LL.B.

(Hon’s) semester – II “Insurance Law”

Law of Insurance-(Unit I&II)

INTRODUCTION: - Risk and Uncertainty are very much incidental to life. One
can meet or suffer such uncertainty any time untimely death, accident, distraction
of property due to fire, flood, earthquake and other natural calamities are the few
examples of it. So, we can say that whenever there is uncertainty, there is risk as
well as insecurities. To cover all these risks & insecurities the insurance came into
existence. Insurance does not avert or eliminate loss arising from such uncertain
events but it only spreads the loss over a large no of people insure themselves
against the risk.

Future is unknown and uncertain. Insurance is co-operative way of spreading the

loss by following the principle of pooling the risks. Insurance may be described
social device to reduce or eliminate risks of loss to life and property. It is a
provision which a prudent man makes against inevitable contingencies, loss or
misfortune.

Meaning: - Insurance is a contract by which an insurer undertakes to compensate

an insured against a specified risk in consideration of premium. Insurance may be
described as a social device to reduce or eliminate risks or loss to life and property.
It is a provision which a prudent man makes against inevitable contingencies, loss
or misfortune.

Insurance provides financial protection against a loss arising out of happening of a

uncertain event. A person can avail this protection by paying premium to an
insurance company.

A pool is created through contributions made by persons seeking to protect

themselves from common risk. Premium is collected by insurance companies
which also act as trustee to the pool. Any loss to the insured in case of happening
of an uncertain event is paid out of this pool. Insurance works on the basic
principle of risk-sharing. A great advantage of insurance is that it spreads the risk
of a few people over a large group of people exposed to risk of similar type.
Definition: - Insurance is a contract between two parties whereby one party agrees
to undertake the risk of another in exchange for consideration known as premium
and promises to pay a fixed sum of money to the other party on happening of an
uncertain event (death) or after the expiry of a certain period in case of life
insurance or to indemnify the other party on happening of an uncertain event in
case of general insurance.

The party bearing the risk is known as the ‘insurer’ or the ‘assurer’ and the party
whose risk is covered is known as the ‘insured’ or ‘assured’.

Contract of Insurance: - A contract of insurance is a contract by which a person

(insurer) inconsideration of a sum of money (called premium), undertake to make
good the loss of another (insured) against a specified risk (called subject matter)
i.e. fire, accident, death, etc.

 The person undertaking the risk is called – insurer, assurer, or under writer.
 The person whose loss is to be made good is called – insured or assured
 The consideration for which the insurer undertakes to indemnify the assured
against any of the risk is called – premium (it may be in cash or kind, single
or periodical payment). The rate of premium is determined by the insurer by
taking into account the average of losses, the circumstances affecting the
risk in a particular case and the contribution (premiums) that he receives.
 The instrument in which the contract of insurance is generally embodied is
called – the policy (it is not the contract but it is the evidence of the contract)
 The thing or the property insured is called – the subject matter of insurance
 The uncertain events or casualties i.e. destruction of or damage to the
property or the death or disablement of a person, are called perils insured
againsed.
 The interest of the assured in the subject matter is called – his insurable
interest.
 Concept of Insurance: - The concept behind insurance is that a group of
people exposed to similar risk come together and make contributions
towards formation of pool of funds. In case as person actually suffers a loss
on account of such risk, he is compensated out of the same pool of funds.
Contribution to the pool is made by a group of people sharing common risks
and collected by the insurance companies in the form of premium.
  Exposures are known but the losses cannot be determined before they occur.
But they can be certainly reimbursed when they occur.
 Thus, in substance, insurance is related to protection of economic value of
asset.
 Insurance has the following essential features –they are
 Principle of indemnity.
 Pooling of risk principle.
 Principle of spreading the risk.

 Features of Insurance:- It has the following essential features:

 1. Principle of indemnity.
 2. Pooling of risk principle.
 3. Principle of spreading the risk.

Fundamental elements of insurance-

1. Essential elements of a valid contract- A contract of insurance is a species

of the general contract. It must have, like other contracts, all the essentials of
a valid contract.

2. Utmost good faith- Insurance is the contract of uberrimae fidei. The

assured must disclose to the insurer all material facts known to him. A mis-
statement or withholding of any material information is fatal to the contract
of insurance.

3. Indemnity- A contract of insurance (except life, personal accident and

sickness instances) is a contract of indemnity. In case of loss the assured is
paid the actual amount of loss not exceeding the amount of the policy.

4. Insurable interest- It is the legal right of a person to insure. It means that

the assured must be situated with regard to the thing insured that he would
benefit from its existence and suffer loss from its destruction. In life
insurance, insurable interest must be present at the time when the insurance
is taken, in fire it should be there at both the time i.e. (Beginning and at the
time of loss), and in the marine insurance only at the time of loss.
5. Causa proxima- The assured can recover the loss only if it is proximately
caused by any of the perils insured againsed and not by any remote cause.

6. Risk must attach- The insurer must run a risk in a contract of insurance. If
for any reason the risk is not run, the consideration fails, and the insurer
must return the premium.

7. Mitigation of loss- In the event of some mishap to the insured property, if

the assured does not take necessary steps to mitigate the loss, the insurer can
avoid the payment of loss which is attributable to the assured negligence.

8. Contribution- Where there are two or more insurances on one risk, the
principle of contribution applies as between different insurers. The aim of
contribution is to distribute the actual amount of loss among the different
insurers who are liable under different polices in respect of the same subject-
matter.

9. Subrogation- The doctrine of subrogation is a corollary to the principle of

indemnity. According to it, the insurer who has agreed to indemnify the
assured on making good the loss, is entitled to succeed to all the ways and
means by which the assured might have protected himself againsed the loss.
Contract of Insurance: - A contract of insurance is a contract by which a person
(insurer) inconsideration of a sum of money (called premium), undertake to make
good the loss of another (insured) against a specified risk (called subject matter)
i.e. fire, accident, death, etc.

Classification of contract of Insurance

Insurance can be classified into the following categories:-

 On the basis of nature of insurance:-

 Life insurance
 Fire insurance
 Marine insurance
 Social insurance, and (Sickness, Death, Disability, Old age insurance).
 Miscellaneous insurance (Vehicle, personal accident, Burglary, crop, cattle,
medical, jewellery insurance etc).
The Insurance business in India is governed by the following Acts:-

1. The Insurance Act, 1938.

2. The Life Insurance Corporation Act, 1956.
3. The Marine Insurance Act, 1963.
4. The General Insurance Business Act, 1972.
5. The Insurance Regulatory and Development Authority Act, 1999.

Classification of Insurance:- There are two type of insurance namely life and non
life insurance. In life insurance, the protection is given for the life of a human
being while in the case of General (non life) insurance the protection is extended
for assets and properties.
 Life insurance General Insurance

This is not a contract of indemnity. This is essentially an arrangement of

indemnity
Because it is very difficult to ascertain the It is easy to ascertain the economic value of
financial or monetary value of human life. an asset.

Intention may be Risk cover and or savings. Intention is only to cover the risk.

It is life time contract. It is yearly contract, subject to renewal.

Death is certain, only timing is uncertain. Event is totally uncertain.

Earning capacity of the insured is relevant.
Premium is based on sum insured, age at the
time of entry.
Premium is calculated with reference to
mortality table.
Economic value of asset is relevant.
It is not relevant.
Premium is calculated with reference to
experience of past losses, probable risk
factors and fixed tariff plans.

