assignment of insurance

7/30/2019 Assignment of Insurance

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Assignment on Insurance & Risk Management

Submitted To:

Md. Jamil Sharif

Lecturer

Department of Accounting & Information Systems

University Of Dhaka

Submitted by:

Group: 6

Sec: A ; 11th batch BBA.

Dhaka City College

Name Id no.

Md. Ariful Haque 21

Mst. Tahmina Akter 26

Wahid Hossain 30

Shams Zerin Chowdhury 73

Shayla Sultana Mala 367

Date of Submission: 16-04-2011


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Prepared by: Arif, Wahid, Lucky, Zerin & Shayla.

1Insurance &Risk Management

Q. What are the six principles of insurance?

Ans:

The six principles of insurance are described below:

1. The principle or the doctrine of utmost good faith:

According to this principle both the parties to the insurance contract must disclose all facts

materials to the risks voluntarily to each other. Any branch of this duty shall render the contract

voidable at the option of the aggrieved party i.e. the party who has suffered as a result of the

breach. Although insurance contract is a simple commercial contract but it differs from other

commercial contract with regards to the application of this principle. It does not follow the rule of

caveat emptor.

2. Principles of insurable interest:

It may be defined as a financial or pecuniary interest in the subject matter of insurance where by

the insured benefits financially by its safety and suffers financially by its lost. There must be a

subject matter to be insured.

3. Principle of indemnity:

Insurance contract actually stand in different category because there is nothing visible or

tangible here which can be physically examined like other contracts. Therefore the law is not of

let the buyer beware. Unless both the parties disclose voluntarily to the other party all facts it is

not possible for the other party to know precisely as to what type of bargain he is entering into.

4. Principle of subrogation:It refers to the right of the insurance to stand in the place of the insured after the settlement of

claim. So far as the insureds right of recovering from alternative source is involved.

5. Principle of contribution:

It has been well established through the principle of indemnity that on the happening of a loss

the insured shall be placed back into the same financial position as if no loss has taken place.

He shall be paid neither more nor less. In order to preserve this principle if therefore, there

comes up any possibility which is likely to disturb this principle that is to say if somebody is likely

to get more than the amount of loss; then that has to be checked so that the principle remains

undisturbed.

6. Principle of proximate cause:

The principle of proximate cause virtually revolves around the claims administration and more

precisely, diagnosing the pay ability or otherwise of a claim on the question of perils covered by

a policy. A policy may cover certain perils mentioned specifically therein, whilst some perils may

be specifically excluded and some may still be neither included nor excluded.


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Q. What is material fact?

Ans:

Material fact:

A material fact is a fact which would influence the decision of a prudent underwriter to decide

whether to enter into an insurance contract or not, if to enter, at what rate terms and conditions.

A material fact is every circumstance, which would influence the judgment of a prudent

underwriter/insurer in fixing the premium or determining whether he will take the risk. Any

change in facts previously notified could be material and must, therefore, be notified. Failure to

disclose material facts could result in insurers voiding the Policy and all claims made under it.

The duty of disclosure is ongoing and applies from the moment discussion commences with

insurers, prior to the issue of any policy document, throughout the period of insurance and at

renewal.

Q. Write which facts are required to be disclosed and which

are not?

Ans:

Facts which are required to be disclosed:

Facts which render a risk, greater than normal.

Facts which some special motive behind insurance. Facts which suggest the abnormality of the proposer himself.

Facts explaining the exception nature of risk.

Facts which are not required to be disclosed:

Facts which lessen the risk.

Facts of public knowledge.

Facts pertaining to matters of law.

Facts possible of discovery through enquiry. Facts which should be reasonable inferred by the insurer.

Facts to which the insurer do not attach much importance.

Facts which are super flows to disclosed.


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Q. Show the difference between representation and

warranties.

Ans:

The difference between the representation and warranties are given bellow-

Representation Points ofDifference

Warranties

A representation is a statement madeby the proposer to the insured relatingto a proposed risk.

