolal must have known that it was
material to disclose this fact to the respondent Company. In his answers to the questions put
to him he not only failed to disclose what it was material for him to disclose, but he made a
false statement to the effect that he had not been treated by any doctor for any such serious
ailment as anaemia or shortness of breath or asthma. In other words, there was a deliberate
suppression fraudulently made by Mahajan Deolal.
9. We may here dispose of the third question. Learned counsel for the appellant has
argued before us that Mahajan Deolal was examined under the direction of the respondent
Company by as many as four doctors, namely, Dr Desai, Dr Kapadia, Dr Belapurkar and Dr
8
Clarke. It is further pointed out that Mahajan Deolal had correctly disclosed that he had
suffered previously from malaria, pneumonia and cholera. Dr Kapadia, it is pointed out, was
specifically asked to examine Mahajan Deolal in view of the conflicting reports that Dr Desai
had earlier submitted. On these facts, the argument has been that the respondent Company had
full knowledge of all facts relevant to the state of health of Mahajan Deolal and having
knowledge of the full facts, it was not open to the respondent Company to call the policy in
question on the basis of the answers given by Mahajan Deolal in the proposal form and the
personal statement, even though those answers were inaccurate. Learned counsel for the
appellant has referred us to the Explanation to Section 19 of the Indian Contract Act in
support of his argument. We are unable to accept this argument as correct. It is indeed true
that Mahajan Deolal was examined by as many as four doctors. It is also true that the
respondent Company had before it the conflicting reports of Dr Desai and it specially asked
Dr Kapadia to examine Mahajan Deolal in view of the reports submitted by Dr Desai.
Yet, it must be pointed out that the respondent Company had no means of knowing that
Mahajan Deolal had been treated for the serious ailment of secondary anaemia followed by
dilatation of heart, etc., in September-October 1943 by Dr Lakshmanan. Nor can it be said
that if the respondent Company had knowledge of those facts, they would not have made any
difference. The principle underlying the Explanation to Section 19 of the Contract Act is that
a false representation, whether fraudulent or innocent, is irrelevant if it has not induced the
party to whom it is made to act upon it by entering into a contract. We do not think that that
principle applies in the present case. The terms of the policy make it clear that the averments
made as to the state of health of the insured in the proposal form and the personal statement
were the basis of the contract between the parties, and the circumstance that Mahajan Deolal
had taken pains to falsify or conceal that he had been treated for a serious ailment by Dr
Lakshmanan only a few months before the policy was taken shows that the falsification or
concealment had an important bearing in obtaining the other party’s consent. A man who has
so acted cannot afterwards turn round and say: “It could have made no difference if you had
known the truth.” In our opinion, no question of waiver arises in the circumstances of this
case, nor can the appellant take advantage of the Explanation to Section 19 of the Indian
Contract Act.
10. Our finding on the first question makes it unnecessary for us to decide the second
question, namely, whether the present appellant merely gambled on the life of Mahajan
Deolal when he took the assignment on 18-10-1945. The contention of the respondent
Company was that the appellant had no insurable interest in the life of Mahajan Deolal and
when he took the assignment of the policy on 18-10-1945 he was merely indulging in a
gamble on Mahajan Deolal’s life; the contract was, therefore, void by reason of Section 30 of
the Indian Contract Act. On behalf of the appellant, however, the contention was that Section
38 of the Insurance Act provided a complete code for assignment and transfer of insurance
policies and the assignment made in favour of the appellant by Mahajan Deolal was a valid
assignment in accordance with the provisions of Section 38 aforesaid. The High Court, it
appears, proceeded on the footing that from the very inception the policy was taken for the
benefit of the appellant on the basis of a gamble on the life of Mahajan Deolal; it said that the
appellant and his brother, Dr Motilal Nayak, knew very well that Mahajan Deolal was not
9
likely to live very long and when the policy was taken out in 1944, it was really for the benefit
of the present appellant, who soon after took an assignment on payment of the premium
already paid by Mahajan Deolal and such arrears of premium as were then outstanding. It is
unnecessary for us to give our decision on these contentions; because if Mahajan Deolal was
himself guilty of a fraudulent suppression of material facts on which the respondent Company
was discharged from performing its part of the contract, the appellant who holds an
assignment of the policy cannot stand on a better footing than Mahajan Deolal himself. It was
argued before us that if the policy was valid in its inception, that is to say, if it was in fact
effected for the use and benefit of Mahajan Deolal, who undoubtedly had an insurable interest
in his own life, it could not afterwards be invalidated by assignment to a person who had no
interest but who merely took it as a speculation. As we have stated earlier, on our conclusion
on the first question, the appellant is clearly out of Court and cannot claim the benefit of a
contract which had been entered into as a result of a fraudulent suppression of material facts
by Mahajan Deolal.
11. This brings us to the last question, namely, whether the appellant is entitled to a
refund of the money he had paid to the respondent Company. Here again one of the terms of
the policy was that all moneys that had been paid in consequence of the policy would belong
to the Company if the policy was vitiated by reason of a fraudulent suppression of material
facts by the insured. We agree with the High Court that where the contract is bad on the
ground of fraud, the party who has been guilty of fraud or a person who claims under him
cannot ask for a refund of the money paid. It is a well-established principle that courts will not
entertain an action for money had and received, where, in order to succeed, the plaintiff has to
prove his own fraud. We are further in agreement with the High Court that in cases in which
there is a stipulation that by reason of a breach of warranty by one of the parties to the
contract, the other party shall be discharged from the performance of his part of the contract,
neither Section 65 nor Section 64 of the Indian Contract Act has any application.
12. For the reasons given above we have come to the conclusion that there is no merit in
the appeal. The appeal is accordingly dismissed with costs.
*****
10
Kasim Ali Bulbul v. New India Assurance Co.