Assignment:- It means legal transference. A method by which the policy

holder can assign his interest in the policy to another person. An assignment
can be made by an endorsement on the policy document or as a separate
deed. Assignment can be of two types: - conditional & absolute. Assignment
is also an important document for the evidence of title.
Generally a contract cannot grant any profit to or impose any liability upon a
third person. This rule is modified in certain circumstances; a third person
may take the place of one of the original parties to the contract. Assignment
is legally recognized passing of interest in a property or in a right from one
person to another. It can be assigned in two ways voluntarily (as by way of
sale, mortgage or Gift) and through the operation of law (as in the case of
bankruptcy or death)
 Difference between nomination and assignment
1. Nomination is appointing some person(s) to receive benefits only
when the policy has a death claim. / Assignment is transfer of rights,
title and interest of the policy to some person(s).
2. In the case of nomination the policy continues to be at the disposal of
the assured during his life time/ on assignment the property in the
policy passes to the assignee.
3. In other words, by merely nominating someone, the right, title and
interest of the insured over the policy is not transferred straight
forwardly to that nominated person and remains with the insured
person only./In other words, the insured is bound to pass over the
benefits, claims and interests to the assigned person(s). Even during
the time the time insured is alive (or even prior to the death of the
insured person). Since the policy benefits are assigned till the time the
assignment is revoked once again.
4. A nominee gets only beneficial interest in the policy. He gets a right
in the policy only on the death of the assured/ an assignee gets the
rights of the owner of the policy and he may deal with the policy in
any manner he likes.
5. Nomination can be revoked any time before the maturity of the policy
by giving a notice to the insurer/ Assignment is irrevocable.

 Risk: - The concept is closely related to an uncertainty. Risk is defined as an

uncertainty, related to the occurrence of a loss. Important features of risk
are- unpredictable, uncertainty about the future event, deviation from desired
outcome & not favorable.
 In a competitive economy, risk bearing is essential. Since every one of us is
exposed to some or other risk, the best way is to accept the presence of risk
and manage the affairs without being affected.
 Basic terminologies which are fundamental to the concept of risk, are perils,
chance of loss and Hazards.
 Perils: - It is the cause, which results in loss. Ex. If a house is destroyed due
to fire, the fire may be termed as peril.
  Chance of loss: - It is likelihood of the occurrence of an event, casing a loss.
Ex. If from the past trends and experience, if out of 5000 vehicles, 50
vehicles are expected to meet with an accident resulting into loss, then
chance of loss can be taken as 1%.
 Physical Hazard: - Sometime the physical characteristics or attributes of an
object or of a unit or personal qualities of human being etc. increases the
chance of a loss. Ex. A bad weather condition increases the like hood of an
aero plane accident, defective electrical wiring of a building increases the
chances of loss by fire. The physical factors like body built, habits health
etc. also affect the decision of under-writers to accept or reject proposal.
 Moral Hazard: - Insurance is all about good faith from either side. This is
reflected in one of the essential principles of the insurance i.e. good faith.
Lack of good faith from either side can vitiate the contract of insurance.
Moral hazards are the part of nature and behaviour of a person.(carelessness,
dishonesty).
 Legal Hazard: - In many occasions, it become legally bound to insure certain
risk. Ex. Motor vehicle insurance is a requirement of the law of the country.
Classification of risk: - It can be classified into different categories on the
basis of nature, and characteristics of risk. Some classification is as follows:-
1. Property, liability and personal risk:-
2. Physical. Social and economic risk.
3. Speculative risk.(may give loss or profit0
4. Static (due to uncontrollable factors) and dynamic risk(change in business).
5. Fundamental risk( Group risk-due to economical, social , political changes)
6. Pure risk (personal in nature)
7. Subjective risk (due to mental/psychological reasons)
8. Objective risk (can be observed/ quantified/ measured)

Reinsurance- If an insurer has insured a venture in which the risk involved is

beyond his capacity, He may insure the same risk either wholly or partially with
other insurer. This is called Re-insurance.Re-insurance can be restored in all kinds
of insurances. The insurer has an insurable interest in the subject matter insured to
the extent of the amount insured by him because a contract of re-insurance is also a
contract of indemnity.
Double Insurance- Where the assured insures the same risk with two or more
independent insurers and the total sum insured exceeds the actual value of the
subject-matter, the assured is said to be over-insured by double insurance. But in
case of loss the assured cannot recover more than the actual amount of loss. This is
because a contract of insurance (other than life and personal accident insurance) is
a contract of indemnity.

Important questions

1. What is a contract of insurance? What is its nature? Explain the fundamental

principles of insurance.
2. What do you understand by insurable interest in connection with life, fire
and marine insurances?

3. What is the difference between a contract of insurance and a wagering

contract?
4. Differentiate between the followings:-
a. Life/ General insurance.
b. Assignment/ Nomination.
5. Write short notes:-
a. Re-insurance.
b. Double insurance.
c. Doctrine of contribution(with practical example)
d. Insurance is a contract of uberrimae fidei (utmost good faith)
e. Risk
 Insurance-origin and its types:- Insurance in the modern form
originated in the Mediterranean during 13/14th century. The earliest
reference to insurance has been found in Babylonia, the Greeks and the
Romans. The use of insurance appeared in the account of North Italian
merchant banks who then dominated the international trade in Europe
that time. Marine insurance is the oldest form of insurance followed by
life insurance and fire insurance. The patterns that have been used in
England followed in other countries also in these kinds of insurance.
History and development of Insurance in India
Insurance in the modern form originated in the Mediterranean during
13/14th century. The earliest references to insurance have been found in
Babylonia, Greeks and Romans.
The use of insurance appeared in the account of North Italian merchant
banks who then dominated the international trade in Europe that time.
Marine insurance is the oldest form of insurance followed by life
insurance and fire insurance. The patterns that have been used in England
followed in other countries also in this kind of insurance.

In India: - Insurance in India can be traced back to the Vedas. For

instance, Yogakshema, the name of life insurance Corporation of India’s
corporate headquarters, is derived from the Rig Veda. The term suggests that
a form of “community insurance” was prevalent around 1000 BC and
practiced by the Aryans.

Bombay Mutual Assurance society, the first Indian life assurance society,
was formed in 1870. Other companies like Oriental, Bharat and Empire of
India were also setup in the 1870-90s.

It was during the swadeshi movement in the early 20th century that the
insurance witnessed a big boom in India with several more companies being
set up.

As these companies grew, the Government began to exercise control on

them. The insurance Act was passed in 1912, followed by a detailed and
amended Insurance Act of 1938 that looked into investment, expenditure and
management of these companies’ funds.

By the mid-1950s, there were around 170 insurance companies and 80

provident funds societies in the country’s life insurance scene.
 In the absence of regulatory system, scams and irregularities were almost a
way of life at most of these companies. As a result, the government decided
to nationalize the life insurance business in India. The Life insurance
Corporation of India was set up in 1956 to take over around 250 life
companies.

For years thereafter, insurance remained a monopoly of the public sector. It

was only after the RN Malhotra Committee report of 1994 asking for
opening the insurance sector to private sectors and that the sector was finally
opened up to private sectors in 2001.

The Insurance Regulatory & Development Authority (IRDA), an

autonomous insurance regulator set up in 2000, has extensive powers to
oversee the Insurance business and regulate in a manner that will safeguard
the interest of the insured.

