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8/13/2019 Principles of Insurance: Indemnity
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Chapter
Principles of Insurance
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INDEMNITY : GENERAL
FEATURES1.This means the object of insurance
contracts is to place the insured, as nearly
as possible, in the same financial position
after a loss as that occupied immediately
before the happening of the insured event.
2.Indemnity is linked with insurable interest.
Is not necessarily provided by means of amoney payment, as reinstatement, repair or
replacement is sometimes convenient to
both parties.
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INDEMNITY APPLIED TO VARIOUS
BRANCHES OF INSURANCE
Marine The ship (hull) allows for a fair value to the ship owner,
and the cargo policy allows the merchant to insure hisprofit as well as the actual cost price of the goods. Inother words, a commercial indemnity, instead of a strictindemnity is provided.
In the event of total loss, the measure of indemnity is thevalue fixed by the policy. where there is a partial loss of
goods, a settlement is made of a proportion of the greedvalue according to the amount of depreciation. In theevent of a partial loss of a ship, the indemnity isrepresented by the cost of repairing the damage.
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Fire and accident( other than personal accident)
Life and personal accident:
The amount of life assurance that a man can effect isnormally controlled by his ability to pay premiums and is
thus roughly scaled to his position in life. In personal
accident insurance, insurers Endeavour to ensure that
the amount of weekly benefit provided in the event of
disablement is in line with the insureds normal earning
capacity.
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METHODS OF PROVIDING INDEMNITY
(a) Cash payment
(b) Repair
(c) Replacement (d) Reinstatement
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SUBROGATION
Subrogation is the right which one
person has of standing in the place of
another and availing himself of all therights and remedies of that other,
whether already enforced or not.
It does not apply to personal accident
or life policies.
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HOW SUBROGATION ARISES
(a)Rights arising out of tort
(b) Rights arising out of contract
(c) Rights arising by statute
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WHEN SUBROGATION ARISES
Fire and accident
Marine
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EXTENT OF SUBROGATION
A policyholder is under insured and
more is recovered from a negligent
third party than the amount paid bythe insurer under the policy, the
balance belongs to the policyholder.
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Principle of Contribution
Contribution is the right of an insurer who
has paid under a policy, to call upon other
insurers equally or otherwise liable for the
same loss to contribute to the payment.
It supports the principle of indemnity and
applies only to the contracts of indemnity.
But in case of medical expenditure
incurred is subject to contribution.
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When the doctrine operates
When the same person insures same
interest with more than one office.
The policies concerned must cover the same
peril, which caused the loss
They must protect the same interest of the
same insured
They must relate to the same subjectmatter They must have been in force at the time of
the loss
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Order of contribution
LossXinsuredsumTotal
officeindividualwithinsuredeSum
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DIFFERENT INTERESTS: NO
CONTRIBUTION
It is possible for Circumstances to arise in
which two insurers may each have to pay
the same loss in full because different
interests are involved.
Where different interests are involved, one
insurance is usually effected in the joint
names.
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Principle of UTMOST GOOD
FAITH
Contracts of insurance are different becauseone party to the contract alone-the prosper-knows, or ought to know, all about the riskproposed for insurance, and the other party-theinsurer has to rely largely upon the informationgiven by the prosper in his assessment of thatrisk. For this reason, insurance contracts arecontracts of the utmost good faith.
The failure of one party to exercise the utmostgood faith enables the aggrieved party torepudiate the contract.
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DUTY OF DISCLOSURE
It is the duty of the proposer to disclose,
clearly and accurately, all material facts
relating to the proposed insurance. It is a
positive, not a negative duty. It is confined,however to matters of fact; it does not
include matter of opinion.
Material Fact
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Duration of the duty of disclosure
The duty must be observed throughout the
negotiations, and continues until they are
completed and the contract is operative.
If an alteration is made to an existing
policy, the duty applies so far as that
alteration is concerned.
Disclosure by agent effecting insurance
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MATERIAL FACTS
(a) Facts which tend to render a risk proposedgreater than normal.
(b) Facts necessary to explain the exceptional
natureof a risk proposed for insurance.
(c) Facts which appear to suggest some special
motivefor insurance.
(d) Facts which show that the proposer himself
is in some way abnormal.
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Facts which need not to be
disclosed
(a) Facts which lessen the riskproposed
for insurance.
(b) Facts which could or should be
inferred by the insurer in the light of the
particulars actually disclosed.
(c) Facts of public knowledge
(d) Matters of Law
(e) Facts possible of discovery
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(f) Facts which it can be reasonably
concluded are a matter of indifferenceto
the insurer.
(g) Facts which it is superfluous to
disclose by reason of a warranty in the
proposed insurance.
Facts which need not to be
disclosed
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Representation
A representation is a statement, verbal or
in writing made by the proposer to the
insurer bearing on a risk to be insured.
Every such representation, if material,
must be substantially true.
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Warranty
A warranty is an undertaking by the
insured to the effect that he shall or shall
not do a certain thing or that some
condition shall be fulfilled.
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Distinction
A representation must be substantially true
and a warranty must be strictly complied
with.
Misrepresentation should relate to material
fact but breach of warranty can be material
or immaterial
Representation does not appear in the
policy but warranty appear in the policy
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Breaches of the duty
Non disclosure
Concealment
Innocent misrepresentation
Fraudulent misrepresentation
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On discovery of a breach
To overlook the breach
To repudiate liability
To bring an action for cancellation of thepolicy
If the policy is matured, the insurer may
make no payment and simply leave the
insured to take proceedings which the
insurer will defend
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Void Contract
Voidable Contract
Unenforceable Contract
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Principle of Proximate Cause
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Rules of Proximate Cause
Single Cause
Concurrent Cause
Unbroken Sequence
Broken Sequence