Definition Warranty is an undertaking bythe insured by the effect that heshall not do certain thing.

Both material and immaterial factsneeds to be disclosed.

Disclosing of facts It may be either expressed orimplied.

It is required to be substantially true. Truthfulness Warranty must be strictly andliterally complied with.

Insurer is bound to prove thatinformation is materially misstated

Proof Any breach or immaterial isenough to avoid the contract .Noneed to prove must appear inthe policy.

So these are the some difference between representation and warranties.

Q. How breaches of the duty of utmost good faith take

place?

Answer:

As the underwriter knows nothing and the man who comes to him to ask to insure knows

everything, it is the duty of the assured to make full disclosure to the underwriter without being

asked of all the material circumstances, this is expressed by saying it is a contract of utmost

good faith. The contract may breach for several ways. The breaches of the duty of utmost good

faith take place are discus below:

11.. Non disclosure: This means omission to disclose a material fact inadvertently orbecause he innocently thought the information to be immaterial.

22.. Concealment: This means concealing or suppressing a material fact intentionally,

knowing it to be material.

33.. Innocent misrepresentation: This means, making an inaccurate or false statement

pertaining to material facts innocently and believing it to be true.

44.. Fraudulent misrepresentation:this means making false statements, pertaining to facts

material to the risk intentionally and with the intent to deceive the insurers. The maker of


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such a statement knows it to be false, but nevertheless he makes it recklessly with a

careless disregard for the veracity. This is actionable not only under the law of contract

but also under the law of tort.

It should be clearly remembered that any breach, as mentioned herein, renders the contract

voidable at the option of the aggrieved party, i.e. the party who have suffered as a result of thisbreach.

Q. What courses of actions are open to an insurer when an

insured makes breach of utmost good faith? What is a

voidable contract?

Answer:

Insurance is a contract between insurers and insure. Sometimes the contract breaches for some

causes. There are some coerces of action are open to an insurer when an insured makes

breach of utmost good faith. They are

1. Repudiate liability with regard to any claim,

2. Cancel the policy if Still in force, or

3. Overlook the breach. When the breach is overlooked as such, the contract remains

absolutely unaffected.

Voidable Contract:

In law, a transaction or action which is voidable is valid, but may be annulled by one of theparties to the transaction. Voidable is usually used in distinction to void ab initio(or void from

the outset) and unenforceable.

A voidable contract, unlike a void contract, is a valid contract. At most, one party to the

contract is bound. The unbound party may repudiate the contract, at which time the contract

is void. For example, depending upon jurisdiction, a minor has the right to repudiate certain

contracts. Any contract with a minor is thus a voidable contract. If a minor were to enter into a

contract with an adult, the adult would be bound by the contract, whereas the minor could

choose to avoid performing the contract. Therefore, when entering into contracts with a minor,

people often require the co signature of an adult, preferably a parent or legal guardian.1

1The Wikipedia free encyclopedia. [http://en.wikipedia.org/wiki/Voidable]
http://en.wikipedia.org/wiki/Voidablehttp://en.wikipedia.org/wiki/Voidablehttp://en.wikipedia.org/wiki/Voidablehttp://en.wikipedia.org/wiki/Voidable


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Q. What are the three essentials of insurable interest?

Ans:

The followings are the three essentials of insurable interest:

a. There must be property, rights, interest, life, limb or potential liability devolving upon the

insured capable of being covered by a policy of insurance.

b. Such property, right, life, limb, interest or liability must be the subject matter of

insurance.

c. The insured must bear such relationship, recognized by law, to that subject matter of

insurance whereby he benefits by the safety of that subject matter and is prejudiced by

the loss, damage or destruction thereof.

When a person fulfils the above criteria or when a person has such a relationship with the

subject matter, it is said that he has insurable interest and it is only then that he can insure.

