8. Briefly explain the principles of insurance in the following cases.
a) Mrs. Jayan wishes to insure the life of her friend Suji. But the life insurance company
objects it.
b) Mr. Sunil got 3 lakhs from the insurance company as compensation for his stolen car.
Later he files a suit to recover the stolen car.
Answers
Answer:
(a) Utmost good faith : It is the principle of insurance that insured person should disclose all the facts to the insurer. Non-disclosure of these facts by the knowledgeable party, could affect the validity of such contract e.g. in a court case decided in England, the court decided that the insurance company could not be made to pay the claim, since it had come to know of the illness after the person had died.
(b)Indemnity : A contract of indemnity is one where the insured person is paid only the actual amount of loss or the amount of the policy, whichever is less e.g. a person insured his house against fire. Later he agreed to sell his house to another person.
Before the completion of sale the house was destroyed by fire. The seller received not only compensation from the insurance company but also, as per the contract of sale, the price of the house from the buyer.
The court decided that the insurance company could recover the amount it had paid. But life insurance contracts are treated differently.
(c) Insurable interest : It represents a legally recognisable relationship between (a) the person insuring another person or thing, (b) the person or thing which is insured, such that he will stand to gain in financial terms if the person or thing insured by him continues to exist, and he would suffer a financial loss if that person dies or that thing is destroyed. Thus, X cannot insure the life of Y if there is no relationship between the two.
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