IRDA Act:- The office of controller of Insurance was replaced and a new
authority, called as IRDA i.e. Insurance Regulatory and development Authority
came into existence. This act also put an end to the monopoly of Life Insurance
Corporation of India over life insurance business and other nationalized insurance
companies and opened the gates even to private sector players. Entry norms have
been prescribed under this act. The powers, functions of this IRDA inter alia
include all those powers necessary to promote and ensure an orderly growth of this
business and reinsurance business. It is also intended to protect the interest of the
policyholders in matters relating to nomination, assignment, insurable interest,
settlement of claims, surrender value of the policy, condition relating to insurance
contract, to supervise the functioning of tariff advisory committee, etc.

This act has made elaborate provisions with respect to:

Entry and registration of insurance company.

Licenses for intermediaries, agents etc.

Investment of funds collected from policy holders.

Capital adequacy stipulations--- Minimum contribution from the promoter must
be Rs 100 crores in the case of Life Insurance business and Rs 200 crores for
General Insurance.

Solvency Margin—The manner in which the assets and liabilities of insurance

company are to be ascertained.

Settlement of disputes—IRDA have been given powers to settle the disputes

amongst the intermediaries and insurance companies.

Rule and regulations with respect to the advertisement to be issued by Insurance

Company (code for advertisement)

Minimum business—as per this IRDA Act, every insurance company has to do a
minimum rural or social business as prescribed by the authority.

Deposit with RBI— The insurance company is required to deposit with RBI,
certain percentage of its total gross premium in any financial year. In case of Life
Insurance business this is 1% and it is 3% in the case of general Insurance.

Regulations are also specified with reference to the appointment approval of

surveyors and loss assessors.

Maintenance of accounts, audit etc.

IRDA is the administrative agency for Indian insurance industry, and was formed
by the GOI for the supervision and development of the Insurance sector in India.
The IRDA was legally established by the IRDA Act which was enacted by the
Indian parliament in 1999.

The mission of the IRDA is to protect the interest of the policyholders, to regulate,
promote and ensure orderly growth of the insurance industry and matters
connected therewith or incidental thereto.

The Authority is of a ten member team consisting of:-

A chairman, five whole-time members and four part- time members.

Objectives of IRDA Act are as follows:--

 To protect the investor’s interest

 To promote orderly growth of insurance industry in the country, including
registration of insurance companies
 To administer the provisions of insurance acts
 To devise control activities needs for smooth functioning of the insurance
companies including investment of funds and solvency requirements to be
maintained by insurance companies
 To lay down the accounting methodology to be adopted
 To adjudicate on disputes.

Section 14 of the IRDA Act, 1999 lays down the duties, powers and functions
of the IRDA: - they are as follows

 Issue to the applicant a certificate of registration, renew, modify, withdraw,

suspend or cancel such registration,
 Protection of the interest of the policyholders in matters concerning
assigning of policy, nomination by policy holder, insurable interest,
settlement of insurance claims, surrender value of policy and other terms and
conditions of contract of insurance,
 Specifying requisite qualifications, code of conduct and practical training of
intermediary or insurance agents,
 Specifying the code of conduct for surveyors and loss assessors,
 Promoting efficiency in the conduct of insurance business, promoting and
regulating professional organizations connected with the insurance and re-
insurance business,
 Levying fees and other charges for carrying out the purposes of this act,
 Calling for information, inspecting, conducting enquiries, investigation and
audit of the insurer, intermediaries, insurance agents and other organizations
connected with the insurance business,
 Controlling and regulating the rates, advantages and terms and conditions
that may be offered by the insurers in respect of general insurance business
which is not been done by the insurance Act, 1938,
 Specifying the forms and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurance and
insurance intermediaries,
 Regulating investment of funds by insurance companies,
 Adjudication of disputes between insurer and intermediaries etc ,
 Supervising the functioning of the Tariff Advisory committee;
 Specifying the percentage of life and non life business to be done by the
insurer in the rural or social sectors, and
 Exercising such other powers as may be prescribed.
 Social Insurance: -- social insurance has been developed to provide
economic security to weaker sections of the society who are unable to pay
the premium for adequate insurance. The following types of insurance can
be included in social insurance:-
 Sickness Insurance: - In this type of insurance medical benefits, medicines
and reimbursement of pay during the sickness period, etc. are given to the
insured person who fell sick. The subsidiary companies of General insurance
corporation issue” Mediclaim” policies for this purpose.
 Death insurance Economic assistance is provided to dependants of the
assured in case of death during employment. The employer can transfer his
liability by getting insurance policy against employees.

 Important questions:-
1. Write a note on IRDA highlighting on its functions
2. Origin and growth of insurance.
Unit-II

Life insurance: -- Life insurance may be defined as a contract in which the

insurer, in consideration of a certain premium, either in a lump sum or by other
periodical payments, agrees to pay the assured, or to the person for whose benefit
the policy is taken, the assured sum of money, on happening of a specified event
contingent on the human life.

In another word Life insurance is a corporate effort to provide security against

economic hazards of man. It is a contract between the insurer and the insured to
pay a stated sum of money, for a consideration in the form of premium, on
happening of any future event on the life of the assured.

In the word of Huebner and Black, “Life insurance is a contract whether for a
specified consideration, called premium, one party (the insurer) agrees to pay to
the other (the insured) or a beneficiary, a defined amount upon the death,
disablement or some other specified event”

Characteristics of life insurance

 It is a contract between the insurer and insured.

Insurance of human hazards is covered by life insurance policy. It is a
promise to pay the money insured in consideration to a premium.

 The insurance premium is sometimes paid at a lump sum together or

periodically.
 A default in remitting the premium may cause discharge of the insurance
contract and the insurer shall be relieved from his liability.
 The money insured is paid by the insurer to the insured or assignee on
happening of the event specified in the policy.
 The proposal for affecting an insurance policy is executed in the prescribed
form. The policy is signed by the insurer only.

A contract of life insurance, as in other forms of insurance, requires that the

assured must have at the time of the contract an insurable interest in his life
upon which the insurance is affected. Insurable interest has only to be proved at
the date of the contract of life insurance, and not necessarily present at the time
when the policy falls due.

A person can assure in his own life and every part of it, and can insure for any
sum whatsoever, as he likes. Similarly, a wife has an insurable interest in her
husband and vice-versa. However, mere natural love and affection is not
sufficient to constitute an insurable interest. It must be shown that the person
affecting an assurance on the life of another is so related to that other person as
to have a claim of support. For example, a sister has an insurable interest in the
life of a brother who supports her. Even a person not related to the other can
have insurable interest on that other person. For example- a creditor has
insurable interest in the life of his debtor to the extent of the debt.

Life Insurance classification:-It can be broadly classified among three

categories namely—

1. Traditional, Innovative- Basic thrust is to cover the life risk. They are not
flexible in the sense they do not bring any additional benefit to the insured.
They are called non- traditional policies, they are innovative and flexible in
nature and are structured to suit variety of persons.
2. Individual, Group policy- Individual policy is meant for individual and his
family members in whom he has insurable interest, while Group insurance
policy renders insurance cover to a group of related persons ( say employees
of an organisation).
3. With profit/ without profit policy- sharing of surplus of insurer in the form
of bonus.

General principles of Life Insurance:-

Offer, Acceptance, Free consent, consideration, competency of the parties,

Lawful object and other legal formalities.
 Life Insurance can be- Term insurance plan, Endowment plans and
pension plans.

