Revision Module 1- Law of Insurance

Oldest type of insurance

• Life insurance

• Liability insurance

• Fire insurance

• Marine insurance

Answer explanation

Marine insurance is the oldest type of insurance.

What is meant by underwriter?

• Another word for Insured in life insurance contract

• Another word for insurer in life insurance contract

• Another word for insurer in marine insurance contract

• Another word for insured in marine insurance contract

Consideration flowing from the insured to the insurer in a contract of insurance is called (a)   .

An insurance contract has to be in writing

• True

• False

Answer explanation

An insurance contract has to be in writing. The document is called a policy.

Rajat who lives in Kerala loves and adores actor Mohanlal. He has met the actor a couple of times and spoken to him. He genuinely wishes the actor well and wants to insure the actor's life. Will A be able to do so?

• No. Because A has no insurable interest in the actor's life.

• Yes. Because A has insurable interest in the actor's life.

 Annie had a railway accident in 2018. This considerably weakened her health and she never regained full agility after the railway accident. 

In 2023, she could not avoid a street accident and got run over by a bus. She has an which covers railway accidents but not bus accidents.

Can she indemnify her losses due to the street accident under the policy? 

• Yes. Because the railway accident is the causa proxima for her street accident.

• No. Because the railway accident is not the direct and proximate cause for the street accident.

Causa proxima in relation to risk means

• The peril insured in an insurance policy is the last occurring cause in a chain of events that led to the happening of the risk event.

• The peril insured in an insurance policy is the direct and proximate cause of the risk event, irrespective of where the peril insured stands in a chain of events.

Answer explanation

The last cause rule is no longer in vogue. As per the more accepted rule now, the causa proxima is the incident that is real reason behind the risk event's occurrence, irrespective of whether or not it is the last cause in a sequence of causes.

Robin has a fire insurance policy for his shop premises in Kalamassery. Unfortunately, it catches fire on a day. Later, it was found that while the efforts to put out fire were going on, someone/ some persons stole Rs.10,000 that Robin had kept in his table from the store. This is where he usually keeps the moneys received during the course of business and takes it with him at the end of the day. Can Robin claim the losses under his fire policy?

• Yes. Because the theft would not have happened if the fire had not happened. Theft is a probable and reasonable consequence of fire.

• No. Because Robin ought to have been careful in not keeping such a huge sum of money in an accessible place. The loss occurred due to Robin's own negligence.

• No. Because theft cannot be considered as a probable and reasonable consequence of a fire breakout.

• No. Robin deliberately kept the money in the table which was accessible to the people who came to put out the fire. He ought to have acted as a prudent and reasonable man and foreseen this event.

Answer explanation

Here, the peril insured against is the fire. The loss accrued on to Robin is loss of money because of theft.

If we picturise this as a chain of events- fire happened - theft happened - resulted in Robin's loss.

There is an intervening event between the fire and the loss- i.e., the theft. Inorder for the insurance company to be liable, fire i.e., the peril insured against has to be the direct and proximate cause, the real and effective cause. This means, the theft has to be a reasonable and probable consequence of the fire happening and not a new intervening act.

Theft cannot be considered as a reasonable and probable consequence of fire. It is a new and intervening act here. Therefore, the peril insured against or the fire is not the causa proxima here. Consequently, the insurance company is not liable to indemnify Robin for the loss due to theft.

Savithri has a life insurance policy in her name. The insurance company has a condition that she ought not do things that alter the risk. With her friends, she climbs up a small peak in her locality to enjoy the sunset. Can the insurance company repudiate her policy?

• Yes. She has altered the risk here by putting herself in a higher risk of death.

• No. This cannot be considered as a risk altering event.

Bellatrix takes a life insurance policy in the name of her sister, Narcissa. A couple of years later, Narcissa dies by poisoning. It is later found in investigation that Bellatrix had in fact poisoned Narcissa. Is the insurance company bound to indemnify the loss of Narcissa's life to Bellatrix?

• Yes. Bellatrix had insurable interest in Narcissa's life and now that Narcissa is dead, Bellatrix is owed the money.

• No. Bellatrix cannot claim fruits of her own fraudulent act. The insurance company can rightfully repudiate the claim.