- Insurable interest requires that the insured has a financial stake in the insured subject both at the start and at the time of loss. This differs from gambling. - Utmost good faith requires full disclosure of all material facts and maintains throughout the contract period. Failure to do so through non-disclosure or misrepresentation makes the contract voidable. - The insurer's liability is generally limited to indemnifying the insured for their actual financial loss up to the sum insured under the policy terms. Subrogation and contribution principles apply when multiple parties are liable for the loss.

1. RISK ANDRISK AND
INSURANCEINSURANCE
PRINCIPLES OF
INSURANCE

2. INSURABLE INTEREST (i.i)
 One major difference
between insurance
and gambling is the
the former has to be
supported by
insurable interest.

3. Subject Matter of Insurance - Contract
 Subject matter of insurance is the life,
limbs, property, rights or any potential
legal liability insured under a policy.
 Subject matter of contract is the insured’s
financial interest in the subject matter of
insurance.

4. What is i.i
 The right to insure arising out of legally
recognized financial interest which a
person has in the subject matter of
insurance.
 Which is the financial interest that is
recognized under the common law or
statute.

5. When i.i must exist?
 At the time of inception and at the time of
loss.
 EXCEPT:
– Life insurance – at the time of inception
– Marine – at the time of loss

6. ASSIGNMENT
 The transfer of rights
and liabilities by one
person to another.
 An assignee, the
person who takes over
the assignment rights
will have no better
rights that those
enjoyed by the
assignor.

7. Exception of the Rule
 Marine Policies
– Freely assignable by statutory provision. Only
cargo policies are freely assignable.
 Life Policies
– Freely assignable by statutory provision

8. Assignment of Policy Proceeds
 Arises when an insured instructs his
insurer to pay the policy proceeds to a
third party.
 The insurer remains a party to the
insurance contract and continue to assume
liabilities under it.
 All policy proceeds are freely assignable
under the policy unless the contract
provides otherwise.

9. UTMOST GOOD FAITH (UGF)
 Subject to duty of
good faith in relation
to disclosure during
negotiation.
 The buyer should ask
questions if the need
more information
(caveat emptor – let
the buyer beware)

10. Duty of UGF and
Contractual duty of UGF
 Positive duty (of the insured) to disclosed fully
and accurately all material facts that he (the
insured) knows or ought to know, whether asked
for or not by the insurer.
 The proposal form commonly contain a
declaration to the effect that the particulars given
in the proposal is true and correct.
 By signing the form, the proposer warrants the
truth of this statement.

11. Material Fact
 A fact which would influence the
PRUDENT underwriter in accepting the
risk or fixing the premium.

12. Duration
 Lasts until the completion of the insurance
contract.
 If any changes in teh material facts occur
after they have been intimated to the
insurer but before the completion of the
contract, the proposer is required to notify
the changes to the insurer otherwise the
contract would be voidable.

13. Breaches of UGF
 Breaches of UGF is committed the contract is
voidable.
 Breaches of UGF if:
- Fails to provide the insurer with information
relating to the material fact, consider as non-
disclosure or
- Misrepresent a material fact, i.e
incorrect information relating to a
material fact, termed as
misrepresentation.

14. PROXIMATE CAUSE
 When a loss has
occurred the onus is
on the insured to
prove that the loss in
respect of which a
claim is made was
caused by the
operation of an
insured peril.

15. Definition
 The active, efficient cause that sets in
motion a train of events which brings
about a result, without the intervention of
any force started and working from a new
and independent source.

16. INDEMNITY
 To make good a loss
or damage.
 When the insured has
measurable insurable
interest the contract of
insurance will be a
contract of indemnity.

17. Methods and Measures
 1C 3R
– Cash
– Repair
– Replace
– Reinstate
 Measure
– Total Loss
• Method 1 Reinstatement /
Replacement – deduct wear and
tear
• Method 2
Market Value of a property
similar to the one destroyed
– Partial Loss
• Cost of repair

18. Factors Limiting Indemnity
 Sum Insured
 Average Condition
 Policy Excess
 Franchise

19. Policies Which Pay More Than
Indemnity
 Reinstatement Policies
 Agreed Additional Costs
 Valued Policies

20. SUBROGATION
 Taking the rights belonging
to an insured by the insurer
after the latter has
indemnified the insured.
 Rights including those
rights against third parties
who are also liable for the
loss which is the subject of
the claim and the right of
the insured in the salvage.

21. Subrogation rights may arise
 Subrogation arising from tort
 Subrogation arising out of contract
 Subrogation arising out of a statute
 Subrogation arising out of salvage

22. CONTRIBUTION
 The amount which
each insurer has to
contribute to the cost
of a loss when the loss
is covered by two or
more insurers

23. Principle of contribution and
reason for necessary
 Principle of indemnity – an insurer who has
indemnified the insures may call upon the other
insurers who are similarly liable for the loss to
contribute to the payment of indemnity.
 If the insured is allowed to recover from more
than one insurer for the same loss, he may
recover more than the loss, because there is no
enrichment out of insurance claim.

24. Conditions
 2 or more policies of
indemnity exists.
 The policies must
cover a common
interest.
 The policies must
cover a common peril
which gives rise to the
loss.
 The policies must
cover a common
subject matter.
 Each policy must be
liable for the loss.