Life Insurance policies

Life Insurance is an attempt to meet the varying wants of community, it has

different forms.

 Duration of Insurance: - such as whole life policies, endowment policies

and term policies.
 Profit sharing: - such as profit policies or non- participating policies and
with profit policies, or participating policies.
 Payment of premium: - such as Guaranteed policies and annuity policies.
 Number of assured: - such as single life policies and Joint life policies.

On the basis of patterns of policies, the LIC has been issuing different types
of insurance policies. The insured has the choice to select from these policies
according to his requirement.

The LIC provides the following categories of life policies, they are

 The whole life policies/ plans(to cover whole life of assured)

 The endowment Assurance policies/ plans(lump sum at death/on
completion of the policy period)
 The double endowment policies/ plans(policy assures family
pension/on survival double the amount of sum assured)
The types of whole life policies are as follows:-

The whole life policies ( for whole life, it is issued for not less than
Rs.10,000/ , assured to pay premium money till the age of 80 years or 35
years of the policy insured, whichever is later)

The limited payment whole life policy

The single premium limited payment whole life policy (sum assured is
payable by a single premium, assured sum payable on death of the assured to
the nominee or the LR)

The convertible whole life assurance policy (option of conversion after 5

years to any other policy)
 Endowment Assurance policies/ plans

This is the most popular form of life Assurance since it not only makes provisions
for the family of the life assured in the event of his early death, but also assures a
lump sum at any desired age. The amount assured, if not paid by reason of his
early death, becomes payable at the end of the endowment term when it may be
invested to provide an annuity during the remainder of his life or in any other way
he may think most suitable at the time.

Premiums are usually payable for a term of years equal to the endowment term or
until death, if it occurs within this period, but they may be limited to a shorter term
of years, if so desired. However, premium paying term will be restricted to
maximum of 25 years for endowment without profit plan.

Surrender value:- It is the amount which the insurer is prepared to pay to the
assured in case he does not continue a policy for a agreed period of time and
surrenders his right, title and interest under the policy to the insurer.

Loan on policies:- The insurers usually offers the assured a facility of loan on the
life policy on which a certain number of premiums have been paid. The loan is
granted on the security of policy and is limited by the amount of surrender value.

Assignment:- An interest in a policy of life insurance, which is an actionable

claim, can be assigned. Assignment has the effect of transferring the rights of the
transferor in respect of the policy to the assignee.

Nomination:- The holder of a policy of life insurance on his own life may
nominate the person to whom the money secured by the policy is to be paid in the
event of his death. This may be done at the time the policy is taken out or at any
time before the policy matures for payment.

Suicide:- The life policies usually contain a clause that no payment shall be made
in case the assured commits suicide. If such clause is there in the policy ansd the
assured commits suicide, insurer is not liable to pay.
The following can be the points of distinction between fire, marine & life
insurance:-

1. Certainty of event: - In case of fire & marine insurance the event insured
may or may not happen at all. In the case of life insurance, the event is
bound to happen sooner or later.
2. Indemnity:-The contract of fire & marine insurance is a contract of
indemnity (only actual amount of loss can be recovered). A contract of life
insurance is not a contract of indemnity as the amount of recovery is already
fixed.
3. Valuation of insurable interest: - It is done in case of fire and marine
insurance but just not possible in life insurance.
4. Time of insurable interest: - In the fire insurance, the insurable interest
must be present both at the time of insurance and at the time of loss. In the
marine insurance, it must be present at the time of loss. In the life insurance,
it must exist at the time of contract.
5. Duration of contract of insurance: - A contract of fire insurance is a
contract from year to year (for 01 year), its comes to an end after the expiry
of one year. A contract of marine insurance is for a particular voyage or for a
particular period. Life insurance is a continuing contract. It lapses if
premium is not paid regularly at the specific time.

General Insurance

Concept of general insurance: -- General Insurance provides much needed

protection against unforeseen events, the insurer usually offers the assured a
protection againsed accidents, illness, fire; burglary etc. unlike life insurance,
General insurance is not meant to offer returns but is a protection against
contingencies. Almost everything that has a financial value in life and has a
probability of getting lost, stolen or damaged can be covered through General
insurance policy.

Property (both movable and immovable) vehicle, cash, household goods, health,
dishonesty and also one’s liability towards others can be covered under General
insurance policy. Under certain acts of parliament, some types of insurance like
motor insurance and public liability insurance have been made compulsory.
Meaning: - General insurance means managing risk against financial loss arising
due to fire, marine or miscellaneous events as a result of contingencies, which may
or may not occur.

General insurance means to: cover the risk of the financial loss from any natural
calamities viz. flood, fire, earthquake, burglary etc, i.e. the events which are
beyond the control of the owner the goods for the things having insurable interest
with the utmost good faith by declaring the facts about the circumstances and the
products by paying the stipulated sum, a premium and not having a motive of
making profit from the insurance contract.

General rules regarding General insurance:-

 In the case of mis-description, mis-presentation or mis-declaration, or non-

discloser of any material facts the insurance policy shall be void and the
entire premium paid by the insured may be forfeited by the insurance
company.

 The insured is bound to take all reasonable steps to safe guard the property
insured against any loss or damage by observing with all statuary or other
regulations.

 If any claim under the policy may be in any respect fraudulent or if any
fraudulent means are used by the insured to obtain any benefit under the
insurance policy, all the benefits under the insurance policy may be
forfeited.

 The loss or damage or liability or expenses whether direct or indirect

occasion by happening through or arising from any consequences of war,
invasion, act of foreign enemy, civil war, loot and loss or damage caused by
depreciation or wear and tear, will not be covered under general insurance.
 Unit IV MARINE INSURANCE
Marine Insurance: (an introduction):-

Marine insurance is the oldest form of insurance. It is an integral part of the

present day commerce. The contract of marine insurance is governed by the
following Acts “

 Insurance Act, 1938

 The Marine Insurance Act, 1963
 The General Insurance business (nationalization) Act, 1972

Law Relating to Marine Insurance is governed by the Marine Insurance Act, 1963,
which came into force on 1st August 1963. The Act contains 92 sections and a
schedule containing a form of Marine Insurance policy and rules of
construction.

Definition: - The contract of Marine Insurance is a contract whereby insurer

undertakes to indemnify the assured against marine losses, that is to say, the losses
incidental to marine adventure (sec 3) It is thus, a contract to indemnity against
loss from marine perils. It may be taken out in respect of ship, cargo, Freight or
any other subject of a marine adventure.

As per Sec 4(1) The contract may by its express terms or by usage of trade, be
extended so as to protect the assured against losses. On inland water as or any
land risk which may be incidental to any sea voyage.
Features of Marine Insurance:-
1. It is a contract based upon utmost good faith. Sec19&20 of the Act,
provides for rejection of the contract if this principle is not followed.
2. It is a contract of indemnity (Exception valued policy)
3. This is subject to the “Average clause”
4. Right of Subrogation and contribution in available to the insurer.
5. All Marine Policies are subject to express & implied warranties.
6. Insurance interest must exist at the time of loss.

Important Definitions

Section 2(C ) Insurable Property :- It means any Ship, goods or other movable
exposed to Maritime perils. It is also called the “Sub-matters” of insurance.

