An insurance contract is based on some basic principles of insurance, which of the following is against those principles?
Show Hint
- Principle of utmost good faith
- Principle of insurer interest
- Principle of causa proxima
- Principle of indemnity
The Correct Option is B
Solution and Explanation
The basic principles of insurance are:
Utmost good faith: Both the insurer and the insured must disclose all material facts honestly.
Causa proxima (Proximate cause): Insurance policies must cover losses that result directly from a specific cause.
Indemnity: Insurance contracts are designed to restore the insured to the same financial position after a loss, without profit.
The Principle of insurer interest is not typically a part of the basic principles of insurance; it relates more to the financial interest of the insurer, which is not a standard principle in insurance contracts.
Top Questions on Insurance Law and Accounts
The law of insurance, rooted in the general principles of contract law, is governed by doctrines distinctively evolved to reflect its aleatory nature. Insurance contracts are contracts uberrimae fidei. The insured is required to disclose all material facts that may influence the judgment of a prudent insurer. It must be noted that suppression of the truth is equivalent to the suggestion of falsehood. Unlike commutative contracts, insurance agreements are aleatory, where performance depends on uncertain events. The principle of indemnity ensures that the insured is restored to the financial position prior to loss, negating unjust enrichment. It is applicable in marine insurance, fire insurance, home insurance etc. However, in life insurance, the indemnity principle is relaxed due to its classification as a contingent contract, enforceable upon the assured event, not actual loss.
The doctrine of insurable interest is pivotal. It mandates that the insured must have a legally recognized interest in the subject matter at the time of loss or at inception in life insurance, failing which, the contract is void ab initio. Additionally, the principle of subrogation entitles the insurer, upon indemnification, to step into the shoes of the insured and recover from third parties. In the interpretation of insurance contracts, ambiguities are construed against the drafter, which is typically the insurer. Courts prioritize the reasonable expectations of the insured, provided there is no breach of disclosure duties.- TS LAWCET - 2025
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