Page 78 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 5: Principles of Insurance

Notes

Task Prepare a presentation on the salient features of the principles of insurable interest
of insurance.
Assignment of policies is possible but normally not without the permission of the Insurer
because it can mean a change in the underwriting consideration as the new policyholder may
not have the same insurable interest.
Fire and other Misc. policies are not freely assignable as the Insurer at the time of underwriting
has satisfied himself about the insured’s attitude or treatment of the subject matter and its loss
causing capability. This would however change in the case of an assignee and it is reasonable to
give the insurer a chance to consider the credentials of the new proposer. When the Insurer gives
his consent to the assignment of the policy a new contract is in fact being entered into and this is
called NOVATION.
Marine cargo policies are however freely assignable without the knowledge or the consent of
the Insurer. The reason being that the ownership of the goods insured frequently change when
the goods are still in transit and it is necessary that the benefit of the policy passes to the new
owner.

In some cases only the proceeds of the policy are assigned. There is normally no objection to
such assignments as the assured is still a party to the contract with the insurer and he has to
continue to comply with all the terms and conditions of the policy with the only difference
being that in event of a claim the insurer is directed to pay the amount to the Assignee.

Insurers protect themselves by taking a receipt from the person receiving the amount discharging
the Insurer from any further liability. This condition arises often in motor claims when bills of
repair are directly paid to the garage and not the owner of the vehicle. In these cases the garage
owners obtain a letter of satisfaction from the owner and submit his bills to the Insurer directly
for payment.
Self Assessment

Fill in the blanks:
3. The subject matter of the insurance contract may be a property or an event that may create
a …………………………..

4. …………………………… is person legally holding the goods of another, may be for
payment or other reason.

5.3 Principle of Indemnity

You must learn what exactly is meant by indemnity. Well, indemnity according to the Cambridge
International Dictionary is “Protection against possible damage or loss” and the Collins
Thesaurus suggests the words “Guarantee”, “Protection”, “Security”, “Compensation”,
“Restitution” and “Reimbursement” amongst others as suitable substitute for the word
“Indemnity”. The words protection, security, compensation etc. are all suited to the subject of
Insurance but the dictionary meaning or the alternate words suggested do not convey the exact
meaning of Indemnity as applicable in Insurance Contracts.

In Insurance, the word indemnity is defined as “financial compensation sufficient to place the
insured in the same financial position after a loss as he enjoyed immediately before the loss
occurred.”

LOVELY PROFESSIONAL UNIVERSITY 73