Page 270 - DMGT303_BANKING_AND_INSURANCE

Unit 13: General Insurance

indemnity to pay the price of a new vehicle. If the insurance company's did so the insured will Notes
be tempted to destroy the insured assets.
In case a building is damaged by fire, the measure of indemnity is the cost of repairing it.

For machinery the measure of indemnity is the cost of repair, if the machinery is destroyed in
fire, the market value of such machine after taking into consideration the wear and tear shall be
paid by the insurer.

For manufactured stock, it is the cost of raw materials, plus cost of labour, fuel and overheads i.e.
the value added will be indemnified.
It is so provided in the Marine Insurance Act, 1963 that for marine perils the indemnity is "in the
manner and to the extent agreed", by the insurers and the insured.
In the case of personal accident policies, it is not possible to place a value on life as such. Hence
Personal Policies are called benefit policies. Whatever is the sum assured as per the premium/
the type of policy taken the amount shall be paid.

Utmost Good Faith

In any insurance contract, the proposer is the only person who is supposed to know all the facts
of the subject matter of the insurance and the insurer has to completely rely on what the proposer
has disclosed. The proposer should, therefore, furnish all material facts concerning the property
proposed for insurance.
The insured need not disclose the facts of the following nature:

1. Which would diminish the risk of insured, peril, e.g., appointing a driver or appointing a
night watchman.
2. Which are presumed to have been known to the insurer, e.g., large scale rioting in the
area.
3. Which could be understood from the information already, furnished, e.g., customary
process in an industry.
4. Which should have been enquired but was omitted by the insurer? The insurer will construe
this as warranty.
If the insured does not reveal the material facts related to the subject matter assured, then the
contract is void or void able in the hands of the insurance company as the case may be.

Example: Material Facts
1. Marine Insurance: Method of packing, the nature of goods, the condition of vessel carrying
the goods, the ports of shipment and destination etc.
2. Fire Insurance: Construction of the building, occupancy e.g., office, residence, shop, godown,
workshop etc., the nature of goods, i.e. non-hazardous, hazardous, extra hazardous and so
on.

3. Motor Insurance: Cubic capacity of engine (private car), the year of manufacture, carrying
capacity of a truck (tonnage), the purpose for which the vehicle is used, the geographical
area in which it is used, the owner's driver's convictions for traffic offences etc., age, height
and weight, physical disabilities etc.
4. General: The fact that the previous insurers had rejected the proposal or charged extra
premium, or cancelled or refused to renew the policy, previous losses suffered by the
proposer.

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