The Principle of Subrogation
June 16, 2008The aggrieved party has the legal right to recover from the offending party. However, if the aggrieved party has insurance on his property, claimed from and indemnified by the insurance company, the legal right to recover is transferred to the insurance company. This is called “subrogation”. Without “subrogation” the insured can still recover from the offending party; thus he could profit from his misfortune.
Once the insurance company indemnified the insured, the insured will sign a document subrogating the right to recover to the insurance company.
The principle of subrogation is applicable to contracts of indemnity only.
The Principle of Indemnity
May 26, 2008Indemnity means the restoration of financial position of the insured after the loss as he enjoyed immediately before the loss. It also means an exact financial compensation. However, the indemnity payable should not exceed the insurable interest or the insured amount, whichever is lesser, at the time of the loss. No one should profit under his insurance policy as a result of his/her misfortune.Indemnity is not applicable to life and personal accident insurance contracts. The reason being it is impossible to provide exact financial compensation for loss of life or limb.
The insurer has the option to provide indemnity in the form of cash, replacement, repair or reinstatement to discourage fraud or suspicious claims.
As defined above, indemnity is the exact compensation. However, it may be reduced due to actual sum insured, insufficient sum insured and policy deductibles. Also, the salvage shall be considered in determining the indemnity.
The Principle of Utmost Good Faith
May 12, 2008Utmost Good Faith means that each party to a proposed insurance contract is legally obliged to reveal to the other all information and materials facts, which would influence the other’s decision to enter into the contract, whether such information is requested or not.
Concealment and Misrepresentation.
Concealment is the intentional failure to reveal a material fact, which would influence a prudent underwriter in deciding whether to accept or reject a risk and what rate to charge and what conditions to impose.
Misrepresentation is the giving of false or misleading information on the material fact.
Concealment and/or misrepresentation gives the aggrieved party the right to avoid the contract.
The principle of Insurable Interest
March 31, 2008Insurable Interest is very important in insurance. Without insurable interest you cannot insure a property or life. Even you were able to insure a property or life sans the insurable interest, it will be tested in the event of claim. If it is proven that an insured or assured has no insurable interest, he could not claim from the insurance.
You have insurable interest on the property or life, if in the event of loss or death, it will cause you direct financial loss.
Examples of who have Insurable Interest.
- In property, the owners: authorized agents, administrators & executors, husband and wife (in each other’s property), mortgagors & mortgagees.
- In the lives of people: husband and wife, creditors and debtors, partners in a partnership business, corporations in its key personnel.
- In liability: any person in any potential liability he may incur.
The basic insurance principles
February 25, 2008So you already insured your property and are thinking that if something bad happened to your property, your insurer would pay you for the damages or replace the property insured. The answer is yes, provided, the following basic insurance principles are present.
- The principle of Insurable Interest;
- The principle of Utmost Good Faith;
- The principle of Indemnity;
- The principle of Subrogation;
- The principle of Contribution;
- The principle of Proximate Cause.
We shall discuss in details these principles one by one.
