PRINCIPLES OF INSURANCE CONTRACTS UNDER COMMON LAW

1. Insurable Interest

One of the most fundamental principles of insurance law under common law is the
requirement of an insurable interest. An insurable interest is a financial interest in the subject
matter of the insurance contract. The insured must have an insurable interest in the property
being insured at the time the policy is issued and at the time of the loss. The purpose of the
insurable interest requirement is to prevent individuals from taking out insurance policies on
property in which they have no interest or insuring against events in which they have no
stake.

2. Utmost Good Faith

Another fundamental principle of insurance law under common law is the principle of utmost
good faith. This principle requires both the insurer and the insured to act in good faith and
deal with each other fairly and honestly. The insurer must disclose all material information
about the risks being insured, and the insured must disclose all material information about the
property being insured. Failure to disclose material information can result in the insurance
contract being voided.

3. Indemnity

The principle of indemnity is another fundamental principle of insurance law under common
law. Indemnity means that the insured should be restored to the same financial position that
he or she was in prior to the loss. The insurer is not liable for any amount beyond the actual
loss suffered by the insured.

4. Subrogation

Under the principle of subrogation, the insurer is entitled to step into the shoes of the insured
and pursue any claims that the insured may have against third parties who are responsible for
the loss. This principle helps to prevent the insured from profiting from a loss by allowing the
insurer to recover any amounts that the insured may have received from third parties.