Revision for Module-II

Can insurance policies generally be assigned?

• Yes

• No

Assignment of life insurance policies in India is now governed by which of the following laws?

• Insurance Act, 1938

• Transfer of Property Act, 1882

Answer explanation

S 38 of the Insurance Act 1938 governs the assignment of life insurance policies in India. Prior to this Act, the assignment of life insurance policies used to be considered as transfer/ assignment of actionable claims u/ S 3 of the Transfer of Property Act.

Which of the following is incorrect about the assignment of a life insurance policy in India?

• It can be done orally or in writing.

• It has to be done in writing either as an endorsement on the policy or a separate document.

• It has to signed by the assignor/ agent.

• It has to be attested to by atleast one witness and specifically set forth the fact of assignment.

Answer explanation

As per S 38(1) of the Insurance Act, 1938, the assignment of life insurance policies cannot be done orally. It has to be in writing- either as an endorsement on the policy itself or in a separate document.

Ash had taken a fire insurance policy on his house. He subsequently sells the house to Misty. Misty has paid the full purchase price for the house and become the owner of the house now. The policy was not assigned to Misty at the time of transfer of the property. Before Misty moves into the house, it catches fire. Who among the two, Ash or Misty, can claim the fire insurance policy?

• Ashi as he is still the policy holder.

• Misty as she is the owner of the property and the bearer of the loss now.

• Both Ash and Misty have equal claim and have to share the claim amount equally.

• Neither can claim the amount.

Answer explanation

Ashi cannot claim the amount because she does not insurable interest in the property/ subject matter of the policy at the time of the loss. She suffers no loss. Shai suffers loss but she is not a party to the insurance contract. Therefore, insurance co. is not liable to pay to Shai.

Warranties need to be complied with ------

• Strictly

• Substantially

• Need not be complied with

Answer explanation

Strict compliance is required in case of warranties in insurance contracts.

In general, warranties bind whom in an insurance contract?

• Insured

• Insurer

• Both

• Neither

Warranty in an insurance contract ought to be

• Oral

• Written

• Either

Can there be warranties as to future scenarios?

• Yes

• No

Answer explanation

Yes, warranties can be stipulated as to future scenarios. The insured will through such a warranty be assuring to the insurer of the warranted scenario. Eg:- The assured warrants that he will use a Godrej lock for the front door of the house in a burglary insurance.

Niji takes a burglary insurance. There is a warranty clause in the contract stating that 'the assured warrants that she will use a Godrej lock for the front door'. Niji decides to instead install a lock of another brand, as per the opinion of the shopkeeper she approaches. According to the shopkeeper, the brand Niji buys is as good as Godrej. Later, she becomes a victim of an incident of burglary. She claimed the insurance amount. The insurer finds out about the lock not being of the brand and make warranted. Is the insurance company liable to pay the amount to Niji?

• No. Because Niji has breached a warranty. Therefore, insurer may avoid the contract.

• Yes. Because the brand and the make are immaterial as Niji genuinely believed that the brand she got installed was as good.

• Yes, because Niji's decision to opt for another brand and make was taking into account an expert opinion.

• Yes, because she had installed a lock for the front door. The brand is immaterial. She has substantially complied with the warranty.

Answer explanation

Warranties ought to be complied with strictly. Materiality or immateriality is irrelevant. Whether or not the insured thinks the brand is material here is irrelevant to deciding whether there was a breach of warranty or not. The insurer will be able to avoid the contract in this instance.

Dan wants to get a life insurance policy for himself. He approaches an insurance agent at the LIC office near his house. The insurance agent after gathering details about his age, job etc. suggests a life insurance policy offered by a private insurance co. as the best option for him. Is the insurance agent right or wrong in suggesting a policy of another insurer to Dan?

• Right because his duty as an agent is to provide the best information available to a prospective insured.

• Wrong because he is an agent of the LIC. He can only solicit business on behalf of the LIC.

Answer explanation

An agent is a person employed by an insurer/ insurance co. to solicit business or procure business on its behalf. While part of his/her/its duty involves gauging the needs of the proposed insured and recommending the best policies catering to the needs of the insured, the agent is still bound to protect the interests of its principal. Ergo, the agent cannot recommend policies of another company.