Page 88 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 5: Principles of Insurance

Principle of Contribution is a corollary of the principle of indemnity. It applies to all Notes
contracts of indemnity, if the insured has taken out more than one policy on the same
subject matter.
Principle of Subrogation is an extension and another corollary of the principle of indemnity.
It also applies to all contracts of indemnity. This principle is applicable only when the
damaged property has any value after the event causing the damage. The insurer can
benefit out of subrogation rights only to the extent of the amount he has paid to the
insured as compensation.
The Principle of Proximate Cause states that to find out whether the insurer is liable for
the loss or not, the proximate (closest) and not the remote (farthest) must be looked into.

5.8 Keywords

Principle of Contribution: Principle of Contribution is a corollary of the principle of indemnity.
It applies to all contracts of indemnity, if the insured has taken out more than one policy on the
same subject matter.
Principle of Indemnity: According to the principle of indemnity, an insurance contract is signed
only for getting protection against unpredicted financial losses arising due to future uncertainties.
Insurance contract is not made for making profit else its sole purpose is to give compensation in
case of any damage or loss.
Principle of Insurable Interest: The principle of insurable interest states that the person getting
insured must have insurable interest in the object of insurance.

Principle of Proximate Cause: It means when a loss is caused by more than one causes, the
proximate or the nearest or the closest cause should be taken into consideration to decide the
liability of the insurer.
Principle of Subrogation: According to the principle of subrogation, when the insured is
compensated for the losses due to damage to his insured property, then the ownership right of
such property shifts to the insurer.
Principle of Utmost Good Faith: According to this principle, the insurance contract must be
signed by both parties in an absolute good faith or belief or trust.

5.9 Review Questions

1. Briefly explain the principle of utmost good faith.
2. Discuss the principle of insurable interest.

3. Describe the salient features of the principle of insurable interest.
4. Explain the principle of indemnity.
5. Explain the relationship between the doctrine of indemnity and the principle of insurable
interest.
6. Write a detailed note on the principle of subrogation.
7. How does the principle of subrogation supplement the doctrine of indemnity?
8. Write a short note on the principle of contribution.
9. Briefly explain the principle of causa proxima.

10. Explain the presence of insurable interest in various general insurance contracts.

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