Insurance Law

History of Insurance
• Pre- Independence
• Post Independence

First extracts of insurance in India were found in

ancient Hindu literatures including Dharmashastra,
Manusmrithi and Arthashastra. All these scripts
highlight the concept of pooling various crucial
resources to be utilized during difficult times.
Pre- Independence

It was the year 1818, which witnessed the advent of life insurance business in
India with the foundation of the Oriental Life Insurance Company in Kolkata.
However, it was a failure.
The British Insurance Act was enacted in the year 1870 and after that, the
Bombay Mutual in the year 1871, Oriental in the year 1874 and Empire of India
in the year 1897 started the insurance business in the Bombay Residency.
The history of general insurance can be traced back to the Industrial
Revolution in the west and the growth of sea-faring trade and commerce
during the 17th century. It came to India through the British Empire.
Life Insurance Corporation of India (LIC) is the market
leader in the life insurance industry in India. With the
entry of private players coupled with international
expertise, Indian insurance market has the wider
potential to tap.
When it comes to the insurance business in India,
Insurance Regulatory and Development Authority of
India (IRDAI) was established as a statutory body in April
2000.
Its key objectives include protection of interests of
policyholders along with the promotion of competition
that enhances customer satisfaction while ensuring the
financial security of the insurance market.
Indian Insurance Industry comprises of 54 Insurance
Companies out of which 24 insurers are in Life Insurance
business offering life products, and 30 insurers are in
General Insurance business providing non-life/general
insurance products to the customers countrywide.
Insurance is a contract in which one party (the "insured") pays
money (called a premium) and the other party promises to
reimburse the first for certain types of losses (illness, property
damage, or death) if they occur.
What is Insurance Law?
Insurance law is the collection of laws and regulations that relate
to insurance. Insurance is a contract between two parties. It
transfers the risk of loss to the other party to the contract in
exchange for a fee called a premium. Insurance laws and
regulations manage and control how insurance contracts are
formed and enforced
What does insurance cover?
There are a number of types of insurance that cover many
different things. You might have one insurance policy for your
home and another for your car. You might receive a health
insurance policy through your work, or you might purchase a
health insurance policy independently. Insurance policies cover
personal property, life, disability , etc
Good faith
One of the key principles in insurance is the concept of good faith. Insurance as a contract
and as a financial product only works when both parties are honest with each other and
work to fulfill the terms of the contract based on the true facts of the situation. Failing to
apply for an insurance contract in good faith is a form of cheating. Refusing to pay a fair
claim is another form of cheating. The opposite of good faith is bad faith.
For example, a person applies for life insurance. They answer on the form that they don’t
have any pre-existing medical conditions and that they have never been hospitalized. In
fact, that isn’t true. The person was hospitalized last year with a serious illness. Five years
later, the insured dies of the same illness.
The life insurance beneficiaries try to make a claim on the insurance policy. The insurance
company refuses the claim and refunds the premium. The contract is null and void
because the insured didn’t enter into the insurance policy in good faith.
An insurance company can also act in bad faith. They can refuse to pay good claims. When
an insurance company doesn’t have a good argument for denying a claim, they can 
face administrative penalties as well as a lawsuit for failing to handle the claim good faith.
The penalties they face are in addition to legal actions to force them to pay the claim
according to the terms of the contract.
What Is The Doctrine Of Utmost Good Faith?
The doctrine of utmost good faith, also known by its Latin name uberrimae fidei, is a
minimum standard, legally obliging all parties entering a contract to act honestly and
not mislead or withhold critical information from one another. The doctrine of utmost
good faith applies to many everyday financial transactions and is one of the most
fundamental doctrines in insurance law.

What Is The Doctrine Of Utmost Good Faith?

The doctrine of utmost good faith, also known by its Latin name uberrimae fidei, is a
minimum standard, legally obliging all parties entering a contract to act honestly and
not mislead or withhold critical information from one another. The doctrine of utmost
good faith applies to many everyday financial transactions and is one of the most
fundamental doctrines in insurance law.
How The Doctrine Of Utmost Good Faith Works
The principle of utmost good faith requires all parties to reveal any information that could feasibly
influence their decision to enter into a contract with one another. In the case of the insurance market,
that means that the agent must reveal critical details about the contract and its terms.