AIR 1968 J & K 39
J.N. BHAT, J. – The plaintiff, Kasim Ali Bulbul, carries on business in wood carving and
paper machine under the name and style of K.A. Bulbul in Lambert Lane, Residency Road,
Srinagar. On 8th June 60 he got his stock-in-trade consisting of wood carving, paper machine,
business furniture and two pieces of carpet contained in the shop insured with the defendant
company for one year from 8th June 60 to 8th June 61 for a sum of Rs. 30,000.
A policy No. 155860356 was issued in his favour by the defendant company. The
plaintiff’s shop caught fire on the night between 4/5th February 1961 while he was asleep in
Zadaibal. Next morning he came on the scene and found that the shop had been taken
possession by the local officials of the defendant company and the police. It was sealed. The
plaintiff gave tentative information of this fire to the defendant company. The plaintiff’s
books were seized by the police. The police inquired into the matter and declared the fire
accidental. Later on a Surveyor was deputed by the defendant company who made a report.
The loss that he sustained on this account was Rs. 27340.31.
2. The shop remained in possession of the defendant company when on the night of 3rd
November 61 another fire broke out which destroyed the remaining articles in the shop.
There were some un-insured goods of the value of Rs. 564.50. The total claim of the plaintiff
thus comes to Rs. 27,904.81.
3. According to the plaintiff, on the basis of the insurance effected on his goods, the
defendant company was liable to make good the loss to him, but did not do so. As the keys of
the shop remained with the defendant upto 3rd November 61, the defendant was further liable
for the loss of uninsured goods valuing Rs. 564.50. The plaintiff therefore claimed a decree
for the above-mentioned amount, i.e., Rs. 27,904.81.
4. In defence the defendant company has taken a number of pleas. They are that the
defendant has not been properly sued; the plaint is not properly verified and the suit is time-
barred. All the benefits under the policy and the suit stand forfeited because (1) the claim is
fraudulent; (2) A false declaration has been made in support of the claim; (3) the loss or
damage was occasioned by the wilful act and connivance of the plaintiff; (4) the plaintiff has
not complied with the terms and conditions of the policy; (5) the plaintiff is not entitled to any
relief as the suit was not commenced within three months after the rejection of his claim by
the defendant company; and (6) the plaintiff did not comply with condition 11 of the policy
and did not submit any claim within the period of 15 days from the date of the alleged loss.
Condition 11 is quoted in extenso in the written statement. The plaintiff was notified by letter
dated 25-2-61 that as the claim was not submitted in accordance with this condition, his claim
could not be entertained.
5. On facts the defendant did not deny the insurance of the articles of the plaintiff with the
defendant company as alleged by the plaintiff. But the defendant alleged that this contract was
entered into by the defendant on the basis of false representation and suppression of material
facts by the plaintiff which vitiated the whole contract. It was admitted that the plaintiff
informed the defendant company at Srinagar on 5.2.61 that his shop had been gutted on the
11
night between 4/5th February 61. On 5.2.61 the plaintiff was asked to submit his claim,
account books, pass books and submit his claim form. He was reminded by another letter
dated 16.2.61. But the plaintiff did not do anything. It is admitted that the defendant
company locked the shop but the plaintiff’s lock also was there. On 25.2.61, the defendant
rejected the claim of the plaintiff. The plaintiff did not submit his account books, nor submit
his claim in writing. The plaintiff replied the letter of the defendant of 25.2.61 that he could
not ascertain the damages as the account books and other documents were lying with the
police. By letter dated 28.2.61 the plaintiff was again referred to the letter of the defendant
dated 25.2.61. On 27.6.61 the Chief Regional Manager of the defendant company New Delhi
notified the plaintiff that he had forfeited all benefits under the policy and his claim stood
rejected. The conclusion of the police that the fire was accidental was not correct. Mr. Sarin
of Messrs. V.N. Sarin and Co. was appointed as the Surveyor. The survey report was also
against the plaintiff. There was further correspondence between the parties. On 9-5-61 the
plaintiff submitted a list of goods destroyed by fire but that was beyond time. The plaintiff
had been guilty of suppression of facts in the proposal form while replying questions 8(a) and
(b) in the proposal form. He had formerly insured the same goods in the year 1957 with the
Ruby General Insurance Co. Ltd. and the shop was gutted in that year and the plaintiff’s claim
which was a huge amount was settled by that company at Rs. 14860/-. The plaintiff had not
complied with conditions 11 and 13 of the policy. Therefore he was not entitled to any
