Question:

A subject matter is insured under marine insurance for ₹ 10,00,000 and during the transit the subject matter is damaged to the extent of ₹ 3,00,000. In this case, how much amount will be compensated by the insurance company to the insured? Which principle of insurance will be applicable and why? Give your comments.

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Indemnity = Actual loss only, never more — prevents profit from insurance.
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Solution and Explanation

In marine insurance, the insurer compensates the insured for the actual loss suffered during the insured voyage, subject to the sum insured.
In this case, the sum insured is ₹ 10,00,000, but the actual damage to the goods is only ₹ 3,00,000.
According to the Principle of Indemnity, the insured can claim only the amount of actual loss and not more.
This principle ensures that the insured does not profit from the insurance contract but is placed in the same financial position as before the loss.
So, the insurance company will pay only ₹ 3,00,000 to the insured, which is the extent of the damage.
The remaining sum insured remains unused and has no effect on the claim for this loss.
This highlights that marine insurance is a contract of indemnity and the claim cannot exceed the actual loss.
Hence, the Principle of Indemnity applies here.
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