Freight :- (Hire of ship, transport of goods or cargo) It means money payable to

the ship owner for the carriage of goods. It also includes any benefit derived by
the ship owner from the employment of the ship. It does not include every
causality which may happen to the Subject Matter of the insurance on the sea. It
refers only to fortuitous accidents or casualties of the sea, and does not include
the ordinary actions of the wind and waves.

Marine Adventure (Section 2 (d) –

According to this section of the Act, there is a marine adventure when:-

 Any insurable properties are exposed to marine perils.

 The earnings or acquisition of any freight, potage money, commission, profit or
other preliminary benefit, or the security for any advance, loans, or
disbursement is endangered by the exposure of insurable property to marine
perils ; and
 Any liability to a third party may be insured by the owner of, or other person
interested in or responsible for, insurable property by reason of marine perils.
 Scope of Marine Insurance

Under the marine insurance policies, the insurer undertakes to indemnify against
subject – matter of insurance. As such, the scope of marine insurance can be based
on:

Subject matter of marine insurance.

Risks covered/insured in marine insurance.

Subject - Matter of a contract of Marine Insurance

The subject matters of marine insurance is the insurable property against which the
risk can be covered. The risk against cargo, vessel, freight and liability to a third
party can be insured.

1. Cargo: The cargo is the most important subject matter of marine insurance.
The following types of cargo can be insured;
 Cargo in the process of export – import.
 The goods transported through water ways to reach the port city.
 The goods transported through rail, road and other means of transport.
2. Hull/ship or Vessel: Vessels is the valuable asset in the voyage which
carries the cargo from one destination to another. The sea voyage risk is
always involved to the ship. Therefore, insurance of the ship is very
essential. But shipping companies get one policy issued to cover the risks of
the complete fleet, which is known as “Fleet insurance.”
3. Freight: The object of providing shipping services is to earn freight. The
freight is paid either in advance or on reaching to goods to the destination
port. In case the ship could not be reached to the destination port due to sea
perils, the ship owner losses his freight. In such a situation he can recover
the freight by obtaining a marine policy covering freight, which is known as
freight insurance. Where the owner of the cargo pays the freight in advance,
and the ship is subjected to marine perils, he may be losing the cargo as well
as freight. Both. In such a situation, the owner can include freight charges in
the value of the cargo, while getting the marine insurance policy.
 4. Liability: This is another subject matter of insurance, which arises due to
marine risks. This is the liability of the owner of ship to a third party by
reason of marine perils. For example, if a ship is collided with another in its
voyage, the owner of the ship shall be liable to the owner of other ship (third
party). By obtaining an insurance policy, such a risk can be transferred with
shoulder of the marine insurer. This is known as liability insurance.

Every lawful marine adventure may be the subject – matter of a contract of

marine insurance (Sec 5) Thus, marine insurance may be affected in relation to all
such interests which are exposed to maritime perils.

According to section 2(e), “maritime perils means the perils consequent on, or
incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war
perils, pirates and rovers, thieves, captures, seizures, restraints and
detainments of princes and peoples, jettisons, barratry and any other perils
which are either of like or may be specified by the policy.

The more popular types of marine insurance are as follows:-

 Hull Insurance: Insurance of vessel and its equipments (furniture and

fittings, machinery, tools, coal and engine stores etc) are included in hull
insurance. The owner of a ship may affect hull insurance.
 Cargo insurance: The insurance of cargo includes goods and merchandise
and not the personal belongings of the crew and passengers.
 Freight Insurance: In many instances, under the terms of contract, the
shipping company is unable to earn freight, whether paid in advance or
otherwise, if the cargoes are not safely transported. As such, if the cargoes
are destroyed or the ship is lost on the way, the shipping company loses the
freight. To guard against such an eventually the shipping company may
affect freight insurance.
 Liability Insurance: Liability insurance includes liability to a part by
reason of hazards like collision etc.
 INSURABLE INTEREST AND INSURABLE VALUE

A person has an insurable interest if he is interested in marine adventure in

consequences of which he may benefit by the safe arrival of insurable property or
be prejudices by its loss, damage or detention (an option formed before hand)

The following persons have insurable interest:-

i. Owners of ship for full value

ii. Owners of cargo
iii. Mortgagee of a vessel, to the extent of his mortgage.
iv. Baillie in respect of property left in his custody and care.
v. Shippers and their agents.
vi. An underwriter for the risk insured by him which he may re-issue.
vii. Bottomry bond holder – security of the ship money is borrowed by a
contract.
viii. Respondetia bond holders – security of the cargo.
ix. Master or any crew member of the ship for his wages.
x. Assured in the changes of any insurance which he may effect.
xi. Persons advancing freight if freight is recover in case of loss.

Note – It must be present at the time of loss

Insurable Value: - If there is no express valuation of the sub. Matter insured in the
policy sec 18 log down as to now this value be ascertained. It is amount of the
valuation of an insurable interest for the purpose of insurance. It is ascertained as
follows:-

 In the case of ship:- In insurance on ship, the insurable value is the value,
at the commencement of the risk, of the ship including outfit provisions
and stores etc., plus the charges of insurance upon the whole.
  Freight: - In insurance on freight, whether paid in advance or otherwise,,
the insurable value is the gross amount of the freight at the risk of the
assured plus the charges of insurance.
 Goods: - In insurance of the goods or merchandise, the insurable value is
the prime cost of the property insured, plus the expenses of and incidental
to shipping and the charges of insurance upon whole.
 Any other subject matter: - In insurance of any other subject matter, the
in surable value is the amount at the risk of the assured when the policy
attaches plus the charges of insurance.

Contract of Marine Insurance and Policy

The essential of a marine insurance contract are as follows

 Insurance policy is a document created as an evidence of conclusion of the

contract.
 The marine insurance policy should contain the clauses as per the marine
insurance policy Act 1963.
 All the provisions of Insurance Act, 1938 are applicable to the marine
insurance contracts.
 The policy should have the contract embodied in it. A policy which does not
have description as required by the Act. Is not a valid policy. The policy is
issued and executed, issued either at the time when the contract is concluded
or after words

Contents of Marine Insurance Policy

 Name of the assured or group of the assured or the person who has
purchased the policy
 The subject matter of insurance and risk assured.
 The routes of the voyage including the names of the parts touched enroot.
Any deviations in the routes will invalidate the policy.
  The period of voyage, the time of starting and period of stay of the ship at
different parts and final conclusion of the journey particulars. A policy
which is more than 12 months is valid.
 The amounts of insurance to be specified in the policy.
 The name or names of insurance
 The signature of authorized person of the insurer.
 The subject matter assured must be designated in a marine policy with
reasonable certainty.
 The nature and extent of the interest of the assured in the subject matter
assured need not be specified in the policy.
 Where the policy designates the subjects matter assured in general terms, it
shall be constructed to apply to the interest intended by the assured to be
covered.
 A policy may be in the form in a schedule.
 The terms mentioned in the schedule forms part of the policy unless
otherwise stated

Kinds of Marine Policy

I - On the basis of time period: - The policies can be the following types:-

 Voyage Policy (sec.27) ; Under this policy the subject matter is insured for a
specified voyage and the time that the voyage will take is not taken into
account at all such a policy may cover the risk “at and form a part” or
“from a port” to another port.
 Time Policy (Sec.27); This is a policy whereby the subject matter is insured
for a specified period of time, eg. From evening 1st October 1992, to evening
30th September 1993. A time policy which is made for any time exceeding
twelve months is invalid. This policy has nothing to do with the voyage of
the ship. The ship may make any number of voyages during the specified
period of time.
  Mixed Policy or combined Policy (sec27) ; This policy is a combination of
‘voyage’ and ‘time’ policy, and is also known as “Voyage and Time policy’
It seeks to insure the subject matter during a particular voyage for a specified
periods of time. For example, a ship may be insured for a voyage b/w
Calcutta and Tokyo for a period of seven months under a mixed policy.