amount. The presence of the uninsured goods in the shop was also denied. Even if there were
any such goods the defendant was not liable for the loss alleged to have been caused to the
plaintiff by the fire of 5.11.61.
6. On these pleadings my learned predecessor-in-office framed the following issues in the
case:
(1) Is the suit properly stamped? OPP
(2) Is the plaint properly verified? OPP
(3) What was the value of the goods lying in the shop of the plaintiff at the time
of the fire on the night of 4/5th February 1961 and what was the value of the goods
damaged or destroyed by the fire?
(4) Is the plaintiff’s right to claim extinguished by lapse of time?
(5) Is the plaintiff’s suit not within time?
(6) Has the plaintiff been guilty of suppression of material facts and false
representation at the time of obtaining the policy from the defendant and as such is
the policy of insurance void and unenforceable and not binding on the defendant?
(7) Has the plaintiff not filed claim within the time stipulated in the policy and as
such he has forfeited all rights and claims under the policy?
(8) Is the claim of the plaintiff fraudulent?
(9) Was the fire occasioned by the connivance or wilful act of the plaintiff?
(10) Has the plaintiff’s goods of the value of Rs. 500/- been damaged or
destroyed in the fire of November 1962 in the same premises and if so, is he entitled
to get the sum of Rs. 500 from the defendant?
(11) Is the plaintiff not entitled to any relief as he has not filed the suit within 3
months of the rejection of his claim by the defendant as provided in the policy?
(12) To what relief is the plaintiff entitled?
12
7. One additional issue was framed by order of this court dated 4.10.62 which is to the
following effect:
(13) Is the declaration made in support of the suit claim made by the plaintiff true
and correct and if not has he forfeited all the benefits under the policy?
11. Before me some of the issues were not at all pressed. For instance, issues 1 and 2
were not at all discussed before me. Therefore, they will be deemed to have been waived.
The third issue relates to the value of the goods lying in the shop of the plaintiff at the time of
the fire on the night between 4/5th February 61 and the value of the goods damaged or
destroyed by fire. The plaintiff in support of this issue has produced the following witnesses:
12. Ama Shah states that the value of goods which were gutted by fire on the night
between 4/5th February 1961 in the shop of the plaintiff at Lambert Lane was of the value of
thirty to thirty-two to thirty-five thousand rupees. This witness states that he has been carrying
on the polishing of the wood carving articles of the plaintiff for a number of years. Mohd.
Shaban, who is a broker, states that the goods that were gutted by fire on the relevant night
were worth about Rs. 30,000/-. Similarly G.M. Mir who supplied paper machine goods to the
plaintiff states that the value of the goods destroyed by fire in the shop of the plaintiff was
between Rs. 25 to 30 thousand rupees. The plaintiff’s son also places the value of the gutted
goods between 25 to 30 thousand rupees. The plaintiff also in his own statement places the
same valuation. The evidence of these witnesses is based on their own estimate of the
valuation of the goods. No witness has or could possibly state the correct value of the goods
gutted. The plaintiff has produced some books, i.e., the sale book, the stock book and the
Counter-foils of certain cash memos. According to the plaintiff on the basis of these
documents he has fixed the valuation of the goods gutted as given by him in the plaint.
Although this evidence is not full proof, yet there is no direct evidence produced by the
defendant to contradict this evidence. The surveyor produced by the defendant Mr. V.N. Sarin
proprietor of Messrs. V.N. Sarin and Co. puts the estimated loss of goods at Rs. 6508.20, and
the furniture at Rs. 150/-.
13. The learned counsel for the defendant has criticized the account books produced by
the plaintiff and has stated that they were not genuine. They were prepared for the sake of this
case. The plaintiff from the very beginning had an evil design of setting fire to this shop
which contained a small quantity of goods, and to inflate and bolster up his false claim he got
those account books prepared. He has argued that the account books start right from the date
the insurance was effected. He has at length cross-examined the plaintiff’s son who has
admitted that he writes the accounts of the plaintiff alongwith another clerk, Mohd. Ishaq.
According to the learned counsel for the defendant the accounts have been prepared at one
time, being in the same ink and hand though covering a sufficiently long period of time. This
argument of the learned counsel for the defendant is not without force, but in view of the
ultimate fate that the case is to meet at any hands, I do not think I should very seriously probe
into the matter of the valuation of the goods that were gutted. I must therefore accept the
figure of loss sustained by the plaintiff as put by him as correct. Therefore issue 3 is decided