The doctrine of utmost good faith provides general assurance that the parties involved in a transaction are truthful
and acting ethically. Ethical transactions include assuring all relevant information is available to both parties during
negotiations or when amounts are determined

Applicants, meanwhile, are legally obliged to present all material facts, as they are known, including precise details on
whatever needs to be insured and if he or she has been refused insurance coverage in the past. This information is used
by insurers to decide whether to insure the applicant and how much to charge for a policy.
Extent of Indemnity in Insurance Claims
Indemnity in insurance compensates the beneficiaries of the policies for their actual
economic losses, up to the limiting amount of the insurance policy. It generally requires
the insured to prove the amount of its loss before it can recover. Recovery is limited to the
amount of the provable loss even if the face amount of the policy is higher. This is in
contrast to, for example, life insurance, where the amount of the beneficiary's economic
loss is irrelevant. The death of the person whose life is insured for reasons not excluded
from the policy obligate the insurer to pay the entire policy amount to the beneficiary.

Most business interruption insurance policies contain an Extended Period of Indemnity

Endorsement, which extends coverage beyond the time that it takes to physically restore
the property. This provision covers additional expenses that allow the business to return
to prosperity and help the business restore revenues to pre-loss levels.[1]
Meaning of Indemnity under Indian Contract Act, 1872
Section-124 -
According to Section 124 of the Indian Contract Act, a contract of indemnity
means "a contract by which one party promises to save the other from loss
caused to him by the conduct of the promisor himself or by conduct of any
other person." This Provision incorporates a contract where one party
promises to save the other from loss which may be caused, either

(i) by the conduct of the promisor himself, or,

(ii) by the conduct of any other person.

Illustration to Section 124.-

A contracts to indemnify B against the consequences of any proceedings which
C may take against B in respect of a certain sum of 200 rupees. This is a
contract of indemnity.
 Why does life insurance is not an indemnity contract?

How can someone assess the value of my life? I can assess value of my car. I can assess
value of my building. But assessment of human life is highly debatable. How can you
evaluate death of a young breadwinner having 3–4 dependents? Are you getting me?
Can you ever calculate cost of replacement of a human being? But for other physical
items, it can be calculated or at least found out. Plus the financial value of life may go up
or come down over a period of time. My income goes up, so my economic value goes
up, for example. Number of dependents increase, so emotional value increases. My
dependent father falls sick, cost of regular medicine goes up. So practically, very difficult
to assess value of life for “Indemnity” purposes. You can replace a stolen TV with
another TV having similar features. But can you say same thing for a human life ? Life
policy is for more than one year term. This makes it very difficult to assess/project the
value of life, say 10 years hence and put it as Sum Assured and charge premium for it.
What if this premise goes wrong?
If you look at the contracts of insurance, indemnity or guarantee, they have one
thing in common – they create an obligation on the promisor if an event which is
collateral to the contract does or does not happen
Under Section 31 of the Indian Contract Act, 1872, contingent contracts are defined as
follows: “If two or more parties enter into a contract to do or not do something, if an
event which is collateral to the contract does or does not happen, then it is a
contingent contract.”
Example: Peter is a private insurer and enters into a contract with John for fire
insurance of John’s house. According to the terms, Peter agrees to pay John an amount
of Rs 5 lakh if his house is burnt against an annual premium of Rs 5,000. This is a
contingent contract.
Here, the burning of the house is neither a performance promised as a part of the
contract nor a consideration. Peter’s liability arises only when the collateral event
occurs.
Essentials of Contingent Contracts
1] Depends on happening or non-happening of a certain event
The contract is contingent on the happening or the non-happening of a certain event.
These said events can be precedent or subsequent, this will not matter. Say for example
Peter promises to pay John Rs 5,000 if the Rajdhani Express reaches Delhi on time. This is
a contingent event.
2] The event is collateral to the contract
It is important that the event is not a part of the contract. It cannot be the performance
promised or a consideration for a promise.
Peter enters into a contract with John and promises to deliver 5 television sets to him.
John promises to pay him Rs 75,000 upon delivery. This is NOT a contingent contract
since John’s obligation depends on the event which is a part of the contract (delivery of
TV sets) and not a collateral event.
3] The event should not be a mere will of the promisor
Peter promises to pay John Rs 50,000 if he leaves Mumbai for Dubai on August 30, 2018.
This is a contingent contract. Going to Dubai can be within John’s will but is not merely
his will.
4] The event should be uncertain
If the event is sure to happen, then the contract is due to be performed. This is not a
contingent contract. The event should be uncertain.
Peter promises to pay John Rs 500 if it rains in Mumbai in the month of July 2018. This is
not a contingent contract because in July rains are almost a certainty in Mumbai.

Enforcement of Contingent Contracts

Sections 32 – 36 of the Indian Contract Act, 1872, list certain rules for the enforcement
of a contingent contract.