II On the basis of valuation:-

 Valued policy (sec 29) A valued policy is a policy which specified the
agreed value of the subject – matter insured. In the absence of fraud, the
value fixed by the policy is regarded as conclusive of the insurable value of
the subject-matter intended to be insured, and it will be this value, which the
insurer is liable to pay to the assured, in case of total loss, without
demanding any further proof of value at the time of loss.

 Unvalued or open Policy (Sec 30) An Unvalued policy is a policy which

does not specify the value of the subject – matter insured, but subject to the
limit of the sum insured, leaves the insurable value to be subsequently
ascertained in case of a loss. Unlike a valued Policy, in this type the insurer
is liable to indemnity the assured only upto the actual loss proved, subject to
the policy amount, even in the case of total loss.

III On the basis of Cargo:-

 Named Policy: Named policy is the one in which the name of the ship and
the name of the insured are written. The owner of cargo obtains the policy in
advance and thereafter the name of the ship is entered in the policy, in which
the cargo is boarded.

 Floating Policy (Sec 31) It is a policy which only mentions the amount for
which the insurance is taken out and leaves the name of the ship or land
 description of the cargo to be defined by subsequent declarations by the
assured when the risk is actually non usually cargo owners who make
regular shipments expected to be made during a certain period of time.
Whenever some cargo is shipped, the assured makes a declaration about the
description of cargo, name of the ship, and the value of the shipment, by an
endorsement on the policy and the total value of the policy is reduced by that
amount. The policy is treated as an ‘unvalued policy’ as regards the subject
of that declaration,

 This policy is suitable for those exporters who export the goods in different
consignments. Following rules to be followed in respect of floating policy:-

1. The declaration of the consignment sent may be made by endorsement on

the policy, or in any other customary manner.
2. The declaration may be made in order of shipment.
3. The value of the goods may be honestly stated.
4. If the value is not stated until after notice of loss or arrival, the policy
must be treated as an unvalued policy as regards the subject matter of that
declaration. (This policy is known as in different names, such as,
Declaration policy, Open policy or unnamed policy).

 All risk policy: This is a policy in which all types of risks are covered. The
insurer’s commences as soon as the goods are taken out from the warehouse
and continues till the consignment is reached to the destination and kept in
the warehouse of the importers.

IV On the basis of Hull/ Vessel: - It is of three types—

 Single vessel policy: - Where the owner of the ship insures his individual
vessel separately. For the purpose of determining the insurable value, the
value of the specific ship, outfit, provision of stores and of the officers and
crew, their salaries and wages, money advanced against salaries, shipping
charges etc. are included.
 Fleet policy: - Where an individual or a corporation insures fleet or liners or
steamers under one policy it is called a “fleet policy”. Fleet means number
of ships, aircraft, buses etc. moving under one command or ownership.
  Fleet insurance policies have become popular with the advent of steamships
and the development of large companies.
 These type of policies save wastage of time and the premium is also
comparatively small,
 In fleet insurance the insurers risk is larger, which can be minimized by re-
insurance.
 Ship construction policy: - This policy is also known as ship builder’s
policy.
 This a policy issued for covering the risk of ship during its construction.
 It is for the period from the commencement of ship building to its
completion and sea-worthiness.
 This policy can be obtained at any stage of ship under construction. This
policy covers the risks of vessel during the period of construction.

CONDITIONS OF MARINE POLICIES

A marine policy is issued subject to the following conditions which form the
clauses of policy in order to meet the special requirements of the insured.

 Name clause: - it contains name of the insured or his agent.

 Assignment clause :- It makes the provision for the assignment of the policy
 Lost or not Lost clause: This clause is the portion of marine insurance policy
providing for coverage even if loss has happened before the insurance was
affected. This type of policy has retrospective effect.
 At and From Clause: This condition is related to part of time and place from
where the risk commences.
 Name of ship clause: The name of the ship in which the cargo is boarded is
written in this clause.
 Name of captain clause: The name of the captain of the ship is written in this
clause.
 Termination of risk clause: - this clause contains the details of information
about termination of insurer’s risk. Under the following situations the insurer
liability automatically terminates.
 Where the ship is not departed from its beginning point.
  Where the ship deviate from its original route.
 Where the ship reaches a place different from its destination point.
 Where the period of insurance ceases
 Where the unboarding the cargo takes much delay usually 24 hours
time is given for unboarding the cargo, For 30 times is given after this
the liability of the insurer terminates automatically
 Touch and stay clause: - it is written in this clause that during the period of
voyage, in what order the ship has to touch through the different ports and at
what places it has to halt. The place of such ports are stated in this case, The
following are to be complied with:
 The ship should travel in its usual route, the touching and halting
should be in the usual order.
 The ship should reach the port in the geographical order they are
situated.
 It should halt at such a port, the stoppage that is formed.
 Every ship should halt at a port for a reasonable period only.
 The ship should not deviate from its usual route.
 Valuation clause: The value of the insured property is written in this clause.
If the value is written at the time of affecting the policy, it is called valued
policy, If the value is to be written after the loss such a policy is called non –
valuated policy
 Peril Clause: All such perils and factors that cause loss to the insured
consignments are stated under these clauses, for which the insurer is liable to
make the payment of claim. Usually they include ocean risks, fire, theft,
seizures, negligence of officers and crew members, etc.
 Sue and labor clause: According to this condition, it is the duty of the
insured to take all possible steps to protect the insured consignment in the
event of loss, as a man ordinary prudence may do in his own case. Any
expenses made by the insured in this effort, shall be the liability of the
insurer, under the rules laid down for this purpose.
 Waiver clause: Under this condition, the insured and the insurer, both
individual freedoms to act in much a manner so as to minimize the risk of
loss. In many occasions, the cargo as well as the ship, both may suffer
maximum loss by ocean perils. The insured demands for full indemnity. The
 insured has to abandon the salvage, for claiming the loss in full by sending a
‘notice of abandonment’ to the insurer.
 Premium clause: - The premium money and the period of its payment are
stated under this clause.
 Memorandum clause: The details of perishable notice of items are stated
under this clause, for which the insurer does not undertake to indemnify.
 Negligence or ‘Inch Maree’ clause: This clause is included in the policy to
provide wider scope of security to the insured, which are not covered by the
ordinary policy. It is written under this clause that even in case of loss due to
certain specific reasons, the insurer shall be liable to pay the claim, such
special causes may be:
 The loss due to damage of the cargo while boarding or
unboarding
 Loss by explosion in ship or elsewhere.
 Loss due to defective machinery or explosion of boiler.
 Loss by accident occurred due to the equipment installed in the
ship, etc.
 Miscellaneous clause: Due to the increasing needs of marine insurance and
its wide scope, many other small or larger clauses are also included in the
policy. They Include:
 Free from particular average
 With particular average
 Free of all average
 Foreign general average
 Against all risks
 Free of capture of seizure
 Running down or collision
 Free of strikes, riots etc,
 Sister ship clause
 Continuation clause, etc.
 Marine Losses

A Marine policy does not cover all the risks an insurer is liable to indemnify an
assured in respect of the losses which resulted from perils insured against. Where
the loss is happened as a result of any other peril, the insurer shall not be bound by
it.