in favour of the plaintiff.
13
15. The case of the defendant is that under the terms of the policy of insurance the
plaintiff had to intimate the details of the loss to the defendant company within 15 days of its
occurrence. Further he had to institute a suit within three months of the rejection of the claim
by the defendant. The fire broke out admittedly on the night of 4/5th February. 61 The
plaintiff did in fact inform the defendant company’s branch at Srinagar on the morning of 5 th
February. The then SHO Kothibagh Mr. Abdul Rashid seized the books of the plaintiff from
his house on 5-2-61 and prepared a seizure list Ex. PW2/2. The books remained in the
custody of the police till 5-5-61. When the plaintiff moved the ADM Srinagar on 3-6-61; the
books were returned to him by means of a receipt Ex. PW 1/2 on 5-5-61, vide the statement of
Shambu Nath Head Constable Thana Kothibagh PW 1. It is therefore conceivable that the
plaintiff was not in a position to give a detailed list of the articles which were burnt to the
defendant company within 15 days. The plaintiff has however given a detailed list of the loss
caused to him on 9th May 61. The defendant’s contention was based on condition 11 of the
policy which runs as under:
“On the happening of any loss or damage the insured shall forthwith give notice
thereof to the company and shall within 15 days after the loss or damage or such
further time as the company may in writing allow in that behalf, deliver to the
Company.
(a) A claim in writing for the loss or damage containing as particulars an account
as may be reasonably practicable of all the several articles or items of property
damaged or destroyed, and of the amount of the loss and damage thereto respectively,
having regard to their value at time of the loss or damage not including the profit of
any kind.
(b) Particulars of all other insurances, if any the insured shall also at all time at
his own expense produce, procure and give to the company all such further
particulars, plans, specifications, books, vouchers, invoices, duplicate or copies
thereof, documents, proof and informations with respect to the claim and the origin
and cause of the fire and the circumstances under which the loss or damage occurred,
and any matter touching the liability or the amount of the liability of the company as
any, be reasonably required by or on behalf of the company together with a
declaration on oath or in other legal form of the truth of the claim and of any matters
connected therewith.
No claim under this policy shall be payable unless the terms of this condition
have been complied with.”
16. According to the defendant the plaintiff did not supply the detailed list within 15 days
of the occurrence of the fire, and therefore the plaintiff forfeited his right under the policy.
Emphasis was laid on the last portion of this condition which says that no claim under this
policy shall be payable unless the terms of this condition have been complied with. But I
think it was physically impossible for the plaintiff till the 5th of May 61, to give a complete
and detailed list of the loss sustained by him as his books were with the police. Therefore to
that extent the plaintiff has an explanation or a justification in not supplying the detailed list
to the company within 15 days of the damage. But there is the second part of this matter
which is covered by condition 13 of the policy. This condition runs as under:
14
“If the claim be in any respect fraudulent or if any false declaration be made or used
by the insured or anyone acting on his behalf to obtain any benefit under this policy,
or if the loss or damage be occasioned by the wilful act or with the connivance of the
insured, or if the claim be made and rejected and an action or suit be not commenced
within three months of such rejection, or in case of an arbitration taking place in
pursuance of the 18th condition of this policy within three months after the arbitrator
or arbitrators or umpire shall have made their award, all benefits under this policy
shall be forfeited.”
17. In this case we have it in the evidence of Mr. Jaipal Bahadur D.W. 2 Chief Regional
Manager of the defendant company Northern India that the claim of the plaintiff was rejected
by means of a letter of the company dated 25.2.61. The same thing has been testified to by
Mr. R.N. Dubash D.W. 5 who has been an employee in this concern from 1957 and is now the
O/c of the Company at Srinagar. According to him the company rejected the claim of the
plaintiff on 25.2.61. There are a number of letters also which reiterate and refer to the initial
letter of the defendant dated 25.2.61. All these letters are signed by Mr. K.B. Pestonjee who
was then incharge of the Srinagar branch and is now in Manila and therefore incapable of
appearing before the court. His signatures have been identified by Mr. R.N. Dubash.
18. The suit was instituted on 1-2-62 which is clearly about a year after the rejection of
the claim of the plaintiff by the defendant. Therefore in terms of this policy the right of the
