Page 290 - DMGT303_BANKING_AND_INSURANCE

Unit 13: General Insurance

13.9 Summary Notes

All Insurance contracts are governed by the basic principles of insurable interest, indemnity,
utmost good faith, subrogation and proximate cause.

In fire and miscellaneous insurances, insurable interest must be present both at the time of
taking the policy and at the time of loss as well. For example, if the property insured under a fire
insurance policy is sold and there is a loss after the sale, the insured cannot recover the loss as he
has no more any insurable interest in the property.
In marine insurance, insurable interest is required to present only at the time of loss. It may or
may not be present at the time of effecting insurance.

Ownership of the goods passes from the exporter to the importer when payment is made. If
goods arrived damaged at the port of destination and if the importer had paid for goods, he can
recover the loss as he has insurable interest at the time of the loss and also has a policy. In marine
hull insurance, insurable interest must be present both at the time of the taking the policy and at
time the loss.

Fire insurance policy covers the risk from fire and incidental to fire. All the essential elements
specified in the Contract Act are also applicable to a fire insurance contract. The fire insurance
policies are of short duration. Essential principles of fire insurance are - insurable interest and
principle of indemnity. Ignition and combustion are important ingredients of fire, without
which the fire policy is not operative.

The fire policy also covers the damage due to explosion and implosion of boilers, damage to
aircraft or property dropped from aircrafts, damage from missile testing operations. A fire
policy covers tangible, movable and immovable property of a person.
The warranties and important conditions of the fire policy concerning principle of good faith
should be followed. The assured should inform the insurer of any alteration which affects the
risk levels. Insurers can take custody of the property of the insured or happening of event and
sell or dispose property and apply the rule of subrogation. The conditions and warranties can be
implied or expressed. The claim is settled by the insurer after assessing the damage. The insurer
has the right to reject the claim if it is not filed within the period of limitation mentioned in the
policy. The loss assessment and payment of damages depends upon the type of policy taken.
Fire insurance polices may be valued policies, unvalued or open policies, long, mid and short-
term policies or limited risk policies.
13.10Keywords

Accident Insurance: A form of health insurance against loss by accidental bodily injury.
Additional cover: An insurance policy extended to cover additional risk perils such as strikes,
riots and civil commotion etc. on payment of extra premium.
Broker: Insurance salesperson that searches the marketplace in the interest of clients, not insurance
companies.

Business Interruption Insurance: Insurance for a business owner against losses resulting from
stoppage of business because of fire or other insured peril. The insurance provides reimbursement
for lost net profits and necessary standing expenses.

Business Interruption: Stoppage of business after occurrence of a calamity e.g. fire. Due to
interruption men, machinery and other resources may not be able to perform and there would
be delay in supply of goods to customers.
Consequential Loss/Indirect Loss: A financial loss which occurs as the consequence of some
other loss.

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