Types of Marine losses – 1. Total loss (Actual /Constructive) 2.Partial loss

(particular/general average loss)

The loss may be either total or partial. It may be divided into two types
Actual/Constructive total losses.

An actual loss occurs when the subject matter is destroyed or so damaged as to

cease to be the thing of the kind insured. The insured irretrievable deprived of the
subject matter of insurance.

Constructive total loss cannot be preserved from actual loss without an expenditure
which would exceed its value, when the expenditure had been incurred. In case of
constructive total loss, the assured may either treat the loss as partial loss or
abandon the subject matter to the insurer and treat the loss as if it were an actual
total loss.

Losses other than total losses are partial losses; it is of two types- particular
average loss, and General average loss.

A particular average loss is a partial of the subject matter insured caused by a peril
insured againsed, in which is not a general loss.

Examples of particular average losses: - A ship meets with foul weather, as a

result of which she sustains serious damages causing a wreckage of her propeller.

If during violence of the weather, sea water get into the ship through a hole and
damages the cargo, the damage so caused is particular average on cargo, and if the
cargo is sugar, the damage is a particular average on freight.
General average loss—General average loss is a loss caused by directly or
consequential on a general average act. It includes general average expenditure as
well as general average sacrifice. It is being done voluntarily in time of peril for
the purpose of securing the property on the board.

Essentials: - It must be in peril,

The sacrifice must be voluntary,

It should be made reasonably,

The object of the sacrifice must be to preserve the property on the board.

Usually the general average losses are of two types- General average Sacrifice and
General Average Expenses.

ESSENTIAL ELEMENTS OF MARINE CONTRACT

The following are the essential elements of marine insurance contract:

1. Essentials of valid contracts

2. Insurable Interest
3. Utmost Good Faith
4. Warranties
5. Indemnity ; and
6. Application of other principles of insurance.
i. Essentials of valid contract: Marine insurance is a contract and, therefore,
it must satisfy the essential elements of a valid contract as provided in India
Contact Act 1872. Such as a proposal and its acceptance, competency to
contract, free consent, consideration, legality of object, enforceability under
the Act etc. In the absence of any of these essentials, the contract of marine
insurance becomes void.
ii. Insurable Interest: In marine insurance, the assured must have insurable
interest at the time of loss though he may not have been interested when the
insurance was actually affected. Thus the owners, shippers, agents, and
others have insurable interest in respect of money advanced.
iii. Utmost good faith : Insurance contracts are based on utmost good faith both
the contracting parties must disclosed all the material facts known to them in
good faith, otherwise the contract can be avoided by the other.
iv. Warranties: In a contract of marine insurance there is a conditions known
as warranties. As per section 35 of the Act, a warranty is an undertaking by
the assured that some condition shall be fulfilled, or certain thing shall be or
shall not be done implied or expressed. It is immaterial for what purpose a
warranty is introduced and whether it is material to the risk or not, but being
included it must be strictly complied with. If is not complied with, the
insurer is discharged from liability as from the date of the breach of
warranty. A warranty in a contract of marine insurance is a specified
condition, breach of which gives right to avoid the contract to the aggrieved
party.

Express Warranties: - An express warranty is one which is expressly stated in

the policy of insurance. It may be any form of words from which the intention
to warranty is to be inferred. These warranties are:

 Sea-worthiness:- (A ship must be reasonably fit in all respect to

encounter the perils of the voyage. Exception – time policies).
 Legality of voyage: (The venture insured must be lawful one, and
shall be carried out in a low full manner)
 Non-deviation: (The voyage must be accurately described in the
policy, and properly performed. The Ship must follow the course
specified in the policy).
v. Implied warranties: Implied warranties and conditions which are not
incorporated in a policy but which are assumed to have been included in the
policy by law, custom or general agreement.
These warranties are:-

1. Seaworthiness: (section 41-42) - In a voyage policy there is an implied

warranty that at the commencement of the voyage the ship in seaworthy for
the purpose of the particulars adventure insured. It includes the following :-
a) That the ship is properly constructed
b) Its machine is in proper working condition
c) That it has sufficient and efficient crew
d) That it is sufficiently provided necessities of the voyage.
e) That it is not over loaded or badly loaded.
f) Warranty of seaworthiness attaches only up to the time of the sailing
of the ship. Once the ship sails, the warranty does not operate.
2. In a voyage policy, where the voyage is to be performed in stages, the ship
must be seaworthy at the beginning of each stage.
3. It should be at the commencement of risk be reasonable fit to encounter the
ordinary perils of the port.
4. It is also considered that the ship is reasonable fit to carry goods.
5. That the adventure insured is a lawful one (Sec. 43)

Indemnity: This principal is applied in marine insurance also. According to this

principal, the insured is entitled to claim the actual loss only, subject to a
maximum of sum assured.(Exception – valued policy)

vi. Application of other principles of insurance: The other principles of

insurance such as subrogation, cause of proximal, etc are also applied to
marine insurance also.
 VOYAGE

Voyage is a sea journey or a prescribed legal route which a ship must follow
during its sea journey. It describes the starting point and the end point of a ship and
also describes port of call in which a ship will complete its journey. Under the
voyage policy every ship must follows its usual course as described in the voyage,
any deviation from it makes the whole policy void and there shall not be any
responsibility of the insurer, in case any loss sustained to the ship etc

Deviation:- When a ship starts from the port of departure for her port of
destination, but proceeds by an unusual or by an improper cause, or takes the ports
of call by an order different from the one specified or customary, there is a
deviation. If the deviation takes place without any lawful excuse, the insurer is
discharged from his liability as original route. If the adventure insured is not
prosecuted throughout its course with reasonable dispatch, there will be a variation
in the risk, and the insurer will be discharged of his liability. On the other hand, the
insurer is liable for any loss from perils insured which occurs previous to the
destruction.

Change of voyage:- Change of voyage differs from destination in that the policy is
void from the moment of voyage was contemplated. Where the destination is
specified in the policy and the ship, after the commencement of risk, sails for
another destination, no risk attaches to the policy from time when the
determination to change the voyage became manifest.

There are certain circumstances in which deviation or delay would be justified

under the provision of the Act. They are as follows:-

i. Where authorized by mention in the term of the policy.

ii. It is caused by circumstances beyond the control of the master and his
employer
iii. Where deviation being ordered by the naval authorities in order to avoid the
danger of submarines.
iv. Where necessary in order to comply to with an express of implied warranty.
 v. Where it is reasonable necessary for the safety of the ship / subject matter
insured.
vi. Where it is necessary to save human life, where it is in danger for the
purpose of medical or surgical aid to any person on board the ship.
vii. Where caused by the barratries conduct of the master / crew, if barratry be
one of the perils insured against. (Note:- when the deviation or delay cease
to be operative the ship must resume her course with reasonable dispatch.

Important questions from the unit:-

1. Explain the marine insurance in detail, highlighting law relating to

warranties under the Act.
2. Write a detailed note on Voyage.
3. What are the types of marine losses, explain them.
4. Short notes:-
Maritime perils, maritime adventure,

Implied warranties, Hull insurance.