plaintiff to recover the suit amount is extinguished. In the proposal form Ex. D.W. 4/1 the
condition is that the declaration made in this form shall be the basis of the contract between
the parties. The insurance company agrees to compensate the insured only subject to the
conditions mentioned in the policy which appear on the back of the policy.
19. An argument has been advanced that the condition of instituting legal proceedings
within three months of the rejection of the claim of the insured by the insurance company is
against section 23 and 28 of the Contract Act. Section 28 reads as under:
“Every agreement, by which any party thereto is restricted absolutely from enforcing
his rights under or in respect of any contract, by the usual legal proceedings in the
ordinary tribunals, or which limits the time within which he may thus enforce his
rights, is void to that extent.”
20. Section 23 of the Contract Act makes the following agreements as unlawful: If they
are forbidden by law or are of such a nature that if permitted would defeat the provisions of
any law, or are fraudulent, or involve or imply injury to the person or property of another, or
if the court regards them as immoral or opposed to public policy. A list of illustrations is
appended to this section.
22. Section 28 makes all agreements in restraint of legal proceedings void.
23. It is argued that such an agreement is immoral and opposed to public policy and
further it curtails the ordinary period of limitation. I need not consider these sections in detail
because the matter is completely covered by authority. It will surely be a waste of time to
embark on a discussion of the points raised. The following authorities may be mentioned:
15
In Porter’s Law of Insurance (6th Edn.) page 195 it is stated that insurance may lawfully
limit the time within which an action may be brought to a period less than that allowed by the
statute of limitation and that the true ground, on which the clause limiting the time of claim
rests and is maintainable is that, by the contract of the parties the right to indemnity in case of
loss and the liability of the Company therefor do not become absolute, unless the remedy is
sought within the time fixed by the condition in the policy. In AIR 1924 Cal 186 some
English cases were discussed and condition No. 13 of the policy as in the present case was
there. The condition amongst other things stated:
“If the claim be made and rejected and an action or suit be not commenced within 3
months after such rejection and in the case of arbitration taking place in pursuance of
the 18th condition of this policy within three months of the arbitration when the
arbitrator or the umpire shall have made the award, all benefits under the policy shall
be forfeited.”
In this case an action commenced after the stipulated period of three months was held to
contravene neither section 23 nor section 28 of the Contract Act.
27. The latest authority on the subject is AIR 1966 All 385 wherein according to a clause
in the loss-cum-fire insurance policy the insured had to file within 15 days of the loss a
complete claim giving full particulars. The loss occurred on 18-8-47. Insured sent a telegram
on 21-8-1947 as “sugar is looted. Please note.” The company replied on 25.8.47 asking for
policy number and circumstances of loss. The insured sent reply on 8.9.47 giving some
particulars. Even this did not give all particulars. The company ultimately rejected the claim.
On these facts it was held that the communication was beyond 15 days. The mere fact that the
application under section 13 of the Displaced Persons (Debts Adjustment) Act 1951
regarding the claim of the insured who was a displaced person was within time, would not
entitled him to get any relief in respect of the loss.
28. In this case even if the plaintiff was entitled to any relief he had forfeited all rights
under the policy when he failed to bring his suit within three months of 25th February 61
when his claim was rejected by the insurance company. The claim was not rejected only once,
but the basic stand taken by the company in its letter of 25.2.61 was repeated in a number of
letters, for instance, D.W. 5/2 dated 28.2.61, D.W. 5/3 dated 27.12.61, D.W. 5/4 dated
21.11.61 and D.W. 2/1 dated 27.6.61. The plaintiff had no justification to wait till 1.2.62 to
file the suit. By that time his right had been completely extinguished.
29. In this way issues 4, 5, 7 and 11 are decided against the plaintiff. His suit is clearly
time-barred.
30. The second group of issues that can be conveniently taken up together is Nos. 6, 8,
and 13. The case of the defendant is that the plaintiff has been guilty of suppression of
material facts and has made a false representation at the time of obtaining the policy from the
defendant. His claim cannot therefore be entertained. Emphasis on this aspect of the case is
laid on the reply of the plaintiff to question 8(a) and 8(b) of the proposal Ex. D.W. 4/1 which
is as under:
8 (a) Has the property been insured in the past or at the present time? If so, give
full particulars.
16
8(b) Have you sustained loss. Give full particulars.