Q. Recall the difference between subject matter of insurance

and subject matter of insurance contract.

Ans:

Subject matter of insurance is nothing but the property that is being insured.

The subject matter of insurance contract is indeed not the property as such but the insurable

interest of a man in that property. There some basic difference between subject matter of

insurance and subject matter of insurance contract. viz.Subject matter of insurance Points of

differenceSubject matter of Insurancecontract

Subject matter of insurance isnothing but the property that is beinginsured.

Definition The subject matter of insurancecontract is indeed not the property assuch but the insurable interest of aman in that property.

It is the property or subject matterwhich is insured.

Subject matter It shows the interest of the ownersover the property or the subjectmatter.

It is life in Life Insurance;Factory, machinery, stock, house etc.

in Fire Insurance;Ship, cargo etc. in Marine Insurance.

Examples: It is the insurable interest i.e. theinterest of life in Life insurance;

Interest of machinery in fireinsurance is the subject .

These are the basic diference of subject matter of insurance and subject matter of insurance

contract.


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Q. What legal principle was decided in the English case

CASTELLAIN Vs PRESTON (1883)?

Ans:

The principle of subrogation was decided in the English case Castellian vs. Preston in 1883.

The court emphasized the amplitude of the insurer's right of subrogation which gave him "the

advantage of every right of the assured, whether such right consists in contract, fulfilled or

unfulfilled, or in remedy for tort capable of being insisted on or already insisted on, or in any

other right, whether by way of condition or otherwise, legal or equitable . . . The second right

vested in the insurer by the doctrine of subrogation is to claim from the assured any benefit

conferred on the assured by third parties with the aim of compensating the assured for the loss

in respect of which the insurer has indemnified him. The right is usually exercised by an insurer

claiming from the assured a sum equivalent to any sum of damages paid to the assured by a

third party legally liable for the loss. The right is wider in scope than that, however, and the

insurer is entitled to moneys paid to the assured ex gratia to diminish his loss unless intendedby the donor to benefit the assured to the exclusion of the insurers." The doctrine of subrogation

is based on the fact that a contract of insurance is a contract of indemnity, and that the insurer is

placed in the shoes of the insured in respect of claims whereby the insured loss is diminished. 2

To sum up we can say that the principle of subrogation was considered in this case.

Q. Recall the position as to when insurable interest must

exist in various branches of insurance.

Ans:

The question as to when insurable interest must exist varies depending on the type of

insurance. The position is as follows.

Marine Insurance:

Insurable interest must exist at the time of claim although it need not exist at the time of effect

the policy. However, at the time of effect the policy the insured must prove that he is going to

acquire insurable interest soon.3

Fire Insurance:

Insurable interest must exist at the time of effect the policy and at the time of claim.

2[http://www.swarb.co.uk/lisc/Insur18491899.php]

3Marine Insurance Act, 1906
http://www.swarb.co.uk/lisc/Insur18491899.phphttp://www.swarb.co.uk/lisc/Insur18491899.phphttp://www.swarb.co.uk/lisc/Insur18491899.phphttp://www.swarb.co.uk/lisc/Insur18491899.php


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Life Insurance:

Insurable interest must exist at the time of effect of the policy and it may not exist at the time of

claim. For example, if a creditor takes out a policy on the life of a debtor and subsequently the

debtor pays back the loan, nevertheless, the creditor can continue the policy on the policy as

per original terms and shall be entitled to sum assured either on death of the debtor or on

maturity, even though at the time of claim there exist no insurable interest.4

Accident Insurance:

Like fire, insurable interest must exist both at the time of effect of the policy and the time of

claim. It should be remembered that in the absence of insurable interest the contract should be

void ab-initio. Therefore, it is the duty of the underwriters to see the position of insurable interest

at the time of insurance of the policy and similarly it is the duty of the Claims Manager to see the

position of insurable interest at the time of settling a claim.

4English case Dalby Vs. The India & London Life Assurance Co., 1854

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