 UNIT- V- SOCIAL INSURANCE IN INDIA

SOCIAL INSURANCE: Social Insurance has been developed to provide

economic security to weaker sections of the society who are unable to pay the
premium for adequate insurance. The following type of insurance can be included
in social Insurance:

(i) Sickness Insurance: In this type of insurance medical benefits,

medicines and reimbursement of pay during the sickness period, etc. are
given to the insured person who fell sick. The subsidiary companies of
General Insurance Corporation issue “Mediclaim” policies for this
purpose.
(ii) Death Insurance: Economic assistance is provided to dependants of the
assured in case of death during employment. The employer can transfer
his liability by getting insurance policy againsed employees.
(iii) Disability Insurance: There is a provision for compensation in case of
total or partial disability suffered by factory employees due to accident
while working in factories. According to Employees compensation act,
the responsibility to pay compensation is vest with the employer. But the
employer transfers his liability on the insurer by taking Group Insurance
policy.
(iv) Unemployment insurance: Insured in case of unemployment due to
certain reason, given economic support till he gets employment.
(v) Old age Insurance: Insured or his dependents are paid, after certain age,
economic assistance.

“Apart from these insurance social security legislations like ESIC, Workmen
compensation Act, provident fund Act etc. are also enacted to provide social
security in case of old age pension, sickness, disablement, maternity etc”.

Under the concept of social justice, The Indian Government has extended the
scope of social insurance. This scheme is now extended to Daily- wagers,
Rikshaw pullers, craftsmen etc. through different Insurance plans.
 The process of fast development in the society gave rise to a number of risks or
hazards. To provide security againsed such hazards, many other type of
Insurance also have been developed. Such as, crops, cattle, legal liability
insurance etc.

Workmen compensation Insurance:- A employer is required to compensation

to his workers who receive injuries or contract occupational diseases during the
course of their work. Such compensation is payable under the workmen’s
compensation act. An employer may obtain an insurance policy to cover such
liability. The premiums are payable on the basis of wages. It is also known as
‘Employers liability insurance”

Such an insurance policy provides insurance againsed the following risk-

Indemnity to insured againsed his liability as an Employer to accidental injuries

(including fatal) sustained by the worker while on duty,

Medical, surgical and hospital expenses etc.(on payment of extra premium)

Liability in respect of diseases mentioned under the Workmen compensation act,

which arise out of and in the course of employment.

Public liability Insurance:- With the growth of hazardous industries, risks from
accidents , processes and operations, not only affects the persons employed in such
undertakings but also to the public who may be in vicinity, have increased. Such
accidents lead to death and injury to human beings and other living beings and
damage private and public properties. Very often, the majority of the people
affected is from the economically weaker sections and suffer great hardships
because of delayed relief and compensation. While workers and employees of
hazardous installations are protected under separate laws, member of the public are
not assured of any relief except through long legal process.

It is felt essential, therefore, to provide for mandatory public liability insurance for
installations handling hazardous substances to provide minimum relief to the
victim. Such insurance, apart from safeguarding the interests of the victim of
accidents, would also provide cover and enable the industry to discharge its
liability to settle large claims arising out of major accidents.
If the objective of providing immediate relief is to be achieved, the mandatory
public liability insurance should be on the principle of “no fault liability “as it is
limited to only relief on a limited scale. However, availability of immediate relief
would not prevent the victims to go to courts for claiming larger compensation.
The public liability insurance Act, 1991 plays an important role in this behalf. The
present Act required factory owners to insure againsed potential personal injury
and property damage in surrounding communities.

Benefits of the Act are as follows:-

 Provides cover against claims

 Imposes no fault liability
 Relief and reimbursement
 Power to approach courts (u/s 13 of the act central Govt. /authorized person
can approach metropolitan Magistrate or JFC for restricting the owner.
 Imposes penalty for contravention and failure to comply with directions.

Third party insurance

In India, under the provisions of the Motor vehicle Act, 1988, it is mandatory
that every vehicle should have a valid insurance to drive on the road. Any
vehicle used for social, domestic and pleasure purpose and for the insurer’s
business motor purpose should be insured.

There are two quite different kinds of insurance involved in the damages
system. One is third party liability insurance, which is just called liability
insurance by insurance companies and the other one is first party insurance.

A third party insurance policy is a policy under which the insurance company
agrees to indemnify the insured person, if he is sued or held legally liable for
injuries or damage done to a third party. The insured is one party, the insurance
company is the second party, and the person you (the insured) injure who
claims damages against you is the third party.
Salient features of Third party Insurance:-

 It is compulsory for all motor vehicle and this provision cannot be

overridden by any clause in the insurance policy.
 It does not cover injuries to the insured himself but to the rest of the
world who is injured by the insured.
 Beneficiary of third party insurance is the injured third party, the insured
or the policy holder is only nominally the beneficiary of the policy.
 In third party insurance what is insured is ‘legal liability’ and it is not
possible to know in advance what the liability would be.
 It is purely fault based insurance.
 The maximum amount to be paid under the policy is not known in
advance.
Motor vehicle Insurance

Under this insurance a personal or commercial vehicle is subjected to combined

insurance againsed the risk of-

1. Loss or damage to the motor vehicle and its accessories on account of

accident or theft,
2. Death of or injury to the owner or passenger of the vehicle due to accident,
3. Damages payable to third parties by the owner of the vehicle for accident.

A comprehensive insurance policy may be taken to cover all these risks.

Insurance against the first two types of risks is optional. But every owner of
motor vehicle is required to take out an insurance policy to cover the third party
risks under the Motor Vehicle act, 1956. Such a policy is known as ‘Third party
insurance or liability insurance’.

Under such a policy, the third party who has suffered any loss can sue the
insurer directly even though he was not a party to the contract of insurance.

For Ex. motor insurance by united India insurance co. ltd. This policy provides
insurance cover to owners of the vehicle, financers or lessee, who have
insurable interest in a motor vehicle.
Mediclaim and health Insurance:- with medical costs sky rocketing daily there is
a growing need of having a Mediclaim policy in your name. It will help you cover
the medical expenses in case you have to undergo certain medical treatment or are
hospitalization for some reason. It basically provides a health cover of a certain
amount of money and hence in the case of incurring any medical expenses, the
expenses to a certain limit are borne by the particular insurance / Mediclaim
Company under whom you might have taken the Mediclaim policy.

It can be taken on an individual basis or for the entire family if the need be. The
insurance premium will defer from company to company and will depend upon
whether the policy has been taken for an individual or for a group or the policy is
cashless or not.

Group Insurance schemes:- It is though a single policy{Also knows as master

policy} a large number of persons is covered under such insurance. Insurance
coverage is extended to a large segment of the population, especially where it is
neither convenient nor economical to take polices on case- to case basis, and for
each person separately. Normally the extent of coverage is determined not by
ultimate beneficiary, but in accordance with what has been agreed upon between
the Insurance Company and the entity which takes out Master Policy. Hence, it
does not cover or insure an individual, but several individuals or class of persons.
Such type of contract is entered into between the insurance company and the entity
purchasing the policy. The most common example of Group Insurance is employer
employee group in which insurance cover is obtained for a number of employees.
It is essential that the Group should be homogenous and should not have been
formed with a sole purpose of getting the benefits of Group Insurance.

Important questions under this unit are as follows:-

1. Write a note on social insurance in India.

2. Write a note on Motor vehicle insurance/Third party insurance.
3. Explain the public liability insurance Act, 1991and the powers of
Central Govt./authorized officer under the Act.