To both these queries the plaintiff has said ‘No.’
31. The contention of the learned counsel for the defendant is that the plaintiff had
insured the goods of his shop with another insurance company in the year 1957 namely, the
Ruby General Insurance Co. During that year also his shop was gutted by fire. He made a
claim for Rupees 25,000/- from the Insurance Company, but his claim was settled at Rs.
14807/-. According to the Manager of the Ruby General Insurance Co., Mr. D.N. Chopra, the
settlement was arrived at on 24.2.58. The shop of the plaintiff had caught fire on 24.4.57 and
the policy of insurance with that company had come into force for one year from 9.10.56 to
9.10.57. The plaintiff and his son admitted this previous insurance, but their case was that the
plaintiff is an illiterate person who does not know English. He only know how to sign ‘K.A.
Bulbul’ and at the time of entering into the present contract he was not explained the terms of
the proposal form or of the insurance policy. D.W. 4 Abdul Ahad Sheikh, Inspector of the
New India Assurance Co. has deposed on solemn affirmation that he filed in the form Ex.
D.W. 4/1 on 5th June 60 and the answer that he entered against each query in the proposal
form was at the instance of the plaintiff. He made the plaintiff understand all the questions
and recorded his answers. Col. No. 8 was also filled at the instance of the plaintiff. The
plaintiff signed the proposal form after knowing the contents thereof. The plaintiff however
tried to negative this evidence by the statement of Gulla Khan who says that the plaintiff is an
illiterate person. In view of the statement of Abdul Ahad Sheikh and reading in between the
lines the statement of the plaintiff himself, it is difficult to hold that the plaintiff was not put a
specific question whether he had not insured this property with another insurance company
earlier. I feel that the plaintiff purposely withheld this information from the insurance agent
because when previously he had insured the goods of the shop with the Ruby G. Insurance
Co. and his shop had caught fire he had claimed Rs. 25000 but was given only Rs. 14000 and
odd. Feeling somewhat apprehensive about the state of affairs then, he wilfully suppressed
this fact from the defendant insurance company. So on facts it is proved that the plaintiff has
made a false statement in reply to question No. 8.
32. Now we have to see what is the legal effect of this false statement. The law on this
point is so well settled both in England and India that it does not require any elaborate
discussion. Anyhow the following authorities may be mentioned.
33. The effect of non-disclosure or misrepresentation is that the insurers have the right to
repudiate, that is to say, to avoid contract.
34. Where, however, insurers answer a claim by repudiating the policy on the ground of
fraud, misrepresentation or non-disclosure, they are not bound to offer a return of premium
39. The matter has again been fully discussed in AIR 1962 SC 814 where a policy holder
who had been treated a few months before he submitted his proposal for the insurance of his
life with the insurance company by a physician of repute for certain serious ailments as
anaemia, shortness of breath and asthma, not only failed to disclose in his answers to the
questions put to him by the insurance company that he suffered from these ailments but he
made a false statement to the effect that he had not been treated by any doctor of any such
serious ailment, it was held that judged by the standards laid down in section 17 Contract Act,
17
the policy holder was guilty of a fraudulent suppression of material facts when he made his
statements, which he must have known were deliberately false and hence the policy issued to
him relying on those statements was vitiated. In the circumstances of the case it was held that
no advantage could be taken of the Explanation to section 19 of the Contract Act. In this case
it was further held:
“Where, according to terms of the life insurance policy, all moneys that had been
paid in consequence of policy would belong to the insurance company if the policy
was vitiated by reason of a fraudulent suppression of material facts by the insured,
and the contract is bad on the ground of fraud, the party who has been guilty of fraud
or a person who claims under him cannot ask for a refund of the money paid. It is a
well established principle that courts will not entertain an action for money had and
received where, in order to succeed, the plaintiff has to prove his own fraud. Further
in cases where there is a stipulation that by reason of a breach of warranty by one of
the parties to the contract, the other party shall be discharged from the performance of
his part of the contract, neither S. 65 nor S. 64 of the Contract Act has any
application.”
40. In view of all these authorities, it is clear that the plaintiff simply on the ground that
he gave a false reply to questions 8(a) and (b) in the proposal form cannot claim any
compensation for fire having been caught by the goods in his shop. In this case the question
was very material and withholding of the real information from the insurance company would
automatically absolve the insurance company from any liability under the contract. As already
remarked, the Privy Council has gone to the length of holding that the answers to a question
being material or immaterial, would not make any difference. The plaintiff's suit would
therefore fail on this account alone.
41. Issue 8 is not very clear but I have grouped it with issues 6 and 13. In my opinion this
issue is based on the fraud alleged to have been committed by the plaintiff in suppressing the
material information regarding the previous insurance of the goods of his shop with the Ruby
General Insurance Co. in the year 1957. But if this issue is construed as suggesting that the
claim of the plaintiff is not bonafide, I have given my finding already that all the weaknesses
that the plaintiff's case may have, it can be safely held that it is proved that he lost goods of
the valuation mentioned in the plaint during the fire. So these observations dispose of issues
6, 8 and 13.
42. The learned counsel for the defendant has laid great stress on the fact that the fire was
caused by the wilful act of the plaintiff. No doubt the plaintiff's conduct is somewhat not
above suspicion. According to the plaintiff and his witness Ama Shah, his son Safdar Ali and
the plaintiff himself they closed the shop as usual at about 7.30 in the evening. The shop
caught fire in the night. The plaintiff or anybody on his behalf did not repair to the scene of
occurrence till 10 the next morning. The plaintiff says that he did not know about the
occurrence. Although this statement would seem improbable, but there is nothing on the file
to clearly contradict this statement of the plaintiff. The police registered the case as a
suspicious one and conducted investigation but later on the police also discovered that the fire
was accidental (Vide the statement of Abdul Rashid P.W. 2). The defendant has led no
positive evidence to show that the plaintiff himself set the goods of his shop on fire. The
18
defendant's case is based on certain suspicious entries in the account books of the plaintiff and
on the conduct of the plaintiff. But that by itself is not sufficient to hold that the plaintiff
himself wilfully set his shop on fire or connived at it. In my opinion this issue should be
decided against the defendant.
43. The plaintiff claims Rs. 564.50 as the value of uninsured goods which caught fire on
November 3, 1961 because according to him the keys of the shop were still with the
defendant company. In the first place the plea of the plaintiff that the shop remained under the
possession and lock and key of the defendant up to 3rd November 61 is not established. Apart
from that fact unless it is shown that the destruction by fire of this uninsured goods was the
result of the negligence of the defendant, no responsibility can be fastened upon the
defendant. If the plaintiff's case were that he was present on the scene of occurrence on
November 3, 1961 to salvage his merchandize, but for the fact that the shop was locked by the
defendant, there was some case for the plaintiff. But there is no such suggestion on the part of
the plaintiff. Even if the shop was under the lock and key of the defendant and it caught fire
which was accidental the defendant would not by the mere fact of the destruction of the goods
therein be liable for the damage. Therefore, in my opinion, the plaintiff cannot even claim this
amount.
44. From the finding on the issues recorded above, the plaintiff's suit has to be dismissed
and is hereby dismissed.
*****

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History of insurance

The history of insurance describes the development of

These new insurance contracts allowed insurance to be

The subscription room at Lloyd’s of London in the early 19th

Insurance became more sophisticated in Enlightenment An 18th-century ﬁre insurance contract.

Lloyd’s Coﬀee House was the ﬁrst marine insurance company.

At the same time, the ﬁrst insurance schemes for the

3.4 Accident insurance

The Railway Passengers Assurance Company was founded in

In the late 19th century, “accident insurance” began to be-

[17] “Importance of the archive”. The Actuarian Profession.

[18] “Today and History:The History of Equitable Life”.

[27] Bentley B. Gilbert, British social policy, 1914-1939 (1970)

• Prudential Insurance Company of America, ed. The

• Alborn, Timothy. Regulated Lives: Life Insur-

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-2

The insurer agrees to pay no more than the

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-3

• In property insurance, indemnification is

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-4

• There are some exceptions to the principle

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-5

The insured must be in a position to lose

• When must insurable interest exist?

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-7

Substitution of the insurer in place of the

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-8

• The insurer is entitled only to the amount it

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-9

A higher degree of honesty is imposed on

•Supported by three legal doctrines:

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-10

• Representations are statements made by

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-11

• A concealment is intentional failure of the

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-12

• To be legally enforceable, an insurance

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• Courts have ruled that any ambiguities or

Copyright ©2014 Pearson Education, Inc. All rights reserved. 9-15

• An agent is someone who has the authority

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• An agent’s authority comes from three

• Waiver is defined as the voluntary

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Insurable Interest means an interest which can be or

create an insurable interest either by granting

• Trustees are legal owners and beneficiaries or the

beneficial owner of the trust property and each

In property insurance, this requiremen t is intended to indemnify the insured

General rule requires that an applicant-beneficiary have an insurable interest

regard of the insurable interest rule cannot be justified. It is public policy

in relation to the applicant-beneficiary without insurable interest. Therefore, the

26Magee, Life Insurance 326 (3d ed. 1958).

who is subsequently acquitted in a criminal action, the beneficiary generally cannot

31New York Life Ins. Co. v. Murdaugh, 94 F. 2d 104 (S.C. 1938).

3918 Colum. L. Rev. 381, 389 (1918).

Available online at http://journals.researchub.org

The Principle of Indemnity in Insurance Law

Mohammad Reza Marandi1*, Rajabali Moradmahi2

* Corresponding author: mr.marandi@yahoo.com

2. Materials and methods

2.1 Definition of Concepts: