COMPILATION OF ARTICLES ON SOME MOST IMPORTANT CONCEPTS OF INSURANCE

COMPILATION OF ARTICLES ON SOME MOST IMPORTANT CONCEPTS OF INSURANCE

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COMPILATION OF ARTICLES ON SOME MOST IMPORTANT CONCEPTS OF INSURANCE

AuthorCIT V. M. VENKATESWARA RAO (2015) 370 ITR 212 HOB’BLE APPELLATE TRIBUNAL, AP

CS Deepak P. Singh

 

 


 

As you are aware that Insurance has became an important part of our life. An insurance policy provides us security against financial loss due to perils incprorated in the Incurance Contract or we can called it insured perils. Since India is a vary large country and having population approximately of 135 Crores even though insurance penetration is only 4.5% of total population. Insurance in our country is considered as a luxury item and general conception is that it is enjoyed by rich people. But this COVID-19 wave has changed the whole senerio and people are thinking for insurance and opting to insure themselves and their family.
An Insurance is a contract of “ Good Faith” means insuraed and insurance company both are required to disclose each other all material facts to avoid any future dispute.
There are lot of points in the insurance, which needs clarity and discussion to be used and applied. There are various principles, terms ,conditions ,rules and regulations which govern an insurance contract and also interpreted by various courts in India as well as abroad need to be understand.
In this article we have summed and discussed some important point ,which are important for insurer and the insured. An insurance contract will be drawn on the basis of these principles and concepts and insured as well as insurer are required to follow the same.
The IRDAI ( the regulator) is actively monitoring  activities of insurance players through strict compliance of Guidelines, Regulations, Circulars, Notifications ,etc.
Sr. No.
Particulars
Page No(s).
1
NON-DISCLOSURE OR CONCEALMENT OF MATERIAL FACTS UNDER INSURANCE.
2
STATUS OF TWO INSURANCE POLICIES ON SAME SUBJECT MATTER AND AVOIDANCE OF CLAIM BY INSURANCE COMPANIES.
3
CONCEPT OF “DAYS OF GRACE” UNDER INSURANCE POLICY.
4
CONCEPT OF CONTRIBUTION AND AVERAGE CLAUSE UNDER INSURANCE POLICY.
5
SOLVENCY RISK AND INSURANCE SECTOR.
6
DOCTRINE OF “SUBROGATION.
7
MEANING OF THE WORD” ACCIDENT” UNDER INSURANCE.
8
DOCTRINE OF REINSTATEMENT UNDER INSURANCE.
9
CONCEPT OF OWN RISK SOLVENCY ASSESSMENT (ORSA).
10
ANALYSIS OF PROVISIONS RELATED TO TRANSFER, ASSIGNMENT AND NOMINATION UNDER INSURANCE ACT, 1938.
11
ANALYSIS  OF PROVISIONS GOVERNING MISSTATEMENT/CONCEALMENT/FRAUD UNDER AN INSURANCE POLICY.
12
WARRANTY MUST BE STRICTLY COMPLIED WITH.
13
DIFFERENCE BETWEEN SUBROGATION AND ASSIGNMENT.
14
UNDERSTANDING PROCESS OF UNDERWRITING IN INSURANCE.
15
CONCEPT OF “ ACTUARY” &  “ACTUARIAL RISK”.
16
SOME FACTS RELATED TO A “COVER NOTE OR INTERIM RECEIPT” UNDER INSURANCE.
17
AGREED BANK CLAUSE IN INSURANCE POLICIES.
18
CONCEPT OF DEDUCTIBLE & CO-PAYMENT UNDER INSURANCE.
19
EFFECT OF FORFEITURE CLAUSE IN INSURANCE POLICY.
20
RULE OF “ CONTRA PROFERENTUM”-UNDER INSURANCE.
21
PORTABILITY OF INSURANCE POLICIES.
22
ALTERNATIVES TO TRADITIONAL RE-INSURANCE.
23
FEATURES OF MARINE INSURANCE.
24
ASSIGNMENT OF MARINE INSURANCE POLICIES.
25
EFFECT OF THE EXPRESSION “ AGE ADMITTED”.
26
EXCLUSIVE JURISDICTION OF MACT IN MOTOR ACCIDENT CASES.
27
IMPORTANCE OF CERTIFICATE OF INSURANCE(COI).
28
JUST COMPENSATION- UNDER MOTOR VEHICLES ACT,1988.
29
MOTOR INSURANCE FRAUDS-DETECTION AND CONTROL.
30
ORIGINAL ASSURED’S RIGHT IN REINSURANCE CONTRACT.
31
POLICY WORDINGS AND FUNNY CASE OF INSURANCE FRAUD.
32
LIFE INSURANCE AND SUICIDE: LEGAL POSITION AND JUDICIAL PRONOUNCEMENTS.
33
PERSONS ENTITLED TO PAYMENT UNDER AN INSURANCE POLICY.
34
COMPLIANCE RISK MANAGEMENT.
35
MURDER TO BE TREATED AS AN ACCIDENT- NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION.
36
WHISTLE BLOWER POLICY IN INSURANCE COMPANIES.
37
TYPES OF FRAUD IN INSURANCE AND REMEDIES.
38
TRANSFER OF ACTIONABLE CLAIMS.
39
RETURN OF PREMIUM UNDER A CONTRACT OF INSURANCE.
40
SURRENDER VALUE OF AN INSURANCE POLICY.
41
WHAT IS MICRO INSURANCE.
42
RIGHTS AND LIABILITIES OF THIRD PARTY IN MOTOR INSURANCE.
  1. NON-DISCLOSURE OR CONCEALMENT OF MATERIAL FACTS UNDER INSURANCE
As you are aware that contract of insurance is based on the doctrine of “ Utmost Good Faith” ,which means a person applying for an insurance cover has to disclose and reveal all material information required by insurance company. Material Information means all those information on the basis of which underwriter access the risk profile of the person and decide to accept the risk and issue the insurance policy or decline the same.
In health insurance, material information relates to life, medical history, age, family members, medical history of family members, the society, place where insured lives and information of his other insurance policies if any with other insurers. In case of other insurance the nature of business, financial position of company, history of loss , insurance policy with other companies , the nature of office, premises, construction of building, the Board of directors etc.
An insurance company gather these information through proposal forms, financial statement of company , through prior insurance investigation, report of engineers , report of investigators etc. these information helps underwriters to access the risk and loss to be paid to the insured in case of damage or loss.
It is also duty of the insurer to declare all material facts related to insurance as well as terms and conditions of insurance with the insured or prospects.
DUTY TO DISCLOSE IN MEDICLAIM POLICY  –a Mediclaim Policy is a non-life insurance policy meant to assure the policyholder in respect of certain expenses pertaining to injury, accidents or hospitalisation. Nonetheless , it is a contract of insurance falling in the category of contract “uberrimae fidei” , meaning a contract of “Utmost Good Faith”on the part of the assured. Thus it needs, little emphasis that when an information on a specific aspect is asked for in the proposal form , an assured is under solemn obligation to make a true and full disclosure of the information on the subject which is within his knowledge.
It is not for the proposer to determine whether information sought for is material for the purpose of the policy or not. The obligation to disclose extends onl to facts which are known to the applicant and not t what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion of the materiality of that knowledge is of no moment.
 
PLEASE NOTE THAT- the admittedly in response to the letter of insurance company seeking reply insured to question that he was suffering from AIDS prior to taking policy the insured submitted his reply to the office of insurance company. The perusal of this reply show that the insured instead of specifically denying that he had not been taking treatment for AIDS prior to applying for insurance , gave a vague reply that he had told about his ailment in detail to the agent without specifying the nature of the ailment. He further stated that the record of his treatment was also not furnished to the agent. This vague reply , amounts to implied admission that before obtaining the insurance policy the insured was suffering from AIDS ,which fact admittedly has been concealed in answering the questionnaire pertaining to personal history of the insured. Therefore it can be safely concluded that the insured had obtained the insurance policy by concealment of material fact and as such the insurance contract is not a valid contract.[LIC of India Vs. Brahma Singh 2015(4)CPR 62]
THE DEFINITIONS OF MATERIAL FACTS.
Material facts have been statutorily defined on two occasions:
The Marine Insurance Act 1906, Section 18(2), provides: “Every circumstance is material which would influence the judgement of a prudent underwriter in fixing the premium or determining whether he will take the risk”.
The Road Traffic Act 1934, Section 10(5), reads: “The expression ‘material’ means of such a nature as to influence the judgement of a prudent insurer in determining whether he will take the risk, and, if so, at what premium and on what conditions”.
The similarity in the definitions can readily be seen and both can be traced to their parent, Lord Mansfield, in his judgement in Carter v. Boehm.65 The common factor is that the insurer or underwriter alone determines what is material.
From an underwriting point of view, material facts might be classified as first, tangible, and secondly, intangible, i.e. that group of facts which give the background to the moral character, the reputation for integrity… etc, of an insured.
Of the first group, there are innumerable cases. An omission to state that adjoining property had been damaged by fire, that the fire had been extinguished but it was feared it would break out again, should be considered as to constitute non-disclosure of a material fact.
 Where a motor car is insured against fire, the structure and situation of the garage are material facts affecting the possibility of a fire breaking out and of its being extinguished. However, it may safely be said, any fact, which affects the material is considered as a material fact.
But these are not the only facts which an underwriter requires to know before he can assess the risk. It has many times been stated that what is insured is not property but the interest in property.
Thus, Jessel M R observed that: “The word ‘property’ as used in several of the conditions (in the policy) means not the actual chattel, but the interest of the assured therein”.
 
Once this is accepted, the necessary corollary is that the insurance contract is a personal contract between the insurers and the insured for the payment of a sum of money. Its purpose is not to insure the safety of any particular object, but to insure the insured against loss arising out of his relationship with the subject matter of the insurance.
 
This issue of the personal nature of a contract brings into operation an assessment of what is known as moral hazard. Some underwriters regard moral hazard as being of greater importance than the physical hazard, and clearly there is ample scope for a wide variation of opinion. Thus, a history of previous fire or burglary losses, or a record of claims, will rightly put an underwriter on his guard. Further, the fact that a proposal for insurance was declined, or renewal refused, would be properly regarded as material. In the case of a loss of profits insurance, the fact that a proposer is trading at a loss is one which ought to be disclosed.
The Insurance Regulatory & Development Authority of India, by a Notification dated October 16, 2002 issued the Insurance Regulatory & Development Authority (Protection of Policyholders Interests) Regulations 2002.
The expression Proposal Form is defined in Regulation 2(d) thus:
2 (d) Proposal Form means a Form to be filled in by the Proposer for Insurance, for furnishing all material information reuired by the Insurer in respect of a risk, in order to enable the Insurer to decide whether to accept or decline, to udertake the risk, and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted.
Explanation:
Material for the purpose of these regulations shall mean and include all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer. Regulation 4, deals with Proposals for Insurance and is in the following terms:
Proposal for Insurance:
  1. Except in cases of a marine insurance cover, where current market practices do not insist on a written proposal form, in all cases, a proposal for grant of a cover, either for life business or for general business, must be evidenced by a written document. It is the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form.
  1. Forms and documents used in the grant of cover may, depending upon the circumstances of each case, be made available in languages recognised under the Constitution of India.
  1. In filling the form of proposal, the prospect is to be guided by the provisions of Section 45 of the Act. Any proposal form seeking information for grant of life cover may prominently state therein the requirements of Section 45 of the Act.
  1. Where a proposal form is not used, the insurer shall record the information obtained orally or in writing, and confirm it within a period of 15 days thereof with the proposer and incorporate the information in its cover note or policy. The onus of proof shall rest with the insurer in respect of any information not so recorded, where the insurer claims that the proposer suppressed any material information or provided misleading or false information on any matter material to the grant of a cover.
PLEASE NOTE THAT
 
  1. Regulation 2 (d) specifically defines the expression Proposal Form as a Form which is filled by a Proposer for Insurance to furnish all material information required by the Insurer in respect of a risk. The purpose of the disclosure is to enable the Insurer to decide whether to accept or decline to undertake a risk. The disclosures are also intended to enable the Insurer, in the event that the risk is accepted, to determine the rates, terms and conditions on which a cover is to be granted.
  1. The explanation defines the expression material to mean and include all important essential and relevant information for underwriting the risk to be covered by the Insurer. Regulation 4 (3) stipulates that while filling up the proposal, the Proposer is to be guided by the provisions of Section 45.
  1. Where a Proposal Form is not used, the Insurer under Regulation 4 (4) is to record the information, confirming it within a stipulated period with the Proposer and ought to incorporate the information in the Cover Note or Policy.
  1. In respect of information which is not so recorded, the onus of proof lies on the Insurer who claims that there was a suppression of material information or that the Insured provided misleading or false information on any matter that was material to the grant of the cover.
Branch Manager, Bajaj Allianz Insurance Company Ltd. &Ors. Vs Dalbir Kour,decided on October 09, 2020 observed that a Proposer who seeks to obtain a Policy of Life Insurance is duty bound to disclose all material facts having bearing upon the issue as to:
Whether the Insurer would consider it appropriate to assume the risk which is proposed?
FACTS OF CASE:
1.Facts leading to filing of Consumer Claim On 05 August, 2014 a proposal for obtaining a Policy of Insurance was submitted to the appellants by Kulwant Singh. The Proposal Form indicated the name of the mother of the Proposer, who is the respondent to these proceedings as the nominee. The Proposal Form contained questions pertaining to the health and medical history of the Proposer and required a specific disclosure on Whether any ailment, hospitalization or treatment had been undergone by the Proposer?
2. Column 22 required a declaration of good health.
i)The proposer answered the queries in the-   negative, indicating thereby that he had not undergone any medical treatment or hospitalization and was not suffering from any ailment or disease.
ii)The declaration under Item 22 (c) of the Proposal Form was in regard to:Whether any diseases or disorders of the respiratory system such as but not limited to blood in sputum, tuberculosis, asthma, infected respiratory disease or any respiratory system disease including frequent nose bleeding, fever and dyspnoea were involved?-   This query was also responded to in the negative.
3. Acting on the basis of the proposal submitted by the proposer, a Policy of Insurance was issued by the appellants on August 12, 2014. Under the Policy, the life of the proposer was insured for a sum of Rs. 8. 50 lakhs payable on maturity with the death benefit of Rs. 17 lakhs.
4.On September 12, 2014, Kulwant Singh died, following which a Claim was lodged on the Insurer. The death occurred within a period of one month and seven days from the issuance of the Policy.
5.The Claim was the subject matter of an independent investigation, during the course of which, the hospital treatment records and medical certificate issued by Baba Budha Ji Charitable Hospital, Bir Sahib, Village Thatha (Tarntaran) were obtained.
6.The records revealed, according to the Insurer, that the deceased has been suffering from Hepatitis C.
7The investigation reports indicate that proximate to the death, the deceased had been suffering from a stomach ailment and from vomiting of blood, as a result of which he had been availing of the treatment at the above hospital.
8.The Claim was repudiated on May 12, 2015 on account of the non- disclosure of material facts.
9. The Respondent instituted a Consumer Complaint before the District Consumer Disputes Redressal Forum, which allowed the Complaint and directed the appellants to pay the full death claim together with interest.
10. The first appeal was rejected by the State Consumer Disputes Redressal Commission and the revision before the National Consumer Disputes Redressal Commission has also been dismissed.
11.  The NCDRC relied on the decision of Supreme Court in Sulbha Prakash Motegaonkar&Ors Vs Life Insurance Corporation of lndia (Civil Appeal No 8245/2015 decided on 5.10.2015).
According to the NCDRC, a disease has to be distinguished from a mere illness.It held that the death had occurred due to natural causes and there was no reasonable nexus between the cause of death and non-disclosure of disease.Consequently, while affirming the Judgment of the SCDRC, the NCDRC imposed costs of Rs. 2 lakhs on the appellants, of which, an amount of Rs. 1 lakh was to be paid to the Complainant and Rs. 1 lakh was to be deposited with the Consumer Legal Aid Account of the District Forum.
12.                        SUPREME COURT in the ultimate analysis held as under:
The medical records which have been obtained during the course of the investigation clearly indicate that the deceased was suffering from a serious pre-existing medical condition which was not disclosed to the insurer.
In fact, the deceased was hospitalized to undergo treatment for such condition in proximity to the date of his death, which was also not disclosed in spite of the specific queries relating to any ailment, hospitalization or treatment undergone by the proposer in Column 22 of the policy proposal form.
We are, therefore, of the view that the judgment of the NCDRC in the present case does not lay down the correct principle of law and would have to be set aside. We order accordingly.
In [United India Insurance Co. Ltd. Vs. M. K. J. Corporation, (1996) 6 SCC 428], Supreme Court of India held as under;
It is a fundamental principle of Insurance Law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary.
Just as the insured has a duty to disclose, similarly, it is the duty of the insurers and their agents to disclose all material facts within their Knowledge, since obligation of good faith applies to them equally with the assured.
The principles for repudiation of insurance claim were formulated by Supreme Court in [Life Insurance Corporation of India &Ors. Vs Asha Goel &Anr., (2001) 2 SCC 160]; it held as under;
“12The contracts of Insurance including the contract of life assurance are contracts uberrima fides and every fact of material (sic material fact) must be disclosed, otherwise, there is good ground for rescission of the contract. The duty to disclose material facts continues right up to the conclusion of the contract and also implies any material alteration in the character of risk which may take place between the proposal and its acceptance.
If there is any misstatements or suppression of material facts, the Policy can be called into question. For determination of the question whether there has been suppression of any material facts it may be necessary to also examine whether the suppression relates to a fact which is in the exclusive knowledge of the person intending to take the Policy and it could not be ascertained by reasonable enquiry by a prudent person.
The principal laid down in Asha Goel has been reiterated in the Judgments in [P. C. Chacko Vs Chairman, Life Insurance Corporation of India, (2008) 1 SCC 321] and [SatwantKour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316]. In [SatwantKour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316], at the time of obtaining the Mediclaim Policy, the insured suffered from chronic diabetes and renal failure, but failed to disclose the details of these illnesses in the Policy Proposal Form.
Upholding the repudiation of liability by the Insurance Company, Supreme Court held:
“25. The upshot of the entire discussion is that in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a material fact.”
If the proposer has knowledge of such fact, he is obliged to disclose it particularly while answering questions in the proposal form. Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance.
Recently Supreme Court in Reliance Life Insurance Company Limited Vs RekhabenNareshbai Rathod, (2019) 6 SCC 175] set aside the Judgement of the NCDRC, whereby the NCDRC had held that:
“30. It is standard practice for the insurer to set out in the application a series of specific questions regarding the applicant’s health history and other matters relevant to insurability. The object of the proposal form is to gather information about a potential client, allowing the insurer to get all information which is material to the insurer to know in order to assess the risk and fix the premium for each potential client.
Proposal forms are a significant part of the disclosure procedure and warrant accuracy of statements. Utmost care must be exercised in filling the proposal form. In a proposal form the applicant declares that she/he warrants truth.
The contractual duty so imposed is such that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith and will render the policy voidable by the insurer. The system of adequate disclosure helps buyers and sellers of insurance policies to meet at a common point and narrow down the gap of information asymmetries. This allows the parties to serve their interests better and understand the true extent of the contractual agreement.
31. The finding of a material misrepresentation or concealment in Insurance has a significant effect upon both the Insured and the Insurer in the event of a dispute. The fact it would influence the decision of a prudent Insurer in deciding as to ‘Whether or not to accept a risk is a material fact?’.
 
As Supreme Court held in SatwantKour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316-there is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance. Each representation or statement may be material to the risk. The insurance company may still offer insurance protection on altered terms.
CONCEALMENT -in law of insurance is the suppression of a material fact, within the knowledge of one of the parties, which the other party has not means of knowing, or is not presumed to know. It means concealment is an act designed intentionally by one party of a contract from the other party to take undue advantage from the other party. An act of concealment is also defines as non disclosure of material facts by one party form other parties in a contract knowing that if material facts are known to all parties it may contract may affect the contract.
 
Concealment is define as-“ where one party refuses or neglects to communicate to the other a material fact which if communicated would tend directly to prevent the other from entering into the contract or to induce or is presumed to be so to the party not disclosing, and is not known or presumed to be so to the others.
 
Concealment – has a reference to intention, that is , to knowledge or belief that the fact is material and should be disclosed and the terms is frequently confused with innocent non-disclosure. A failure on the part of the assured to state all the facts commonly called concealment [London Assurance Vs. Mansel(1879)11 Ch D 363]. In the strict sense of word , it implies the keeping back or suppression of something which it is duty of the assured to bring to the notice of the insurers.
Concealment is not merely an inadvertent omission to disclose it . Hence, where the failure to disclose is not due to design and the assured has jot intention to deal otherwise than frankly and fairly with the insurers, the term non-disclosure is more appropriate. There is not much difference between the concealment and non-disclosure for the purpose of avoiding a contract as regards matter which the insured is duty bound to disclose, but this difference gathers some importance when we have to consider the question of the retrun of premium.
DISCLOSURE– means to make known, but when there is actual knowledge , such knowledge is equivalent to disclosure and in such a case the presumption would not operate.
Disclosure is the complete and full revealing of information relevant to a particular issue. In the context of insurance, it refers to each party’s duty to accurately reveal pertinent information in an insurance contract. In other words, it means that neither the insurer nor the party seeking insurance should withhold critical information while making an insurance contract.
Key Points to Remember with the Duty of Disclosure
  1. It is essential when applying for insurance that the information you are providing is accurate, as failure to comply could result in cancellation of the cover or no claims payments being made;
  1. You are legally required to make a fair representation by disclosing all information and circumstances relevant to the risk you want coveringIt is important to read through documents provided at both renewal and when you are a new customer, thoroughly, to ensure that the information you have provided is accurate;
  1. When renewing a policy, you will once again have to declare any changes to the risk or new material facts (your duty of disclosure) that have come about over the policy period. Again, failure to comply could result in cancellation of the cover or no claims payments being made, should something be uncovered that has not been declared.
In 1879, Jessel M R said that: “The first question to be decided is, what is the principle on which the court acts in setting aside contracts of assurance?
As regards the general principal I am not prepared to lay down the law as making any difference is a substance between one contract of assurance and another. Whether it is life, or fire or marine insurance, I take it good faith is required in all cases, and though there may be certain circumstances from the peculiar nature of marine insurance which requires to be disclosed and which do not apply to other contracts of insurance, that is rather, in my opinion, an illustration of the application of the principle than a distinction in principles”.
Also in 1928, Scrutton L J observed that: “It has been for centuries in England the law in connection with insurance of all sorts, marine, fire, life, guarantee and every kind of policy, that as the underwriter knows nothing and the man comes to him to ask him to insure knows everything it is the duty of the assured, the man who desires to have a policy, to make a full disclosure to the underwriter without being asked of all the material circumstances, because the underwriter knows nothing and the assured knows everything. That is expressed by saying that it is a contract of the utmost good faith – uberrina fides”.
As far as marine insurance is concerned, the Marine Insurance Act 1906, Section 17, provides that: “A contract of marine insurance is a contract based upon the utmost good faith and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party”.
It is the duty of parties to help each other to come to a right conclusion and not to hold each other at arms length in defence of their conflicting interests.It is the duty of the assured not only to be honest and straightforward but also to make a full disclosure of all material facts.A failure to disclose, however, innocently, entitles the insurer to avoid this contract ab initio and, upon avoidance, it is deemed never to have existed.
 
CONCLUSION: from above discussion it is clear that a contract of insurance is based on doctrine of “ Utmost Good Faith” it means all material facts are required to be disclosed by the insured as well as the insurance company. The forms used for gathering primary and material information from the proposer if “ Proposal Form” as specified in PPHI Guidelines. Declarations made in the Proposal form will be incorporated in the policy document or contract of insurance. Non-disclosure or concealment of material facts from the insurance company may lead to repudiation of contract and claims. An insurer on the basis of disclosures and information in the proposal form access the risk and decide the premium or decide to issu the policy or not to the proposer.
2. STATUS OF TWO INSURANCE POLICIES ON SAME SUBJECT MATTER AND AVOIDANCE OF CLAIM BY INSURANCE COMPANIES.
There may be certain circumstances wherein a person may come across few instances wherein he may find that he had taken overlapping insurance covers over the same subject matter.
So does these overlapping insurance cover denotes that he has acquired extra protection over the subject matter? Or is it merely wastage of money?
These questions bring to us the most confusing area of insurance law, i.e. the Law of Double Insurance.
The purpose of this article is to provide its readers few insights into the concept of Double Insurance and to make them understand the different clauses in an insurance policy by use of which an insurer can avoid his liability in case of Double Insurance.
INTRODUCTION
Double Insurance or multiple insurances is the method of getting the same risk or the same subject matter insured with more than one insurance company or with the same insurance company but by two different policies.
No provision under the Insurance Act, 1938, or under any other law for the time being, prohibits double insurance, rather the Act facilitates the concept of double insurance.
The statutory definition of Double Insurance is provided under Section 34 of the Marine Insurance Act, 1963. So accordingly, every person is at liberty to take as many insurance policies on the same subject matter, as he wishes.
The concept of Double Insurance is possible in all types of insurances, may it be a life or general. In few instances, people deliberately get their property insured with multiple policies, but there are certain circumstances wherein a person may inadvertently fall into the pitfall of Double Insurance.
For instance, when I drive your car with your permission, in this case, I have the third party insurance cover under my own insurance policy and I also have the protection under your Motor Vehicle Insurance Policy. So, in such an instance the trouble arises when both of these insurance policies have an ‘escape clause’, by which both is these insurers may avoid their liability. So it becomes very important for the general public to understand these clauses.
FEATURES OF DOUBLE INSURANCE
Following are the features of Double Insurance:
  1. More than one Policy: A particular subject matter needs to be insured with more than one insurer or with the same insurer but by two different policies.
  2. Same Insured: The insured person must always be the same in double insurances, if the same person is not entitled to the benefits of all the policies it cannot be termed as Double Insurance.
  3. Same Subject: All the policies need to be related to the same risk or the same subject matter; if it is not the same then it cannot be called double insurance.
  4. Same Interest: The interest needs to be the same in all the concerned insurance policies.
  5. Same Duration: at last the duration for which the insurance policy running must be the same.
SUM RECOVERABLE UNDER DOUBLE INSURANCE
In the case of Multiple Insurances, the sum recoverable differs in Life Insurance and General Insurances.
  1. Since life insurance contracts are not the contract of indemnity and are contingent in nature, the full amount can be claimed from all the insurance policies.
  2. But this situation differs in the case of general insurances, as we know that general insurance contracts are contracts of Indemnity, so nothing above the actual loss can be recovered.
In such scenarios, the Principle of contribution (discussed below) will be applied and each insurer will pay their respective share accordingly. An insured is not entitled to recover in full from all the insurance companies, if such recovery is allowed then it will be against the public policy. It must further be noted that if the loss suffered is more than the actual value of the policies, then full amount can be claimed from all the insurers.
PLEASE NOTE THAT: from a sums recoverability point of view, Life Insurance Policies may prove to be benefiting. On the other hand, it may prove to be detrimental to the interest of an insured.
THE PRINCIPLE OF CONTRIBUTION
The principle of contribution focuses on equitable distribution of losses between different insurers. As we know that in case of double insurances a claimant is not entitled to recover more than the actual loss, so this principle helps us in the determination of the proportionate amount of each insurers who are liable to reimburse the loss.
CONDITIONS FOR CONTRIBUTION:
  1. The matter must be related to General Insurance Policies, as in case of Life Insurances full amount is recoverable.
  2. There must be double insurance.
  3. All the insurance must relate to the same risk / subject matter.
  4. All the policies must be active at the time of claiming the amount.
  5. Insurer must have an Insurable Interest in the subject matter and must suffer some actual loss.
  6. The policy concerned must cover the event that caused the loss.
  7. The total loss shall be proportionately divided.
  8. If in any case, one insurer has reimbursed the claimant in full, he is entitled to get his proportionate share from the other insurance companies.
FORMULA FOR CALCULATION OF CONTRIBUTION
(Sum assured with one particular insurance company / Total sum assured) x The Actual Loss
ILLUSTRATION
‘A’ a businessman gets his office insured against fire with two different insurance companies named as XYZ Co. and PQR Co. with an amount of Rs. 50,000 and Rs, 30,000 respectively. Now, on a certain day (when his policy was active) fire takes place at his office and due to that fire a loss of Rs. 40,000 was caused to ‘A’.
So in this case, since ‘A’ has taken double insurance on his property, he is entitled to claim the amount from both the insurers. And to calculate the proportionate amount of each insurer the principle of contribution will be applied, so that ‘A’ may not claim anything more than his actual loss. So from the illustration above, we have the following details:
  • Total Sum Assured: Rs. 80,000
  • Actual Loss Suffered: Rs. 40,000
  • Sum assured with XYZ Co.: Rs.50,000
  • Sum assured with PQR Co.: Rs. 30,000
So, by applying this information in the formula mentioned above, we get:
  • XYZ & Co.’s Contribution = Rs. 25,000
  • PQR & Co.’s Contribution = Rs. 15,000
DIFFERENT CLAUSES THAT THE INSURER’S USES TO AVOID THEIR LIABILITY IN CASE OF A DOUBLE INSURANCE
In general, most of the Insurance Companies inserts an ‘Other Insurances’ clause in all the policies, so as to avoid their liability in case of double insurance. As a general rule all the insurance holders are entitled to claim the loss suffered to them from which-ever insurance company he/she wishes, but to limit the application of the concept of Double Insurance and the doctrine of contribution the insurers uses such clauses.
Typically the insurance company uses the following clauses to avoid their liability in case of Double Insurance. They can use any one or the combination from the following:
a) LIABILITY EXEMPTION CLAUSE: As per this clause, the insurer accepts his liability upon a condition that, if the same risk is insured somewhere else also, then in such a case his liability will not arise. Such clauses saves the insurers from two types of liability:
  1. Exemption from the liability to indemnify the insured in case of any loss.
  2. If the insurer gets the claim from any one insurance policy, then the former insurer will be exempted to that extent.
These clauses may also be called as the escape clauses. Typically such clauses are inserted by the words: If the liability covered under this insurance is insured with any other insurance policy, either wholly or in part, we will not be liable to pay any loss, damages, etc.
This clause is discussed by the court in a number of cases, few noteworthy cases on this point are: Gale vs. Motor Union Insurance Company (1928) IKB 359, National Employer Mutual vs. Heden (1980) 2 Lloyds Report P. 149.
  1. b) NOTIFICATION CLAUSE: As per this clause the insured person is required to give a written notice to the insurance company if he gets the same risk insured with some other insurance company, if the insured fails to supply such notice the liability of the former insurance company will be avoided. It is pertinent to note here that the insured person has to give a notice in writing only, oral notification will not work.
Typically such clauses are inserted by the words: No claim shall be entertained if the insured fails to give notice of any subsequent or previous insurance taken on the same subject matter.
This clause is discussed by the court in a number of cases, few noteworthy cases on this point are: Australian Agricultural Co. vs. Sandhers (1875) LR, 10 CP 668, Stradfast Insurance Co vs. F & B Trading Co. (1972) 46 AJ LR 14.
  • RATEABLE PROPORTION CLAUSE: By insertion of such clauses the insurance companies can avoid partial liability. As per this clause one insurance company shall only cover a portion of loss, is some other policy also responds on the same risk.
CONUNDRUM BETWEEN THE PRINCIPLE OF CONTRIBUTION AND THE EXEMPTION CLAUSES
So now we have understood the exemptions clauses used by the insurance companies to avoid their liability.
Now, imagine a situation wherein both of the insurance policies have such exemptions clauses. So, what would it mean than, would that means that the insured is not entitled to claim his loss from any of them?
If such a thing is allowed it will be against the public policy, and it will decrease the faith of people from insurance policies. So, few principles have been established in relation to these exemption clauses. All of these principles are in favor of the insured. The principles established to clarify this confusion are as follows:
  1. SITUATION WHEREIN THERE ARE TWO ESCAPE CLAUSES: So in the situation wherein both the insurance policies have escape clauses, relieving both the insurer’s from their liability; the loss suffered shall be distributed among all the insurer’s in equal proportion.
  2. SITUATION WHEREIN THERE ARE TWO EXCESS CLAUSES: The rule in this regards is same as stated above. If both the insurance policies have an excess clause, which relieves them from their liability, the loss in such a case shall be distributed equally amongst all the insurance companies.
  3. SITUATION WHEREIN THERE ARE TWO NOTIFICATION CLAUSES:If both the insurance policies have a notification clause, which requires a written notice to be given to the insurance company for any prior or subsequent insurance policy taken on the same risk; in such a case failure to give notice to the second insurance company will remove him from the liability, but will make the first insurance company liable, as there will be no other valid insurance at that time.
  4. SITUATION WHEREIN THERE ARE TWO RATEABLE PROPORTION CLAUSES:The rule in this case is same as that of two excess clauses or two escape clauses i.e. the loss shall be distributed in equal proportion amongst the insurers.
PRACTICABLE SUGGESTIONS
Except in case of Life Insurance Policies, double insurance policies do not increase the value of insurance cover. Thus paying more insurance premiums may not be viable economically. Few points that make double insurance policies un-sense-able or practically un-viable are listed below:
  1. Double insurance policies may cause delay in the payment of claims due as it may lead to development of a dispute between the insurer and the insured.
  2. Whether you take one insurance policy or two or may be more than that, still nothing more that the loss can be claimed, so the value of insurance cover won’t increase.
  3. Multiple Insurances ultimately results in paying too much of premium then you were actually required to.
  4. The litigation costs: dispute when taken to the courts leads to prolonged trials and therefore increased litigation cost. Further when the matured policies are placed in conflict, the insurance company would, as per the provision of Section 47make the payment in the court, which may further prolong the process of claiming the insurance cover.
  5. Lack of businessman’s trust on multiple policies.
  6. If there will be no multiple policy, things would be a bit more smooth and will consume a bit less time.
CONCLUSION; Now  we can conclude that Double Insurances are the one wherein the same risk or same Subject matter is insured with more than one insurance company or with the same insurer but with different policies. The method of double insurance can also be called as Multiple Insurances. And the sums recoverable in these cases of Double Insurances can never exceed the total amount of loss (except in Life insurance Contracts). And the principle of Contribution is the key, in case of Double Insurance, to decide the proportion of amount each insurance company is liable for.Further, we have seen different types of clauses which the insurance company uses so as to avoid their liability in case double insurances. And we also looked as to what happen in the scenarios in which both the insurance companies inserts such exemption clauses in their policies.
At last, it can be concluded, taking double insurance does nothing else than increasing trouble for you. It doesn’t increases the sums recoverable, rather it delays the amount payable and increases trouble for us.
  1. CONCEPT OF “DAYS OF GRACE” UNDER INSURANCE POLICY
As you  know that insurance has become one of the essential needs of people during their trying times. Insurance provides us financial safety against insured perils or risks. The risks may be man made or natural. We are facing today one of the greatest and dangerous pandemic COVID-19. This is man made and emerges from CHINA. This pandemic has derailed economy of all over world and claimed lives of millions of people. In India we are still facing the worse faze of this pandemic. Every day’s thousands of people are dying and lakhs are becoming affected by this COVID-19.
The cost of hospitalisation has increased may folds and this is due to inhuman behaviour of some business men and hospitals. They are amassing crores of rupees by exploiting poor people of this country.
Insurance against these types of risks /perils is only a hope for general public to cope with medical bills and for safety of their beloved.
We know that contract of life insurance is a continuous contract, which goes year to year and on the other hand contract of health/general insurance i.e., insurance against fire, flood, health etc. are yearly contract. These contracts are required to be renewed every year by paying premium of time and before the time allowed by the insurance companies. It important and necessary to pay premium in case of all insurance polices before date appointed for payment to enjoy benefits. An insurance policy may be lapsed for non-payment of premium at time and benefit available will be lapsed.
In case of policies other than life insurance these contracts are contracts for year only, and the insurance automatically comes to an end after the expiry the year, but can be continued for a further period if before expiry of the year the insured expresses his intention to continue it and pays the premium.
DAYS OF GRACE
Generally, all insurance companies allowed some days even after expiry of the stipulated period of insurance, during which assured /insured can pay the premium in order to continue or renew the policy of insurance.
The extra days provided by insurance companies for payment of premium in case of renewal of insurance policies is called “Days of Grace”. As name suggests these days are allowed by insurance companies by way of courtesy, more or less, and they are not bound to extend the time of payment under law, customs or terms of the contract.
PLEASE NOTE THAT:  if the continuance of the risk under a policy were conditional on the payment of a premium on the certain specified days in each year or quarter and no provisions were made for the over-due premiums , the policy would immediately lapse if the premium was even one day in arrear and in consequence the assured could be placed in the position of having to apply for a new contract of insurance , which in the case of life he could not obtain the same terms as in the earlier insurance policy, and the insurers if they have accepted the application they  have to prepare a new policy and pay stamp duty.
The insurance companies to mitigate above hardship for issuing new insurance policies and for giving comfort to the insured generally allowed payment of premium beyond some days even after stipulated days mentioned in the insurance policy. This period beyond stipulated date in which an assured/insured can pay overdue premium is called “Days of Grace” and it depends upon nature insurance and particular conditions as to renewal inserted in the insurance policy.
DAYS OF GRACE IN CASE OF YEALRY INSURANCE CONTRACT;
If contract of insurance is for a year only, the days of grace are meant in order to afford the insured and additional opportunity of renewing the contract and not of continuing it. Now suppose if an insured has not given consent for renewal of contract and loss incurred during period of Grace, then insurance company will not be liable for payment of claim.
NOTE:
  1. In contract of insurance where the insurers reserve the opinion to renew the risk, the assured is not covered during days of grace if renewal premium remain unpaid, is that, before it tendered and accepted.
  2. If before expiration of the year the company give notice to the insured that unless an increased premium is paid the insurance would not be renewed and the assured refuses to accede to this demand, the company was not held liable for any claim after expiration of period of one year but within days of grace.
Simpson Vs. Accidental Death Insurance Co.it was held that in the case of an accident policy which is a contract renewal yearly, the company are not bound to accept the premium tendered during the days of grace, the company have the option to renew or not to renew the contract at its pleasure.
DAYS OF GRACE IN CASE OF LIFE INSURANCE CONTRACT; in case of life insurance policies the insurer generally not decline to renew the insurance policy and fundamental nature of the provisions in the contract of insurance for renewal are to be looked into, and it depends very much on the construction of the policies. If risk expires on the day when the premium is due and the days of grace are merely given as an opportunity for renewal. The insurance protection will not be available during the period of grace in this case, the death before payment of premium is not covered.
Since life insurance policy is a continuing risk carrying the insurance beyond the day on which the premium is payable and subject to lapse or forfeiture on that day or within the days of grace, and therefore, death before the payment of premium is covered, because until days have expired there cannot be any forfeiture.
The Rule in Stuart Vs. Freeman in this case plaintiff was the assignee of a policy of insurance on the life of another. The policy was for a year and premium to be paid quarterly, first quarterly payment being made at the date of policy. One of the conditions of the policy was that it should be of no effect if at the time of death of the assured any quarterly premium should be more than 30days in arrears. The assured died during the year after one of the dates fixed for payment of quarterly premium but within the days of grace. In an action to recover the amount it was held that the policy being a year subject to defeasance on ono-payment of quarterly premium no question arose as to revival of the policy but payment during the days of grace was prevented from lapsing the policy and plaintiff was entitled for payment of claim.
Lord Justice Mathew said that “in my opinion the correct view as to the days of grace allowed by the terms of this policy is that if payment is made within the time mentioned in it, it is to be taken to have been made on the day appointed for payment, and is to have the, same effect as if it had been made on that day.”
THERE ARE TWO VIEWS WHILE CONSIDERING DAYS OF GRACE;
Where contract of insurance is one of annual risks merely. a contract of fire, burglary, or accidental insurance , the contract automatically comes to an end after expiry of the specified year and both the parties have an option of renewing it or refusing to renew it after a year. The days of grace in such contracts would not afford any relief to the insured if the loss occurs during these days of grace, unless he has expressed his willingness, expressly or tacitly to renew the risk.
In case of contract of life assurance, the policy creates a continuing risk, the insurance companies have no option but to continue it on the payment of the premium each year. On the non-payment of the premium the policy merely lapses. If therefore, the death occurs during the days of grace without payment of premium, the money due under the policy become payable.
THE PERIOD OF INSURANCE MAY BE EXTENDED BY THE DAYS OF GRACE; there may be conditions in the policy itself by which the insurers may be liable for any loss happening during the days of grace notwithstanding the non-payment of the premium before loss, as for instance when the original period of insurance is extended by the days of grace. The policy remains in force during the period of days of grace whether renewed or not. There is no question of renewal because the loss if covered in the original policy, which is effective during the days of grace.
It is abundantly clear that if payment of premium due has been made within a grace period of one month, the policy would be treated as valid and the assured would be paid the amount to which he was entitled after deducting the premium amount due at the time of loss under said insurance policy. But it is clear that if premium is not paid before expiry of days of grace, then the policy lapse.
NOTE:  such provisions in the insurance policy does not preclude the insurer from giving notice that they would charge an increased rate of premium.
if terms of policy require payment should be from the insured, then payment received from his legal representatives does not renew the policy.
PAYMENT BY THE REPRESENTATIVE AFTER DEATH OF ASSURED; where insurance is upon life of the assured and is expressed to be conditional upon the payment of premiums by him, the inference may be that payment after his death by his executors does not satisfy the condition. This would not be so if the risk be construed as a continuing risk subject to forfeiture because insurers are liable until forfeiture and no subsequent tender or payment of premium is necessary, as it would be if it was a question of renewal. The rights of parties become fixed at death and insurers are liable for the insurance money less the premium which has become due.
RELIEF AGAINST FORFEITURE; Forfeiture of a policy results in the insurer not being liable under the policy. The premiums already paid also need not be refunded.
When premiums were not paid, the policy lapsed and the amount already deposited by the insured can be forfeited by the insurance company ad per terms and conditions of insurance policy.
Reserve Bank of India Vs. Peerless General Finance and Investment Co.  the apex court held that what is important is that if the policy holder commits default and does not pay any one of the first three premiums, the premiums already paid automatically stands forfeited to the LIC entitling the policy holders to no benefits. The forfeiture clause in practice operates harshly, especially against the poor class, the very class which requires greater security and protection.
The court added that it cannot help feeling distressed that despite Articles 38, 39, 41 and 43 of the Constitution, the LIC of India, an instrumentality of the state which has the monopoly of life insurance business has not taken any steps to offer proper security and protection to the needy poor people. The court further observed that if the LIC is really interested in treating the poorer policy holders less harshly and move liberally LIC should revise its terms and conditions in the direction of deleting the forfeiture clause altogether as has been done by the Peerless CO. or to delete if at lease for policies for small amount.
NOTE: A notice of options available in the event of a policy lapsing is required to be given by the insurer in terms of Section 50 of the Insurance Act, 1938 within three months if they are not already set forth in the insurance policy. Where options have been already incorporated in the policy no notice is required.
The renewal notices of policies contain a condition to enable the assured to renew the policy after due date of payment of premium during further period known as Grace Period. Where premium is not paid within the grace period the policy lapses.
CONCLUSION:  Insurance has become necessity of every person. It keeps us indemnified from various types of risks or perils. But it is our duty to pay the insurance premium on time and on the date fixed for payment. There are two insurance contracts available one is on year-to-year basis and other is continuing for more than one year. In case of an insurance contract for year to year the insurance cover is not available if before specified date we are not able to renew or pay renewal premium. The insurance companies generally provide some more days for payment of premium after specified date and if an insured/assured is not paid the premium during that extended premium, then his policy will lapse. The extended period given by insurance companies are called Days of Grace. The insurance cover generally continues during the days of grace and it also depends on the terms and conditions of insurance policy.
  1. CONCEPT OF CONTRIBUTION AND AVERAGE CLAUSE UNDER INSURANCE POLICY
Dear friends, we know that a man, who ensures his interest in property against loss by any risk, whether that interest be that of a proprietor or creditor, cannot recover from the insurance companies, a greater amount than he lost by the contingency insured against. So, in case of double insurance of the same interest with the different insurance companies, the assured will not be entitled to recover more than the full amount of the loss which he has suffered. This is called the Principal of Contribution.
Contribution may be referred as payment by each party interested of his share in any common liability. An action for contribution is a suit by one of such parties who has discharged the liability common to them all to compel others to make good their share. Contribution is between persons equally bound to honour a common liability.
NATURE OF THE RIGHT OF CONTRIBUTIION
“Contribution exists where the thing is done by the same person, against the same loss and to prevent a man first of all from recovering more than the whole loss, or, if he recovers the whole loss from one which he could have recovered from the other, then to make the parties contribute rate ably. But that only applies where there is the same person insuring the same interest with more than one office.”
CONTRIBUTION CLAUSE IN INSURANCE POLICY
There is nothing in law to prevent a person from effecting two or more insurance in respect of the same subject matter, but the principal of indemnity will come into operation to prevent his recovering more than the actual loss even if total amount of insurance far exceeds the loss. The principal of contribution is resorted to for the purpose of apportioning the amount recoverable, amongst the different sets of insurers in order to prevent the loss being borne in an undue proportion by any one of them.
NOTE:
  1. There is generally a contribution clause in the policies which provides that if, at the time of loss, or damage, there are other insurances in existence covering the same subject matter of insurance, with the other insurers and the liability of the insurers upon the policy in question is limited to their rate able proportion of loss or damage. The insured, under such a policy cannot demand payment in full from the insurers in question, but only the proportion for which they are liable after all the policies subsisting at the time of loss have been taken into consideration.
  1. If policy does not contain contribution clause the assured is entitled to recover the full amount from any set of insurers, and he cannot be referred to other insurance companies for relief.
  2. After payment in full the insurer can call upon the other offices, insuring risk to contribute their share of loss.
  1. The right of insurer in this case is not contractual but it is based on the principles of natural justice.
  1. The contribution clause in an insurance policy limits the liability of the insurers, usually runs as follows;” if at time of any loss or damage happening to any property hereby insured, there be any other subsisting insurance, whether effected by the insured or by any other person, covering the same property, this company shall not be liable to pay or contribute more than its rate able proportion of such loss or damage.”
  1. Contribution Clause is an effective method of preventing any single policy from bearing more than its proper share of loss or damage. The liabilities of the insurers to contribute inter se, being not contractual the rights and liabilities of the respective insures inter se are not varied or effected by the language of Contribution Clause.
APPLICATION OF DOCTRINE OF CONTRIBUTION; Please check below mentioned factors in the Insurance Policy of insurers for effecting Doctrine of Contribution;
i. The subject-matter of insurance must be the same. It is not necessary that the amount of insurance with each insurer should be the same;
ii. The event insured against must be the same;
iii.The insured must be the same person in all insurance policies;
iv. The right of contribution exists only in respect of insurance which have attached and which are on the face of the policies subsisting insurance.
CONTRIBUTION Vs. SUBROGATION Contribution differs Subrogation in several respects. It implies more than one contract of insurance, each of which undertakes a similar, if not identical liability, in respect of the same subject-matter and same interest therein.
Further the amount of insurance must exceed the value of property insured, all the damages done to it. When above circumstances exist, the insurers by Contribution Clause distribute the actual loss in such a way that each bears his proper share. No one insurer is more liable than any other, no more than the whole loss can be recovered.
The aim of Contribution is to distribute the loss among the different persons liable so as to give each and all of them a diminution of their individual loss.
SUBROGATION it will arise when the assured must have concurrent remedies against the person causing the loss or damage and against the insurer. All that is necessary is that there should be besides the insurer, another person liable to the insured or some other means of indemnity open to the assured other than and besides recourse to the insurer. This an assured has a claim against bailee of his goods by law, custom or contract, and also a claim against his insurers, but the insurer can in satisfaction of loss claim against the bailee who is primarily liable and stands in a position analogous to that of a principal debtor whose debt is guaranteed. In above cases Principle of Subrogation will apply.
In subrogation the aim is to shift the loss on those which would have been liable if there had been no insurance.
The one thing which contribution has in common with subrogation is to reduce the indemnification of the assured within the bounds of real indemnity.
AVERAGE CLAUSE IN INSURANCE POLICY; In absence of a contract to the contrary, an assured is entitled to have the full amount of loss made good at the hands of the insurers. But now days in many insurance policies of different insurers contains a condition called the average clause by which the assured is called upon to bear a portion of the loss himself.
One of such conditions is that if the property covered by the policy is, at the time of the fire, of greater value than the amount of insurance specified in the policy, the insured must be considered to be his own insurer for the different and bear a rate able proportion of loss. This condition is called the pro-rata condition of average. The portion of the loss is ascertained by a rule-of-three sums as follows;
  1. Value of property covered;
  2. Insured amount; and
  3. Damages payable.
 
LET’S US CONSIDER AN EXAMPLE:
Mr. A has insured his house property values at Rs. 5.00 Lakhs and he has taken an insurance policy of sum assured Rs. 4.00 Lakhs and the damage done to his house due to fire is Rs. 1.00 Lakhs. Now in this case the insurance company will pay him Rs. 0.80 Lakh as insurance claim and he has to bear Rs. 0.20 Lakh as his own.
NOTE:
  1. This condition only comes into operation if the assured is under-insured and in the case of partial loss, he would be paid in the ratio above mentioned. In case of total loss Mr. A is entitled to be paid total sum insured i.e., Rs. 4.00 Lakhs.
  2. The policies which are not subject to Average Clause are called Specific Policies. It means that the amount insured is payable irrespective of the value of the property within the risk at the time.
  3. The Average Clause policies are generally used in Commercial or mercantile transactions.
  4. The Specified Policies generally cover personal property.
CONCLUSION:  We know that insurance indemnifies us in case of risk or perils. An insurance policy financially helps us facing adverse effects of peril insured. We cannot make profit from insurance policies and we cannot claim more than damages incurred to us against risk/perils insured. Many persons are accustomed to take various insurance policies for same subject manner and same type of peril. In this case if loss or damage occurred then assured/insured cannot claim compensation from each insurer more than amount of loss or damage. Now Doctrine of Contribution provides that in this case where there are more than one insurer insuring same subject matter against same interest then the contribution will be distributed amongst then on the basis if rate able proportion.
  1. SOLVENCY RISK AND INSURANCE SECTOR
As you are aware that , Insurance Companies are considered in the category of Financial Companies in India. Insurance industry involves public participation at large. General Public become policyholders /stakeholders in insurance companies. They are putting their hard-earned monies to secure their future against various types of risks.
Insurance Development Regulatory Authority of India, established in the year 1999, is the regulator of Insurance industry. IDRAI has been established to protect interest of general public and to develop insurance industry on the basis of free competition and free marketability of insurance products.
IRDAI has taken various steps through its Regulations, Guidelines and Circulars to regulate insurance industry. Till date only 3.4% of population in India are covered by insurance companies. Since there is a huge and large market for insurance is available in India and to keep trust of general public on insurance industry, IDRAI has taking strict decisions and not shying to punish companies, which have violated provisions of the Insurance Act, 1938 and other rules and regulations promulgated by IRDAI.
There are some most important Sections in the Insurance Act, 1938, which have to strictly followed by all insurance companies. The violation of any provisions of theses sections, may lead to cancel of registration or license.
SOLVENCY MARGIN/RATIO; Let’s discuss its definition;
Cambridge Dictionary defines it as; the amount of capital that an insurance company has in relation to probable claims.
The solvency margin is a minimum excess on an insurer’s assets over its liabilities set by regulators. It can be regarded as similar to capital adequacy requirements for banks.
The solvency ratio of an insurance company is the size of its capital relative to all risks it has taken.
The solvency ratio is most often defined as: The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb.
The solvency ratio of an organization gives an insight into the ability of an organization to meet its financial obligations.
SOME BELIEVE THAT; solvency margin defined as the difference between assets and the expected value of liabilities would not be a reliable measure of the financial state of an insurance company, if either of these or maybe both are not evaluated in a reliable way. The fixing of solvency margins is not an isolated problem, on the contrary it is only part of the security measures which must all be managed at the same time. The ultimate purpose of the security system prescribed by legislation must be to safeguard policyholders and claimants against losses.
Solvency Ratio is an indicator of financial health of an Insurance Company. The Solvency Ratio is the ratio of Available Solvency Margin (ASM) to Required Solvency Margin (RSM) and the Solvency Ratio should at least be 1.50 at all times (or as may be determined by IRDAI). Lower Solvency Ratio indicates poor health of insurer and IRDAI in this case instruct insurer and provide it a period of six months to come out with a plan of restructuring to bring Solvency Ration as required.
If Solvency Ration is very high its also indicates poor Capital Gearing Ratio. While calculating ASM, the value of Assets and Liabilities are estimated through the process of valuation. If value of assets or liabilities are over valued or under valued, both will affect in calculation of solvency of insurers. We know that undervaluation of Assets will lead to infusion of more capital in the company to maintain required Solvency Margin on other hand if Assets have been over valued then there is problem of liquidity. Same in case of liabilities will affect IBNR and IBNER. Improper estimates of such liabilities or inadequate provision of IBNR and IBNER would affect Solvency Margin significantly.
The Solvency of insurer would be greatly influenced by various factors like poor Capital Gearing Ratio, keeping higher level of Solvency than required, similarly maintaining just the minimum required solvency may also be very risky. Suppose any catastrophe strike in a year, then Solvency of an insurer would be in trouble, poor quality of underwriting, having higher level of exposure limit, high concentration of risk in certain areas which are CAT prone, inadequate reserving, etc. would affect the Solvency to greeter extent.
LET’S DISCUSS MAIN FACTORS AFFECTING SOLVENCY MARGIN/RATIO
i. POOR CAPITAL GEARING RATIO; it indicates that how efficiently the capital is used in converting into optimum turnover or superior business performance. If Capital is not used effectively for business expansion or does not result into expected return, the promoters would take back their capitals and same would result into insolvency or poor solvency for the insurer. Thus, it is important that the Capital of stakeholders will be used effectively and in such manner that the value of business would increase. Proper utilization of Capital is the most important.
ii. HIGHER SOLVENCY; it indicates the ability of an insurer to mitigate or handle or write bigger risks and ensure further development of business. But keeping higher Solvency Margin, will be questioned by Investors and the Promoters of the Company, because their capital is not utilized for better returns. If insurer maintain LOWER SOLVENCY as required in this case also the regulator (IRDAI) will impose restrictions and continuously follow with insurer to bring Solvency Margin to the extent as may be prescribed. Lower Solvency would also result into undercutting of premium rates as to compete in the market and it may slow down its business growth due to slow rate of business expansion.
iii.  ALM(Assets-Liability) MISMATCH; it made compulsory for every life insurer to maintain every year matching each of their asset classes with their liabilities of similar duration. If there is mismatch of their assets and liabilities, it would result into severe liquidity risks and reinvestment risk. Wrong matching would also result into lower investment yield for the insurer resulting poor performance and operational results, which may hinder their business growth in the future. The mismatch between Assets and Liabilities may badly effects on Solvency Ratio/Margin of insurer.
iv. UNDERWRITING /PRICING RISK; it also affects Solvency of an insurer to a great extent in long run. If an insurer does not have good underwriting standard, would end up in writing mostly bad risks resulting into underwriting loss and poor business performance. If premium is inadequate to cover the claims cost and increasing administrative and marketing expenses, then it may affect the Investment Fund and would result into liquidity risk to the insurer and same will affect future business growth insurer. If the overall Operational Results become negative because of higher underwriting loss and inadequate premium then, continuous poor results would eat away the financial net worth or capital of the company in long run.
v. CAT & EXPOSURE LIMIT; due to global warming, catastrophic perils like, flood, earthquake, cyclones etc., are raising all over world. If insurer does not have adequate capital fund and reinsurance protection for such catastrophic events, it would impact Solvency of the insurer significantly. Since occurrence of catastrophic event does not only produce huge volume of accumulation of losses to the insurer but also impacts the severity of losses. The risk exposure limit will significantly be increased in case of any Catastrophic event to the insurer. If these events do not cover with sound capital arrangements by the insurer, then it will definitely affect Solvency Ratio/Margin.
 CONCLUSION:  an insurance company is considered to be custodian of public money. Being a Financial Sector company, its continuity is affected by various types of risks. It is important and necessary for an insurance company to access its risks and take all necessary steps to mitigate the same. An insurance company cannot deliver or serve its stakeholders, if it does not implement proper system of Enterprise Risk Management System. A company cannot serve its policyholders/stakeholders well if it is not able to protect interest of policyholders and provide assets appreciation for its stakeholders. It is very important to utilize capital introduced by the investor/promoters of the company to provide them adequate results.
  1. DOCTRINE OF “SUBROGATION”
Meaning of Subrogation:
“SUBROGATION” means substitution of a person or group by another in respect of a debt in insurance claim, accompanies by the transfer of any associated rights and duties.
Investopedia: “Subrogation is a term describing a legal right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss.”
The term ‘Subrogation’ in the context of Insurance, has been defined in Black’s Law Dictionary as:“The Principal under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy”.
Subrogation” also defined in Dan B. Dobb’s Law of Contract, which reads as follows;
“Subrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person’s rights against the defendant. Factually, the case arises because for some justifiable reason, the subrogation plaintiff has paid a debt owned by the defendant.”
“Subrogation” also defined in Laurence P. Simpson’s Handbook of Law of Suretyship, which reads as follows;
“Subrogation is equitable to assignment. The right comes into existence when surety becomes obligated, and this is important as affecting priorities, but such right of subrogation dose not become a cause of action until debt is duly paid. Subrogation entitles the surety to use any remedy against the principal which the creditor could have used , and in general to enjoy the benefit of any advantage that the creditor had, such as a mortgage , lien, power to confess judgement , to follow trust funds, to proceed against third person, who has promised either the principal or the creditor to pay the debts.”
Concept of Subrogation:  it was explained by Chancellor Boyd in National Fire Insurance Co. Vs. McLaren;
“The doctrine of subrogation is a creature of equity not founded on contract, but arising out of relations of the parties. In cases of insurance ,where third party is liable to make good the loss, the right of subrogation depends upon and is regulated by the broad underlying principal of securing full indemnity to the insured, on the one hand ,and on the other of holding him accountable as trustees for any advantage he may obtain over and above compensation for his loss. Being equitable rights, it partakes of all the ordinary incidents of such rights, one of which is that in administering relief the Court will regard not so much the form as the substance of transaction. The primary consideration is to see that the insured gets full compensation for the property destroyed and the expenses incurred in making good his loss. The next thing is to see that he holds any surplus for the benefit of the insurance company.”
PRINCIPAL OF INDEMNITY: as we know that the Contract of Fire Insurance is like a Contract of Indemnity. It means that the insured, in case of loss covered by the Insurance Policy, shall be fully indemnified but shall never be more than fully indemnified. The insured shall never be more than fully indemnified, that gives rise to “Doctrine of Subrogation”. The right of subrogation is a necessary corollary of the Principal of Indemnity and it is necessary for its preservation.
Thus, the insurer is, therefore, entitled to exercise whatever rights the assured possesses to recover to that extent compensation for the loss, but it must do, so in the name of assured.
Categories of Subrogation; we may classify it as follows;
  1. Subrogation by Equitable Assignment;
  2. Subrogation by Contract;
  3. Subrogation-cum-assignment.
Let’s discuss;
i. Subrogation by Equitable Assignment;
This type of subrogation is not evidence by document, but is based on insurer policy and receipt issued by the assured acknowledging full settlement of claim relating to loss. Where the insurer has paid full loss incurred by the assured, it can sue in the name of the assured for the amount paid to the assured.
Let’s consider an example, Mr. A has lodged a claim on insurance company X Ltd, against his fire insurance policy of Rs. 10.00 Lakhs. In real case the fire broke due to mistake or negligence of Mr. B, neighbour of Mr. A. The insurance company X Ltd., has paid Rs. 10.00 Lakhs to Mr. A and acquired right to sue Mr. B on behalf of Mr. A for his negligence. If any amount received from Mr. B to Mr. A, Mr. A should return it to the X Ltd.
In another case if X Ltd, has paid only Rs. 5.00 Lakhs and Mr. A received from Mr. B Rs.6.00 Lakhs then he has to return X Ltd., Rs. 1.00 Lakh.
ii.n Subrogation by Contract;
In this category, Subrogation is evidenced by an Instrument. To avoid any dispute about right to claim reimbursement , or to settle the priority of inter-se claims or confirm the quantum of reimbursement in pursuant of subrogation , and to ensure cooperation of assured in suing the wrongdoer , the insurer usually obtains a Letter of Subrogation  in writing , specifying its rights vis-vis the assured. Letter of Subrogation is a contractual arrangement, which specifies the rights of insurer and the assured. Through this insurer get the rights to sue the wrongdoers on behalf of assured and recovered the amount paid by it the assured under insurance policy to the extent excess of the loss incurred by the assured.
iii. Subrogation -cum-assignment;
In this case assured executes a Letter of Subrogation-cum-assignment enabling the insurer retain entire amount recovered (even if it is more than, what was paid by insurer to the assured) and giving an option to sue in the name of assured or to sue on its own name.
In all above three cases an insurer asks assured to sue the third party(wrongdoer) and can join as co-plaintiff or an insurer may obtain a Special Power of Attorney from the assured and sue the wrongdoer as attorney of the assured.
PRINCIPALS OF SUBROGATION;
i. Equitable right of subrogation arises when insurer settles the claim of the assured, for the entire loss. When there is equitable subrogation in favour of the insurer, then the insurer entitles to stand in shoes of the assured and sue the wrongdoer;
ii. Subrogation not terminate the rights of assured to sue the wrongdoer and recover loss. The Subrogation only gives rights to the insurer to sue the wrongdoer on behalf of assured;
iii. Where assured has issued a Letter of Subrogation, reducing the terms of subrogation, the rights of insurer vis-vis the assured will be governed by the terms of Letter of Subrogation;
iv. Any plaint, complaint, or petition for recovery of compensation can be filed in the name of the assured, or by the assured represented by the insurer as Subrogee-cum-attorney, or by the assured and insurer as co-plaintiff or co-complainants.
v. Where assured has issued a Letter of Subrogation-cum-assignment in favour of insurer, the assured has left no right or interest. The assured in this case no longer entitle to sue wrongdoer, on its own account and for its own benefit. In this case the insure become entitle to the whole amount recovered from the third party or wrongdoer, even though it has paid less amount than the amount recovered to the assured to settle the claim.
CONCLUSION;
The rights of subrogation only arise when the policy is a valid contract of insurance. In order to bring into existence, the insurer’s rights of subrogation, it is necessary that the claim of the insured under the policy actually to him, and it arises upon payment of partial as well as full claim of loss. The rights of insurer to subrogation must be understood with this limitation, which is the right must be incidental or attached to the ownership of the thing, insured. The insurer is entitled to every benefit to which the assured is entitled in respect of the thing to which the contract of insurance relates, but to nothing more.
MEANING OF THE WORD” ACCIDENT” UNDER INSURANCE
Dear Friends, you all know that our world is full of uncertainties and risks. Some of these are man made and some made by All Mighty. In the meantime, whole world is facing unprecedented risk of life due to man made COVID-19 pandemic. This virus has changed our lives and forced us to stay in our homes. This a product of greed and inhuman activities by Chinese Government. We have lost more than 5.00 Lakhs people in whole world and still counting.
To mitigate and reduce impact of these uncertainties, we have various insurance products by insurance companies. These insurance products help us financially and mitigate our risk on happening an event insured. Thus, insurance is important for every person now days. We should protect ourselves with adequate insurance cover, which covers our health and life.
We can define insurance is a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium or we can say that insurance a thing providing protection against a possible eventuality.
Investopedia: defines an Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.
We can also say that insurance refers to a contractual arrangement in which one party, i.e. insurance company or the insurer, agrees to compensate the loss or damage sustained to another party, i.e. the insured, by paying a definite amount, in exchange for an adequate consideration called as premium[Business Jargon].
Insurance has the twin objects of providing short term or long-term relief to the insured. The short term ensure protection of insured from loss of property and life. The long term protects industrial growth of the country etc.
When we purchase an insurance policy, we enter into a “Contract of Insurance” with the insurer or insurance company.
“A Contract of Insurance”, is a contract by which one party (i.e. insurer or insurance company) in consideration of price paid ( i.e. premium) to him adequate to risk , becomes security to the other (i.e. insured or prospect) , that he shall not suffer loss, damage ,or prejudice by happening of perils specified to the certain things which may be exposed to them.”
Insurance is a covenant of good faith, where both parties are covenanted to abide by the terms and conditions of the policy.
An insurance policy contains all terms and conditions agreed between insured and insurer or insurance company. It contains various definition of risks, events, inclusions or exclusions and procedures to be complied by an insured. The insured have to declare truly all details required by insurance company. It is a contract of good faith on both ends.
 
LETS’US CONSIDER WHAT IS ACCIDENT
Dictionary meaning: an unfortunate incident that happens unexpectedly and unintentionally, typically resulting in damage or injury or an event that happens by chance or that is without apparent or deliberate cause.
Marrian-Webester defines: an unexpected usually sudden event that occurs without intent or volition although sometimes through carelessness, unawareness, ignorance, or a combination of causes and that produces an unfortunate result (as an injury) for which the affected party may be entitled to relief under the law or to compensation under an insurance policy
Dictionary.com defines: an undesirable or unfortunate happening that occurs unintentionally and usually results in harm, injury, damage, or loss; casualty; mishap: automobile accidents.
Safeopedia: An accident is an unplanned, unforeseen, and unexpected event that has a negative effect on all activities of the individual who is involved in the accident. An accident can result in death, injury, disease or infection, loss of property, damage to environment, or a combination thereof.
But is difficult to define term “accident” as used in insurance policies. There is difference in term “accident” and “injury”. In an “accident” some violence, casualty or vis major is necessarily involved. Accident involves the idea of something unexpected as opposed to something proceeding from natural causes.
Note: a disease produced by action of some known cause cannot be considered as an accident. 
Thus, disease or death engendered by exposure to heat, cold damp, the viscitudes of climate or atmospheric influence cannot properly be said to be accidental at all events, unless exposure is itself brought about the circumstances which may give it the character of accident.
LETS’CONSIDER
EXAMPLE 1:  Suppose Mr. X is a mariner and due to effects of ordinary exposure to the elements such as common in the course of navigation, he caught by cold or die, such death of Mr. X would not be an accidental death.
But if there was a shipwreak or other disaster as define in the insurance policy, Mr. X quits ship and take sea in open boat, he remained exposed to wet and cold for sometime and died due to that. His death might be considered due to an accident.
We also define an accident as “an unlocked for mishap or an untoward event which is not expected or designed.”
Any injury is said to be accidental where it is a natural consequence of an unexpected cause, or the unexpected consequences of a natural cause.
EXAMPLE 2: Suppose a train runover Mr. X then it is an accidental event. In other scenario suppose he is lifting a heavy weight and his spine injured, then this is not called an accidental injury.
EXAMPLE 3: If Mr. Y is running to catch a train and he injures himself in this case also, it is not an accidental injury.
Suppose if same Mr. Y stumbles and sprains his ankle, he meets with an accident because he did not intend to stumble.
SOME IMPORTANT POINTS:
  1. shock due to fright may constitute an accident;
  2. if the cause and death result are both natural, injury cannot be called accident;
  3. Death by drowning is death by accident within the meaning of a Policy of Accident Insurance;
  4. If at the time of the accident , the assured is occupied or engaged in any occupation, trade or business, involving more danger to his safety or life, the company would not liable;
  5. If at the time of accident any assured is under influence of liquer so much as to upset the normal working of his intellectual faculties, the insurer will not be liable;
  6. The insurers are only liable for the death or disablement ,caused by accidents and not by disease , or physical disablement.
“Gujarat High Court once held that sine the death was caused by a dog bite which resulted in rabies as has been amply establish before the trial court which fact is not disputed before this court by the LIC , it was considered a death resulting from an accident and since it was within the stipulated period, the assured was entitled to an additional sum equal to the sum assured under the policy as per accident benefit clause.”
EXAMPLE 4:  The insured, while at a railway station, was seized with a fit and fell forward off the platform across the railway, when an engine ran over his body and killed him. It was held that the death of the assured was caused due to accident.
Accident due to negligence of third person: accidents may also happen by acts of third persons. It is immaterial whether the acts of third person are negligent or even criminal, even if the act is intentional and the third person may except or intend to cause injury to the assured, the injury, so far as the assured is concerned is accidental.
In case of Surgical Operations:  Policies of accident insurance usually contain express condition as to surgical operations. In this case circumstances which render the operation should be considered. The immediate cause of death may be operation, but the real and efficient cause is to be determined by reference to the circumstances which lead to operation.
 If, however, the operation is performed with a view to cure a disease, death by such operation in not death by an accident. But if on negligence of the surgeon intervenes and death is attributable to such negligence, death may be said to have been caused by accident. But, on the other hand, if operation is rendered necessary by the consequences of the accident itself, death by such operation would be death aby accident.
An accident policy expected liability in the case of death, or disablement by accident, caused inter alia by medical or surgical treatment or fighting , ballooning or racing, self-injury,sucide or anything swallowed or administered or inhaled.
There are various court decisions in which accident has been defined and the IRDAI has also promulgated strict regulations to protect interest of policyholders.
CONCLUSION:
While taking any insurance policy, it is suggested that every person should reveals true information and read the policy documents. It is better to take advise of an insurance advisor or investment advisor. You can get more details on some insurance sites and compare products of various companies suitable for you.
  1. DOCTRINE OF REINSTATEMENT & INSURANCE
Reinstatement of any property generally means replacement of what is lost or repairing the damaged property by bringing it to its original value and usefulness. In case of total destruction of an asset, the company generally replace the same with new assets or if possible, repair the old one to bring it at the same conditions or positions that it never damaged. In case when assets under damage have been covered with an insurance policy then insurer try to repair damaged assets to bring them in their condition before the peril or risk.
The term “reinstate”, in a Fire Insurance Policy refers to buildings and the terms “replace”, refers to goods which have been completely destroyed. But we generally use term “restoration “which has combined effect of “reinstatement “as well as “replacement”.
Normally insurer indemnify the insured of the loss suffered by him, but the insurer with the consent of the insured can take recourse to reinstatement.
LEPPARD VS. EXPRESS INSURANCE CO.  it was held that the assured has not right to compel the insurer to reinstate nor does the insurer has a right to compel insured to apply the amount of indemnification flowing from the insurance policy to reinstatement.
Generally, an insurer discharges its liability as;
  1. Compensate the insured by payment of damages for his loss;
  2. Restore the subject matter of insurance to its earlier conditions.
In both way an insurer will discharge its liabilities and in case of fire policy there is a condition on due to which an insurer has right to repair the subject matter and brought the property to its conditions before fire.
ANDERSON VS. COMMERCIAL UNION ASSURANCE COMPANY  the reinstatement has been defined as “the restoring of the property insured to the conditions in which it was immediately before the fire , in case of total loss by rebuilding the premises or replacing the goods by an equivalent , as the case may be , and in the case of partial loss by executing the necessary repair.”
NOTE:if it is specifically mentioned in the insurance policy then only an insured can demand reinstatement or otherwise the insurer is only liable ton indemnify in money only. In case of insurer also, it cannot force for reinstatement, if the terms of insurance policy provide other method of indemnification.
Once the insurance money has been paid to the insured, he cannot be compelled to spend the some received on reinstatement of property damaged or subject matter of insurance, except as required under section 76(f) of the Transfer of Property Act, 1882.
Section 76 of Transfer of Property Act, 1882 provides that;
Liabilities of mortgagee in possession. —When, during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property, —
(f) where he has insured the whole or any part of the property against loss or damage by fire, he must, in case of such loss or damage, apply any money which he actually receives under the policy or so much thereof as may be necessary, in reinstating the property, or, if the mortgagor so directs, in reduction or discharge of the mortgage-money;
The insurer can insist on the right of reinstatement only under any of the below mentioned conditions;
  1. Where the reinstatement is one of the conditions of the policy;
  2. Where it is suspected that the loss is caused by the wilful or fraudulent acts of the assured;
  3. Where they are bound to reinstate as a request from any person other than assured, who is interested in the subject matter of the insurance.
The policy of insurance generally gives the insurers an option of reinstating the property damaged or destroyed instead of making a payment in money. This clause enables the right of an insurer to reinstate the property in lieu of payment of money. But there are some cases in which the cost of reinstatement may increase sum insured. The main purpose of a fire policy is indemnification of insured against loss suffered in the peril and payment of money. The reinstatement clause in the fire policies are included for the benefit of insurance companies and this clause does not change the nature of fire policy.
When an insurer elects to reinstate, they in fact, substitute one ode of discharging their obligation for another and thus they put themselves in the same position as if they have originally contracted to do so. If one of the parties to a contract stipulated for the option of performing his part in one of the two lawful ways, he is, after having once made his election bound by such election and if the performance be impossible and not illegal, he is liable for the damages for not being able to perform it.
Lets’ suppose a building is completely destroyed by fire, it is not expected of the insurer that their duty of reinstatement should be literally fulfilled and that the minutest details of the building should be restored. They are only bound to put the house substantially in the same state as before the firs. If the insurer does not reinstate properly the assured is not bound to accept the building. They cannot put what they like in lieu of the building destroyed, but must put it up as it was before.
Suppose an insurer elect’s mode of reinstatement of a destroyed or damaged building and local authority has raised objection and stopped construction or reinstatement of that building. In this case the insurer will become liable to pay damages to the insured.
NOTE: if an insurer does elect to reinstate and a fire occurs during reinstatement, it would seem that the company are their own insurers till the reinstatement is complete and must commence reinstating de-novo and cannot charge the assured with the cost of second fire.
CONCLUSION: from above we find out that in case of a fire insurance they are two options with an insurance company, i.e. payment of amount of claim in money or reinstate the property destroyed. The insurance companies for their benefit put reinstatement clause in policy document, but true nature of fire policy is to indemnify the insured by way of money against damage or loss of subject matter of insurance. In many cases the reinstatement value increases the sum insured and insurers are liable to pay damages. Thus is in the betterment of insurance companies to determined best options for themselves ,while choosing right mote of discharging their liability.
  1. CONCEPT OF OWN RISK SOLVENCY ASSESSMENT (ORSA)
The insurance companies being a financial institution prone to various types of risks. They treated as custodian to the funds of general public and hence to serve its policyholders properly they have to manage and mitigate various types of risk. These companies are taking risks of general public in lieu of payment of small amount of premium. Unless insurance companies manage their risks, they will not be in a position to effectively deliver their values to the customer and stay afloat in the business to achieve their goals.
SOLVENCY MARGIN/RATIO; Let’s discuss its definition;
Cambridge Dictionary defines it as; the amount of capital that an insurance company has in relation to probable claims.
The solvency margin is a minimum excess on an insurer’s assets over its liabilities set by regulators. It can be regarded as similar to capital adequacy requirements for banks.
The solvency ratio of an insurance company is the size of its capital relative to all risks it has taken.
The solvency ratio is most often defined as: The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb.
The solvency ratio of an organization gives an insight into the ability of an organization to meet its financial obligations.
SOME BELIEVE THAT; solvency margin defined as the difference between assets and the expected value of liabilities would not be a reliable measure of the financial state of an insurance company, if either of these or maybe both are not evaluated in a reliable way. The fixing of solvency margins is not an isolated problem, on the contrary it is only part of the security measures which must all be managed at the same time. The ultimate purpose of the security system prescribed by legislation must be to safeguard policyholders and claimants against losses.
From above we understand that Solvency refers to a company’s ability to meet its long-term obligations through its operations. Generally, it is confused with liquidity, which refers to a firm’s ability to meet its financial obligations with cash and short-term assets it currently holds.
Solvency Margin is an important financial indicator. It measures insurance company’s ability to pay out claims when unforeseen events occur.
SOLVENCY MARGIN TOTAL= ABILITY TO PAY/THE TOTAL FOR QUANTIFIED RISKS.
ENTERPRISE RISK MANAGEMENT; denotes the methods and processes used by an organization to manage risks and seize opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization’s objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy and monitoring progress.
A business organization by identifying and proactively addressing risks and opportunities, creates value for their stakeholders, including owners, employees, customers regulators and society overall.
ORSA: OWN RISK AND SOLVENCY ASSESSEMENT is one of the methods to assess risks and manage it appropriately. As we know that Solvency Margin is a measure of stability of an insurer. The Regulator, IRDAI has fixed Solvency Margin for each type of Insurance Companies.
Every insurer should under its Own Risk and Solvency Assessment (ORSA) and document the rationale, calculations and action plans arising from this assessment.
The ability of an insurer to reflect risks in a robust manner in its own assessment of risk and solvency is supported by an effective overall ERM (Enterprise Risk Management) and by embedding its risk management policy in its operations. It is recognized that the nature of the assessment undertaken by a particular insurer should be appropriate to the nature, scale and complexity of its risks.
The prime purpose of ORSA is to assess whether its risk management and solvency position is currently and likely to remain so in future.
The responsibility for the ORSA rests at the top level of insurer’s organization, the insurer’s Board and the senior management. The effectiveness of ORSA should be reviewed by Chief Risk Officer of the insurer, who is directly reporting to the Senior Management or Board.
The Solvency II Directive; is a new regulatory framework for insurance industry that adopts a more dynamic-based approach to assess risks. The main pillars are as follows;
Pillar I: covers all quantitative requirements. This pillar aims to ensure firms are adequately capitalized with risk-based capital. All valuation in this pillar are to be done in a prudent and market-consistent manner.
 
Pillar II: imposes higher standards of risk management and governance within a firm’s organization. This pillar also gives supervisors greater power to challenge their firms on risk management issues. It includes the Own Risk and Solvency Assessment (ORSA), which requires a firm to undertake its own forward-looking, self-assessment of its risks, corresponding capital requirements, and adequacy of firm’s organization.
Pillar III: aims for greater levels of transparency for supervisors and the public.
ORSA, is an important component of Enterprise Risk Management framework, is a confidential internal assessment appropriate to the nature, scale and complexity of an insurer conducted by that insurer of the material and relevant risks identified by its management.
MAIN FEATURES OF ORSA;
  1. The ORSA requires insurance undertaking to determine their overall solvency needs, beyond the Capital Adequacy requirements defined in Pillar I.
  2. The ORSA process should take into account the effects of all the material risks such as underwriting, ORSA, and strategic risks.
  3. It should also consider planned management activity and external factors such as economic outlook.
  4. It should include a 3-5 years’ time horizon for the firm’s activities and risk outlook.
OBJECTIVE OF ORSA; has two primary goals;
  1. To foster an effective level ERM at all insurers, through which each insurer identifies, assesses, monitors, prioritizes and reports on its material and relevant risks identified by the insurer, using techniques that are appropriate to the nature, scale and complexity of the insurer’s risks, in a manner that is adequate to support risk and capital decisions; and
  2. To provide a group-level perspective on risk and capital, as a supplement to the existing legal entity view.
EXPECTATAION FROM INSURER UNDER ORSA; An insurer that is subject to the ORSA requirements will be expected to;
  1. Regularly, no less than annually, conduct an ORSA to assess the adequacy of its Risk Management Framework and current and estimated projected future Solvency Position;
  2. Internally document the process and results of the assessment.
The insurer should perform its own assessment of the quality and adequacy of capital resources both in the context of determining its economic capital and in demonstrating that regulatory capital requirements are met having regard to the quality criteria established by the supervisor and other factors which the insure consider relevant.
CONCLUSION:   An insurance company being custodian to the money of policyholders is prone to various types of risks. They have to manage its risks so that they shall effectively deliver their values to the customers/policyholders. they have to develop a well establish Enterprise Risk Management System, which involves various methods and processes to manage risks and seize opportunities to achieve their objectives. An insurance company has to create value for their stakeholders, including owners, employees, customers, regulator and the society and for this they have to afloat and maintain its sustainability by effective Risk Management System.
  1. ANALYSIS OF PROVISIONS RELATED TO TRANSFER, ASSIGNMENT AND NOMINATION UNDER INSURANCE ACT, 1938.
Dear Friends, we purchase insurance policies for our safety and investment. The insurance policies are of various types and provided by various types of insurance companies. There are life insurance, general insurance and health insurance companies with their products in market. Through Insurance, we reduce our risk or transfer our risk to insurers by paying a small amount of premium. The insurance keeps us viable in against insured risk.
Some insurance policies only provide risk cover and some are used to provide risk cover as well as investment options. The life insurance policies generally provide insurance as well as investment options, on the other hand general insurance products provides only safety against risk.
The insurance provides us short range as well as long range relief. The short-term relief is aimed at protecting the assured from loss of property and life. The long-term object being industrial and economical growth of country and the society.
The term “Transfer”, is a transaction through which we pass real rights in property from one person to another person.
The transfer or assignment of policies of insurance are governed by the provisions of the Transfer of Property Act, 1882 (as amended from time to time). Provisions of Section 38, of the Insurance Act, 1938 applied only to life insurance policies. The provisions of   the Transfer of Property Act, 1882 apply to all types of insurance policies.
Section 3 of the Transfer of Property Act, 1882 ,defines “ Actional Claim” as : “ Actionable Claim”, means a claim to any debt ,other than a debt, secured by mortgage of immovable property or by hypothecation or pledge of immovable property, or  to any beneficial interest in movable property not in possession either actual or constructive of the claimants ,which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent ,accruing, conditional or continent.”
The claim under an insurance policy is considered as property and is treated as an actionable claim under the Transfer of Property Act, 1882 and rules related to transfer of actionable claim apply to assignment of insurance policy also.
SECTIONS DEALING WITH ASSIGNMENT, TRANSFER AND NOMINATION OF THE INSURANCE ACT, 1938:
SECTION 38: The assignment or transfer of an insurance policy should be in accordance of the provisions of Section 38 of the Insurance Act, 1938 as amended from time to time.
The extant provisions in this regard are as follows:
  1. This Policy may be transferred/assigned, wholly or in part, with or without consideration.
  2. An Assignment may be affected in a Policy by an endorsement upon the Policy itself or by a separate instrument under notice to the Insurer.
  3. The instrument of assignment should indicate the fact of transfer or assignment and the reasons for the assignment or transfer, antecedents of the assignee and terms on which assignment is made.
  4. The assignment must be signed by the transferor or assignor or duly authorized agent and attested by at least one witness.
  5. The transfer of assignment shall not be operative as against an insurer until a notice in writing of the transfer or assignment and either the said endorsement or instrument itself or copy there of certified to be correct by both transferor and transferee or their duly authorized agents have been delivered to the insurer.
  6. Fee to be paid for assignment or transfer can be specified by the Authority through Regulations.
  7. On receipt of notice with fee, the insurer should Grant a written acknowledgement of receipt of notice. Such notice shall be conclusive evidence against the insurer of duly receiving the notice.
  8. If the insurer maintains one or more places of business, such notices shall be delivered only at the place where the Policy is being serviced.
  9. The insurer may accept or decline to act upon any transfer or assignment or endorsement, if it has sufficient reasons to believe that it is a. not bonafide or b. not in the interest of the Policyholder or c. not in public interest or d. is for the purpose of trading of the insurance Policy.
  10. Before refusing to act upon endorsement, the Insurer should record the reasons in writing and communicate the same in writing to Policyholder within 30 days from the date of Policyholder giving a notice of transfer or assignment.
  11. In case of refusal to act upon the endorsement by the Insurer, any person aggrieved by the refusal may prefer a claim to IRDAI within 30 days of receipt of the refusal letter from the Insurer.
  12. The priority of claims of persons interested in an insurance Policy would depend on the date on which the notices of assignment or transfer is delivered to the insurer; where there are more than one instruments of transfer or assignment, the priority will depend on dates of delivery of such notices. Any dispute in this regard as to priority should be referred to Authority.
  13. Every assignment or transfer shall be deemed to be absolute assignment or transfer and the assignee or transferee shall be deemed to be absolute assignee or transferee, except a. where assignment or transfer is subject to terms and conditions of transfer or assignment OR b. where the transfer or assignment is made upon condition that
  1. the proceeds under the Policy shall become payable to Policyholder or nominee(s) in the event of assignee or transferee dying before the insured OR
  2. the insured surviving the term of the Policy Such conditional assignee will not be entitled to obtain a loan on Policy or surrender the Policy. This provision will prevail notwithstanding any law or custom having force of law which is contrary to the above position.
  1. In other cases, the insurer shall, subject to terms and conditions of assignment, recognize the transferee or assignee named in the notice as the absolute transferee or assignee and such person
i).   shall be subject to all liabilities and equities to which the transferor or assignor was subject to at the date of transfer or assignment and
ii. may institute any proceedings in relation to the Policy
iii.   obtain loan under the Policy or surrender the Policy without obtaining the consent of the transferor or assignor or making him a party to the proceedings.
  1. Any rights and remedies of an assignee or transferee of a life insurance Policy under an assignment or transfer effected before commencement of the Insurance Laws (Amendment), 2014 shall not be affected by this section.
SECTION 39 – NOMINATION BY POLICYHOLDER;
 Nomination of a life insurance Policy is as below in accordance with Section 39 of the Insurance Act, 1938 as amended from time to time.
The extant provisions in this regard are as follows:
  1. The Policyholder of a life insurance on his own life may nominate a person or persons to whom money secured by the Policy shall be paid in the event of his death.
  1. Where the nominee is a minor, the Policyholder may appoint any person to receive the money secured by the Policy in the event of Policyholder’s death during the minority of the nominee. The manner of appointment to be laid down by the insurer.
  1. Nomination can be made at any time before the maturity of the Policy.
  1. Nomination may be incorporated in the text of the Policy itself or may be endorsed on the Policy communicated to the insurer and can be registered by the insurer in the records relating to the Policy.
  1. Nomination can be cancelled or changed at any time before Policy matures, by an endorsement or a further endorsement or a will as the case may be.
  1. A notice in writing of Change or Cancellation of nomination must be delivered to the insurer for the insurer to be liable to such nominee. Otherwise, insurer will not be liable if a bonafide payment is made to the person named in the text of the Policy or in the registered records of the insurer.
  1. Fee to be paid to the insurer for registering change or cancellation of a nomination can be specified by the Authority through Regulations.
  1. On receipt of notice with fee, the insurer should grant a written acknowledgement to the Policyholder of having registered a nomination or cancellation or change thereof.
  1. A transfer or assignment made in accordance with Section 38 shall automatically cancel the nomination except in case of assignment to the insurer or other transferee or assignee for purpose of loan or against security or its reassignment after repayment. In such case, the nomination will not get cancelled to the extent of insurer’s or transferee’s or assignee’s interest in the Policy. The nomination will get revived on repayment of the loan.
  1. The right of any creditor to be paid out of the proceeds of any Policy of life insurance shall not be affected by the nomination.
  1. In case of nomination by Policyholder whose life is insured, if the nominees die before the Policyholder, the proceeds are payable to Policyholder or his heirs or legal representatives or holder of succession certificate.
  1. In case nominee(s) survive the person whose life is insured; the amount secured by the Policy shall be paid to such survivor(s).
  1. Where the Policyholder whose life is insured nominates his
a. parents or
b. spouse or
c. children or
d. spouse and children
e. or any of them the nominees are beneficially entitled to the amount payable by the insurer to the Policyholder unless it is proved that Policyholder could not have conferred such beneficial title on the nominee having regard to the nature of his title.
  1. If nominee(s) die after the Policyholder but before his share of the amount secured under the Policy is paid, the share of the expired nominee(s) shall be payable to the heirs or legal representative of the nominee or holder of succession certificate of such nominee(s).
  1. The provisions of sub-section 7 and 8 (13 and 14 above) shall apply to all life insurance policies maturing for payment after the commencement of Insurance Laws (Amendment), 2014 (i.e. 26.12.2014).
  1. If Policyholder dies after maturity but the proceeds and benefit of the Policy has not been paid to him because of his death, his nominee(s) shall be entitled to the proceeds and benefit of the Policy.
  1. The provisions of Section 39 are not applicable to any life insurance Policy to which Section 6 of Married Women’s Property Act, 1874 applies or has at any time applied except where before or after Insurance Laws (Amendment) 2014, a nomination is made in favor of spouse or children or spouse and children whether or not on the face of the Policy it is mentioned that it is made under Section 39. Where nomination is intended to be made to spouse or children or spouse and children under Section 6 of MWP Act, it should be specifically mentioned on the Policy. In such a case only, the provisions of Section 39 will not apply.
SECTION 41 OF THE INSURANCE ACT, 1938, (as amended from time to time): provides that 
  1. “No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the Policy, nor shall any person taking out or renewing or continuing a Policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectus or tables of the insurer: Provided that acceptance by an insurance agent of commission in connection with a Policy of life insurance taken out by himself on his own life shall not be deemed to be acceptance of a rebate of premium within the meaning of this sub-section if at the time of such acceptance the insurance agent satisfies the prescribed conditions establishing that he is a bona fide insurance agent employed by the insurer.
  1. Any person making default in complying with the provisions of this section shall be liable for a penalty which may extend to ten lakh rupees.”
SECTION 45 – POLICY SHALL NOT BE CALLED IN QUESTION ON THE GROUND OF MIS-STATEMENT AFTER TWO (2) YEARS:
 Provisions regarding Policy not being called into question in terms of Section 45 of the Insurance Act, 1938, as amended from time to time.
  1. No Policy of Life Insurance shall be called in question on any ground whatsoever after expiry of 2 years from
  2. the date of issuance of Policy or
  3. the date of commencement of risk or
  4. the date of revival of Policy or
  5. the date of rider to the Policy whichever is later.
  1. On the ground of fraud, a Policy of Life Insurance may be called in question within 2 years from
  2. the date of issuance of Policy or
  3. the date of commencement of risk or
  4. the date of revival of Policy or
  5. the date of rider to the Policy whichever is later.
For this, the insurer should communicate in writing to the insured or legal representative or nominee or assignees of insured, as applicable, mentioning the ground and materials on which such decision is based.
  1. Fraud means any of the following acts committed by insured or by his agent, with the intent to deceive the insurer or to induce the insurer to issue a life insurance Policy:
  2. The suggestion, as a fact of that which is not true and which the insured does not believe to be true;
  3. The active concealment of a fact by the insured having knowledge or belief of the fact; c. Any other act fitted to deceive; and
  4. Any such act or omission as the law specifically declares to be fraudulent.
  1. Mere silence is not fraud unless, depending on circumstances of the case, it is the duty of the insured or his agent keeping silence to speak or silence is in itself equivalent to speak.
  1. No Insurer shall repudiate a life insurance Policy on the ground of Fraud, if the Insured / beneficiary can prove that the misstatement was true to the best of his knowledge and there was no deliberate intention to suppress the fact or that such mis-statement of or suppression of material fact are within the knowledge of the insurer. Onus of disproving is upon the Policyholder, if alive, or beneficiaries.
  1. Life insurance Policy can be called in question within 2 years on the ground that any statement of or suppression of a fact material to expectancy of life of the insured was incorrectly made in the proposal or other document basis which Policy was issued or revived or rider issued.
 For this, the insurer should communicate in writing to the insured or legal representative or nominee or assignees of insured, as applicable, mentioning the ground and materials on which decision to repudiate the Policy of life insurance is based.
  1. In case repudiation is on ground of mis-statement and not on fraud, the premium collected on Policy till the date of repudiation shall be paid to the insured or legal representative or nominee or assignees of insured, within a period of 90 days from the date of repudiation.
  1. Fact shall not be considered material unless it has a direct bearing on the risk undertaken by the insurer. The onus is on insurer to show that if the insurer had been aware of the said fact, no life insurance Policy would have been issued to the insured.
  1. The insurer can call for proof of age at any time if he is entitled to do so and no Policy shall be deemed to be called in question merely because the terms of the Policy are adjusted on subsequent proof of age of life insured.
  1. ANALYSIS OF PROVISIONS GOVERNING MISSTATEMENT/CONCEALMENT/FRAUD UNDER AN INSURANCE POLICY.
We know that an insurance contract is a legal agreement that spells out the responsibilities of both the insurance company and the insured, as well as the specific conditions of coverage and the policy term and cost. Standard features of an insurance contract include the offer and the acceptance, consideration, legal capacity and purpose, and indemnification.
An Insurance Contract s a contract of “ uberrima fides” i.e. one requiring utmost good faith. Both insured and the insurance company expected to deal with each other fairly and honestly through all phases of their relationship. The insured is required to share or provide all pictures /details /information required to the insurance company to underwrite the policy.  In case of life/health insurance polices an insured has to declare all his/her existing and pre-existing medical conditions ,medical history of his/her family members etc. An insurance company expects true and fair disclosure of all material terms on which risk will be insured for the insured.
WIKIPEDIA defines ;  “In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language.
Insurance contracts are designed to meet specific needs and thus have many features not found in many other types of contracts. Since insurance policies are standard forms, they feature boilerplate language which is similar across a wide variety of different types of insurance policies.”
Insurance contracts are contracts of adhesion, which means they are offered on a “take it or leave it” basis. The insurance company draws up the contract, which only becomes mutually binding when the buyer makes an offer by accepting the terms or mailing in the first payment.
Consideration is the part of the insurance contract that defines how much the insured will pay in premiums for the coverage offered, and how the insurance company will reimburse the insured in the event of a loss. Consideration spells out the financial obligations of both parties.
In order to enter into an insurance contract, both parties must be legally capable of delivering what is promised. The insured must be of sound mind and of legal age, and the insurance provider must conform to any licensing requirements of the state in which the insurance is offered. Legal purpose means that the contract is invalid if it insures or encourages illegal activities.
Most insurance contracts operate on the principle of indemnity, which means the insurance company agrees to make the insured whole after a specified loss, but no more and no less. The principle of indemnity states an insured cannot profit from an insurance contract and the payout must closely equal the actual amount lost.
An insurance contract is generally based on trust between the contracting parties i.e. the insured and insurance companies. An insurance company on the basis of disclosures made by the insured in proposal forms and the questioners at the time of applying insurance policy decide whether it will carry risk of insured or not and the amount of premium it is going to charge in case of insuring perils or risks of the insured. It is duty of person /prospects to declare all material facts related to risk insured to the insurance company. Misstatement of material facts may affect his claim at the time of happening of insured peril.
MISREPRESENTATION — a false or misleading statement that, if intentional and material, can allow the insurer to void the insurance contract. Some insurance policies and state laws that govern insurance contract provisions vary on the exact details of the conditions under which coverage may be voided; these variations are usually denoted in state amendatory endorsements.
Misrepresentations or concealments of material facts made by an insured prior to a loss will typically provide the insurer with a right to rescind the policy. Whereas, those made after a loss will typically provide the insurer with a right to deny coverage for the submitted claim.
The applicable policy provision respecting the insurer’s right typically provides as follows:
Concealment or Fraud. The entire policy will be void if, whether before or after a loss, an “insured” has:
  1. Intentionally concealed or misrepresented any material fact or circumstance;
  2. Engaged in fraudulent conduct; or
  3. Made false statements; relating to this insurance.
Merriam Webster online defines material as having real importance or great consequences; something that is material is not just an overlooked detail, but a significant fact that can affect the outcome of a claims decision. Misrepresent is defined as to give a false or misleading representation, usually with an intent to deceive or be unfair.
It means a material misrepresentation is a statement made by someone with an intent to deceive or mislead another party, with information that is significantly important to the issue at hand.
It is a general and well known principle that   Insurance coverage is not provided if an insured has, before or after a loss, intentionally concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct or made false statements. It also states that if a material misrepresentation was made that would have caused the insurer  not to issue the policy, the policy may be canceled.
 
Please note that;
  1. An insurer is not allowed to question an insurance policy in case of fraud also even after a period of 3(three) years from date of inception of insurance policy.
  2. An insurer within a period of three years can cancel or repudiated and insurance policy on the basis of fraud and it has to prove the fraud on the part of inured with substantiation evidences.
  3. No Insurer shall repudiate a life insurance Policy on the ground of Fraud, if the Insured / beneficiary can prove that the misstatement was true to the best of his knowledge and there was no deliberate intention to suppress the fact or that such mis-statement of or suppression of material fact are within the knowledge of the insurer.
 
LET’S ANALYSE PROVISIONS OF INSURANCE ACT,1938
 
Section 45 – Policy shall not be called in question on the ground of mis-statement after three years;
1.     No Policy of Life Insurance shall be called in question on any ground whatsoever after expiry of 3 yrs from;
o    the date of issuance of Policy or
o    the date of commencement of risk or
o    the date of Revival of Policy or
o    the date of rider to the Policy
            whichever is later.
2.     On the ground of fraud, a Policy of Life Insurance may be called in question within 3 years from
o    the date of issuance of Policy or
o    the date of commencement of risk or
o    the date of Revival of Policy or
o    the date of rider to the Policy whichever is later.
For this, the insurer should communicate in writing to the insured or legal representative or Nominee or Assignees of insured, as   applicable, mentioning the ground and materials on which such decision is based.
EXPLANATION I: Fraud means any of the following acts committed by insured or by his agent, with the intent to deceive the insurer or to induce the insurer to issue a life insurance Policy:
o    The suggestion, as a fact of that which is not true and which the insured does not believe to be true
o    The active concealment of a fact by the insured having knowledge or belief of the fact;
o    Any other act fitted to deceive; and
o    Any such act or omission as the law specifically declares to be fraudulent.
EXPLANATION II:Mere silence is not fraud unless, depending on circumstances of the case, it is the duty of the insured or his agent keeping silence to speak or silence is in itself equivalent to speak.
3. No Insurer shall repudiate a life insurance Policy on the ground of Fraud, if the Insured / beniciary can prove that the misstatement was true to the best of his knowledge and there was no deliberate intention to suppress the fact or that such mis-statement of or suppression of material fact are within the knowledge of the insurer.
Provided that in case of fraud; Onus of disproving is upon the Policyholder, if alive, or beneficiaries.
EXPLANATION: A person who solicited and negotiates a contract of insurance shall be deemed for the purpose of the formation of contract , to be the agent of the insurer.
4. Life insurance Policy can be called in question within 3 years on the ground that any statement of or suppression of a fact material to expectancy of life of the insured was incorrectly made in the proposal or other document basis which Policy was issued or revived  or  rider issued.
Provided that :For this, the insurer should communicate in writing to the insured or legal representative or Nominee or Assignees of insured, as applicable, mentioning the ground and materials on which decision to repudiate the Policy of life insurance is based.
Provided That : in case of repudiation of the policy on the ground of misstatement or suppression of a material fact, and not on the ground of fraud, the premiums collected on the policy till date of repudiation shall be paid to  the insured or the legal representatives or nominees or assignees of the insured within a period of 90 days from the date of such repudiation.
 
NOTE THAT: for the purpose of Section 45(4) of the Act,1938 the misstatement of or suppression of fact shall not be considered material unless it has a direct bearing on the risk undertaken by the insurer , the Onus is on the insurer to show that had the insurer been aware of the said fact on life insurance policy would have been issued to the insured.
5.     The insurer can call for proof of age at any time if he is entitled to do so and no Policy shall be deemed to be called in question   merely because the terms of the Policy are adjusted on subsequent proof of age of life insured. So, this Section will not be   applicable for questioning age or adjustment based on proof of age submitted subsequently.
LET’S CONSIDER SOME JUDGEMENTS;
  1. LIC Vs. Ambika Prasad Pandey ,AIR 1999 MP 3– in this case the insured was suffering from pulmonary tuberculosis before the date of filing of questionnaire er for the insurance policy. The doctor has not examined to prove the fact. There is no supporting evidence of it. The claim of the applicant for recovery of policy amount from the insurance company was rightly decreed on its failure to discharge burden of proof.
  1. LIC Vs. Narmada Agarwala ,AIR 1993 Orissa 103- there was non-disclosure of material facts in a policy which covered the risk of life. The policy was repudiated. The assured died after two years due to cardio-respiratory arrest. It was shown from the hospital documents that the deceased was diabetic patient for the last 15 years and this fact was not disclosed by the deceased. Even the confidential report given to the doctor , at the time of taking the policy , did not mention it. It was held that the deceased was not guilty of withholding material facts and the repudiation of the policy was not proper.
CONCLUSION: In the event of a fraud the policy shall be cancelled immediately and all the premiums paid till date shall be forfeited, subject to fraud being established as per Section 45 of the Insurance Act, 1938. In the event of a misstatement or suppression of a material fact, not amounting to fraud, by the insured, the policy shall be declared “Null and Void” and premiums paid shall be refunded after deducting applicable charges, if any, subject to misstatement or suppression of fact being established, in accordance with Section 45 of the Insurance Act, 1938, as amended from time to time. (Please refer to the simplified version of the provisions of Section 45. So it is utmost important to declare all material facts and information to the insurance company at the time of taking insurance policy or after some time in case not able to declare earlier. This will affect your claim at the time of happening of insured peril.
  1. WARRANTY MUST BE STRICTLY COMPLIED WITH
 
As you are aware that an insurance contract is based on utmost good faith, it means all statements, disclosures ,documents made and submitted by the assured must be true. The information and documents submitted of declaration made by assured /insured at the time of application will form the basis of contract of insurance. The assured/insured by means of his declaration warrants that the statements, representations and documents submitted by him with application form are true and fair.
A warranty in an insurance policy is a promise by the insured party that statements affecting the validity of the contract are true.A promissory warranty is a statement about future facts or about facts that will continue to be true throughout the term of the policy.
A warranty by which the assured undertakes to do or not to do a particular thing, or satisfy a particular condition and whereby he affirms or negated the existence of a particular state of facts. A warranty includes undertakings
  1. As to past or present facts( formative warranties);
  2. As to future conduct of the assured( continuing/promissory warranties);or
  3. That some conditions has been fulfilled.
An affirmation of fact, for instance, can constitute either a warranty or a representation, an instrument within  its own legal regime.
A warranty is either an undertaking by the assured that some particular thing shall or shall not be done or that some condition shall be fulfilled, or it is a statement which affirms or negatives the existence of a particular state of facts. A warranty is a condition precedent to the policy, and whether material to the risk or not must ,unless waived , be fulfilled with the most scrupulous exactness.
It means that;
  1. A warranty is contractual, it is a duty imposed on the parties by the contract itself, hence it must form part of the contract , either by being included in the contract or by being incorporate in it by reference;
  2. The materiality of the fact warranted is not to be taken into account. By constituting a warranty the parties are deemed to have agreed to the materiality of the fact warranted with;
  3. It must be literally complied with;
  4. The insurers have only to prove that there has been a breach, they need not to prove that the loss was connected with the breach, or that the breach was remedied before loss.
A warranty is absolute in the sense that it must be literally and completely complied with. If its operation is suspended , even for a short interval, on account of its breach , the liability of insurers is at an end.
 
LET’S CONSIDER AN EXAMPLE; if a policy of fire insurance contains an absolute or total prohibition against the keeping or storing of any inflammable article, like naphtha or kerosene oil, the policy is avoided , if such articles are stored or kept in the insured premises and have been removed before the fire occurs. On the other hand, of the condition is that thee insured is not to be entitled to recover, if the fire takes place while, if any of the prohibited articles was kept or stored in the insured premises, the liability of the insurers re-attaches as soon as the obnoxious articles are removed. The presence of articles merely suspends the liability of the insurers to pay under the policy.
 
TYEPES OF WARRANTIESA warranty may be either express or implied. Nothing can be an express warranty unless it is included in or written upon the policy , whether in the margin or at the foot or transversely , or is contained in some document incorporated therein by reference.An Express Warranty is something more than mere agreement , and creates a conditions precedent, and  there is no difference in this respect between marine , life and fire policies.
An implied warranty ,if it a condition implied by law. Implied warranties are, however almost confined to marine insurance.
In contracts of life assurance , therefore ,there is no implied warranty that the life is “ good”, analogous to implied warranty of sea-worthiness in Marin insurance , or in the case of fire insurance that the premises are built with all proper precautions.
Section 35 of the Marine Insurance Act, 1963 defines “ Warranty” to mean promissory warranty, that is to say a warranty by which the assured undertakes that some particular thing shall or shall not to be done, of that some condition shall be fulfilled or whereby he affirms or negatives the existence of particular state of facts;
  1. Warranty that some particular thing shall or shall not be done ;
  2. Where he undertakes that some condition hall be fulfilled ; and
  3. Where he affirms or negatives that existence of a particular state of facts.
Section 35(3) of Act, 1963 envisages that the warranty is a condition which must be exactly complied with ,whether it is material to the risk or not and in the vent of its non-compliance the insurer is discharged from liability as from the date of the breach of warranty but without prejudice to any liability incurred by him before that date.
 
Example a boat was insured under a policy of marine insurance with the policy including special condition prohibiting fishing operations outside the limits of the port during the monsoon season. The boat was used outside the specified limit during monsoon season and was lost. The Kerala High Court held that a warranty in a marine insurance policy covering risks a special condition either express or implied and observed that the special warranty condition having been violated the contract was discharged and the insurer absolved of his liability.[New India Assurance Co. Ltd. Vs. V.K.Radhakrishnan(1993)76Comp Cas437].
IN CASE OF LIFE INSURANCE– in a contract of life assurance, it is necessary for the validity of the contract that th person whose life is assured should be alive at the time of insurance, and this condition is sometimes sought to be given the grab of an implied warranty. It means that in life insurance there is implied warranty that at the time of inception of insurance and at the time of renewal of the policy the person whose life is going to be assured must alive.
PLEASE NOTE THAT: warranty must be in the policy or must be incorporated therein by reference. If the  policy is under the seal of the company and it refers to a printed paper , without seal or signature, the conditions contained is the paper become part of the contract between the parties and must be complied with before the assured can recover. The statements and promises in the application may also be warranties , if they are incorporated in the contract. A declaration that the answers in the application are part of the contract constitutes them as warranties.
The warranties may appear first time in the policy. If there is a variance in the form of warranty, in the policy itself, and that incorporated from the application or the proposal form, the duty imposed upon the assured by the form in the application cannot be extended by the policy. The proposal is no part of the contract , unless incorporated in the policy by reference.
Statements in the proposal form may also become warranties, if they are incorporated in the contract. In order to become a part of the policy , such statements must be expressly stated to be so in the policy or they must be expressed to be the basis of the contract, but mere a reference to them in the policy is not enough. It means that the statements made in proposal form must be incorporated in the policy documents to become a warranty. Only reference to statements of proposal form in the policy documents does not bind at as warranty.
In policies of insurance the term warranty has been used interchangeably with condition as also in relation to contract of insurance both the words mostly used indifferently. It was held in [Lakshmi insurance Co. Vs. IBBI Padmavathi, AIR 1961 Pub 253]that warranty is a statement or representation forming the basis of a contract and the validity of the entire contract depends on the truth or falsity of that statement or representation.
 
HOW A WARRANTY IS CONSTITUTED; no particular words are necessary to constitute a warranty. It may be in any form of words from which the intention of warranty may be inferred. But the terms should not be stresses too much in order to construe a mere statement as warranty. It is not necessary that the words” I warranty or warranty” should be used, only it must be clear from the actual words used that the assured consents to the literal accuracy of his representationsto be made the conditions of the policy.
The expression “ warranty” imports that a particular state of facts in the present or in future is a term of the contract and ,further if the warranty is not made good, the contract is void. Where the word” warranted” is used in the policy document, prima facile, it means that the truth of the matter warranted is a condition precedent to the attachment or continuance of the risk. Any form of words expressing the existence of a particular state of facts as a condition of the contract is enough to constitute a warranty. If there is a warranty, the  materiality of facts in themselves is irrelevant , by contract their existence is made a condition of the contract.[Dawson Vs. Bonin(Supra); New Castle Fire Vs. Macmorram,(1815) 3ER1057].
In order to ascertain whether it was the intention of the parties to create a warranty, the nature of transaction and the known source of business and the forms in which similar transactions are carried out, must be looked into, but the facts which occurred at the inception of the contract or during negotiations are not to be considered.
In the contract of insurance there is a strong presumption that if a policy contains representations ,or promises which are obviously material to the risk the parties indented that there should a warranty as to the truth of the representations or fulfilments of promises. All the conditions incorporated in the policy cannot be warranties , the condition will be construed as whole and none of it will be taken as a warranty.
 
PLEASE NOTE THAT; it is usually stipulated in the contract of insurance by the assured that certain statements made by him shall be the “ basis of the contract”. This term is sufficient to constitute a “ Warranty”, and ,in case of any untrue statement , the risk does not attach. “ The recital in the policy, that the representations ,statements and agreements in the application for the policy are made part of the contract , makes the truth of the statements, contained in the proposal ,apart from the question of materiality , the condition of the liability of the insurance company. The truth of statements are the basis of contract of insurance. It means that if statements mentioned in the application form are not true , then the contract of insurance is not binding.
 
WARRANTY MUST BE STRICTLY COMPLIED WITH;a warranty must be exactly complied with, it be material to the risk or not. The rule that a warranty must be strictly complied with has been followed in India. The assured agreed that the statements and representations contained in his application together with those made to the medical examiner by him should be the basis f the contract between the parties. He warranted them to be full, complete and true, whether written by his own hand or not , and that the warranty was to be a condition precedent and a consideration for the policy which might be issued therein.Any breach of warranty leads to policy avoidable although breach may not increase the risk. The fact or submission by the assured that condition or warranty is in able of fulfilment does not help the assured or insured.
It should be kept in mind that the warranties are to be construed liberally in the favour of the assured rather than against him. If there is any ambiguity in the policy, it must be read strongly against the insurer. A warranty must receive a resonableinterpretation and should be interpreted if necessary with such limitations and qualifications as would render it reasonable.
Although a warranty must be strictly complied with , nevertheless such a construction will be given to it as well give effect to the meaning which he parties must be presumed to have intended. If a person states in the declaration merely that he believes, or is informed that a certain fact is true, that he is not aware of any circumstances tending to shorten his life, the warranty only extends to the state of his belief, information, or knowledge , and not to the facts of which be is bona fire unaware.[Jones vs. Provincial Insurance co.(1857) 26 LJCP 272].
 
CONCLUSION:from above it is clear that a warranty usually interchangeable with conditions must be incorporated in the policy document. A warranty in a contract of insurance is a condition and a contingency , and unless that be performed there is not contract. It is perfectly immaterial for the purpose a warranty introduce , but being inserted the contract odes not exist unless it be literally complied with. A breach of warranty will avoid policy.
  1. DIFFERENCE BETWEEN SUBROGATION AND ASSIGNMENT
As you are aware that a contract of General Insurance is generally a contract of indemnity , it means an insured will not receive from insurance company more than the loss he /she suffered. Further an insured is not allowed to gain more than ,what he suffered due to insured peril from the insurance company.
“Indemnity” means security or protection against financial loss. It is a  protection against possible damage or lossespecially a promise of payment,         or the money paid if there is such damage or loss, it means that insurance company promises to pay the insure in case of any loss due to insured peril of the subject insured in lieu of a small payment called “ Premium”.
An insurance policy issued to the insured by the insurance company is a contract between them and any claim of loss will be payable according to the terms and conditions agreed between the parties and mentioned in the contract.
COROLLARIES OF INDEMNITY
There are two corollaries to the principle of Indemnity and these are Subrogation and Contribution. We are going to consider and discuss here only SUBROGATION.

SUBROGATION It has already been established that the purpose of Indemnity is to ensure that the Insured does not make a profit or gain in any way as a consequence of an accident. He is placed in the same financial position, which he had occupied immediately before the loss occurred.

As an off shoot of the above it is also fair that the insurer having indemnified the insured for damage caused by another (A Third Party) should have the right to recover from that party the amount of damages or part of the amount he has paid as indemnity.

This right to recover damages usually lies with the bereaved or injured party but the law recognises that if another has already paid the bereaved or injured party then the person who has paid the compensation has the right to recover damages.

  1. LET’S CONSIDER WHY SUBROGATION IS CONSIDERED A COROLLARY OF INDEMNITY

Why Subrogation is called a corollary of Indemnity and not treated as a separate basic Principle of Insurance can be traced to the judgement given in the case of Casletlan V Preston (1883) in U.K. “That doctrine (Subrogation) does not arise upon any terms of the contract of Insurance, it is only the other proposition, which has been adopted for the purpose of carrying out the fundamental rule i.e. indemnity. Which I (Judge) have mentioned “it is a doctrine in favour of the underwriters or insurers, in order to prevent the insured from recovering more than a full indemnity; it has been adopted solely for that reason.”
Subrogation does not apply to life and personal accidents as these are not contracts of Indemnity. In case death of a person is caused by the negligence of another than the legal heirs of the deceased can initiate proceedings to recover from the guilty party in addition to the policy proceeds.
If the insured is not allowed to make profit the insurer is also not allowed to make a profit and he can only recover to the extent he has indemnified the Insured.
In case the insured after having received indemnity also recovers losses from another then he shall be in a position of gain which is not correct and this amount recovered from another shall be held in trust for the insurer who have already given indemnity.
Subrogation may be defined as the transfer of legal rights of the insured to recover, to the Insurer.

 

Subrogation can arise in 4 ways
(i) Tort
(ii) Contract
(iii) Statute
(iv) Subject matter of Insurance
(I) TORT: 
When an insured has suffered a loss due to a negligent act of another then the Insurer having indemnified the loss is entitled to recover the amount of indemnity paid from the wrongdoer.
The Insured has a right in Tort to recover the damages from the individuals involved. The Insurers assume these rights and take action in the name of the insured and take his permission before starting legal proceedings.
Another reason for seeking permission of the insured is that the Insured may be having another claim which was not insured arising from the same incident which he may wish to include because the law allows one to sue a person only once for any single event.
(II) CONTRACT:
This can arise when a person has a contractual right to compensation regardless of a fault then the Insurer will assume the benefits of this right.

(III) STATUTE:

Where the Act or Law permits, the insurer can recover the damages  from Government agencies, it gives the right to insurers to recover damages from the concerned authorities  in respect of the property damaged in Riots which has been indemnified by them.

  1. LET’S CONSIDER ASSIGNMENT OF AN INSURANCE POLICIES
“ Assignment” means a complete transfer of ownership rights of the policy to some other person, it may be third person or the insurance company ,which has issued the insurance policy.
Assignment is governed by Section 38 of the Insurance Act 1938 in India. Assignment can also be done in favour of a close relative when the policyholder wishes to give a gift to that relative. Such an assignment is done for “natural love and affection”.
When a policyholder assign a policy, he loses all control on the policy. It is no longer his property. It is now the assignee’s property whether the policyholder is alive or dead, the assignee alone will get the policy money from the insurance company.
If the assignee dies, then his (assignee’s) legal heirs will be entitled to the policy money.
Please Note That : Assignment can be made in favour of a minor person. But it would be advisable to appoint a guardian to receive the policy money if it becomes due during the minority of the assignee.
When a policy is assigned normally, the assignee should pay the premium, because the policy is now his property. In practice, however, premium is paid by the assignor (policyholder) himself. When a bank gives a loan and takes the assignment of a policy a security, it will ask the assignor himself to pay the premium and keep it in force. In the case of an assignment as a gift, the assignor would like to pay the premium because he has gifted the policy.
 
LET’S CONSIDER DIFFERENCE BETWEEN SUBROGATION & ASSIGNMENT
As “ Assignment “ refers to a transfer of a right by an instrument for consideration . When there is an absolute assignment ,the assignor is left with no title or interest in the property or right , which is subject matter of the assignment.
  1. The difference between Assignment and Subrogation was state in Insurance Law by Mac Gillivray&Prkington “ thus:
“ Both subrogation and assignement permit one party to enjoy the rights of another, but it is well established that subrogation is not a species of assignment. Rights of subrogation vest by operation of law rather than as the product of express agreement. Whereas rights of subrogation can be enjoyed by the insurer as soon as payment in made , as assignment requires an agreement that the rights of the assured be assigned to the insurer. The insurer cannot require the assured to assign to him his rights against third parties as a condition of payment unless there is a special clause in the policy obliging the assured to do so. This distinction is of some importance, since in certain circumstances and insurer might prefer to take an assignment of an assured’s right rather than rely upon his rights subrogation.
If ,for example ,there was any prospect of the insured being able to recover more than his actual loss from a third party , an insurer ,who had taken assignment of the assured’s rights ,would be able to recover the extra money for himself, whereas an insurer who was confined to rights of subrogation would have to allow the assured to retain the excess.
 
Another distinction lies in the procedure of enforcing the rights acquired by virtue of the two doctrines. An insurer exercising the rights of subrogation against third parties must do so in the name of the insured. An insurer who has taken legal assignment of his insured’s rights under the statue may proceeds to sue third parties in his own name.
2. James Nelson & Sons. Ltd. Vs. Nelson Line( Liverpool) Ltd. 1906(2) KB 217- in this case also the difference between Subrogation and Assignment has been highlighted as follows;
 
The way in which the underwriters come in is only by way of subrogation to the rights of the assured. Their right in not that of assignees of the cause of action……Therefore ,they could only be entitled by way of subrogation to the plantiffs’ rights. What is the nature of their right by way of subrogation ? It is the right to stand in the shoes of the persons whom they have indemnified , and to put in force the right of action of those persons , but it remains the plantiff’s right of action ,although the underwriters are entitled to deduct from my sum recovered the amount to which they have indemnified the plaintiffs ,and although they have provided the means of conducting the action to a termination. It is not a case in high one person is using the name of another merely as a nominal plaintiff for the purpose of bringing an action in which he alone is really interested , for the plaintiffs here have real and substantial interest of their own in the action.”
 
3. Vasudeva Mudaliar Vs. Caledonian Insurance Company [AIR 1965 Madras 159]-
The Madras High Court explained the difference between Subrogation and Assignment ,while delivering its judgment as follows;
“ In other words arising out of the nature of a contract of indemnity, the insurer, when he has indemnified the assured, is subrogated to his rights and remedies against the third parties ,who have occasioned the loss. The right of the insurer to subrogation or to get into the shoes of the assured as it were, need not necessarily flow from the terms of the insurance policy , but is inherent in and springs from the principal of indemnity.
Where,therefore ,an insurer is subrogated to the rights and remedies of the assured, the former is to be more or less in the same position as assured in respect of the third parties and his claim against them founded on tortuous liabilities in case of accident.
But is should be noted that the fact that an insurer is subrogated to the rights and remedies of the assured does not ipso Jure enable him to sue third parties in his own name. It will only entitle the insurer to sue in the name of assured,it being an obligation of the assured to lend his name and assistance t such an action.
By subrogation , the insurer gets no better rights or no different remedies than th assured himself. Subrogation and its effect are therefore , not to be mixed up with those of a transfer or any assignment by the assured of his rights and remedies to the insurer.
 
An assignment transfer implies something more than subrogation , and vets in the insurer the assured’s interest, rights and remedies in respect of subject matter and sub a stance of the insurance. In such a case, therefore , the insurer ,by virtue of transfer or assignment in his favour , will be in a position maintain a suit in his own name against third parties.”
 
Court Further Explain that – Subrogation, as an equitable assignment, is inherent ,incidental and collateral to a contract of indemnity, which occurs automatically ,when the insurer settles the claim under the policy, by reimbursement of the entire loss suffered by the insured. It need not be evidenced by any writing. But where an insurer does not settle the claim of the insured fully , by reimbursement of thje entire loss, then there will be no equitable assignment of the claim enabling the insurer to stand in the shoes of the insured, but only a  right to recover from the insured ,any amount remaining out of the compensation received by the insured from the third parties or wrongdoers , after the insured fully recovers his loss.
Court Further Explain that – the insurance companies to void any dispute with the insured as to the right of subrogation and extent of its rights usually reduced the terms of subrogation in writing in the form of “ Letter of Subrogation” ,which enables and authorises the insurer to recover the amount settled and paid from third parties wrongdoers are Subrogee-cum-Attorney. When an insurer obtains and instrument from the insured on settlement of the claim ,whether it will bee Deed of Subrogation or Subrogation-cum-Assignment ,would depend upon  intention of the parties as evidence from the wordings of the document. The title or caption of the document , by itself may not be conclusive. It is possible that the document may be styled as.        “ Subrogation” but the may contain in addition an assignment in regard to balance of the claim, in which event it will be a Deed of Subrogation-cum-assignment. It may be a pure and simple subrogation but may inadvertently or by way of excessive caution use words more appropriate to an assignment. If the terms Leroy show that the intention was to have only subrogation, use of words “assign ,transfer and abandon in favour of “ would in the context be construed as referring to subrogation and nothing more.”
 
Please Note That
  1. In its literal sense, subrogation is the substitution of one person for another. The doctrine of subrogation confers upon the insurer the right to receive the benefit of such rights and remedied as the assured has against the third parties in related to loss to the extent that the insurer has indemnified the loss ans made it good. The insurer is, therefore ,entitled to exercise whatever the rights assured possesses to recover to the extent of compensation for the loss, but it must do so in the name of the assured.
  2. If an insurer has assignment or transfer of rights of assured ,through a valid agreement, then he has rights to sue the third parties liable for loss to the assured in its own name.
 
ASSIGNMENT LINKED WITH SUBROGATION
If letter of subrogation containing term of assignement is to be treated on as an assignment by ignoring the subrogation , there may be the anger of document itself becoming invalid and unenforceable , having regards to the bar contained in Section 6 of the Transfer of Property Act, 1882 , provides that property of any kind may be transferred except as otherwise provided by the Act or by any other law for time being in force.
SECTION 3 -DEFINES ACTIONABLE CLAIM- as
(i)                Any debt (other than a debt secured by mortgage of immovable property or by hypothecation or pledge or immovable property); or
(ii)              Any beneficial interest in movable property not in possession ,either actual or constructive of the claimant,which the civil court recognises as affording grounds for relief.
 
SECTION 6 IN THE TRANSFER OF PROPERTY ACT, 1882
6. What may be transferred.—Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force,—
(a) The chance of an heir-apparent succeeding to an estate, the chance of a relation obtaining a legacy on the death of a kinsman, or any other mere possibility of a like nature, cannot be transferred;
(b) A mere right of re-entry for breach of a condition subsequent cannot be transferred to any one except the owner of the property affected thereby;
(c) An easement cannot be transferred apart from the dominant heritage;
(d) All interest in property restricted in its enjoyment to the owner personally cannot be transferred by him; 1[(dd) A right to future maintenance, in whatsoever manner arising, secured or determined, cannot be transferred;]
(e) A mere right to sue [***] cannot be transferred;
(f) A public office cannot be transferred, nor can the salary of a public officer, whether before or after it has become payable;
(g) Stipends allowed to military naval, air-force  and civil pensioners of the Government and political pensions cannot be transferred;
(h) No transfer can be made (1) in so far as it is opposed to the nature of the interest affected thereby, or (2) for an unlawful object or consideration within the meaning of section 23 of the Indian Contract Act, 1872 (9 of 1872), or (3) to a person legally disqualified to be transferee;
(i) Nothing in this section shall be deemed to authorise a tenant having an untransferable right of occupancy, the farmer of an estate in respect of which default has been made in paying revenue, or the lessee of an estate, under the management of a Court of Wards, to assign his interest as such tenant, farmer or lessee.
 
SECTION 130 OF TRANSFER OF PROPERTY ACT,1882-
 
Transfer of actionable claim.—
(1) The transfer of an actionable claim whether with or without consideration shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent,shall be complete and effectual upon the execution of such instruments, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not:
Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer.
(2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor’s consent to such suit or proceeding and without making him a party thereto.
(Exception) —Nothing in this section applies to the transfer of a marine or fire policy of insurance or affects the provisions of section 38 of the Insurance Act, 1938 (4 of 1938).
 
Illustrations
(i) A owes money to B, who transfers the debt to C. B then demands the debt from A, who, not having received notice of the transfer, as prescribed in section 131, pays B. The payment is valid, and C cannot sue A for the debt.
(ii) A effects a policy on his own life with an Insurance Company and assigns it to a Bank for securing the payment of an existing or future debt. If A dies, the Bank is entitled to receive the amount of the policy and to sue on it without the concurrence of A’s executor, subject to the proviso in sub-section (1) of section 130 and to provisions of section 132.
Please Note that Section 6(e ) of the Transfer of Property Act,1882-specifically provides that right to sue cannot be transferred. A transfer or assignment of a mere right to sue for compensation will be invalid having regard to Section 6(e) of Transfer of Property Act, 1882 .
But when a “ Letter of Subrogation-cum-assignment” is executed the assignment is interlinked with subrogation , and not being an assignment of  mere right to sue, will be valid and enforceable as held in [Ecomonic Transport Organisation Vs. CharanSppinning Mill (P) Ltd. 2010 ACJ 2288].
PLEASE NOTE THAT- The assured has not right to deny the equitable right of subrogation of the insurer in accordance with law, even whether there is no writing to support it.
 
But the assured whose claim is settled by the insurer , only in respect of a part of the loss ,may insist that when compensation is recovered from the wrongdoers ,he will first appropriate the same, to recover the  balance of loss. The assured will also refuse to execute subrogation-cum-assignment in favour of insurer, because this instrument takes away his right to receive the loss in recoveries from the wrongdoers.
 
once a subrogation is reduced to writing, the rights inter-sue between the assured and insurer will be regulated by the terms agreed, which is a matter of negotiations between the assured and the insurer.
 
PLEASE NOTE THAT
Whether document executed by the assured in favour of the insurer is a subrogation simplicitor or a Subrogation-cum assignment is relevant only in a dispute between the assured and the insurer. It may not affect the maintainability of complaint against the third parties or wrongdoers.
If the complaint is filed by the assured ( who is a consumer) , or the assured represented by the insurer as its attorney holder, or by the assured and the insurer jointly is complainants , the complaint will be maintainable, if the presence of insurer is explained as being subrogee. Whether amount claimed is the total loss or only the amount for which the claim was settled would make no difference for the maintainability f the complaint, so long as the assured(the consumer) is the complainant( either personally or represented by the attorney holder) or is a co-complainant along with his subrogee( the insurer). On the other hand if the assured(the consumer ) is not the complainant, and the insurer alone files the complaint in its own name, the complaint will not be maintainable , as the insurer is not a consumer , nor a person who are included in the definition of “ Complainant” under the Consumer Protection Act.
The fact that it seeks to recover from the third parties (service providers) only the amount paid to the assured and not any amount in excess of what was paid to the assured will also not make any difference, if the assured is not the complainant or co-complainant.
The complaint will not be maintainable unless the requirements of the Consumer Protection Act has been fulfilled.
So for any complaint to be filed before Consumer Forums for recovery of any sum by the insurer to the insured to indemnified him against loss occurred due to act of third parties (wrongdoers) will be maintainable only ,when insured ( the consumer) will be a party to the complaint or he singly or as a co-complainant along with insurer lodge the complaint.
CONCLUSION: from above discussion we conclude that subrogation is an inherent right of insurer to claim amount  paid to indemnify the assured against loss occurred. An insured cannot deny the right of subrogation of an insurer ,whether there is an instrument in writing or not or claim is settled by the insurer partly or fully. On the other hand an assignment is transfer of rights of the insured to the insurer or third party in the insurance policy and after assignment the insured has left nothing in the insurance policy. In case of subrogation an insurer file complaint or sue the wrongdoers in the name of the insured only and on other hand in assignment insurer can sue in its name. Since Section 6(e ) of the Transfer of Property Act, 1882 provides that a mere right to sue cannot be transferred, then the validity of transfer will depend upon the nature and wording of documents entered between the insured and the insurance company. If there is an Subrogation-cum -assignment agreement then  it will be covered by Section 130 of the Transfer of Property Act, 1882 and valid. It will be noted that for filing any complaint in consumer forums ,it is necessary to have insured as a party, since insured is the ultimate consumer and considered as “ Complainant”.
  1. UNDERSTANDING PROCESS OF UNDERWRITING IN INSURANCE
Insurance is used to hedge against the risk of a contingent loss triggered by a physical, human or natural peril. The insured transfers a defined risk of a loss in exchange for a premium, which is an insurance rate used to determine the amount to be charged for a certain amount of insurance coverage. An insured is thus said to be “indemnified” against the loss events covered in the policy.
Insurers underwrite risks within clear constraints. Their available equity or surplus is limited and thus the risk-taking capacity cannot exceed a certain amount. Also, certain regulatory and legal limitations apply, especially in emerging and developing countries. Risks that qualify for underwriting must be diligently assessed, rated and priced.
Any insurance company relies on an underwriting philosophy, and is confronted with specific market conditions. The market conditions are defined by the insurance cycle. The degree of understanding of the insurance cycle will influence the risk appetite of the insurer and insured.
You know that “ Underwriting” is the most important part of issue of an insurance policy by the insurer. During underwriting process an insurer will critically analyse data and details available related to a proposed risk by the prospects. It access ,whether it can accept the risk or not on the basis of details available and the amount of premium to be charged based on future impact of risk if materialises. An insurer through underwriting process accesses the risk volume and decide to share risk with other insurers also.
In underwriting process , insurer evaluate the risk and exposure of potential clients. They first decide whether to accept the risk or not. If the risk is to be accepted, they decide how much coverage the client should receive and how much they should pay for it. Underwriting involves measuring the risk exposure and determining the premium that needs to be charged to insure that risk. The main functions of underwriters are to acquire or to write business that will bring money to the insurance company and to protect the company business, from risks that the underwrite.
UNDERWRITER;The term “underwriter” can refer to the underwriting department within an insurance company, or to a company as a whole. The underwriting company on an insurance policy is the one accepting the risk and agreeing to pay any claims that arise. An insurance company having a separate department engaged qualified professionals, whose works are to analyse every proposal brought by sales team to access risk involved, to decide whether to accept the risk or decline the same and in case of acceptance the amount of premium to be charged from the client.
INVESTOPEDIA; “Underwriting is the process through which an individual or institution takes on financial risk for a fee. This risk most typically involves loans, insurance, or investments. The term underwriter originated from the practice of having each risk-taker write their name under the total amount of risk they were willing to accept for a specified premium. Underwriter access degree of risk of an insurer business. They help insurers to set right premium for a risk.”
WIKIPEDIA:  “Insurance underwriters evaluate the risk and exposures of potential clients. They decide how much coverage the client should receive, how much they should pay for it, or whether even to accept the risk and insure them. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk. The function of the underwriter is to protect the company’s book of business from risks that they feel will make a loss and issue insurance policies at a premium that is commensurate with the exposure presented by a risk.
Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not the company should accept the risk. The information used to evaluate the risk of an applicant for insurance will depend on the type of coverage involved.
For example, in underwriting automobile coverage, an individual’s driving record is critical. However, the type of automobile is actually far more critical. As part of the underwriting process for life or health insurancemedical underwriting may be used to examine the applicant’s health status (other factors may be considered as well, such as age & occupation). The factors that insurers use to classify risks are generally objective, clearly related to the likely cost of providing coverage, practical to administer, consistent with applicable law, and designed to protect the long-term viability of the insurance program.”
Each insurance company has its own set of underwriting policy to help the individual underwriters. To determine whether or not the company should accept a certain risk on an offer.
The underwriters may either decline the risk or may provide a quotation in which the premiums have been suitably loaded or in which ,various exclusions have been stipulated, which restrict the circumstances under which a claim could become payable. Depending up upon type of insurance product(line of business), insurance insurance companies now using automated underwriting systems to reduce manual works and mistakes while calculating value of risk and fixing of premium rates.
LET’’S CONSIDER UNDERWRITING PROCESS IN CASE OF A MOTOR POLICY
Various underwriting factors should be considered by an insurer before concluding a motor vehicle insurance contrct. The underwriting factors relate to the particulars of the proposer, as well as the details concerning the motor vehicle.
The main underwriting factors are;
  1. Drivers of motor vehicles are usually classified into different grouping, where younger drivers are commonly viewed as higher risk. When this underwriting factor is used to determine the acceptability of a proposer, it may represent a form of discrimination, as people do not have direct control over their age . The age of a proposer for motor vehicle insurance may however be perceived as a proxy for maturity, indicating differences in responsible. When used as a guideline rather than a central underwriting variable, the age of a proposer should be of big value to an insurer.
  1. To use sex as an underwriting factor may be regarded as discriminatory, because people cannot choose their sex. Men are sometimes viewed as a higher risk and therefore have to pay a higher premium to counter the higher risk. This rationale may be seen as unacceptable in the current society where everybody, irrespective of their sex, is perceived to be equal. To be reasonable, sex may only be employed as an underwriting factor when it can be proved that men cover more mileage than women, and are therefore expose to more risk.
  1. Marital status of the proposer-the use of marital status as a rating variable in motor vehicle insurance may also lead to the conclusion that single persons are more irresponsible compared to married people. Marital status is sometimes regarded as a measure of maturity as married people are seen to be more settled down and responsible. These views discriminate against homosexual and single people, as marriage is a personal choice or belief. Insurers should be very careful to use marital status as an underwriting factor because that may be perceived by the civil society as being discriminatory.
  1. Driving history of the proposer- the driving history of a proposer may help an insurer to determine the level of associated risk. The rationale of considering the previous driving history is that driving habits may be indicated by past traffic offences and convictions.
  1. On the other hand, Butler and Butler have recognised in their study that there are no safe drivers, because accidents and traffic violations occur randomly due to the possibility that particular detrimental conditions may exist at that point in time . It should also be considered that the information is not always reliable or complete, and that external forces which are out of the driver‘s control, may cause the accident. Conclusions about a proposer‘s driving history may be problematic and should therefore be carefully evaluated by an insurer whenever it is considered as an underwriting factor in motor vehicle insurance.
  1. The address of the proposer indicates the territory in which the motor vehicle will mainly be used. As each territory has its own characteristics relating to different traffic conditions and density, as well as different population concentrations, studies showed that territory is often a very valuable rating factor when underwriting motor vehicle insurance.
  1. A proposer‘s attitude towards risk and insurance in general is an important underwriting factor in motor vehicle insurance. An insurer is however at an informational disadvantage as proposers may tend to underreport their history involving insurance in general. Although the basic principle of utmost good faith stipulates that all material information must be forwarded by the insured to enable the insurer to make an informed decision, policyholders switching to another insurer may not be the best proposers and perhaps not disclosing all relevant facts about their insurance history.
  1. An prerequisite for all first party proposers of motor vehicle insurance is that they should have an insurable interest in the subject matter. An insurable interest exists when a legal or financial relationship is found between the proposer and the subject matter of the insurance, and when the proposer will experience a financial loss if the subject matter is damaged. No claim will be paid by an insurer if an insurable interest is not present.
  1. Every motor vehicle will have a description of use in the particular insurance policy. Usually there are a few categories, like use for personal, business or farming purposes. The description of use is an indication of the level of risk associated with the employment of the motor vehicle and is also an indication of the mileage to be covered within a year.
  1. The particulars of the motor vehicle represent the characteristics thereof which make the vehicle different from other motor vehicles. This section therefore focuses on the type of the motor vehicle and the associated value, the age of the vehicle and the safety features added to protect the passengers and the motor vehicle. The type and the associated value of the motor vehicle are two underwriting factors which can be easily determined.
  1. There are various safety features to protect the motor vehicle against theft and break-ins, for example the fitting of gear locks, alarm systems, anti-hijacking systems and tracking devices. While underwriting a motor vehicle, an insurer should take these safety features into consideration when deciding whether to underwrite, and should he decide to underwrite, under which conditions and at what premium.
A motor insurance policy will be decided on above mentioned factors. PLESE note that factors mentioned above are not exhaustive an insurer may consider other factors according their SOP ad Motor Insurance Internal Guidelines.
Underwriting guidelines include the following elements:
  1. Underwriting Data Requirements for Risk Assessment / Risk Rating.
  2. Interests Insured and Insurance Options.
  3. Coverage (Limits, Deductibles), Terms & Conditions, Exclusions.
  4. Capacity, Pricing, Processes and Acceptance
  5. Accumulation Controls, Natural Catastrophe (Nat Cat) Exposure.
THE UNDERWRITER’S MAXIM
  1. Maintain a regular review of the existing portfolio rates and terms to ensure that the insurer;
a. Achieves maximum profitability;
b. Does not lose quality business;
c. Dear appropriately with poor quality business.
  1. Obtain quality new business at terms which are designed to contribute to profit of the company;
  1. Obtain information/feedback from customers, intermediaries and. The market in general , to ensure that products , terms ,development and profitability are maintained at optimum level;
  1. Develop new products/product extensions , which can be successfully sol to existing customers , strengthening existing relationships and achieving maximum premium growth from organic growth;
  1. Identify target segments of the market which will contribute to building of a profitable, quality portfolios;
  1. Maintain robust inspection/survey programmes for existing portfolios;
a. Ensuring that portfolio quality is maintained and policy terms are related to the quality of the risk.
b. Providing risk improvement advice to customers, where applicable.
  1. Develop streamlined system at minimum expense,, to achieve the maximum degree of account and service to customers.
  1. CONCEPT OF “ ACTUARY” & “ACTUARIAL RISK”
As you are aware that an “Actuary “plays an important part in the insurance sector and he/she is well decorated and trusted professional. Actuaries analyse the financial costs of risk and uncertainty. They use mathematics, statistics, and financial theory to assess the risk of potential events, and they help businesses and clients develop policies that minimize the cost of that risk. Actuaries’ work is essential to the insurance industry.
DEFINITIONS:
Cambridge Dictionary Defines-“a person who calculates how likely accidents, such as fireflood, or loss of property, are to happen, and tells insurance companies how much they should charge their customers”.
Wikipedia Defines – “An actuary is a business professional who deals with the measurement and management of risk and uncertainty. The name of the corresponding field is actuarial science. These risks can affect both sides of the balance sheet and require asset managementliability management, and valuation skills. Actuaries provide assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms.
While the concept of insurance dates to antiquity, the concepts needed to scientifically measure and mitigate risks have their origins in the 17th century studies of probability and annuities. Actuaries of the 21st century require analytical skills, business knowledge, and an understanding of human behavior and information systems to design and manage programs that control risk.
The Institute of Actuaries of India – “Actuary” means a person skilled in determining the present effects of future contingent events or in finance modelling and risk analysis in different areas of insurance, or calculating the value of life interests and insurance risks, or designing and pricing of policies, working out the benefits recommending rates relating to insurance business, annuities, insurance and pension rates on the basis of empirically based tables and includes a statistician engaged in such technology, taxation, employees’ benefits and such other risk management and investments and who is a fellow member of the Institute.
MAIN ACTIVITIES OF AN ACTUARY– Traditional responsibilities of Actuaries in life and general insurance business include designing and pricing of policies, monitoring the adequacy of the funds to provide the promised benefits, recommending fair rate of bonus where applicable, valuation of the insurance business, ensuring solvency margin and other insurance risks like legal liability, loss of profit, etc.
They also define the risk factors, advise on the premia to be charged and re-insurance to be purchased, calculate reserve for outstanding claims and carry out financial modelling.
An Actuary works as consultant either individually or in partnership with other Actuaries in multi-disciplines life insurance, information technology, taxation, employees’ benefit, risk management, investment, etc. Evidently, the scope of the functions and duties of an Actuary has increased considerably under the changed conditions.
LET’S SUMMARISED   functions of an Actuary;
a) Actuaries Make Financial Sense of the Future;
Actuaries are experts in assessing the financial impact of tomorrows uncertain events. They enable financial    decisions to be made with more confidence by:
· Analysing the past
· Modelling the future
· Assessing the risks involved, and
· Communicating what the results mean in financial terms.

b) Actuaries Enable More Informed Decisions:

Actuaries add value by enabling businesses and individuals to make better- informed decisions, with a clearer view of the likely range of financial outcomes from different future events.

The actuaries’ skills in analysis and modelling of problems in finance, risk management and product design are used extensively in the areas of insurance, pensions, investment and more recently in wider fields such as project management, banking and health care. Within these industries, actuaries perform a wide variety of roles such as design and pricing of product, financial management and corporate planning.
Actuaries are invariably involved in the overall management of insurance companies and pension, gratuity and other employee benefit funds schemes; they have statutory roles in insurance and employee benefit valuations to some extent in social insurance schemes sponsored by government.
Actuarial skills are valuable for any business managing long-term financial projects both in the public and private sectors.
Actuaries apply professional rigor combined with a commercial approach to the decision -making process.
c) Actuaries Balance the Interests of AllActuaries balance their role in business management with responsibility for safeguarding the financial interests of the public. The duty of Actuaries to consider the public interest is illustrated by their legal responsibility for protecting the benefits promised by insurance companies and pension schemes. The professions code of conduct demands the highest standards of personal integrity from its members.
APPOINTMENT AND FUNCTIONS OF AN ACTUARY IN INSURANCE COMPANY:
It means a person who compiles and analyses statistics and uses them to calculate insurance risks and premiums.
“ACTUARY” is a well-known word in insurance industry. An Actuary is an appointed and most important officer of an Insurance Company. An Appointed Actuary have specified qualification and should be a member of Institute of Actuaries of India. As per IRDAI Regulations, every Insurance Company is required to appoint and Actuary possessing specified qualification and experience.
REGULATION 2 OF IRDAI (APPOINTED ACTUARY) REGULATIONS ,2017
 ii) “Actuary” means an actuary as defined in clause (a) of sub-section (1) of section 2 of Actuaries Act 2006;
iii. “Appointed Actuary” means an actuary mentioned in Regulation 3 below;
 
REGULATION 3. PROCEDURE FOR APPOINTMENT OF AN APPOINTED ACTUARY.
A. An insurer registered to carry on insurance business in India shall, subject to sub-regulation (B) and sub-regulation (F) appoint an actuary, who shall be known as the ‘Appointed Actuary’ for the purposes of the Act.
B. A person shall be eligible to be appointed as an Appointed Actuary for an insurer, if he or she is:
i. Ordinarily resident in India;
ii. A Fellow member in accordance with the Actuaries Act, 2006;
iii. A Fellow member satisfying the following requirements in case of a Life insurer:
a. Passed specialization subject in life insurance. Currently, the specialization shall mean Specialist Application-level subject as prescribed by the Institute of Actuaries of India.
b. Relevant experience of at least 10 years in life insurance industry out of which at least 5 years shall be post fellowship experience.
c. The applicant shall have at least 3 years post fellowship experience in annual statutory valuation of a
life insurer.
iv. A Fellow member satisfying the following requirements in case of a general insurer or reinsurer:
a. Passed specialization subject in general insurance. Currently, the specialization shall mean Specialist Application-level subject as prescribed by the Institute of Actuaries of India.
b. Relevant experience of at least 7 years in general insurance industry out of which at least 2 years shall be post fellowship experience.
c. The applicant shall have at least 1 year post fellowship experience in annual statutory valuation of a
general insurer.
v. A Fellow member satisfying the following requirements in case of a health insurer:
a. Passed specialization subject in health or general insurance. Currently, the specialization shall mean Specialist Application-level subject as prescribed by the Institute of Actuaries of India.
b. Relevant experience of at least 7 years in health or general insurance industry out of which at least 2 years shall be post fellowship experience.
c. At least 1-year post fellowship experience shall be in respect of annual statutory valuation of a health
insurer or a general insurer.
vi. An employee of the insurer;
vii. A person who has not committed any breach of professional or other misconduct;
viii. Not an appointed actuary of another insurer in India;
ix. A person who possesses a Certificate of Practice issued by the Institute of Actuaries of India;
x. Not over the age of 65 years.
REGULATION 8. POWERS OF APPOINTED ACTUARY:
A. An Appointed Actuary shall have access to all information or documents in possession, or under control, of the insurer if such access is necessary for the proper and effective performance of the functions and duties of the Appointed Actuary.
B. The Appointed Actuary may seek any information for the purpose of sub-regulation (A) of this regulation from any officer or employee of the insurer.
C. The Appointed Actuary shall be entitled:
(i) to attend all meetings of the management including meeting of the directors of the insurer;
(ii) to speak and discuss on any matter, at such meeting, —
a. that relates to the actuarial advice given to the directors;
b. that may affect the solvency of the insurer;
c. that may affect the ability of the insurer to meet the reasonable expectations of policyholders; or
d. on which actuarial advice is necessary.
(iii) to attend, —
a. any meeting of the shareholders or the policyholders of the insurer; or
b. any other meeting of members of the insurer at which the insurer’s annual accounts or financial statements are to be considered or at which any matter in connection with the Appointed Actuary’s duties is discussed.
REGULATION 9. DUTIES AND OBLIGATIONS. — 
In particular and without prejudice to the generality of the foregoing matters, and in the interests of the insurance industry and the policyholders, the duties and obligations of an Appointed Actuary of an insurer shall include: —
(i) Ensuring that all the requisite records have been made available to him or her for the purpose of conducting actuarial valuation of liabilities and assets of the insurer;
(ii) Rendering actuarial advice to the management of the insurer, in particular in the areas of product design and pricing, insurance contract wording, investments and reinsurance;
(iii) Ensuring the solvency of the insurer at all times;
(iv) Complying with the provisions of the section 64V of the Act in regard to certification of the assets and
liabilities that have been valued in the manner required under the said section;
(v) Complying with the provisions of the section 64 VA of the Act in regard to maintenance of required control level of solvency margin in the manner required under the said section;
(vi) Drawing the attention of management of the insurer, to any matter on which he or she thinks that action is required to be taken by the insurer to avoid–
(a) Any contravention of the Act; or
(b) Prejudice to the interests of policyholders;
(vii) Complying with the Authority’s directions from time to time;
(viii) Ensuring that overall pricing policy of the insurer is in line with the overall underwriting and claims management policy of the insurer;
(ix) Ensuring adequacy of reinsurance arrangements;
(x) Contributing to the effective implementation of the risk management system;
(xi) Complying with the provisions of section 21 of the Act in regard to further information required by the Authority;
(xii) In addition to the above, the duties of an Appointed Actuary of an insurer carrying on life insurance business shall include:
a. Certifying the actuarial report and abstract and other returns as required under section 13 of the Act;
b. Complying with the provisions of the section 112 of the Act in regard to recommendation of interim bonus or bonuses payable by life insurer to policyholders whose policies mature for payment by reason of death or otherwise during the inter-valuation period;
c. Complying with section 40B & 40C of the Act;
d. Ensuring that the premium rates of the insurance products are fair;
e. Certifying that the mathematical reserves have been determined taking into account the guidance
notes issued by the Institute of Actuaries of India and any directions given by the Authority;
f.  Ensuring that the policyholders’ reasonable expectations have been considered in the matter of valuation of liabilities and distribution of surplus to the participating policyholders who are entitled for a share of surplus;
g. Submitting the actuarial advice in the interests of the insurance industry and the policyholders;
h. Coordinating the calculation of mathematical reserves;
i. Ensuring the appropriateness of the methodologies and underlying models used, as well as the assumptions made in the calculation of mathematical reserves;
j. Assessing the sufficiency and quality of the data used in the calculation of mathematical reserves;
k. Informing the Board of insurer about the reliability and adequacy of the calculation of mathematical reserves.
(xiii) In addition to (i) to (xi) above, the duties of the Appointed Actuary of the insurer carrying on general insurance business or health insurance business include:
a.  Ensuring that the premium rates of the insurance products are fair;
b. Ensuring that the actuarial principles, in the determination of liabilities, have been used in the calculation of reserves for incurred but not reported claims (IBNR) and other reserves (including incurred but not enough reported claims (IBNER) and premium deficiency reserve (PDR) where actuarial advice is sought by the Authority;
c. Complying with section 40B & 40C of the Act;
d. Coordinating the calculation of IBNR and other reserves (including IBNER and PDR) where actuarial advice is sought by the Authority;
e. Ensuring the appropriateness of the methodologies and underlying models used, as well as the assumptions made in the calculation of IBNR and other reserves (including IBNER and PDR) where actuarial advice is sought by the Authority;
f. Assessing the sufficiency and quality of the data used in the calculation of IBNR and other reserves (including IBNER and PDR) where actuarial advice is sought by the Authority;
g. Informing the Board of insurer about the reliability and adequacy of the calculation of IBNR and
other reserves (including IBNER and PDR) where actuarial advice is sought by the Authority.
(xiv) informing the Authority in writing of his or her opinion, within a reasonable time, whether,
a. the insurer has contravened the Act or any other Acts;
b. the contravention is of such a nature that it may affect significantly the interests of the owners or beneficiaries of policies issued by the insurer;
c. the directors of the insurer have failed to take such action as is reasonably necessary to enable him to exercise his or her duties and obligations under this regulation; or
d. an officer or employee of the insurer has engaged in conduct calculated to prevent him or her exercising his or her duties and obligations under this regulation.
(xv) If an Appointed Actuary is disqualified to act as an Actuary, he/she ceases to exist as Appointed Actuary forthwith;
(xvi) While carrying out his/her duties and obligations, the Appointed Actuary shall pay due regard to generally accepted actuarial principles and practice.
10. ABSOLUTE PRIVILEGE OF APPOINTED ACTUARY.
A. An Appointed Actuary shall enjoy absolute privilege to make any statement, oral or written, for the purpose of the performance of his functions as Appointed Actuary. This is in addition to any other privilege conferred upon an Appointed Actuary under any other Regulations.
B. Any provision of the letter of appointment of the Appointed Actuary, which restricts or prevents his duties, obligations and privileges under these regulations, shall be void.
RISK MANAGEMENT AND ROLE OF AN ACTUARY- Risk management is used to assist organisations to avoid, reduce the likelihood of, or minimise the impact of, events that might otherwise cause them significant harm, whether that be financial, reputational or any other damage.
In essence, risk management is an important tool to reduce losses, control uncertainty and optimise decision making to improve performance.
Actuaries are skilled professionals whose comprehensive training includes the use of statistical analysis to understand risks and uncertainties. They are therefore well placed to support organisations’ risk management efforts. However, an actuarial approach to risk management places a particular focus on measuring and understanding the impact of risks, both positive and negative, on the outcomes experienced and considering how the risks and their impacts may evolve over time.
Where appropriate an actuarial approach will place financial values on risk. In particular an actuarial approach considers risks more broadly, seeking to understand the range of potential impacts and the interaction of risks, rather than adopting a distinct impact and probability for each risk separately.
Actuarial risk analysis is not just based on short-term horizons but may extend many decades into the future when necessary. This focus on understanding long term impacts allows decision makers to better understand the typical range within which outcomes are expected to lie, as well as appreciating the potential impacts of more extreme events occurring.
The training and experience actuaries receive provides them with a uniquely broad-based combination of skills suited to risk management, allowing them:
  • To explore the full range of risks that might affect an organisation;
  • To quantify risks and their implications in the short and long terms;
  • To quantify the value of any mitigation versus the cost of undertaking it;
  • To illustrate the range of possible outcomes;
  • To link financial and non-financial factors, such as the social and environmental impact for example from rising global temperatures;
  • To integrate risk analysis into the wider economic business management process; and
  • To communicate the risks to decision makers in a balanced and effective way.
Risk managers cannot be experts in all areas where risks to an organisation may develop. They must discuss risks with the stakeholders and gather other experts’ views of known and emerging risks. By gathering as much robust and relevant data/information as possible on the risks that exist, they can build up a more accurate picture of the drivers for risks and their likelihood and potential impact. This then allows for more informed choices about which risks are more or less important to study further. The more we can prioritise the risks that really matter to the stakeholders under consideration, the better the decision-making process will be for managing those risks.
Actuaries are involved in almost all key functions of an insurance company, such as Product Development, Underwriting, Pricing, Reserving, Valuation of Insurance Business, Investment and estimation of Solvency Margin of the Insurance Company, etc. They are making certain vital assumptions, carrying our necessary analysis and reports and provide valuable information and advices to the top management of the company.
What are actuarial errors or mistakes, it may be any deviation of actual results from the expected outcomes or errors or mistakes in actuarial calculations, while assumptions made while designing products or determining premium rate for a product, inadequate data leading to wrong interpretation or conclusions etc.,
Actuaries are made some vital assumptions with reference to mortality, interest rate forecast and expense calculations in developing a life /general insurance product. At later stage if any assumptions go wrong, that would lead to Actuarial Risk.
Proper assumptions and estimations of various factors affecting launch of new product or while deciding rate of premium for product is essential to succeed that product and bring competition in the market.
It is also duty of an Actuary to estimate the expected value of claims and the probability of occurrence of claims to a reasonable level of accuracy, while estimating the premium rates for a general insurance product. For process of estimation an Actuary required authenticated, reliable and true data. An Actuary is also involved in estimating the outstanding claims liability including IBNR and IBNER to ensure adequate provisions of reserves are made to make payments for future claims liabilities. If any of these estimates or assumptions goes wrong then there may be liquidity or pricing risk for the company.
The Actuaries are also involved in estimating the Solvency Margin of an Insurance Company and ensure that the company complied with the regulatory solvency ratio 1.5 times at all time.
ACTUARIAL RISK MANAGEMENT PRINCIPLES
No addition can be done against the fictitious entry in the books of accounts
KEY FACTORS INFLUENCING ACTUARIAL RISKS;

 

No addition can be done against the fictitious entry in the books of accounts

 

We know that an Actuary is involved generally all decision-making steps in an Insurance Company, from product development to the estimating and maintaining Solvency Margin. Any estimate or assumptions if any deviates from actuals as estimated would give raise of actuarial risk.
  1. PRODUCT RISK;
Actuaries have to make certain product assumptions, while developing a product relating to life or general insurance.
Suppose if insurance company wants to introduce new product in the market, then actuary has to estimate the mortality rate of the target customers to whom the product is being designed, the appropriate amount of expenses the product is likely to incur over the policy period, the overall administrative and marketing expenses that the insurer has budgeted to assume for the product and rate of return that the investment of policy fund is likely to generate for the policy period, etc.
In case of Health Insurance Product an Actuary has to estimate or assume morbidity rate for targeted segment of the policy. If any of these estimates goes wrong or actual result is drastically different from the expected (assumed) outcomes, which would trigger Product Risk.
  1. MORTALITY RISK;
Refers to rate of people dying upon the total number of lives exposed to risk in every age or age group.
MORTALITY RATE=Number of people dying at age(dx)/ Number of people living or surviving at age (lx)
i.e., Mortality Rate=dx/lx
The Mortality is most commonly presented in the form of a life table or mortality table which represents the probability of person dying at age(x) before attaining age (x+1). The probabilities are worked out generally based on the historical experience of policyholders who had already been insured with particular insurance company.
Thus, the mortality rate is estimated for every age/age group individually. Generally, the mortality rate is calculated based on the mortality investigation carried out by the life insurer once every periodical interval. The result of such mortality investigation is used for monitoring the assumptions made by the Actuary at the time of pricing of the product.
The Actuary has to estimate the mortality rate of the target customers to whom the product is being designed. He/she has to look at the risk profile of the existing policyholders, who have already been insured with the company for a similar product, if similar experience product is available in the market. If relative data is not available with the company, or the product being developed for new risk, then he/she has to look at certain secondary data available at some reliable sources such as Statistics from Government Department or Ministry of Health, Indian Medical Association, other research papers etc., and make necessary assumptions regarding the current status of mortality rate. Suppose is required, reliable, authenticated date is also not available with the secondary source. Then assumptions or estimations made by Actuary may goes wrong and this will be called as Mortality Rate Risk.
  1. MORBIDITY RISK;
Refers to rate of people falling sick upon total number of people lives exposed to risk in every age or age group. This is also called “Sickness Rate”.
The Morbidity Rate is used in developing a Health Insurance Policy either for individual customers or group policy for Corporate Customers. Morbidity or Sickness Rate is one of the primary parameters used in estimating premium rates for a new risk for which there are no historical data available from where claim cost can be estimated. If an insurance company wants to develop a new product targeting a new customer segment for which there are no policies available at present. In such case the company would use the morbidity data collected from certain public ally available sources like Hospitals, Indian Medical Research Council, Department of Health, data from Government of India, etc.
The Morbidity Rate is estimated for each individual age or age group of proposed customer segment or group of customers for a mass group of customers. An Actuary uses data available with secondary sources for calculating premium for new products and any deviations from the actuals would lead to Morbidity Risk.
  1. BURNING COST;
Refers to cost of claims and loss allocated expenses and it is the ratio of cost of claims to the premium.
The Burning Cost is estimated by multiplying the claims frequency and claims severity.
Claims Frequency; refers to Number of Claims and the
Claims Severity; refers to Average Claims Cost which is arrived at by dividing the total amount of claim cost by the number of claimants.
The Burning Cost is also called as “PURE PREMIUM” as it is the ratio of claim to the rate of premium and it is the rate where premium is equal to the cost of claim before adding any of the expenses like management expenses and profit margin.
We required two parameters to estimate Burning Cost:
  1. Claim Frequency;
  2. Claim Severity.
Methods of calculating Burning Cost;
Burning Cost=Claim Frequency Average Claim Amount; or
Burning Cost=Average Claim Amount Claims Incident rate; or
Burning Cost= Expected Claim Frequency Per Policy X Expected Cost Per Claim or Average Exposure Per Policy.
The correct estimation of above terms and necessary and important and hence, there may be risk involved if we have made wrong estimate.
 
  1. PRICING RISK;
Pricing refers to the process of arriving at the premium rate for the risk that the insurer wants to cover. The process of Premium determination varies drastically for life insurance and general insurance. In case of life insurance, the factors considered for premium are the mortality rate, rate of return the policy or the portfolio is expected to earn during the policy period (Term of the Policy) and the expenses that the insurer incur from procuring the business to settlement of claim or maturity of the policy.
The basic process of pricing involves determining the probability of occurrence of risk and if the insured risks occur, then the insurer has to estimate the expected value of risk/loss that he has to indemnify to the insured or policyholder.
Payment of losses or claims depends on two random variables. The first is the number of losses that may or may not occur during a specified policy period.
Let’s us suppose an insured for health policy has not claimed any amount during some years of the policy, but in third year he has lodged claims in two or three times during previous year. This random valuation is called “Frequency of Claims or Losses” and the second random variable is the amount of loss or Severity of Claim that the insurer has to pay to the insured on occurrence of insured event. The amount of loss is referred as the Severity.
The expected value of claims can be estimated by combining the possibility of occurrence of loss/frequency of claim and the amount of loss or severity of claims during the policy period.
Since the concept of insurance is based on the concept of pooling of risks of many to pay the claims of few insured, who has suffered insured loss. So proper estimate is required and any wrong estimate leads to Pricing Risk.
  1. SOLVENCY RISK;
Solvency refers to insurer’s financial ability to meet the liabilities including claims liabilities arising from the insurance business underwritten.
Solvency Ratio is indicator disclosing the financial health of the insurers. The Solvency Ratio is the ratio is the ratio of Available Solvency Margin (ASM) to Required Solvency Margin (RSM) and the Solvency Ration should be at least 1.50 at all times, as per IRDAI Regulations. It means that your assets should be 1.50 times of your liabilities at all times. Lower Solvency Ratio leads to takeover and cancellation of certificate of registration of insurance company by the regulator and more Solvency ratio indicates poor allocation of resources by the company i.e., poor Capital Gearing Ratio.
The value of Available Solvency Margin= Assets-Liabilities
The value of assets and liabilities are estimated through the process of valuation. The under or over valuation of assets and liabilities will affect the ASM. The valuation of claims liabilities includes not only current year’s liability but also the future liabilities including IBNR and IBNER. Improper estimates of such liabilities or inadequate or overprovision of IBNR and IBNER would impact the Solvency Margin of the company.
The Solvency of insurer would be greatly influenced by various factors like, Capital Gearing Ratio, keeping higher level of Solvency than required, similarly maintaining just the minimum required Solvency Level may also be risky. Suppose in case of any catastrophe strikes in a year, the Solvency of the company would be in trouble, poor quality of underwriting, having higher level of exposure limit, high concentration of risk in certain areas which are catastrophic prone, inadequate reserving, etc., would affect Solvency to a greater extent.
CONCLUSION – we have just passed through a very dangerous and turbulent phase of World Pandemic, COVID-19, which has derailed the whole world and claimed lives of more than 50.00 Lakhs of people. All establishments have closed due to lock-down all over the world, businesses, shops, schools, colleges, Malls, etc. have been completely closed due to that COVID-19.
An insurance company just as a banking company deals with the money of public and amassing huge cash received as a premium from their policyholders. The protect their policyholders from various types of perils, they agreed for against payment of small premium as consideration. The insurance works on the basis of collection of premiums from large number of people and payment for few sufferings from insured perils. Thus, for an insurance company the most important work is to manage various types of risks. They need experts for assessment, analysing and management of risks. An actuary plays an important role in this regard, they are experts in statistics, mathematics, science, calculations and estimations and risk management. They provide expert advice to the management based on their skills and data analysis and are responsible to protect the financial viability of an insurance company.
  1. SOME FACTS RELATED TO A “COVER NOTE OR INTERIM RECEIPT” UNDER INSURANCE
As you are aware that a” Cover Note or Interim Receipt”, is a documents issued by the insurers during negotiations stage for an insurance to a person proposing to insure with them , by which they acknowledge receipt of payment in respect of premium and undertake to hold him indemnified until they have elided whether to accept his proposal or not.
Simply cover note generally issued to acknowledge that proposal of insurance is pending with the insurance company and from the date of issue of cover note , till the date of issue of insurance policy the insured will be covered though cover note. Generally when a prospects submits its proposal for insurance with insurance company, the insurance company on thee basis of declaration made an documents submitted by the prospects critically analyse the risk associated with the proposal and decide whether to accept the proposal or not and the amount of premium to be charged. It the proposal is accepted by the insurance company and premium has been determined , then insurance company issue a “ Cover Note” ,which confirm the receipt of premium and during its validity or till the date of issue of insurance policy the person seeking insurance cover will be covered through “ Cover Note”.
The object of “ Cover Note or Interim receipt” is to afford interim protection to the assured pending he decision of the insurance company to finally accept or reject the proposal for insurance.
INVESTOPEDIA DEFINES-A cover note is a temporary document issued by an insurance company that provides proof of insurance coverage until a final insurance policy can be issued. A cover note is different from a certificate of insurance or an insurance policy document. A cover note features the name of the insured, the insurer, the coverage, and what is being covered by the insurance.
Insurance companies issue a cover note to provide an individual with proof of insurance before all the insurance paperwork has been processed. During this time, the insurer may continue to evaluate the risks associated with insuring the holder of the cover note, and the cover note will continue to serve as the insured’s proof that coverage has been purchased until the insurer issues the policy documents and certificate of insurance.
In general, the cover note provides the same level of coverage as the full insurance policy, though insurers may place some restrictions while they make any final determinations on the risks associated with the insurance policy.
The “ Cover Note’, usually valid for a period of 15 to 30 days from the date of its issued ,subject to nature of insurance coverage and policy of an insurance company.
INSURANCEOPEDIA DEFINES    A cover note is a temporary document an insurer issues to provide proof of coverage for the insured until an official final document becomes available. Not equivalent to a certificate of insurance or other policy documents, it typically lists the insured, insurer, and the coverage.
An insurer issues a cover note as proof of coverage while they continue processing the paperwork to finalize the policy. During this interim period, it can serve as evidence the insured purchase insurance and offers the same coverage as the actual policy though some restrictions may apply. In the event it expires before official documents have been issued, the insurer will issue an extension, or the insurer may need to request one. In case the insured wants to cancel a policy during the allowed cancellation, they may be entitled to a refund as a cover note does not constitute a formal policy.
According to HonorableHidayatulla J.  observation in General Assurance Society v. Chandmull, “a contract of insurance is a species of commercial transactions and there is a well established commercial practice to send cover note even prior to the completion of a proper proposal or while the proposal is being considered or policy is in preparation of delivery. It is a temporary and limited agreement. It may be self contained or it may incorporate by reference to the terms and conditions of the future policy.”

 

SECTION 147 (4) OF THE MOTOR VEHICLE ACT, 1988, imposes strict liability upon the insurance company to issue cover note to a motor vehicle owner who in turn doesn’t receive his policy within the specified time of cover note. Cover note is effective until the date on which it expires. Any claims arises during this period, the insurer is to pay compensation, and such claims shall be determined according to the terms and conditions of the cover note. The terms and conditions of the cover note may vary.
THE COVER NOTE SHOULD PROPERLY BE STAMPED, ACCORDING TO THE INDIAN STAMP ACT, 1899. Now the question is whether it can be admitted as evidence, when it is not stamped? The answer is, it is like an insurance policy and so under Section 35 of the Stamp Act, it is inadmissible in evidence, but it can be received in evidence on payment of penalty.
However, the interim protection doesn’t amount to policy or an engagement to issue the policy and can’t be issued for any other purpose or any other claim.
SECTION 35 contemplates that the letter of cover note must have the necessary stamp at the time of execution and therefore subsequent stamping will not make it a valid document, which can be used for claiming the amount.   Generally, the terms and conditions of the cover note are similar to that of the terms and conditions of the policy. The cover note is not a complete and final contract between contract between the insurer and insured. But it binds both the parties concerning the rights and liabilities of them if any event of a loss occurs during its period.
Cover note comes to an end on the issue of “Certificate of Insurance/policy”. It also comes to an end when the insured receives a cancellation notice of cover note from the insurer.

 

PLEASE NOTE THAT: the receipt given by insurance company or its agent creates a binding insurance for the period mentioned in the receipt but it can be put an end at any time during that period. The agent may not be authorised to accept the proposed insurance but he may b authorised either generally or in particular to issue a cover note or interim receipt. [Mackie Vs. The European Assurance Society,(1869) 21LT 102].
 
Murfitt Vs. Royal Insurance Co. Ltd.(1922) 38TLR 334- in this case plaintiff who owned an orchard and a garden alongside a railway, submitted to a subordinate local agent of defendants who were an insurance company a proposal for insuring his trees and fruits against fire. The agent said that the plaintiff would be held covered, pending defendant’s  decision whether they would accept the proposal. The fire among trees occurred and after the fire , but before the defendants knew it, the refused to accept the risk. It was held that the agent has no express authority from defendants to make the bargain with the plaintiff. In an action on oral contract made by defendant’s agent , it was held on he facts , that defendants’ agent had implied authority to make the contract , and plaintiff was in the circumstances entitled to recover the insured amount.”
It to be understood that the interim receipt or cover note does not afford conditional protection. The protection will be absolute subject to the determination by the insurance company either during the specified period mentioned the cover note or at its expiry.
 
PLEASE NOTE THAT-
  1. The protection afforded by a “ Cover Note”, may be extended beyond the period specified in it if the insured does not receive any notice by the insurer to determine it. If notice is necessary to determine the validity of “ Cover Note,” then it must be given to the insured or his /her authorised person ,authorised to receive notice by the insurance company.
  1. Mere acknowledgement of receipt of premium not amount to an “ Interim receipt or Cover Note”. It is an acknowledgment only by the agent authorised to issue receipt or thee insurance company that premium related to proposal submitted has been received same as other receipt in the normal course of business.
  1. The interim receipt does not afford a conclusive evidence of all the terms of the contract, and the interim receipt is not a policy of insurance in the ordinary sense of the word, ad does not purport to contain a complete and final contract between the parties.[ Latiff Ali Fadoo Vs. Royal Exchange Corporation ,(1916) 32 IC540].
  1. Mackie Vs. The European Assurance Society ,(1869) 21 LTR 102– it was held that a “ Cover Note or Interim receipt” is in itself a binding contract which governs the right and liabilities of parties in the event of a loss taking place during its currency.
  1. A Cover Note is considered as same as “ Slips “ , in case of a Marine Insurance Business. The “ Slips” contains the head of the contract and is in itself a contract of insurance.
  1. The assured is entitled to enforce the contract contained in the “ Cover Note”, provided that he has complied with its conditions.
Coleman’s Depositories Ltd. Vs. Life and Health Assurance Association Re, (1907) 2 KB 798-The “ Cover Note”, itself does not state to what extent the assured is protected and is always subject to the conditions expressed in the insurance policy. As against the insured the terms and conditions of the policy form not part of the contract contained in the Cover Note , unless they are expressly incorporated therein or unless the proposer is bound to have been acquainted with them, as against the insurers the Cover Note is subject to the common form of thee policy issued by them.
In the above case a policy of insurance covering the liability of an employer to compensate his workmen for injuries by accident in the course of their employment was made subject to the condition that employer should give immediate notice of any accident causing the injury to a workman , and to a further condition that the observance and performance by the employer of the terms and conditions set out in the policy, so far as they contained anything to be done by the employer ,were of the essence of the contract.
On 28th December,1904 the employer signed a proposal form and received a “ Covering Note”, to which no conditions were attached.
On 3rd January,1905 the insurer sealed , and on 9th January, 1905 delivered to the employer the insurance policy in question, which expressed that it was to be in force from January,1905.
A workman of the insured was injured by an accident which was believed to be slight , and of which notice was not given at the time to the insurer. Dangerous symptoms supervened and the insured workman died on 15th March, 1905. The notice of the accident was given by the employer to the insurer on 14th March, 1905 just a day before the death of the workman.
 
The insurer repudiated the claim on the basis that immediate  intimation of accident or injury to workman was not given to the insurer  by the employer in accordance with conditions in the policy document and that condition was condition precedent to the right of employer to recover the claim.
 
Arbitrator held that- the condition as to giving the immediate notice of injury, was a condition precedent , but stated his award in the form of a Special case for the opinion of the court, which reversed the order of arbitrator’s decision.
The Court it was held that;
  1. In the absence of evidence that the employee either knew of , or had the opportunity of knowing , the existence of the condition at the date of the accident was one with which it was impossible to comply;
  2. As regards a risk which resulted in a claim before the insured had knowledge of the condition, the true inference was that the insurers never imposed thee condition on employer , and the latter was , therefore ,entitled to recover on the policy.
It means that the “ Cover Note”, issued by the insurance company is did not contained such express terms and conditions on the basis of which claim was repudiated by the insurance company for an accident occurred during currency of the “ Cover Note”. It should be noted that the express terms and conditions will be mentioned in “ Cover Note” also or otherwise same will be communicated to the insured, while pending of issue of insurance policy.
PLEASE NOTE THAT : The “ Cover Note”, comes to an end ,when insurance policy is issued. If proposal is not accepted the question of the duration of cover note is to be considered with reference to the wording of the “ Cover Note”. The “ Cover Note” remains in force as long as notice of its determination does not reached to the insured. Even duration of “ Cover Note” is itself mentioned in the “ Cover Note”, then it is open to the insurance company to cancel it ,while dealing the proposal before its tenure.
CONCLUSION:  from above judicial decisions and definitions , it is clear that a “ Cover Note”, issued by an insurance company to the insured is a binding on both parties. It a confirmation by insurance company to the insured or other parties that subject matter mentioned in the “ Cover Note” is insured against risks pending issue of insurance policy. It is a proof of coverage ,during processing of insurance by the insurer. Some statues mandatorily required insurers to issue “ Cover Note”, to the insured during the processing of insurance coverage. A” Cover Note” should be properly stamped to be considered as evidence in Court of Laws. The insured is covered through “ Cover Note”, during its tenure or earlier determination by the insurer by issuing insurance policy or rejecting the proposal of the insured. Any claim during tenure of “Cover Note”, will be paid subject to complying the terms and conditions mentioned in ‘ Cover Note”. The notice of determination of “ Cover Note”, must be given to the insured and in case of delay in issue of insurance policy, the tenure of “ Cover Note”, may be extended.
  1. AGREED BANK CLAUSE IN INSURANCE POLICIES
As you are aware that ,when a Bank / Financial Institutions /NBFs are financing your projects or providing you financial assistance in case of a project, purchase of home , working capital , Term Loans , Loans Against Property , etc. then they include an Insurance Clause in the Contract for security of property given as security against loans, advances or financial assistance. The Insurance Clause specifically provides that the insurance policies should be issued in the name of bank/financial institution and a “ Bank Clause”, should be included in the policy documents.
This “ Agreed Bank Clause” generally called Special Clause or Special Terms and Conditions under Insurance Policy.
AGREED BANK CLAUSEAll policies in which a Bank/Financial Institution has interest shall be issued in the name of Bank/Financial Institution and owner or mortgagor and shall contain a suitable clause to protect their interest.
( Specimen Bank Clause)
AGREED BANK CLAUSE
If You have mortgaged, hypothecated or created any security over any Insured Property in favour of a Bank, and the Bank has an interest in the Policy, the name of such Bank will also be shown in the Policy Schedule under the title ‘Agreed Bank Clause’. If You choose to add the name of such Bank at any time during the Policy Period this will be shown as an Endorsement. In this Clause, the word ‘Bank’ includes any financial institution
 It is hereby declared and agreed:-
i)    That upon any monies becoming payable under this policy the same shall be paid by the Company to the Bank and such part of any monies so paid as may relate to the interests of other parties insured hereunder shall be received by the Bank as Agents for such other parties.
Please Note That: When We pay the amount to the Bank, Our liability under this Policy will be discharged, and will be binding on all of You and all persons named as the insured.
ii)  That the receipts of the Bank shall be complete discharge of the Company therefore and shall be binding on all the parties insured hereunder.
Please Note That : The Bank shall mean the first named Financial Institution/ Bank named in the  Policy.
iii) That if and whenever any notice shall be required to be given or other communication shall be required to be made by the Company to the insured or any of them in any manner arising under or in connection with this policy such notice or other communication shall be deemed to have been sufficiently given or made if given or made to the Bank.
Please Note That: Any notice or communication We make to the Bank under the provisions of this Policy shall be sufficient notice or communication to You.
iv)    That any adjustment, settlement, compromise or reference to arbitration in connection with any dispute between the Company and the insured or any of them arising under or in connection with this policy if made by the Bank shall be valid and binding on all parties insured hereunder but not so as to impair rights of the Bank to recover the full amount of any claim it may have on other parties insured hereunder.
Please Note That: Any settlement or compromise that We make with the Bank will be binding on You and all persons named as the insured. However, such settlement or compromise will not affect the rights of the Bank to recover any amount from You or any other person
v)                 That this insurance so far only as it relates to the interest of the Bank therein shall not cease to attach to any of the insured property by reason of operation of condition (—) of the Policy except where a breach of the condition has been committed by the Bank or its duly authorised agents or servants and this insurance shall not be invalidated by any act or omission on the part of any other party insured hereunder whereby the risk is increased or by anything being done to upon or any building hereby insured or any building in which the goods insured under the policy are stored without the knowledge of the Bank provided always that the Bank shall notify the Company of any change of ownership or alterations or increase of hazards not permitted by this insurance as soon as the same shall come to its knowledge and shall on demand pay to the Company necessary additional premium from the time when such increase of risks first took place and
Please Note That: If You make any change in the use of the Insured Property or Your Premises or sell or transfer the Insured Property, such actions will not prejudice the interest of the Bank under the Policy and this Clause, unless the condition has been broken by the Bank or its employees.
Please Note That:If You commit any act or omission that will increase the risk, the insurance cover will not be invalidated. However, the Bank shall notify Us of any change or ownership, or alterations and increase in risks as soon they become known to the Bank, and shall pay additional premium from the time of such change.
vi) It is further agreed that whenever the Company shall pay the Bank any sum in respect of loss or damage under this policy and shall claim that as to the Mortgagor or owner no liability therefore existed, the Company shall become legally subrogated to all the rights of the Bank to the extent of such payments but not so as to impair the right of the Bank to recover the full amount of any claim it may have on such Mortgagor or Owner or any other party or parties insured hereunder or from any securities or funds available.
Please Note That :  In cases where the name of any Central Government or State Government owned and / or sponsored Industrial Financing or Rehabilitation Financing Corporations and /or Unit Trust of India or General Insurance Corporation of India and/or its subsidiaries or LIC of India/ any Financial Institution is included in the title of the Fire Policy as mortgagees, the above Agreed Bank Clause may be incorporated in the Policy substituting the name of such institution in place of the word ‘Bank’ in the said clause.
CONCLUSION  from above discussion it is clear that in case of assistance from Banks/Financial Institutions , the Banks/Financial Institutions generally through their Agreement with the borrower puts conditions that the property given as security or stocks in case of Working Capital Loans /advances should be insured with appropriate insurance coverage. The borrower while opting for insurance and on the basis of agreed terms of conditions of Loan Agreement request the Insurance Company to incorporate a Special Clause called “ Agreed Bank Clause”, in the insurance policy and the name of the Bank/Financial Institutions will be mentioned on the Operative Clause of the Policy. It should be noted that any communication by insurance company related to insurance to the Bank/Financial Institutions will be considered as valid discharge of information and any payment of clam, if any raised under the insurance policy to the Bank/Financial Institutions ,will be valid discharge by the Insurance Company. It is duty of insured/borrower to inform insurance company ,if there is any change in subject matter or terms and conditions of the Loan Agreement with the Bank/Financial Institutions.
It should be noted that in case of loss due to insured perils to the subject matter of insurance , the insurance company is only liable to pay the claim amount to the Bank/Financial Institutions and not liable for other claimants or legal heirs of the insured.
  1. CONCEPT OF DEDUCTIBLE & CO-PAYMENT UNDER INSURANCE
We have discussed on various occasions the importance of an insurance cover and its benefit to keep us financial viable in case of occurrence of any insured peril. Insurance is a valuable method of transfer and reduction of risk. We generally transfer our risks to the insurance companies on the basis of payment of a small consideration called premium.
An insurance policy is a contract between the insured and the insurance company and should be based on good faith and according to prudent business practices. The insulated is required to disclose all information required truly and the insurance company will also required to disclose the benefits of products and the terms and conditions associated with it.
The insurance companies to fix liability on the insure to behave utmost care impose some conditions and restrictions in the insurance policy according to approved regulations by the IRDAI.
These conditions to the some extent force insured to take care ,act safely and in prudent manner against the insured peril and take care of himself or insured interest  in the same way as if he has not taken insurance.
 
LET’S CONSIDER WHAT ARE DEDUCTIBLE & CO-PAYMENTS;
 
DEDUCTIBLE : is the amount that a policy holder has to pay before the insurance company starts paying up. In other words, the insurance company is liable to pay the claim amount only when it exceeds the deductible. If the deductible of your policy is Rs 30,000 and the claim by the insured is Rs 40,000, then the insurance company is liable to pay only Rs 10,000.
However, if the claim amount is less than the deductible, the insurer is not liable to pay any amount. For high deductible policies, the premium is lower while the low deductible policies have a higher premium.
SIGNIFICANCE OF DEDUCTIBLES IN HEALTH INSURANCE: Deductibles prevent people from making trivial claims or go in for unnecessary treatment and hospitalisation just because they have insurance cover. Policies with high deductibles mean that you pay a lower premium which is a benefit for you over the years. You do not file unnecessary claims for small amounts and receive a No Claim bonus. The cumulative bonuses help to increase the coverage amount in the long run. The flip side of a deductible is your insurance cover is practically useless if your treatment costs do not exceed the minimum specified deductible.
 
CO-PAY CLAUSE IN HEALTH INSURANCE:A co-pay is a fixed amount that the insured has to pay for a covered medical service and the insurer takes care of the rest of the amount. The co-pay amount depends on the nature of the treatment and medications. If your policy has a co-pay clause of 10% and your claim is Rs 50,000, then you will have to pay Rs 5,000. The remaining amount will be covered by the insurer.
 
DEDUCTIBLE & CO-PAYMENT NOT TO REDUCE THE SUM INSURED
In a case whether the admissible amount is more than Sum Insured , a question may arise about sequence of application of two clauses -Sum Insured and deductible.
LET’S CONSIDER Mr. X has a policy having Sum Insured of Rs. 3.00 Lakhs and a deductible of Rs. 0.25 Lakhs. He was hospitalised and his admissible claim was of Rs. 3.50 Lakhs. There are two ways of dealing this matter;
1.     Apply deductible first- as follows
Total admissible claim- Rs. 3.50 Lakhs
Less: deductible           – Rs. 0.25 Lakhs
Net admissible claim.-  Rs. 3.25 Lakhs
 
Balance Claim payable – Rs. 3.00 Lakhs ( the net claim Rs. 3.25 Lakhs or sum insured of Rs. 3.00 Lakhs  whichever is less). In this case Mr. X will bear Rs. 0.25 Lakhs out of his pocket.
 
2.     Apply Sum Insured first-
Total admissible claim- Rs. 3.50 Lakhs
Less: Sum Insured        – Rs. 3.00 Lakhs
Net  Claim payable – in this case the maximum claim will not exceed Sum Insured.
If we employ deductible then net claim payable will be =Rs. (3.00 -0.25) Lakhs =Rs.2.75 Lakhs and hence Mr. X will bear Rs.( 3.50-2.75) Lakhs=Rs. 0.75 Lakhs out of his pocket.
The IRDAI to remove above difficulty standardised the definition , stating that a Deductible Clause shall not reduce the Sum Insured. It means , the Deductible Clause should apply first. Thus the correct method is first apply deductible from the net amount of claim payable and them apply condition of Sum Insured. The first method applied in above example if the right method.
PLEASE NOTE THAT:if your insurance claim amount is less than deductible specified in insurance policy then nothing will be payable by the insurance company. In above example suppose admissible expenses will be Rs. 0.20 Lakhs ,then in this case nothing is payable to Mr. X from the insurance company. The deductible will be applicable on each and every claim by the insured during the year.
CO-PAYMENTS; the co-payment is the conditions in which insured has to pay certain amount of each claim lodged by him. Suppose in insurance policy of Rs. X there is co-payment conditions of 10% then Mr. X has to pay @10% of Rs. 3.00 Lakhs i.e. Rs. 0.30 Lakhs out of his pocket in first case.
 
CONCLUSION:The purpose of co-pay clause is to discourage people from making trivial or unnecessary claims and also to reduce burden on the insurers. If people have MEDICAL INSURANCE, they assume they can undergo treatment at the most expensive hospitals. Co-pay acts as a deterrent.Whether one needs to opt for a deductible or co-pay insurance depends largely on several factors – present and past medical condition, lifestyle, pre-existing illness, good physical condition etc.
Both  deductible and co-pay are intended to make the insured a stakeholder in how the Hopitalisation expenses are incurred , so that some some element of cost saving happens in selection of health care provider. These clause discourage insured to lodge frequent claims for smaller amount. The insured is also become responsible and take care to protect insured interest and also insurance companies save their time and resources in handling small amount of claim lodged.
It is advisable to go through these clauses while applying for insurance.
  1. EFFECT OF FORFEITURE CLAUE IN INSURANCE POLICY
As you are aware that insurance companies generally insert a  condition in the insurance policy that in the case of misstatement, misrepresentation, mistake ,concealment or fraud on the party of the insured the premium paid thereunder would be forfeited. In this case due to that condition in case of innocent misstatement or misrepresentation , the insurance companies not refund the premium paid by the insured. It should be noted that intentional misstatement/ misrepresentation and innocent misstatement/ misrepresentation in total different aspects. In later the insured believed that what he has  disclosed  or stated was  true at the time of inception of insurance policy or during the tenure of insurance policy.
In SPARENBORG Vs. EDINBURGH LIFE INSURANCE COMPANY (1912)1 KB 195- the Bray J. has explained that – the word “premium” shall be forfeited are very  familiar word in the policies of insurance. They occur in almost every policy and have been so far a great number of years.
In THOMPSON Vs. WEEMS(1884) 9 AC 671(682)-  Lord Blackburn held that “ But if insurers have a right if they please to take a warranty against such disease , whether latent or not , and it has been a very long course of business to insert a warranty to that effect. If there was no more than a warranty to that effect, if it was disapproved, the risk would never had attached, the premiums , therefore would never have become due, and might if paid be recovered back as money paid without consideration. But it became usual  , I do not know , but at least for the last fifty years , to insert a term in the contract , that if the statements were untrue the premium should be forfeited. That no doubt is a hard bargain for the assured if he has innocently without any moral guilt avoids the insurance”.
Where an instrument is voidable at the option of a person ,
  1. he may take up one two inconsistent attitudes; he may either treat the instrument as void and not binding on him or
  2. he may think of it to his advantage to treat it as valid and subsisting.
But if the words or by conduct , he leads the other party to believe that he is definitely choosing the one course in preference to the other, and, in that belief , to alter his position for the worse, he is estopped , as against the other party , from afterword approbating ,what he has thus reprobated, and reprobating what he has thus approbated.
Thus the insurers , by their acts and conduct in accepting premiums from the assured and otherwise , have in many cases been held to have estopped themselves, as against the assured from afterward treating a void or lapsed policy of insurance as other than valid and subsisting.
Please Note That : Any agreement ,declaration or course of action on the part of the insurance company which leads a part insured honestly to believe that by conforming thereto a forfeiture of his policy will not be incurred, followed by due conformity on this part , will stop the company from insisting upon a forfeiture which by the express terms of the contract might be claimed.
PLEASE NOTE THAT: when a voidable transaction is avoided the avoidance is effective not from that date but from the date of the original transaction itself. If material facts are fraudulent ,concealed from the insurance company by the insured the policy becomes void. In such case the insured cannot recover the premiums paid even in absence of forfeiture clause and provisions of Sections 64 and 65 of the Indian Contract Act do not apply [Mithoodal Vs. LIC, AIR 1962,SC 814].
SECTION 64- Consequences of rescission of a voidable contract.—When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.
SECTION 65– Obligation of person who has received advantage under void agreement, or contract that becomes void.—When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it. —When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.”
SECTTION 74– of The Indian Contract Act, 1872 provides that :  Compensation for breach of contract where penalty stipulated for:- When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Explanation.— A stipulation for increased interest from the date of default may be a stipulation by way of penalty.
EXCEPTION — When any person enters into any bail-bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government] or of any   State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.
Explanation.— A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.
PLEASE NOTE THAT– Section 64 of the Contract Act, 1872 applies only to cases where the contract is voidable at the option of one party and therefore where a contract is rescinded by mutual consent the question of refund of moneys received by one of the parties from the other under original contract does fall under provisions of Section 64.
The provisions of Section 64 and 65 of the Indian Contract Act, 1872 do not apply to cases where there is a stipulation that by reason of the breach of warranty by one of the parties to a contract the other shall be discharged from performing from his part of the contract.
In ORIENTAL GOVT. SECURITY LIFE ASSURANCE CO. LTD. Vs. NARASIMHA CHARI(1901) 25( Mad.) 183-  the learned Justice held that “ I do not think the plaintiff is entitled under Section 65 of the Contract Act to a refund of the premia paid on the policy during the lifetime of the assured. Section 65 can apply only to cases in which agreement is discovered to be void or the contract becomes void at law for any of the reasons specified in the Contract Act, 1872. Neither that Section 65 nor Section 64 applied to cases where there is stipulation that by reason a breach of warranty by one of the parties to a contract the other party shall be discharged from the performances of his part of the contract.”
SECTION 23 OF THE INDIAN CONTRACT ACT, 1872 – What consideration and objects are lawful, and what not.—The consideration or object of an agreement is lawful, unless;
i)   it is forbidden by law;  or
ii) is of such a nature that, if permitted, it would defeat the provisions of any law; or
iii   is fraudulent; or
iv)  involves or implies, injury to the person or property of another; or
v)   the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
SECTION 23 OF THE INDIAN CONTRACT ACT, 1872 enumerates of three issues, i.e. consideration for the agreement, the object the agreement and the agreement per se.
SECTION 23 Creates a limitation on the freedom of a person in relation to entering into contracts and subjects the rights of such person to the overriding considerations of public policy and the others enunciated under it.
The word “object” used in section 23 connotes means “purpose” and does not purport a meaning in the same sense as “consideration”. For this reason, even though the consideration of a contract may be lawful and real, that will not prevent the contract from being unlawful if the purpose (object) of the contract is illegal.
Section 23 restricts the courts, since the section is not guided by the motive, to the object of the arrangement or transaction per se and not to the reasons which lead to the same.
‘If the thing stipulated for is in itself contrary to law, the action by which the execution of the illegal act is stipulated must be held as intrinsically null.
In short three principles arise from the Section 23  :
  1. an agreement or contract is void, if its purpose is the commission of an illegal act;
  2. an agreement or contract is void, if it is expressly or impliedly prohibited by any law;
  3. an agreement or contract is void, if its performance is not possible without disobedience of any law.
As per section 23, the difference between agreements that are void and agreements those are illegal is very thin or small.
According to Anson( Principles of the English Law of Contract, 22nd edn.), “The law may either forbid an agreement to be made, or it may merely say that if it is made, the courts will not enforce it. In the former case, it is illegal, in the latter only void, but in as much as illegal contracts are also void, though void contracts are not necessarily, the distinction is for most purposes not important and even judges seem to treat the two as inter-changeable”.
CONCLUSION:
The provisions of Section 23 of the Contract Act makes it clear that the very implied condition imposed to forfeit the amount of premium paid as per the policy conditions amounts to unconscionable bargains as it causes injury to the other party to the contract and also oppose public policy as the relation between the insurer and insured is a contract in other words they bind themselves in a contract of insurance. Might be that , the insurer would undertake to indemnify the insured for unexpected contingencies and to indemnify to pay the insured sum as per the policy. In so far as the persons who have entered into such contract if for one or the other reason the promisor or the insured or the policyholder could not perform his obligation by continuing to pay the premium towards the policy of insurance regularly , there would be no obligation on the part of the insurer to pay him the insured sum if it is prematuarly determined.
  1. RULE OF “ CONTRA PROFERENTUM”-UNDER INSURANCE
We know that a Contract Of Insurance is based on utmost good faith. It means ,while at the time of applying for insurance the insured has disclosed all material facts and other required details to the insurance company and vice-versa. The facts disclosed by an insured will help insurance company to decided risk exposure and whether to accept the associated risk or not and if yes then the amount of premium to be charged to the insured.
An insurance contract ( General Insurance) is a contract of indemnity and insurance company is liable to pay the loss occurred by the insured due to happening of insured risk/perils.
We can say that a Policy of insurance is a contract based on an offer( proposal) and an acceptance. The insured makes a proposal which is accepted by the insured.
An Insurance Policy ( Contract of Insurance) is generally issued by the insurance company incorporating all terms and conditions of insurance based on the risk assessement made on thee basis of details available from the insured. A contract of insurance is govern by the same rules as other contracts.
We can say that a policy of insurance is a formal document issued by the insurance companies expressing or embodying the contract of insurance between the parties. Any contract of insurance comes within the word “Policy”, and no statutory or formal document is necessary to make the contract of insurance ; if a contract is created by any binding means that is a policy to al intents and purposes.
The Indian Life Assurance Companies Act, 1912-defines insurance “Policy” as- “ A policy of assurance on human life means any instrument by which the payment of money is assured on death ( except death by accident only) or the happening in any contingency dependent upon human, life or any instrument evidencing a contract which is subject to the payment of premiums for a term dependent upon human life”.
It means that in an insurance policy , the intention of parties must prevail, and the intention is to be gathered primarily from the words in which the parties have chosen to express their meaning. The whole of the policy must be looked into and not merely a particular clause at the time of interpretation of Insurance Policy.
It a settled law that a contract of insurance is to be construed  in the first place from the terms used in it, which terms are themselves to be understood in their primary ,natural, ordinary and popular sense. A policy of insurance therefore to be construed like any other contract.
An insurance in case of insurance contract has nothing to say but accept the terms and conditions of insurance policy. Now in this case the court generally favour the insured ,while interpreting terms and conditions of an insurance policy in case of any dispute. In insurance contract the insured lost his bargaining power and accept terms and conditions as imposed by the insurance company. The insured and the insurance company is not at the same footing and hence any ambiguity in the terms and conditions under insurance policy will cost the insurance company.
CONSTRUCTION OF PRINTED DOCUMENTS; where printed forms are filled in with written words and ambiguity arises in the meaning, it is a rule of construction that greater effect is to be given to the written matter, as being the immediate language selected by the parties , than to the printed , which is intended for general application. In the construction of written or printed documents it is legitimate in order to ascertain their true meaning, if that be doubtful , to have regard to the circumstances surrounding their creation and the subject-matter to which it was designed and intended they should apply-[Sri Rajah Vatsavaya Venkata Vs. Sri PoospatiVenkatapati, 52 IA,1:48M230,1924PC 162].
LET’S CONSIDER RULE OF -CONTRA PROFERENTUM
The word Contra Proferentem has been derived from the Latin word verbachartarumfortiusaccipiuntur (Contra Proferentem) which means against the offeror or the drafter. This rule is based on the principle that a person behind the framing of such ambiguity is responsible for it.
WIKIPEDIA- Contra proferentem, also known as “interpretation against the draftsman”, is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording.
INVESTOPEDIA-The contra proferentem rule is a legal doctrine in contract law which states that any clause considered to be ambiguous should be interpreted against the interests of the party that created, introduced, or requested that a clause be included. The contra proferentem rule guides the legal interpretation of contracts and is typically applied when a contract is challenged in court.
It means that “Contra proferentem”, also known as “interpretation against the draftsman”, is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording. The doctrine is often applied to situations involving standardized contracts or where the parties are of unequal bargaining power, but is applicable to other cases. The doctrine is not, however, directly applicable to situations where the language at issue is mandated by law, as is often the case with insurance contracts and bills of lading. The reasoning behind this rule is to encourage the drafter of a contract to be as clear and explicit as possible and to take into account as many foreseeable situations as it can.
Additionally, the rule reflects the court’s inherent dislike of standard-form take-it-or-leave-it contracts also known as contracts of adhesion. The court perceives such contracts to be the product of bargaining between parties in unfair or uneven positions.
PLEASE NOTE THAT:
  1. If there is any ambiguity in the language of the policy, it is to be construed more strongly against the party who prepared it, that is the company-[Anderson Vs.Fitzerald (1853)4HLC848 and Cooperative Assurance Company Ltd. Vs.Sachdeva AIR 1936 Lah 685 :38 PLR 405].
  1. If the terms of a policy are couched in any ambiguous language that interpretation should be favoured which is beneficial to the assured. This principal applied equally to the construction of all the policies , whether they are polices of fire, life or marine insurance.
  1. Joel Vs. Law Union and Crown insurance Company (1908) 2KB 863- Lord Fletcher Moulton says that;
“ Hence I agree with the words used by Lord St. Leonard in the case of[ Anderson Vs. Fitzgerald (1853)4HLC484] to the effect that in this way provisions are used in the policies on insurance which unless they are fully explained to the parties  will lead a vast number of persons to suppose that they have made a provision for their families by an insurance of their lives and by payment of perhaps a very considerable portion of their incomes when in point of fact from the very commencement the policy was not worth the paper on which it was written.”
  1. It was further observed that there should be tendency in all cases to hold for the assured than for an insurance company. Warranties particularly are to be read liberally in favour of the assured and against the insurance company. Where there is doubt due to contradictory provisions or ambitious expressions, the court should bear against the construction that imposes the obligation of a warranty.
  1. The provisions relating to forfeiture should be construed more in favour of the assured that in favour of company.
  1. When the words of the policy are susceptible of the interpretation give by the assured although in fact intended otherwise by the insurers the policy would be construed in favour of the assured. It is possible that the language used in the policy may be that of the assured , more particularly in the written part of it. In that case if there is ambiguity it must be construed more strictly against the assured.
CONCLUSION: It is said that the contract of insurance should be construed liberally for the interest of the commerce. But it can never justify indifference to the real purpose of the policy or warrant the recognition of an obligation which was not directly or by reasonable implication imposed by its terms when these terms are fairly interpreted according to their material and ordinary meaning. The insurance company should give more emphasis on drafting terms and conditions of insurance policy. Since any ambiguity or interpretation of terms and conditions will cast the company and court will decide the matter in favour of assured. It should always kept in mind that the written words are given more importance than printed words in insurance policy. It is duty of the insurance company to make the insured/assured fully aware the terms and conditions of insurance policy and free look period will do much in this case. The insurance company must receive a confirmation from the insulated/ assured that he/she has understood the terms and conditions of the policy.
  1. PORTABILITY OF INSURANCE POLICIES
Hope that all of you are doing well and enjoying going on festive season. You are aware that insurance has became need of every citizen , particularly health insurance . We have gone through deadly COVID-19 pandemic situation and still facing the same today also. This pandemic has taught many persons lesson , who did not believe the power of insurance. Insurance is a process or acts through which we transfer our financial loss to other entity called insurer( insurance companies) and the concept of insurance is based on concept of pooling from large number of person for the financial loss of some. It means that insurance companies collecting premium from a large number of persons and indemnifying some people who incurred loss during same period.
It is utmost important at to have a health insurance policy for yourself and your family. The policies may be chooses based your requirements and access event your future liabilities. Theses policies come into two parts ;1. Individual Policies 2. Family Floater Policies. In Individual Policies a person may choose separate insurance policy for each of his family members and in case of floater policies all family members enjoy same sum insured into a single policy. It is better to have separate policies for each member rather than one family floater policy.
The main activity of an insurance company is policy servicing, i.e., providing services to policyholder after soliciting insurance policy. An insurance company having well established Customer Service department , Grievance Redressal Policy and Claim Procedure System will earn a good reputation and loyalty of its customers. A good service and recognition of existing customers will improve chances of insurance company for better performance in this competitive industry. It is very important to retain your customers rather that exploding new business , because a satisfied customer will work as an agent without commission and induce some more people to purchase insurance coverage.
A dissatisfied customer from one insurance company has right to ‘ Port’ his/her existing insurance policies with other insurance company, subject to some terms and conditions.
Portability means the right accorded to an individual health insurance policy holder (including family cover) to transfer the credit gained by the insured for pre-existing conditions and time bound exclusions if the policyholder chooses to switch from one insurer to another insurer, provided the previous policy has been maintained withoutany break.
It means you don’t have to loose benefits earned in your insurance policy with your previous insurer ,if you have changed or transfer your insurance policy with new insurer. In past if you port your insurance policies from one insurer to another then you have to loose some benefits such as Bonus , period covering “ Pre-existing disease” etc.,
Now IRDA protects you by giving you the right to port your policy to any other insurer of your choice. It has laid down that your new insurer “shall allow for credit gained by the insured for pre-existing condition(s) in terms of waiting period”.
This applies not only when you move from one insurer to another but also from one plan to another with the same insurer.
NOTE:it men’s that now you can move freely for  porting your insurance policy from one  insurer to another of your choice without losing benefits earned in your earlier insurance policy.
REGULATORY FRAMEWORK FOR PORTABILITY ;
 
Regulation 17 of IRDAI( Health Insurance ) Regulations, 2016 ( as amended) deals with; Migration of health insurance policy(not applicable for Travel and Personal Accident policies)
 
i). General insurers and health insurers offering indemnity based health covers shall offer an option to the policyholders to migrate to a suitable alternative health insurance policy available at the time of modification or withdrawal of the policy. Further, indemnity based health covers offered to specific age groups, students, children under family floater policies, shall also offer an option to such lives to migrate to a suitable alternative health insurance policy available at the specific exit age. Every policy migrated shall be allowed suitable credits for all the previous policy years, provided the policy has been maintained without a break.
ii). Pilot products offered by general insurers and health insurers, may be guided by Regulation 11(b).
iii). All health insurance policies issued by General and Health Insurers shall allow the portability of any policy in accordance with Schedule -1 of these Regulations.
iv). Further to sub-regulation (i) to (iii), the norms on migration and portability of all policies issued by general insurers and health insurers shall be subject to the guidelines as may be specified by the Authority from time to time.
 
The IRDAI through Circular No. IRDAI/HLT/REG/CIR/003/01/2020 dated 01/01/2020 has issued Guidelines on Migration and Portability of Health Insurance Plans, which provides that ;
A. What type insurance covers are these guidelines applicable to?
The IRDAI Migration and Portability guidelines are applicable to all Retail (Individual) and Group indemnity Health insurance products.
The guidelines are applicable to both Individual sum insured and Family floater sum insured policies.
B. What is Portability?
IRDAI Definition: – “Portability means, the right accorded to individual health insurance policyholders (including all members under family cover), to transfer the credit gained for pre- existing conditions and time bound exclusions, from one insurer to another insurer.”
Which means any Individual health insurance policy holder has an option to port his/her policy to a similar health insurance product of another Insurer.
·         While doing so, insured will get continuity benefit for applicable waiting periods for the number of years the policy was continuously renewed with the previous Insurer.
·         The Cumulative Bonus (if any) will be accrued in the sum insured, if the insured opts for higher sum insured while porting the policy. However Cumulative Bonus will lapse if insured opts for same or lower sum insured.
What are the conditions applicable for Portability?
1.     The insured can only port the existing policy to a similar health indemnity policy of other insurer.
2.     The continuity will be applicable to:
o    General waiting period.
o    Waiting periods for coverage of pre-existing conditions.
o    Any time bound exclusions (for example 2 year waiting periods for listed conditions in Health Total).
o    The continuity for waiting periods will be applicable only up to the sum insured and cumulative of the previous policy.
3.     The premium applicable would be for the enhanced sum insured (Sum Insured + Cumulative Bonus) and if the same is not available, to the next higher Sum Insured available if requested by the Insured Person.
4.     The proposal acceptance is subject to the insurers underwriting guidelines as well as the perusal of pre-policy medical tests (if required).
C. What is Migration?
IRDAI Definition: – “Migration means, the right accorded to health insurance policy holders (including all members under family cover and members of group health insurance policy), to transfer the credit gained for pre-existing conditions and time bound exclusions, with the same insurer.
Which means an insured having a health insurance policy has an option to shift his/her policy to a similar policy with the same Insurer.
·An Individual Health Insurance Policy holder shall have option to shift to either a
1.     Similar Individual health insurance policy. Or
2.     to a Group Health Insurance Policy , provided the members meets the terms related to health insurance coverage of the group policy.
A member of Group Health Insurance policy can migrate to a similar Individual Health Insurance policy. However the same will be applicable in case:
o    Exit from Group Policy
o    Modification of Group Policy (including the revision in the premium rates)
o    Withdrawal of Group Policy
·While doing so insured will get continuity benefit for applicable waiting periods for the number of years the existing policy was continuously renewed previously
What are the conditions applicable for Migration?
·  For Individual policies if the policy holder has continuously renewed the previous policy without break for minimum 4 years, migration is allowed without any underwriting to the extent the sum insured and the benefits available in previous policy. However respective product underwriting guidelines will be applicable.
·  Migration from a Group Health Insurance policy to an Individual Health Insurance policy will be subject to underwriting.
· Where underwriting is done the Insurance company has to inform its decision to the insured within 15 days of receiving the request.
D. How to apply?
Policyholder desirous of migrating his/her policy to a similar policy of same insurer has to apply to Us at least 30 days before the premium renewal date of his/her existing policy.
 
 
PROCEDURE
  • You can port the policy only at the juncture of renewal. That is, the new insurance period will be with the new insurance company.
  • Apart from the waiting period credit, all other terms of the new policy including the premium are at the discretion of the new insurance company.
  • At least 45 days before your renewal is due you have to
    • Write to your old insurance company requesting a shift.
    • Specify company to which you want to shift the policy.
    • Renew your policy without a break (there is a 30 day grace period if porting is under process).
 
PLEASE NOTE THAT:
  1. you have to apply for portability/migration well in advance before date of renewal of your insurance policy. In case of portability you have to apply with new insurer at least 45 days before the date of renewal of existing insurance policy with previous insurer.
  1. During the period of 45 days the previous insurance company is liable for any loss you have incurred because you have paid the premium to previous insurance company for whole year or up to date of renewal. It means the period 45 days will be covered in your previous insurance policy and the new insurer is not liable for any loss incurred during period from the date of publication to the date of acceptance of proposal.
  1. The new insurer has right to refuse your portability application on the basis of assessments of your risk profile. New insurer is not bound to accept your application, so you have to apply well in advance. Because after renewal date end your policy with existing insurer is also lapses and new insurer may also not accept your proposal in this case you do not have insurance cover.
SOME CONDITIONS ON WHICH NEW INSURER MAY REJECT YOUR APPLICATION;
 
  1. Medical History-the new insurer can reject your application in case you have pre-existing diseases or disease which requires frequent hospital visits. If your age is over 45 years in this case insurer requires your medical test and if some pre-existing disease found in your medical report such as diabetes or high blood pressure or history of heart problem, renal failure ,etc. then your application will be rejected.
  1. Waiting Period Conditions-generally three types of waiting periods found in an insurance policy as follows;
 
  1. 30 days from issue of policy date in case of fresh policies;
  2. 1 or 2 years in case of some diseases which are covered after a period of 1 or 2 years;
  3. 4 years from the date of insurance in case of diseases called “ Pre-existing diseases”.
 In this case suppose you have three years old insurance policy and want to port with the new insurer with the same waiting period policy, then the conditions of 30 days and 1 0r two years will fulfilled but you have to wait 1(one) year to cover your pre-existing disease to cover in the new insurance policy with new insurer.
 
  1. Increase in sum insured –
    1. generally people while applying for portability opt increase in sum-insured with the new insurer. The new insurer in this case may ask for reason or inquire the claim history of the insured.
    2. Please note that if you have a continuous policy of insurance for previous three years having sum insured Rs. 5.00 Lakhs and you want sum insured with new insurer of Rs. 7.00 lakhs. In this case the Sum Insured in the new policy will be Rs. 7.00 lakhs but portable interest will be not Rs. 5.00 Lakhs for  any pre-existing disease. It means in case of hospitalisation for any pre-existing disease you will get only Rs. 5.00 lakhs and you have to wait for one year for Rs. 2.00 Lakhs under new policy.
 
  1. Age of Insured- you know that age of an insured is also a matter for rejection of portability of an insurance policy. Since increasing health brought many diseases and for senior citizen insurers are reluctant to renew or accept portability application. The insurer may charge extra premium or loading.
  1. It is important to check the premium you are going to pay to the new insurer. Because various people apply for portability due to lower premium in with new insurer. It is advisable to check the cover you are getting from new insurer against payment of lower premium. It might be possible that some cover will be removed without your knowledge by the new insurer and you have to expense more to cover those in future. So it is in your interest to study and take advise of insurance advisors and financial planners before jumping into portability.
  1. It is better to follow IRDAI Guidelines and apply for portability in advance and utilise the period of 45 days as given to avoid rejection of your application.
 
CONCLUSION it is your right given by the regular i.e. IRDAI to port your insurance policy from one insurer to the choice of your insurer. But note that if you are young and have clear medical history then it is advisable to change or apply for portability and if your age is above 45 years and your medical history is not clean or your have any pre-existing disease, they there may be chance that your new insurer will reject your application. The new insurer is not bound to accept your portability application. Even portability application for new insurer is a fresh business and he will access the risk associated with you and acceptability will depend on discretion of insurer. It is advisable to check all details and pros & cons before applying for portability. One have to remember that during portability period you are insured with old insurer and not the new. Your coverage with new insurer will start from the date of acceptance of proposal by the new insurer. So act well in advance so that even in applicability period you do not loose your insurance coverage. Because once  grace period in your old insurance policy expired you will loose insurance coverage in old insurance policy and your new insurer is also at dilemma to accept or not to accept your insurance policy.
  1. ALTERNATIVES TO TRADITIONAL RE-INSURANCE
 
As you know an insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. Through insurance we analyse , evaluate ,estimate and transfer outcomes of risk/perils to the insurance company. The insurance company generally in lieu of small payment called “ Premium” issue an insurance policy( insurance contract) by insuring specified risks/perils. Please note that insurance company indemnified us in case of financial loss on happening of those insured risks/perils.
 An entity which provides insurance is known as an insurer, an insurance company, an insurance carrier or an underwriter.
The insurance companies also have to secure themselves against large claim for its sustainability  and make profit. The Re-insurance concept is insurance of insurance companies. In this process the original insurance company share ( subject to its retention) a large portion of stake to other insurance company or they contract with another insurance company to underwrite its proposal in case of large sum assured.
In this case if insurers finds that they have entered into a contract of insurance which is an expensive proposition for them or if they wish to minimise the chances of any possible loss , without ,at the same time giving up the contract, resort to have a devise called reinsurance.
Please note that “ Re-insurance Contract” is between the re-insured and the re-insurer, the assured has nothin to do with it, except so far as it guarantees him against default by his own re-insurance. He cannot sue on it. But the re-insurer’s liability would be discharged by the payment to the assured of the amount at the time of loss. The Original Contract of Insurance and Re-insurance Contracts are two distinct contracts and the re-assured remains solely liable on the original insurance and alone has any claim against the re-insurer.
A policy of re-insurance stipulates for payment by the re-insurer “ as may be paid” by the  re-insured. This means that the liability of the re-insurer is coextensive with the liability of insurers.
When the loss or the event insured against occurs, the liability of the re-insurer under the policy of re-insurance comes into existence but the re-insurer shall have to be satisfied by evidence or admission before they may called upon to indemnify the reinsured. It means an re-insurer have all rights to ask evidences and asked by the insurer against a claim from the insured to verify genuineness of the claim.
The liability of re-insurer becomes fixed as soon as the amount payable under original policy is admitted and ascertained. Ex-gratia payments do not bind re-insurer and note that under a policy of re-insurance ,if insurer pay any ex-gratia payment to the original insured ,then re-insurer is not liable to pay his share in the Ex-gratia payment.
Please Note That in case of an re-insurance contract , the insurer is bound to prove the loss against the re-insurer in the same manner as the original insurer must have proved against him irrespective of the fact whether the insurer has paid the insured or not. [Re,London county commercial Re-insurance Office(1922), 2 Ch 67].
 
LIMITATION OF TRADITIONAL INSURANCE METHODS:
The inefficiencies of traditional insurance have contributed substantially to the development of Alternative Risk Transfer . An analysis of the costs of traditional insurance covers shows that the difference between the premium and the expected value of the loss is comparatively high. This is often explained as a result of the information asymmetry between (re)insurers and policyholders.
Traditional insurance prices are arrived at, on the basis of average risks, and are therefore higher than the risk-adjusted premium rates for good risks. As a result, good risks are becoming increasingly reluctant to cross-subsidise bad risks, and are turning to self- insurance instead. As such there is inequity in rating. With insurance there is a danger that the policyholder has little incentive to prevent or contain a loss, which means the insurer has to demand a higher average premium (moral hazard problem).
In the case of self- financing, the policyholder has a direct incentive to adopt suitable risk management measures to prevent losses to a reasonable level. Moreover as a result of this phenomenon (moral hazard) insurance companies have set high deductibles (first loss amount met by the insured), which have resulted in the diminishing marginal utility of insureds, because intuitively, risk transfer fails.
Various ART solutions eliminate the problem of moral hazard by defining the loss event on the basis of an independent index or a physical event. However there arises a new phenomenon of basis risk.
There is usually capacity constraint in the industry. Some risks are well understood but considered uninsurable due to their sheer size. For example some natural catastrophe scenarios range from USD50 billion to USD100 billion, depending on the location and intensity of the event. Commodity risks and financial risks aggregate exposures of magnitudes that challenge the capital strength of many commercial insurers. Securitisation for example can supplement the capacity of the commercial insurance market by tapping directly into the capital markets. Other ART products shift the focus from risk transfer to risk financing and hence increasing the scope of risk management solutions.
 
WHAT IS ALTERNATE RISK TRANSFER -LET’S DISCUSS ;   ART is an umbrella term for a range of products, other than conventional annual insurance or reinsurance, which handle financial risk.  Generally, these products import techniques, attitudes and language from corporate finance and the capital markets into areas normally dominated by insurers, or vice versa.
Alternative risk transfer (ART) refers to the products and solutions that represent the convergence or integration of capital markets and traditional insurance. The increasingly diverse set of offerings in the ART world has broadened the range of solutions available to corporate risk managers for controlling undesired risks, increased competition amongst providers of risk transfer products and services, and heightened awareness by corporate treasurers about the fundamental relations between corporation finance and risk management. [https://link.springer.com/chapter/10.1007/3-540-26993-2_18].
INVESTOPEDIAThe alternative risk transfer (ART) market is a portion of the insurance market that allows companies to purchase coverage and transfer risk without having to use traditional commercial insurance. The ART market includes risk retention groups (RRGs), insurance pools, and captive insurers, wholly-owned subsidiary companies that provide risk mitigation to its parent company or a group of related companies.
  • The alternative risk transfer (ART) market allows companies to purchase coverage and transfer risk without having to use traditional commercial insurance.
  • The ART market includes risk retention groups (RRGs), insurance pools, captive insurers, and alternative insurance products.
  • Self-insurance is a form of alternative risk transfer when an entity chooses to fund their own losses rather than pay insurance premiums to a third party.
  • A number of insurance products are available on the ART market, such as contingent capital, derivatives, and insurance-linked securities.
EXAMPLES OF ART
  • Securitisation andinsurance derivatives
  • Insuratisation
  • Finite and financial reinsurance
  • Captives
    • Insurance Securitisation
Transferring bundles of risk directly to the capital markets
  • Insuratisation
    1. Using insurance capital and skills to price and assume banking risk
    2. Expands the insurable universe of risk towards the inclusion of any surprise which can impact corporate earnings
      1. Revenue guarantee
      2. Residual value
      3. Credit derivatives
      4. Enterprise risk.
3. Finite
Usually multi-year contracts in which the loss experience and time value of money is explicit.
4. Captives and protected cells
Businesses bundle up their risks before transfer to reinsurers or the capital markets.
We an insurance company generally secure its financial security arising from policy claims through re-insurance and retrocession. These are the traditional methods of financial security , but through passes of time , there are various products available in the market , by utilising those a insurance company transfer its risks or pay its liabilities arising in future by utilising capital market instruments and derivatives. The Alternative Risk Financing market is a huge market.
This is not replacement in whole or part of the regular and traditional insurance market but it plays as an Alternate Market for the insurance Companies. It relegates insurance to just one of a complete range of risk financing techniques and is transforming the insurance industry to deal with hitherto uninsurable business risks such as fluctuation in interest rates, rate in foreign exchange, temperature fluctuation and commodity prices.
The new forms are financial hybrid and their intention is to cover a customised combination of ;
  1. Event Risks ( natural disaster etc.) and;
  2. Financial Risks ( interest rates fluctuation, foreign exchange fluctuation, commodity prices, etc.).
ALTERNATIVE TRANSFER includes alternative type of risk carriers such as –
  1. Self Insurance;
  2. Risk Retention Groups ;
  3. Pools ; and
  4. Captive Insurance Company, rent-a-captive insurance company and protected cell insurance companies;
  5. Finite or Financial Insurance;
  6. Muti year ,multi line ,aggregate or blended or integrated programme.
Please Note That : – Self Insurance, Risk Retention Groups and Pools are largely US based concepts for ART.
  1. SELF INSURANCE- it is a retained level of deductible. This can be through a mutual group or pool within an association o body to share retained risk. This can also be a fund constituted to address a loss if it were to occur. Self-insure is a risk management technique in which a company or individual sets aside a pool of money to be used to remedy an unexpected loss. Theoretically, one can self-insure against any type of damage (like from floodor fire) In practice, however, most people choose to purchase insurance against potentially significant, infrequent losses. Self-insuring against certain losses may be more economical than buying insurance from a third party. The more predictable and smaller the loss is, the more likely it is that an individual or firm will choose to self-insure.
For example, the owners of a building situated a top a hill adjacent to a floodplain may opt against paying costly annual premiums for flood insurance. Instead, they choose to set aside money for repairs to the building if in the relatively unlikely event floodwaters rose high enough to damage their building. If this occurred, the owners would be responsible to pay out-of-pocket for damages caused by a natural disaster, like a flood. [https://www.investopedia.com/terms/s/self-insure.asp]
  1. RISK RETENTION GROUPSIt was originated in US Market ,it is a corporation owned and operated by insurance companies , that band together as self-insurers and form an organisation that is chartered and licensed as an insurer in at least one state of US to handle liability insurance. In the US it addresses gaps in liability cover for its members such as for medical malpractices.
 
A risk retention group (RRG) is a state-chartered insurance company that insures commercial businesses and government entities against liability risks. Risk retention groups were created by the federal Liability Risk Retention Act, a federal law created in 1986( in US) . A member of a risk retention group must be a business.
Risk retention groups are treated differently from traditional insurance companies. They are exempted from having to obtain a state license in every state in which they operate, and also are exempt from state laws that regulate insurance.
For example, a risk retention group is exempt from having to contribute to state guaranty funds, which can lower premium costs but can also increase the possibility that policyholders will not have access to state funds in the event of group failure. All policies issued by a risk retention group are federally required to include a warning indicating that the policy is not regulated the same as regular policies.
Risk retention groups are mutual companies, meaning that they are owned by the members of the group. They can be licensed as a standard mutual insurer, but they can also be licensed as a captive insurer, which is a company organized by a parent company specifically to provide insurance coverage to the parent company.
Examples of risks protected by RRG policies include medical and legal malpractice, however, property damage caused by a flood is not a covered risk. Policies can be owned by a group of individuals, such as a law firm, but they can also be purchased by public universities or county administrations.
Members of an RRG must be engaged in similar activities or related with respect to liability exposures by virtue of any related or common business exposure, trade, product, service, or premise.
The number of risk retention groups is likely to increase when insurance is either unavailable or unaffordable. While they may be popular in some business climates they still must follow certain state regulations, including non-discrimination and anti-fraud requirements. Risk retention groups may also be required to provide regulators with more information about their financials in order to ensure that they are financially solvent. [https://www.investopedia.com/terms/r/risk-retention-group-rrg.asp]
Benefits of Risk Retention Groups 
  • Program control
  • Long-term rate stability
  • Customized Loss control and risk management practices
  • Dividends for good loss experience
  • Access to reinsurance markets
  • Stable source of liability coverage at affordable rates
  • Multi-state operations.
  1. POOLS: A group of insurance companies that pools assets, enabling them to provide an amount of insurance substantially more than can be provided by individual companies to ensure large risks such as nuclear power stations are protected.
Insuranceopedia defines            An insurance pool is a gathering of insurance companies for a specific business endeavor, usually when a financial risk is too high for a single company to take on and can only be addressed through shared resources. When a financial risk is too high or even catastrophic for one company’s financial status, companies can band together to form an insurance pool. These companies combine their resources as a form of risk management.
Companies might, for example, form an insurance pool to provide earthquake insurance in an earthquake-prone area. Or they may band together to provide insurance to people with serious medical problems.
Businesses can also create their own insurance pools rather than having insurance companies provide them with their insurance needs. They form, in essence, an insurance community and create their own insurance programs that might be more sustainable and affordable than the ones offered by insurance companies.
WIKIPEDIA defines as A “Risk pool” is a form of risk management that is mostly practiced by insurance companies, which come together to form a pool to provide protection to insurance companies against catastrophic risks such as floods or earthquakes. The term is also used to describe the pooling of similar risks within the concept of insurance. It is basically like multiple insurance companies coming together to form one. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled in a voluntary insurance bracket unless there is a subsidy available to encourage participation.
Risk pooling is an important concept in supply chain management. Risk pooling suggests that demand variability is reduced if one aggregates demand across locations because as demand is aggregated across different locations, it becomes more likely that high demand from one customer will be offset by low demand from another. The reduction in variability allows a decrease in safety stock and therefore reduces average Inventory.
For example, in the centralized distribution system, the warehouse serves all customers, which leads to a reduction in variability measured by either the standard deviation or the coefficient of variation.
The three critical points to risk pooling are: 
  1. Centralized inventory saves safety stock and average inventory in the system.
  2. When demands from markets are negatively correlated, the higher the coefficient of variation, the greater the benefit obtained from centralized systems; that is, the greater the benefit from risk pooling.
  3. The benefits from risk pooling depend directly on relative market behavior. If two markets are competing when demand from both markets are more or less than the average demand, the demands from the market are said to be positively correlated. Thus, the benefits derived from risk pooling decreases as the correlation between demands from both markets becomes more positive.
 
  1. CAPTIVES: is an insurer created and wholly owned by its sponsors to provide a facility to aggregate , insure and reinsure only their risks. This process is a legal and adopted in most of countries.
Investopedia defines – A captive insurance company is a wholly-owned subsidiary insurer that provides risk-mitigation services for its parent company or a group of related companies. A captive insurance company may be formed if the parent company cannot find a suitable outside firm to insure them against particular business risks, if the premiums paid to the captive insurer create tax savings, if the insurance provided is more affordable, or if it offers better coverage for the parent company’s risks.
Please Note That : The insurance companies forming Captives as its wholly owned subsidiary and to lower company’s insurance cost and provide more specific coverages, but also comes with additional overhead of running a distinct insurer.           The main act of these Captives is to writing insurance policies of parent company or parent group companies. It does not insure any other company than its parent and parent group companies. This is a mode of tax savings for the parent companies.
IT MEANS THAT A “captive insurer” is generally defined as an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits.
These points do not clearly distinguish the captive insurer from a mutual insurance company. A mutual insurance company is technically owned and controlled by its policyholders. But no one who is merely a mutual insurance company’s policyholder exercises control of the company. The policyholder may be asked to vote on matters requiring policyholder action. But this usually means that the policyholder will be presented with a proxy and advised by the board that runs the company as to how to exercise its vote. As soon as the insurance ceases, so does the policyholder’s ownership status. The policyholder has not invested any assets in the insurance company and does not actively participate in running it.
Captive insurance is utilized by insureds that choose to
  • put their own capital at risk by creating their own insurance company,
  • working outside of the commercial insurance marketplace,
  • to achieve their risk financing objectives.
Reviewing these three essential features of captive insurance will help to clarify the nature of a captive insurance company.
FEATURES OF ALTERNATIVE RISK TRANSFER PRODUCTS;
Alternative Risk Transfer techniques have evolved over the last fifty years, and it would seem they have endured the test of time, and are not a fashion—that easily fades away, but are a fashionable risk management tool that will carry the insurance industry into the twenty-first century. It becomes imperative that the origins of ART be traced. This probing will unravel the motivation behind the use of ART techniques, the forms it take and the functionality of the ART products.
The key features of ART solutions that have evolved over the years can be enumerated as follows:
  1. Tailored to specific problems.
  2. Multi-year, multi-line cover.
  3. Spread of risk over time and within a policyholder’s portfolio. This is what makes the assumption of traditionally uninsurable risks possible.
  4. Risk assumption by non- (re)insurers.
Factoring into account these attributes, the domain of ART techniques is as depicted in Figure 1.
No addition can be done against the fictitious entry in the books of accounts
Firstly, alternative distribution channel to specialised direct insurers and reinsurers are for example companies’ own captives, which are potential purchasers of traditional and/or alternative risk transfers products.
Secondly alternative solutions embrace finite risk products whose main aim emphasis is on financing rather than the transfer of risks. Multi-year contracts also play an increasingly important role.
These solutions combine different classes of insurance such as property and casualty risks. Although these products are not essentially new, they are considered to be alternative as they provide the basis for wider ranging covers. These solutions bundle together insurance, finance and in some cases general business risks as well, in the form of multi- year contracts with aggregate retentions.
Other covers that fall into the category of alternative solutions include multi-trigger products, i.e. those which only come into play if insurance and non-insurance loss events occur simultaneously within a specific time frame as well as financing of losses at conditions agreed upon in advance (contingent capital.) Lastly, alternative risk carriers are ultimately capital market investors directly involved in insurance risks. These mainly concern insurance—linked bonds and derivatives.
 
PLEASE NOTE THATIt is instructive to note that ART techniques have evolved to be used by insurance companies, to satisfy the insured and have also evolved to be used by reinsurance companies to satisfy the requirements of insurance companies. As such there are two forms of ART solutions, one peculiar to the cedant and the other peculiar to the insured, in other words, the two classes are—
  • insurance alternative risk transfer and
  • reinsurance alternative risk transfer.
Thus the point of convergence for all ART techniques can be enumerated as in Figure 2 below.
REASONS FOR USE OF  ART PRODUCTS
No addition can be done against the fictitious entry in the books of accounts

 

The salient features of Alternative Risk Financing techniques are that the primary objective is that they are developed to complement those already in use in order to improve efficiency of risk transfer. The second goal is to expand the spectrum of insurable risks. The third goal is to generate additional capacity via the capital markets.
Increasingly since the 1960’s larger corporations have created and used their own in house operation, primarily as a means of co-ordinating insurance buying across the global enterprise. It is found that the earliest forms of ART programmes developed in response to the hard insurance markets. Companies turned to large deductible, loss sensitive rating and retrospective rating insurance programmes to gain independence. This led to the development of wholly owned offshore captives for large corporations and rent-a-captive for small to medium size companies. Please  note that, in the hard insurance, high- interest environment of the early 1990’s finite programmes emerged as another finance tool.
The motives behind finite programme were similar to captives with additional tax and financial benefits.
In the main there are three types of such techniques—
  1. finite risk insurance,
  2. insurance derivatives and
  3. securitisation of insurance risks directly on to the capital markets.
 
What is instructive to note is that finite programmes began the trend towards a more holistic approach to risk while facilitating the creation of sophisticated coverages that blurred the lines between financial and insurance markets.
According to Culp (2002) finite risk insurances and financial insurances are an extension of conventional insurance in that the contracts typically last for three to five years and they often involve a packaging of different kinds of insurance including some risks that are difficult to place.
In addition, finite risk insurance usually poses a profit sharing feature such that if the claims costs of the corporation vary unexpectedly there is some form of ex post adjustment in the premium cost. Because of its tailor made character finite risk insurance represented an attempt by insurance companies to develop longer-term risk sharing relationships with corporations. As the name implies, there are limits to the degree of risk transfer in finite risk programs and thus they provide a mezzanine layer of risk financing between self-insurance and conventional types of insurance.
Further, Doherty (2000b) contends that insurance derivatives evolved in the mid 1990’s. For a long time, insurance had been seen as a potential area of product development for derivatives, in part because a conventional contract can theoretically be seen as a put option sold by an insurance company. However the development of derivatives as a mechanism of risk financing for corporate risks has been limited for two main reasons.
  1. Firstly there are no suitable indices on which derivatives can be based.
  2. Secondly derivatives require that the underlying economic variable being tracked is relatively homogeneous.
This requirement is often not met for-corporate insurance risks since these represent a heterogeneous bundle of risks many of which may be specific to an industry.
In 2000 the only active traded derivative market, was the property catastrophe options market at the Chicago Board of Trade and the Catastrophe Risk Exchange (CATEX) in New York. More recently weather derivatives have been introduced based on indices of rainfall, snowfall and temperature.
One of the latest ART solutions relates to the securitisation of insurance risks directly onto the capital markets. Growth there is likely to continue in the longer term especially for longer-term potential losses facing corporations and for important projects. Two mechanisms for securitisation have evolved, one based on bond instruments and the other on equity instruments. Specialist divisions of insurers and brokers have often collaborated with investment banks to develop tailor made products for corporations to transfer their risks on to the capital markets.
Doherty (2000b) goes on to say that the risk securitisation is likely to expand in the future and companies might switch from bond based to equity based instruments. The theoretical advantage of equity-based instruments is that they are a form of Just-In-Time (JIT) capital, since capital is only raised when a large loss takes place. Equity based products extend the concept of contingent capital that exists in conventional insurance and thus has the effect of removing the capital cost constraint imposed on insurance and reinsurance companies.
The Alternative Risk Transfer sector has continued to grow in leaps and bounds over the years. All of these classes have exhibited significant and continuous growth, despite the soft market conditions prevailing.
 
CONCLUSION: The opinion from above discussion is that, ART solutions are an innovation that will stand the test of time. They are not a fashion that is going to fade away, but will endure forever. They are a must buy for corporates, insurance and reinsurance companies. The growth of the insurance industry is going to be largely underpinned by the development of the ART segment. Insurance companies should embrace ART techniques as they the crown jewels in the risk management arena. They must be best understood as compliments rather than substitutes of the traditional insurance products. The insurance companies must realise that the paradigm is shifting from indemnity to that of value creation. There must be a realisation that ‘a risk is   a risk’ and as such it must be treated as such. The very basis of insurance is to provide risk protection.
In a highly competitive environment where other financial players such as banking institution are waiting on the wings, to invade the insurance terrain, it would be folly for insurance companies to decline risks and categorise them as uninsurable. This would create gaps in the market and they would have afforded the other players to attack their segment. There have been lost opportunities, which should never have been. It is important for insurance companies to shift not all but major part of their risks on these ART products. By shifting some part of risk on capital market products they will improve their profitability and create value addition in their capital exposures. The ART products will provide a vide  an opportunity to the insurance companies to retain more and more risk exposures and cede less premium to re-insurers , this way they retain and increase their solvency margins and profitability respectively.
  1. FEATURES OF MARINE INSURANCE
 
As you are aware that “ Marine Insurance” covers the loss or damage of ships, cargo, terminals ,and any transport or cargo by which property is transferred, acquired ,or held between the points of origin and final destination. I also includes offshore and onshore exposed properties (container terminals, ports, oil platforms, pipelines etc.),hull, marine casualty and marine liability.
In 1906 the Marine Insurance Act was passed in the UK which codified the com one law. It is a combination of market practices and judicial decisions taken before implementation of this Act. Further ,Lloyd’s and The Institute of London Underwriters ( a grouping of London Company Insurers) developed between them standardized clauses for the use of marine insurance . And these have been maintained since.These standards are known as Institute Clauses because the Institute covers cost of their publication.
Typically Marine Insurance is split between the vessels and the cargo. The insurance of ocean going vessels is called “ Hull & Machinery”, insurance and other is known as “ Cargo” insurance.
Insurance law in India had its origin in British Law with the establishment of a British Firm, the Oriental Life Insurance Company in 1818 in Calcutta, followed by the Bombay Life Assurance Company in 1823, the Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874. The first General Insurance Company , Triton Insurance Company Ltd., was promoted in 1850 by British nationals in Calcutta. The first General Insurance Company was , Indian Mercantile Insurance Company Ltd., in Bombay in 1907 by an Indian.
The first legislation in India to regulate insurance business was The Indian Life Assurance Companies Act, 1912.
The other general insurance items such as fire, accident, marine and other non-life insurance business have not been touched by above the Indian Life Assurance Companies Act, 1912. The pace with which theses non-life insurance business had increased in those days , required a comprehensive legislation to control life as well as non-life businesses. Finally the Insurance Act, 1938 was passed to regulate and develop all types of insurance businesses in India.
The Marine Insurance Act, 1963 came into force 1st August, 1963.
The General Insurance Business was nationalized in 1973 through the introduction of the General Insurance Business ( Nationalisation) Act, 1972. The General Insurance Corporation was established in 1972 and shares of all existing General Insurance companies and undertaking of other insurers were transferred to the General Insurance Corporation to secure the development of the general insurance business in India and for regulation and control of such business.
On recommendation of the Malhotra Committee the Indian Government  allowed private investment in insurance sector and has established an independent regulatory body called “
IRDAI-Insurance Regulatory and Development Authority of India, through the enactment of the  Insurance Regulatory and Development act, 1999.
Since Marine business is mostly international and subject to law and international regulations at every stage of operation. It is governed by the Marine Insurance Act, 1963 ,in India and guided by the various clauses formulated by the Institute of London Underwriters (LU) and the International Commercial Terms, known as “ Incoterms”, developed by the International Chambers of Commerce , Paris.
The Marine Insurance act, 1963 , is designed to regulate the transactions of marine insurance businesses of hull, cargo and freight.
PLEASE NOTE THAT : The voyages undertaken are subject to specified Institute of London Underwriters (LU) clauses, during inception and termination of insurance covers, and the perils insured against.
FEATURES OF MARINE INSURANCE ;-
SECTION 3 of the Act,1963 defines –“ A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against arise losses, that is to say, the losses incidental t marine adventure.”
SECTION 2(d) of Act, 1962 defines – “ Marine Adventures” as
“Marin Adventure” includes any adventure where-
  1. Any insurance property is exposed t maritime perils;
  2. The earnings or acquisition of any freight, passage money, commission , profit or other peculiarly benefit , or the security for any advances , loans, or disbursements is endangered by the exposure of insurance property to maritime perils;
  3. Any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurance property by reason of maritime perils.
 
TYPES OF MARINE INSURANCE
Marine Insurance can be classified into four broad categories;
  1. Hull Insurance;
  2. Cargo Insrance;
  3. Freight Insurance ,and
  4. Liability Insurance.
CLAUSE 19of the Marine Insurance Act, 1962 states as follows-“ A contract of Marine Insurance is a contract based upon utmost good faith, and if thee utmost good faith be not observed by either party, the contract ma be avoided by the other party.”
It means that every material representation made by the insured or his agent to the insurer during thee negotiations for the contract , and before the contract is concluded ,must be true. It at ay stage it found to be untrue then insurer may avoid the contract.
CLAUSE 9-Insurable Interest -a person is said to have insurance interest if he is to benefit by the safety or due arrival of insurance property, or may be prejudice by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.
“Insurance Interest”, in the subject matter insured must exist at the time of the loss. It need no exit when the insurance policy was taken under marine insurance.
The following person would deemed to have “ Insurable Interest”;
  1. The owner of the ship;
  2. The owner of the cargo;
  3. A creditor who has advanced money on the security of the ship or cargo;
  4. The mortgagor and the mortgagee;
  5. The master and crew of the ship have “ insurable interest”, in respect of their wages;
  6. In case of advance freight, the person advancing the freight has an “ Insurable Interest”, I such advance is not repayable in case of loss.
WARRANTIES AND CONDITIONS-
“A Warranty”, is a promise by the assured to the underwriter that something shall or shall not be done or certain of affairs does or does not arise. A Warranty is a condition which must be exactly complied with, whether it is material to the risk or not. If it be not so complied with , then, the insurer is discharged from the liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.
A peculiarity of Marine Insurance and insurance law generally is thee use of the terms condition and warranty. In English Law, a Condition typically describes a part of the  contract that is fundamental to the performance of that contract, and, if breached , the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach.
On the other hand Warranties are not fundamentals to the performance of the contract. Breach of warranty , while giving rise to a claim for damages , does not entitle the non-breaching party to terminate the contract. Indeed a warranty not strictly complied with may automatically discharge the insurer for further liability under contract of insurance.
SECTION 39-of the MIA, 1963 provides that-  No implied warranty of nationality.—There is no implied warranty as to the nationality of a ship, or that her nationality shall not be changed during the risk.
SECTION 41-of the MIA, 1963 provides that-
Warranty of seaworthiness of ship.—
(1) In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured.
(2) Where the policy attaches while the ship is in port, there is also an implied warranty that she shall, at the commencement of the risk, be reasonably fit to encounter the ordinary perils of the port.
(3) Where the policy relates to a voyage which is performed in different stages, during which the ship requires different kinds of or further preparation or equipment, there is an implied warranty that at the commencement of each stage the ship is seaworthy in respect of such preparation or equipment for the purposes of that stage.
(4) A ship deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the sea of the adventure insured.
(5) In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.
OCEAN CARGO INSURANCE IN INTERNATIONAL TRADE; An exporter having insurable interest in a Cargo Shipment has a need for an Ocean Cargo Policy. The Cargo Insurance idemnified the exporter or importer in the event of loss or damage to goods due to a peril insured against while at risk under the policy.
We know that each ocean going ship or vessel is a joint venture of the shipowner and all the cargo owners. The Cargo Insurannce protection is an aid to commercial negotiations. It allows traders to proceed with confidence in the knowledge that each party to the transaction is properly protected. It also helps to get assistance from various Export Credit Institutions with greater ease. Understand that the cost of a Cargo Insurance is much more less than the value of subject insured or involved in the transit and hence it is necessary for exporters or importers to opt for cargo insurance coverage.
CARGO INSURANCE– “ Cargo” refers to the goods and commodities carried during transit by; rail, road, sea or air from one place to another. The “ Cargo”, transported by sea is subject to manifold risks such as; loss or damage at the port, loss or damage during the voyage or at the point of delivery.
Thus “ Marine Insurance”, covers the following;
  1. Export and import shipments by ocean;
  2. Transshipment ;
  3. Shipment by inland vessels;
  4. Consignments sent by rail, road, air or by post.
“ Marin Cargo Insurance” covers the shipper of the goods. If the goods are damaged or lost during transit the “ Cargo” policy covers the risk associated with the transshipment of goods. The policy could be issued to cover Single Shipment , or if regular shipment are made an “ Open Cargo Policy” can be issued which insures the goods/cargo automatically whenever shipment is made.
INCOTERMS RULES AND INSURANCE;- One of many important questions that must be decided in every transaction involving a Sale of goods is” which party to the  contract is obliged to arrange marine and war risks insurance protection?”.
INCOTERMS 2010 RULES– defines the obligations of buyer and the seller  for sharing of costs , and the passing of risks.
The basic function of the Incoterms Rules is to simplify the quotation of prices in international trade, to define the responsibilities and rights of the sellers and buyers under each of terms of sale.
Some of the most frequently employed terms in international trade are ;
  1. FOB-Free on Board;
  2. CIF- Cost ,Insurance & Freight.
In many transaction it is common for exporters , even though selling on FAS or FOB terms , to control the placing or arranging of marine and war risk insurance on a “ Warehouse -to -Warehouse” basis for account of whom it may concern, as an additional provision in the overall contract of sale. The may also be arranged as a matter of convenience. In this situation thee cost of the insurance is charged to the buyer as a separate item of expense in addition to FOB or FAS price.
It is often the fact that the exporter has sold the goods on extended payment terms, meaning that at the time of sale he is in financial risk, while the goods are in transit to overseas destination. When financially at risk he can benefit from the security of the marine and war risk insurance arranged through his own insurance agent or broker with a sound insurance company.
Generally no difficulty should b experienced in fixing the cost of Marine and War Risk Insurance and ocean freight for a reasonable period of time. When there is question about the possibility of a change in insurance or ocean freight rates , a CIF quotation can always be qualified with the words,” Changes in insurance and freight rates shall be for account to the buyer.” Where is not practical to sell on CIF or buy on CFR terms, it is recommended that traders control the arranging of the insurance , particularly when they are financially at risk. Control of Marine and War Risk Insurance is an advantage to the trader desiring to compete effectively in the World Market.
MAIN ADVANTAGES- of a trader having his own Ocean Cargo Insurance Policy;
  1. Automatic “Warehouse-to-Warehouse” protection is provided with proper terms of insurance specifically designed for the Assured’s goods and methods of shipment . Such insurance provides coverage for the full exposure , at proper value and adequate limits.
  2. Rates will be competitive and reflect the Assured’s own experience.
  3. Worldwide claims service is available by claims representatives appointed by the underwriter.
  4. The Assured has all advantages of dealing through his own broker or agent for prompt personal service, dependability and convenience.
  5. A trader is free to choose his own insurance company.
  6. A trader can negotiated the terms and conditions on his own with the insurance company.
CONCLUSION: from above it is clear that a contract of Marine Insurance is a contract of good faith. An insured  must disclose all material facts to the insurance company at the time of submitting of proposal for insurance policy. It should be noted that insured must has insurable interest in the subject matter at the time of accident or filing of claim. We know that marine insurance is generally related to international and governed by in India through provisions of Marine Insurance Act, 1963 and in international trade INCOTERMS Rules,2010. We shall discuss the The Institute Cargo Clauses ,2009 in our next article.
  1. ASSIGNMENT OF MARINE INSURANCE POLICIES.
 
As you are aware that a contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, that is to say losses incidental to transit.
A contract of marine insurance may by its express terms or by usage of trade be extended so as to protect the insured against losses on inland waters or any land risk which may be incidental to any sea voyage.
In simple words the marine insurance includes;
  1. CARGO INSURANCE which provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea or air.
Thus cargo insurance concerns the following :
(i) export and import shipments by ocean-going vessels of all types,
(ii) coastal shipments by steamers, sailing vessels, mechanized boats, etc.,
(iii) shipments by inland vessels or country craft, and
(iv) Consignments by rail, road, or air and articles sent by post.
  1. HULL INSURANCE which is concerned with the insurance of ships (hull, machinery, etc.).
INSURABLE INTEREST
For effecting marine insurance like any other insurance, the assured must have an insurable interest. If there is no such interest, the policy would be a wagering contract and thus it will be void.  Any person does have an insurable interest who is interested in a marine journey or who can get affected due to the losses and damages caused in the marine journey or adventure. The interest must subsist either at the time of effecting the insurance or at the time of loss. Any interest which is defeasible or contingent or partial can be insured. A lender under a bottomry bond or respondentia bond has insurable interest as well as master’s and seamen’s wages, advance freight are insurable, a mortgagee has also insurable interest.
The term “ Transfer” or “ Assignment” of policies of insurance are governed by the provisions of the Transfer of Property Act,1882 as amended from time to time. Please note that provisions of Section 38 of the Insurance Act,1938 only deals with transfer or assignment of Life Insurance Polices and the provisions of TP Act,1882 deal with other types of insurance policies.
“ Actionable Claim”-Section 3 of TP Act,1882 defines as – a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.
The claim under a policy was regarded as property and is treated as an actionable claim under TP Act,1882 and the rules relating a transfer of actionable claim were held to apply to assignment of policies till specific statute laid down some specific rules for such assignments.
Section 6( e) of the Transfer of Property Act,1882 lays down that a mere right to sue cannot be transferred.
From above we find that an actionable claim means a claim to a debt. In its primary sense a debt is a liquidated money obligation and it is an essential feature of an action for debt that it should be for a liquidated debt or certain sum of money. The right to recover an ascertained and definite debt is not a mere right to sue and is not transferable. It is an actionable claim.
It means if a certain sum of money is due from any person , that sum is recoverable on assignment , and it is not mere right to sue to offend against the provisions of Section 6( e) of TP act,1882.
As you know that in case of an actionable claim, there is a surety that there is some amount ,which can be recovered and same as in an Insurance Policy. The Sum Insured is the amount ,which will be recoverable at the time of loss or after assignment of insurance policy by the assignee. A policy of insurance is a present contract in the hand of an insured of which he has present right to the benefit although the fruits are to be enjoyed in future.
A policy on a man’s life expressed to be payable to his executors or administrators is a reversionary interest certain to fall in on the assured’s death or attainment of the stipulated age. A policy of insurance is a choose in action. A policy of life insurance represents money which is due and owned to the assured at his death and in the part of his estate. He has unlettered discretion to sell or charge it, to bequeath it or even to give it away.
“ ASSIGNMENT”  means- Transfer of interest from one to another is called assignment. In insurance also when rights and obligation under the contract are transferred from one to another, the same is called assignment of the policy. There can be another assignment in insurance which is assignment of benefits under the policies. Assignment of policy and assignment of benefits are quite distinct. Whereas in the former all the rights and obligations are transferred, in the latter only benefits (i.e. money due under the policy etc) are transferred. In insurance the assignment means assignment of rights under the contract. An assignee for all purposes becomes the owner of the policy and enjoys all rights thereunder. However, by assignment no change is made in the subject matter insured by the policy and it remains unaltered.”
ASSIGNMENT OF A CONTRACT OF INSURANCE AND ASSIGNMENT OF THE SUBJECT MATTER OF INSURANCE.
Assignment for the purpose of law o insurance may either be;
  1. The assignment of the subject matter of insurance ;or
  2. The assignment of the policy.
Please note that:- the question of the assignment of the subject matter of insurance in case of life and personal accident insurances does not arise, for the subject -matter in such cases is from its very nature unassignable.
The assignment of the subject-matter in the case of fire insurance is dealt as follows; “ As regards the assignment of the fire policies itself, it is transfer of the contract of insurance with its all rights and liabilities to the transferee and, therefore ,it is substitution of a new insured to all intents and purposes other than the original insured.”
THE SUBJECT MATTER OF INSURANCE
Anything in respect of which there is a risk of loss from maritime perils may be the subject of marine insurance. It will be recalled that there is a distinction between the subject matter of insurance and the subject matter of the contract of insurance, that every lawful marine adventure may be the subject of a contract of marine insurance, and that a contract of marine insurance may be extended to cover risks other than maritime perils in a narrow sense. However, even though a marine insurance contract may include risks arising inland, the contract must be substantially one relating to a marine adventure. Therefore, the subject matter of the insurance must be capable of exposure to maritime perils.
 
WHETHER FIRE AND ACCIDENT POLICIES ARE ASSIGNABLE?
It is clear from above discussion that a policy of life insurance is pure benefit policies and carry a definite sum or amount as Sum Assured will be payable at the time of accident or happening of assured perils. So in legal sense a Life Insurance Policy is an actionable claim or chose in action and hence assignable under provisions of TP Act,1882.
Since Fire Insurance Policies and other general insurance policies are pure indemnity policies. There is no amount is fixed that will be payable to the insured. Sum Insurance is the maximum amount to be payable in these policies but same will vary to the extent of loss suffered by the insured. In case of contract of indemnity , the amount payable is not certain or calculable it depends upon the loss suffered by the insured, and it becomes payable only if and when the loss occurs. Therefore we conclude that a policy of fire, property accident insurances are in nature of right to sue for damages and the fact that they as such are not actionable claims is also apparent from the amendment of Section 6(4) of the TP Act,1882 to the effect that a mere right to sue cannot be transferred[Abu Mohammad Vs. SC chunder (1909) 36 Cal 345].
In these policies it may not certain that loss may take place , and also the extent of damages are also not certain. For an actionable claim it must be perfected and absolute , and not merely a sum of money which may or not become payable at future time.
It was held that policies of insurance against loss or damages by fire are not in their nature assignable nor can the interest in them be transferred from one person to another without the express consent of the insurance company. Suppose an insurance policy promises to indemnify “A” against loss by fire. He can assign his right of action against the insurance company to “B”, so that if “A” suffers loss “B” may recover in respect of it , but “B” cannot without the consent of insurance company’s consent ,convert promise to indemnify “A” to a promise to indemnify “B” , because that would not be an assignment  but an attempted novation.
PLEASE NOTE THAT : Property and liability insurances are personal contracts, and do not run with the property if it is sold or otherwise disposed of or with a transfer of liabilities of the insured. Therefore, both at common law and equity, as assignment of a policy of insurance can only be valid of the insurer consents to this course, whereby, in truth a new contract of insurance is effected between the assignee and the insurer, and that between the assignor (the original insured) and the insurer lapses.”
RESTRICTIONS ON ASSIGNABILITY IMPOSED BY THE COMPANY; If parties to a contract of insurance agree to impose restrictions to the assignability of the policy or to make it assignable only with the consent of the company , effect must be given to such restrictions. But such provision does not apply to the case of the person on whom the policy has devolved by the operation of law, or in the case of person who is under obligation to insure. If insurance policy is not assignable they assignee has no right to sue or call the insurance company in case of loss or damage due to insured peril. In this case the right person is the insured /assured to claim loss /damage under insurance policy.
PLEASE NOTE THAT: life policies are now construed not as a contract of indemnity but to pay a certain sum in a certain vent depending on the duration of human life. If at the time the contract of insurance is made the person affecting insurance has an insurable interest in the life of the person assured the policy is a valid, notwithstanding the fact that the person effecting the insurance ceased to have an interest in the life assured at the time when policy become due. It follows from this that the assignment of a life policy would be valid and would pass to the assignee the rights to the insurance money, even though the assignor’s interest in the life had ceased to have an interest in the life assured at the time when the policy became due.
It follows from above that the assignment of a life policy would be valid and would pass to the assignee the rights to the insurance money, even through the assignor’s in the life had ceased before the date of the assignment. It means an assignment to person without interest is not invalid assignment.
It is obvious that the contract of insurance may be assigned in one of two ways.
  1. In the first place, the policy may be assigned without the assignment of the property insured; or,
  2. secondly, the policy may be assigned together with the assignment of the property insured. The distinction is important, and must be kept in mind.
Where the assignment is of the policy only, there is no difficulty in reconciling this with the nature of a personal contract. All that is assigned in this case is the right to receive the insurance money, in case the interest of the person originally insured suffers loss from the perils insured against. The assignment is like the  ​assignment of any other chose in action. The assignee is merely the person designated to receive the insurance, and he acquires only the rights of the assignor, and is subject to all the defences which the insurers have or may have against the person originally insured.
No element of the personal contract is violated, for it is of no consequence to the insurers who receives the insurance money, so long as they are free from the claims of the person originally insured.
But where the property insured is sold, and the policy is assigned, an entirely different question is raised. In this case, the person originally insured has parted with his entire interest in the subject-matter of the contract. He can suffer no loss, for he had no interest in the property at the time of the loss. The insurers cannot indemnify him, for he has no interest which can be the subject of indemnity. That interest is in the assignee, a stranger to the contract, who is neither a party nor a privy to the original contract, and it is he who suffers the loss. If, then, the contract can be assigned, seemingly the whole conception of a personal contract will be done away with.
ASSIGNMENT OF MARINE INSURANCE POLICY
The  terms and conditions of Marine Insurance Policies are governed provisions of the Marine Insurance act,1963.
“(1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.
(2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant is entitled to make any defence arising out of the contract which he would have been entitled to make if the action had been brought in the name of the person by or on behalf of whom the policy was effected.
(3) A marine policy may be assigned by endorsement thereon or in other customary manner.
SECTION 17 OF MARINE INSURANCE ACT,1963 provides that
Assignment of interest.—Where the assured assigns or otherwise parts with his interest in the subject-matter insured, he does not thereby transfer to the assignee his rights under the contract of insurance, unless there be an express or implied agreement with the assignee to that effect.
But the provisions of this section do not affect transmission of interest by operation of law.
ACCORDING TO SECTION 25 OF THE MI ACT,1963 provides that a Marine Insurance Plicy must specify ;
(1)  the name of the assured,  ore of some person who affects the insurance on his behalf;
(2)  the subject-matter insured and the risk insured against.
(3) the voyage, or period of time, both, as the case may be, covered by the insurance;
(4) the sum or sums insured;
(5) the name or names of the insurer or insurers.
Contract must be embodied in policy-
According to Section 24 of the marine insurance act 1963, A contract of marine insurance shall not be admitted in evidence unless it is embodied in a Marine policy in accordance with this act (Marine Insurance Act 1963). The policy may be executed and issued either at the time when the contract is concluded or afterwards.
SECTION 52 provides that –
When and how policy is assignable.—(1) A marine policy may be transferred by assignment unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.
(2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant is entitled to make any defence arising out of the contract which he would have been entitled to make if the suit had been brought in the name of the person by or on behalf of whom the policy was effected.
(3) A marine policy may be assigned by endorsement thereon or in other customary manner.
SECTION 53 OF MI ACT,1963 .
Assured who has no interest cannot assign.—Where the assured has parted with or lost his interest in the subject-matter insured, and has not, before or at the time of so doing expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative.
Provided that nothing in this section affects the assignment of a policy after loss.
SECTION 52 provides as to when and how the marine policy may be transferred. It says that a Marine Policy may be transferred by assignment unless it contains express terms, which prohibits any assignment of the policy. It also provides that such assignment  can be made before or after the loss has occasioned.
SECTION 52(2)-provides that once assignment is made then the assignee is entitle to sue in his name whereas the insure/defendant is also entitled to raise all such defences against the assignee ,which are available to him against the origiional insured i.e. the assigner.
SECTION 17-provides that where the assured assigns or otherwise parts with his interest in the subject matter insured, he (insured) does not thereby transfer to the assignee his rights under the contract of insurance unless there is an express or implied agreement with the assignee of that effect. This section does not affect transmission of interest by operation of law.
Please Note That – Section 17 even after making an assignment by the insured of their contract of insurance policy, the rights of insured under the contract of insurance policy are not assigned in favour of assignee by the deed of assignment but they are continued to remain with the insured.
PLEASE NOTE THAT
A marine insurance policy is assignable either before or after the loss, unless it contains terms expressly prohibiting assignment. A policy on goods is generally freely assignable. Merchandise like tea, jute and wheat etc., change hands before they reach their destination and policies on them must be freely transferable. Both policies on ship or on freight are subject to restrictions on assignment.
An assignment by the insured of his interest in the subject-matter insured does not transfer his rights in the policy of insurance thereon to the assignee, unless there is an express or implied agreement to that effect. But a transmission of interest in the subject –matter insured by operation of law- such as by death or insolvency- will operate as a transfer of the policy also.
An assured who has assigned or lost his interest in the insured property cannot subsequently assign the policy of insurance thereon. Unless before or at the time of assigning the property, he has expressly or impliedly agreed to assign the policy. However, he can always assign the policy after loss. The marine policy may be assigned by endorsements on the policy itself or in any other customary manner. On the assignment of the beneficial interest in the policy, the assignee is entitled to sue thereon in his name.
CONCLUSION: from above discussion it is clear that in case of marine insurance ,an Insurable interest must be present only at the time of claiming and  policy is easily assignable.It may be assigned to any, who has insurable interest or going to acquire at later date. Cargo insurance assignment does not even require consent of insurer, which is necessary in hull insurance.Transfer of subject matter does not automatically transfer insurance policy also. Person who lost or parted with insurable interest cannot transfer the policy subsequently. We hereby conclude that a Marine Insurance Policy is freely assignable unless expressly prohibited through some terms and conditions in the insurance policy or insured and the insurance company has agreed to prohibit any assignment of insurance policy. There is no inherent difference between the contract of marine insurance and the contract of fire insurance. Both are contracts of indemnity; both are personal contracts with the insured, and both are mercantile contracts ordered and controlled by the custom of merchants. Yet the courts seem to have ruled from the earliest times that, in the case of fire insurance, no assignment of the policy and property will be valid without the consent of the insurer thereto, while in marine insurance no such consent is necessary.
  1. EFFECT OF THE EXPRESSION “ AGE ADMITTED”
We know that an insurance is a contract between insured and the insurance company. It is a contract based on utmost good faith, it means that a customer or prospects while submitting proposal with insurance company for applying an insurance coverage  has to declare all material facts, that  are going to affect decision of insurance company. There are various material factors for an insured to be declared such as , his age, health, circumstances , medical history, family medical conditions and even his financial conditions and the risk he wants to cover under insurance policy, etc. An insurance company will decide whether to accept risk or not or the amount of premium to be charged or the terms and conditions of insurance coverage on the basis of facts declared by the customer or prospects.
Age is one of the most important facts to be declared by the customer at the time of onboarding ,because the rate of premium, the risk attached to his age, his medical conditions etc., will be determined on the age.
It is incumbent upon the assured/insured to give proof of his age during this life time, and if he dose so, the company writes across the policy the words “ AGE ADMITTED”.
The age has been admitted by the insurance company in writing after being satisfied with the proof furnished by the assured , not only would  the person claiming under the policy be relieved from the necessity of providing the age in an action brought on the policy, but the company would also be precluded from producing, as  of right , vide evidence  to disapprove the age admitted. If however the court is satisfied that the admission has been obtained by fraud , or that there is another good and sufficient cause , it will be in its discretion under proviso to Section 58 of the Evidence Act to require the fact to be proved , otherwise than by such admission.
But if assured gives warranty as to correctness his age, and there is a breach of a warranty , the burden of proof is upon the company to prove the breach of warranty. Even if the warranty as to age is absolute , and not merely as to the belief of the assured , as to his age  the onus will on the company as in the case of any other breach of warranty to the health ,habit ,etc. of the assured.
PLEASE NOTE THAT :  generally there is a condition in the prospectus  that the duty of providing the correctness of age is cast on the assured. If such a prospectuses is incorporated in the issued Insurance Policy , the effect of such incorporation is to put onus on the assured or his representatives to prove age of the assured.
Oriental Government Security Life Assurance Company Vs. Narasimha Chari,(1901) 2 Mad 183;
BRIEF FACTS: A Policy of insurance was filled in by person for sum of money payable at his death , and in the proposal form he stated age to be 58 next birthday, and declared that the particulars given by therein were correct. A personal statement was also signed by him which, inter alia contained a declaration as follows ;
“ I solemnly declare that according to the best of my knowledge and belief I am now in good health and that my age does not exceed 58 years  and hat I have fully and faithfully answered all such questions as has been put to me in the proposal form and by the medical referees relative to my habits etc., without concealment and reservations.”
This declaration was the basis of contract between him and the company and he further agreed that in case any untrue averment , in the proposal form, or in the personal declaration etc., the assurance shall be void, and all the money paid there under shall be forfeited.
A policy was issued embodying such terms and conditions and provided that in case of any untrue statement or allegation or in case of misrepresentation or concealment , the policy should be void. In an action for claim, the company contended that the policy has been obtained by fraudulent misrepresentation as to age, means and circumstances of the assured. The age was shown to be three or four years greater than the actual one.
JUSTICE BHASHYAM AIYYANGER said that:
“ If the warranty was only as to the belief of the assured as to his age ,the onus will no doubt , be on the company to prove a breach of warranty by establishing that the assured could not have believed that his age did not exceed 58 years, and even if the warranty be an absolute one, the onus will probably be on the company as in other cases of breach of warranty as to the assured’s habits, health, medical attendance etc., to disapprove the correctness of the age as given by the assured.”
DECISION: it was held that the defendants( Company) were not liable under the policy and the plaintiff was not entitled under section 65 of the Contract Act to refund of premium paid on the policy during the life time of the assured.
PLEASE NOTE THAT : when the money under the policy becomes payable , the company is in the position of a debtor and the assignee or legal representative or nominee is a creditor. The company does hold the money upon any trust. An insurance company is in the position of an ordinary debtor and must be treated accordingly. It cannot be deemed to be a trustee of the policy moneys even where the form of the policy is a charge upon the funds of the company without any direct promise to pay.
Oriental Government Security Life Assurance Company Vs. S.C. Chatterjee,(1899) 20 BOM 99;  it was held by  JUSTICE Faran that the effect of incorporating into policy the prospectus of the company is , I think to throw upon the assured , or his representatives , the onus of proving the correctness of age as warranted by the assured as containing a stipulation that the policy is issued subject to the assured proving the correctness of his age as early as he may find is convenient during his life time, or in default thereof his legal representatives proving the same on the settlement of his claim under the policy. If the assured subsequent to the issue of the policy produces before the company any proof of his age and the company being satisfied with the proof admits in the writing the correctness of he age, the legal representatives of the assured need not prove the same in an action upon the policy against the company.
CONCLUSION: it is advisable for insurance companies to take valid  age proof of the customer at the time of onboarding. An insurance company one incorporate word “ AGE ADMITTED” in the insurance policy has not right to repudiate claim on the policy on the basis of age. In this case onus will be on the insurance company to prove that the age has been admitted due to fraud or misrepresentation of facts by the assured /insured.
  1. EXCLUSIVE JURISDICTION OF MACT IN MOTOR ACCIDENT CASES
On account of rapid development of road transport and increase in number of Motor Vehicles on road the accidents by Motor Vehicles have been increased enormously.  About 450,000 accidents take place in India annually, of which 150,000 people die. “India has the highest number of casualties in road accidents,” said the report. “There are 53 road accidents in the country every hour and one death every four minutes.”
In 1988 motor vehicle act 1988 was passed by the parliament of India. This act is responsible for covering all the aspects that are related to road transport vehicles. Furthermore, this act provided licensing to the conductors and the drivers as well as registration of motor vehicles. Also, traffic regulations, the provision on controlling the permit, penalties, and liabilities were covered under the motor vehicle act – 1988.
The Motor Vehicle Act 1988
The major objective of this act was to concentrate on the innocent people who are traveling on the road and can get affected by the drivers. The drivers of this motor vehicle were not held accountable for until this act. Thus, under the motor vehicle act, there was a provision for compensation for these helpless people on the road.
The Act,1988 further amended and No-Fault Compensation has been inserted in the Act, even though there is no fault on behalf of drivers of the vehicle.
140. Liability to pay compensation in certain cases on the principle of no fault.—
(1) Where death or permanent disablement of any person has resulted from an accident arising out of the use of a motor vehicle or motor vehicles, the owner of the vehicle shall, or, as the case may be, the owners of the vehicles shall, jointly and severally, be liable to pay compensation in respect of such death or disablement in accordance with the provisions of this section.
(2) The amount of compensation which shall be payable under sub-section (1) in respect of the death of any person shall be a fixed sum of 1[fifty thousand rupees] and the amount of compensation payable under that sub-section in respect of the permanent disablement of any person shall be a fixed sum of 2[twenty-five thousand rupees].
(3)  In any claim for compensation under sub-section (1), the claimant shall not be required to plead and establish that the death or permanent disablement in respect of which the claim has been made was due to any wrongful act, neglect or default of the owner or owners of the vehicle or vehicles concerned or of any other person.

 

(4) A claim for compensation under sub-section (1) shall not be defeated by reason of any wrongful act, neglect or default of the person in respect of whose death or permanent disablement the claim has been made nor shall the quantum of compensation recoverable in respect of such death or permanent disablement be reduced on the basis of the share of such person in the responsibility for such death or permanent disablement.
(5) Notwithstanding anything contained in sub-section (2) regarding death or bodily injury to any person, for which the owner of the vehicle is liable to give compensation for relief, he is also liable to pay compensation under any other law for the time being in force:
Provided that the amount of such compensation to be given under any other law shall be reduced from the amount of compensation payable under this section or under section 163A.
146. Necessity for insurance against third party risk.—
(1) No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter:
Explanation.—A person driving a motor vehicle merely as a paid employee, while there is in force in relation to the use of the vehicle no such policy as is required by this sub-section, shall not be deemed to act in contravention of the sub-section unless he knows or has reason to believe that there is no such policy in force.
(2) Sub-section (1) shall not apply to any vehicle owned by the Central Government or a State Government and used for Government purposes unconnected with any commercial enterprise.
(3) The appropriate Government may, by order, exempt from the operation of sub-section (1) any vehicle owned by any of the following authorities, namely:—
(a) the Central Government or a State Government, if the vehicle is used for Government purposes connected with any commercial enterprise;
(b) any local authority;
(c) any State transport undertaking:
Provided that no such order shall be made in relation to any such authority unless a fund has been established and is maintained by that authority in accordance with the rules made in that behalf under this Act for meeting any liability arising out of the use of any vehicle of that authority which that authority or any person in its employment may incur to third parties.
Explanation.—For the purposes of this sub-section, “appropriate Government” means the Central Government or a State Government, as the case may be, and—
(i) in relation to any corporation or company owned by the Central Government or any State Government, means the Central Government or that State Government;
(ii) in relation to any corporation or company owned by the Central Government and one or more State Governments, means the Central Government;
(iii) in relation to any other State transport undertaking or any local authority, means that Government which has control over that undertaking or authority.
165. Claims Tribunals.
(1) A State Government may, by notification in the Official Gazette, constitute one or more Motor Accidents Claims Tribunals (hereafter in this Chapter referred to as Claims Tribunal) for such area as may be specified in the notification for the purpose of adjudicating upon claims for compensation in respect of accidents involving the death of, or bodily injury to, persons arising out of the use of motor vehicles, or damages to any property of a third party so arising, or both.
Explanation.—For the removal of doubts, it is hereby declared that the expression “claims for compensation in respect of accidents involving the death of or bodily injury to persons arising out of the use of motor vehicles” includes claims for compensation under section 140 [and section 163A].
Section 175 Bar on jurisdiction of Civil Courts.—Where any Claims Tribunal has been constituted for any area, no Civil Court shall have jurisdiction to entertain any question relating to any claim for compensation which may be adjudicated upon by the Claims Tribunal for that area, and no injunction in respect of any action taken or to be taken by or before the Claims Tribunal in respect of the claim for compensation shall be granted by the Civil Court.
The claim for compensation in respect of accidents involving death or bodily injuries to persons arising out of use of Motor Vehicles as well as insurance of the Motor Vehicles against third party risk and liability of the insurer are contained in Chapter VIII of the Motor Vehicles Act,1988.
The State Government has been empowered to constitute one o more Motor Vehicles Accident Claims Tribunals by notification in Official Gazette.
Section 166 of the Act,1988 provides for application for compensation before the MACT and provisions of section 168 are related to awards of compensation by the MACT.
The provisions of Section 175 –bars jurisdiction of Civil Courts to entertain any question relating to any claim for compensation which may be adjudicated by the MACT for that area, and no injunction in respect of any action taken or to be take by or before the MACT in respect of the claim for compensation shall be granted by the Civil Court.
UNION OF INDIA vs. UNITED INDIA INSURANCE CO. LTD.(supra)-applications for compensation had been filed either by the injured passenger or the defendant of the deceased passengers travelling in the Motor Vehicle both against the insurer as well as the Railway Administration and one of the contentions which had been raised before the Apex  Court by Railway Administration was whether a claim for compensation would at all be maintainable before the MACT against other persons or agencies which are held to be guilty of composite negligence or are joint tortfeasors and if the same has arose out of use of Motor Vehicle.
On consideration of different provisions of the MVA,1988 this Court ultimately came to hold that “ We hold that the claim for compensation is maintainable before the MACT against other persons or agencies which are held to be guilty of composite negligence or are joint tortfeasors , amd if arising out of use of Motor Vehicle. We hold that  MACT and the High Court were right in holding that an award could be passed against Railways if its negligence in relation to same accident was also proved.
The Apex Court also come to hold that the views expressed by Guwahati, Orissa and Madras High courts to the effect that not award can be passed against others except the owner/driver or insurer of the Motor Vehicle are not correct , and on the other hand the view taken by the Allahabad, Punjab and Haryana , Gujarat, Kerala and Rajasthan High Courts to the effect that the claim lies before MACT even against another joint tortfeasors connected with the same accident or against whom composite negligence is alleged.”
IT MEANS THAT: – a claim for compensation can be filed against the owner/driver /insurance company and the other joint tortfeasors connected with with the accident or against whom composite negligence is alleged. The MACT has jurisdiction to entertain application for compensation in Motor Accident cases both by the injured person or legal representative of deceased person of an Motor Vehicle Accident case.
The Jurisdiction upon the Claims Tribunals constituted under MVA,1988 is the accident arising out of Motor Vehicle , and therefore if there has been a collision between the Motor Vehicle and Railway train then all those persons injured or died could make an application for compensation before MACT not only against the owner/driver but also against the Railway Authorities.
Please Note That: -once jurisdiction is invoked and is exercise the said jurisdiction cannot be divested of on any subsequent finding about the b negligence of the tortfeasers concerned. It would be immaterial if the finding is arrived at that it is only other joint tortfeaser who was negligent in causing the accident ad not the driver of the Motor Vehicle.
The Apex Court in above case further held  that “ in our considered opinion that the jurisdiction of the Tribunal to entertain application for claim of compensation in respect of an accident arising out of the use of Motor Vehicle depends essentially on the fact that whether there had been any use of Motor Vehicle and once that is established the Tribunals’ Jurisdiction cannot be held to be outside on a finding being arrived at a later point of time that it is the negligence of the other joint tortfeasor and not the negligence of the Motor Vehicle in question.”
The Apex Court in its decision held that – “ it is ultimately found that there is no negligence on the part of the driver of the vehicle or there is no defect in the vehicle but the accident is only due to the sole negligence of the other parties/agencies, then on that finding , the claim would go out of Section 110(1) of the MVA,1988 because the case would then become one of exclusive negligence of Railways. Again if the accident had arisen only on account of the negligence of persons other than the driver/owner of the Motor Vehicle , the claim would not be maintainable before the MACT  is not correct in law and to that extent the aforesaid decision must be held to have not been correctly decided.”
Please Note That- The MVA ,1988 is a special statute. The jurisdiction of the Tribunal having regard to the terminologies used therein must be held to be wider than a Civil Court. A claimant has a vide option. The residence of claimant also determines the jurisdiction of the Tribunal. What would be a residence of a person would, however ,depend upon the fact situation obtaining in each case. [Mantoo Sarkar Vs. Oriental Insurance Company Ltd. 2009(2) ALL MR 475].
Please Note That-no doubt Tribunal must exercise jurisdiction having regard to the ingredients laid down under provisions of Section 166(2) as follows ;
166. Application for compensation
(1) An application for compensation arising out of an accident of the nature specified in sub-section (1) of section 165 may be made—
(a) by the person who has sustained the injury; or
(b) by the owner of the property; or
(c) where death has resulted from the accident, by all or any of the legal representatives of the deceased; or
(d) by any agent duly authorised by the person injured or all or any of the legalrepresentatives of the deceased, as the case may be:
Provided that where all the legal representatives of the deceased have not joined in any such application for compensation, the application shall be made on behalf of or for the benefit of all the legal representatives of the deceased and the legal representatives who have not so joined, shall be impleaded as respondents to the application.
(2) Every application under sub-section (1) shall be made, at the option of the claimant, either to the Claims Tribunal having jurisdiction over the area in which the accident occurred or to the Claims Tribunal within the local limits of whose jurisdiction the claimant resides or carries on business or within the local limits of whose jurisdiction the defendant resides, and shall be in such form and contain such particulars as may be prescribed:
Provided that where no claim for compensation under section 140 is made in suchapplication, the application shall contain a separate statement to that effect immediately before the signature of the applicant.
(3) The Claims Tribunal shall treat any report of accidents forwarded to it under sub-section (6) ofsection 158 as an application for compensation under this Act.
169. Procedure and powers of Claims Tribunals.
(1) In holding any inquiry under section 168, the Claims Tribunal may, subject to any rules that may be made in this behalf, follow such summary procedure as it thinks fit.
(2) The Claims Tribunal shall have all the powers of a Civil Court for the purpose of taking evidence on oath and of enforcing the attendance of witnesses and of compelling the discovery and production of documents and material objects and for such other purposes as may be prescribed; and the ClaimsTribunal shall be deemed to be a Civil Court for all the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974).
(3) Subject to any rules that may be made in this behalf, the Claims Tribunal may, for the purpose of adjudicating upon any claim for compensation, choose one or more persons possessing special knowledge of any matter relevant to the inquiry to assist it in holding the inquiry.
From above provisions of Section 169 provides that the Tribunal, subject to any rule may follow Summary procedures and the provisions of Civil Procedure Code under the Act has limited application but in terms of the rules “ Save and Except” any specific provisions made in that behalf , the provisions of Civil Procedure Code will apply.
CONCLUSION:  from above discussion, we conclude that the Motor Accident Claim Tribunal established by the State Government on the basis of power provided under provisions of Motor Vehicle Act, 1988 has exclusive power to decide cases of compensation arise due to involvement of a Motor Vehicle in an accident. It is to be noted that the application must be filed by injured person or his/her legal representatives and against the driver/owner /insurance company or other joint tortfeasors or persons or agencies ,who are alleged to be party in an act of negligence. The MACT has jurisdiction to award compensation against any o person or agency involved in the act of negligence ,which causes Motor Accident. No Civil Court is allowed to interfere in the award passed or any action taken or to be taken by the Tribunal , under its jurisdiction.
  1. IMPORTANCE OF CERTIFICATE OF INSURANCE(COI)
 
As you are aware that a Insurance Certificate describes insurance coverage to the insured. It contains details of insured, his name, address, contact details , property insured, type of insurance , the nature and the name of risk insured and of course main thing the total Sum Insured ( i.e. maximum sum payable in case of happening of insured peril to the insured).
A certificate of insurance (COI) is issued by an insurance company or broker. The COI verifies the existence of an insurance policy and summarises the key aspects and conditions of the policy.
We can further say that an Insurance Certificate is a  document used so that coverage is provided to cover loss or damage to cargo while in transit when insurance is placed against an open marine cargo policy. In some cases a shipper may issue a document that certifies that a shipment has been insured under a given open policy, and that the certificate represents and takes the place of such open policy, the provisions of which are controlling. Because of the objections that an instrument of this kind did not constitute a “policy” within the requirements of letters of credit, it has become the practice to use an insurance certificate. Also called cargo insurance certificate and special cargo policy.
We know that it is mandatory to have a third party insurance coverage for every two/four wheeler motor vehicle according to the provisions of the Motor Vehicles Act, 1988. You must have a Third-Party Insurance or Comprehensive /Package Insurance coverage , while plying your vehicles on public places. The Central Motor Vehicles Rules,1989 mandates to insurance company to issue Certificate of Insurance to the insured.  A Certificate of Insurance is nothing but a summary document issued by the insurance company, which contains details about the vehicle, policyholder and insurance policy itself.
As per the rule 141 prescribed under The Central Motor Vehicles Rules ,1989, every insurance company should issue an Insurance Certificate to the policyholder along with other policy documents. The Insurance Certificate is issued during the purchase or renewal of the motor insurance policy.
The Insurance Policy Certificate should be issued in the format stated in Form 51, which contains all the vital details about the vehicle, policyholder and motor insurance policy.
PLEASE NOTE THAT :  A Certificate of Insurance is a legal document, and the insurance company should issue the certificate without fail.
 
THE CENTRAL MOTOR VEHICLES RULES ,1989
RULE 141 Certificate of insurance.—An authorised insurer shall issue to every holder of a policy of insurance, a certificate of insurance in Form 51 in respect of each such vehicle.
RULE 142 Cover notes.
(1) Every cover note issued by an authorised insurer shall be in Form 52.
(2) A cover note referred to in sub-rule (1) shall be valid for a period of sixty-days from the date of its issue and the insurer shall issue a policy of insurance before the date of expiry of the cover note.
RULE 143Issue of certificates and cover notes.—Every certificate of insurance or cover note issued by an insurer in compliance with the provisions of this Chapter shall be duly authenticated by such person as may be authorised by the insurer.
RULE 144 Transfer of certificate of insurance.—When the ownership of a motor vehicle covered by a valid insurance certificate is transferred to another person together with the policy of insurance relating thereto the policy of insurance of such vehicle shall automatically stand transferred to that other person from the date of transfer of ownership of the vehicle and the said person shall within fourteen days of the date of transfer intimate to the authorised insurer who has insured the vehicle, the details of the registration of the vehicle, the date of transfer of the vehicle, the previous owner of the vehicle and the number and date of the insurance policy so that the authorised insurer may make the necessary changes in his record.
RULE 145 Exclusion of advertising matter.—No certificate of the insurance or cover note issued in pursuance of Chapter XI of the Act and of this Chapter shall contain any advertising matter either on the face or on the back thereof.
SECTION 156 of the MVA,1988 lays down that when an insur has issued a Certificate of Insurance in respect of contract of insurance between the insurers and the insured person, then-
  1. If and so long as the policy described in the certificate has not been issued by the insurer tohe insured, the insurer shall , as between himself and any other person except the insured , be deemed to have issued to the insured person a policy of insurance confirming in all respects with the description and particulars stated in such certificate ; and
  2. If the insurer has issued to the insured the policy described in the certificate but the actual terms of the policy are less favourable to persons claiming under or by virtue of the policy agains the insurer either directly or through the insured than the particulars of the policy as stated in the Certificate of Insurance , the policy shall a between the insurer and other person except the insured , be deemed to be in terms confirming in all respects with particulars state in the said Certificate of Insurance.
 
TRANSFER OF CERTIFICATE OF INSURANCE:
 
SECTION 157 OF MVA,1988 – Transfer of certificate of insurance
 
1. Where a person in whose favour the certificate of insurance has been issued in accordance with the provisions of this Chapter transfers to another person the ownership of the motor vehicle in respect of which such insurance was taken together with the policy of insurance relating thereto, the certificate of insurance and the policy described in the certificate shall be deemed to have been transferred in favour of the person to whom the motor vehicle is transferred with effect from the date of its transfer.
Explanation.–For the removal of doubts, it is hereby declared that such deemed transfer shall include transfer of rights and liabilities of the said certificate of insurance and policy of insurance.
2. The transferee shall apply within fourteen days from the date of transfer in the prescribed form to the insurer for making necessary changes in regard to the fact of transfer in the certificate of insurance and the policy described in the certificate in his favour and the insurer shall make the necessary changes in the certificate and the policy of insurance in regard to the transfer of insurance.
Please note that: an insured ho holds a certificate of insurance in respect of the vehicle insured by him and intends to transfer the ownership of the insured vehicle to another person Amy transfer the certificate to the purchaser with the consent of the insurance company.
The provisions of Section 157(1) provides that if a person having certificate of insurance and policy documents against insurance of motor vehicle and wants to transfer ownership of the vehicle to another person , then with the transfer of ownership , the certificate of insurance as well as policy are also deemed to be transferred in favour of purchaser. The purchaser for giving effect of above transfer has to apply with the insurer within a period of 14 days from the date of transfer.
As insurance company not bound to give effect of above transfer , it may refuse to transfer on the basis of various facts and in this case insurer is required to return the period paid for unexpired period to the insured.
 
SOME IMPORTANT USES OF CERTIFICATE OF INSURANCE
 
Section 158 in Motor Vehicles Act- Production of certain certificates licence and permit in certain cases;
 
(1) Any person driving a motor vehicle in any public place shall, on being so required by a police officer in uniform authorised in this behalf by the State Government, produce—
(a) the certificate of insurance;
(b) the certificate of registration;
(c) the driving licence; and
(d) in the case of a transport vehicle, also the certificate of fitness referred to in section 56 and the permit, relating to the use of the vehicle.
(2) If, where owing to the presence of a motor vehicle in a public place an accident occurs involving death or bodily injury to another person, the driver of the vehicle does not at the time produce the certificates, driving licence and permit referred to in sub-section (1) to a police officer, he shall produce the said certificates, licence and permit at the police station at which he makes the report required by section 134.
(3) No person shall be liable to conviction under sub-section (1) or sub-section (2) by reason only of the failure to produce the certificate of insurance if, within seven days from the date on which its production was required under sub-section (1), or as the case may be, from the date of occurrence of the accident, he produces the certificate at such police station as may have been specified by him to the police officer who required its production or, as the case may be, to the police officer at the site of the accident or to the officer in charge of the police station at which he reported the accident: Provided that except to such extent and with such modifications as may be prescribed, the provisions of this sub-section shall not apply to the driver of a transport vehicle.
(4) The owner of a motor vehicle shall give such information as he may be required by or on behalf of a police officer empowered in this behalf by the State Government to give for the purpose of determining whether the vehicle was or was not being driven in contravention of section 146 and on any occasion when the driver was required under this section to produce his certificate of insurance.
(5) In this section, the expression “produce his certificate of insurance” means produce for examination the relevant certificate of insurance or such other evidence as may be prescribed that the vehicle was not being driven in contravention of section 146.
(6) As soon as any information regarding any accident involving death or bodily injury to any person is recorded or report under this section is completed by a police officer, the officer incharge of the police station shall forward a copy of the same within thirty days from the date of recording of information or, as the case may be, on completion of such report to the Claims Tribunal having jurisdiction and a copy thereof to the concerned insurer, and where a copy is made available to the owner, he shall also within thirty days of receipt of such report, forward the same to such Claims Tribunal and Insurer.
 
Section 159 in Motor Vehicles Act- Production of certificate of Insurance on application for authority to use vehicle;
A State Government may make rules requiring the owner of any motor vehicle when applying whether by payment of a tax or otherwise for authority to use the vehicle in a public place to produce such evidence as may be prescribed by those rules to the effect that either-
– (a) on the date when the authority to use the vehicle comes into operation there will be in force the necessary policy of insurance in relation to the use of the vehicle by the applicant or by other persons on his order or with his permission, or
(b) the vehicle is a vehicle to which section 146 does not apply.
 
Section 160 in Motor Vehicles ActDuty to furnish particulars of vehicle involved in accident;
 A registering authority or the officer in charge of a police station shall, if so required by a person who alleges that he is entitled to claim compensation in respect of an accident arising out of the use of a motor vehicle, or if so required by an insurer against whom a claim has been made in respect of any motor vehicle, furnish to that person or to that insurer, as the case may be, on payment of the prescribed fee any information at the disposal of the said authority or the said authority or the said police officer relating to the identification marks and other particulars of the vehicle and the name and address of the person who was using the vehicle at the time of the accident or was injured by it and the property, if any damaged in such form and within such time as the Central Government may prescribe.
 
CONCLUSION: from above discussion it is clear that a Certificate of Insurance is an important documents in case of Motor Insurance and mandatorily required to be issued along with the policy of insurance. A certificate of insurance is a legal document and can be produced as an evidence in legal case. A COI contains all necessary details of insured and the risk insured by the insurer. Please note that the details of a COI should not be less favourable than what is written in the insurance policy. In case of difference in COI and the policy of insurance , then terms and conditions of COI will prevails over insurance policy for third parties and not for the insured and the insurance company.
  1. JUST COMPENSATION- UNDER MOTOR VEHICLES ACT,1988
As you are aware that many people every year are losing their lives in road accidents all over India. In some cases accident occurred due to their fault or negligence and on other hand in some cases on the fault and negligence of third parties or the owner of motor vehicles. An person injured in an motor accident or legal representatives of a person deceased in motor accident may apply for compensation under Motor Vehicles Act, 1988. It is an act to prevent Motor Accidents and in case of happening of an accident to provide adequate compensation to the injured and to punish the wrongdoers.
The Motor Vehicle Act of 1988 is a comprehensive Act that has replaced the Motor Vehicle Act, 1939. It was implemented on 1st July 1989. The first Act that came in force regulating the road transport vehicles was the Motor Vehicles Act, 1914. The Act of 1914 was later on replaced by the Motor Vehicles Act, 1939. Later on, with the changing time the need to introduce new changes became urgent so, Motor Vehicle Act, 1988 was enacted.
The Motor Vehicles Act,1988 regulates all cases related to Motor Accidents all over India. The Government has established Motor Appellate Claim Tribunals to handle motor accident claims cases.The Act,1988 covers all aspects road transport vehicles, such as registration, licensing, regulation, claims, compensation in case of accident etc.
MOTOR ACCIDENT CLAIM TRIBUNAL
Motor  Accident Claim Tribunal is a tribunal established for the cases falling under the Motor Vehicles Act, 1988. The main purpose of the Claims Tribunal is to ensure speedy trial of cases and that justice is being delivered.
The claimant should apply to claim within a reasonable period. According to Section 173, the appeals against the Claims Tribunals will lie before the High Courts. The appeals will have to be filed within 90 days from the date of the decision. If in case the claimant is late to file the appeal then he has to give a reasonable reason for such delay. If satisfied, the Court will then admit the appeal. In case the amount in dispute in appeal is less than Rs10,000/- then it shall not be entertained.
The Motor Accident Claim Tribunal deals with the cases that involve loss of life or property, or in case of injury. The Claims can be filed in the appropriate Claims Tribunal. High Courts of different states supervise these Tribunals.
Given below are the basic rules of the Motor Vehicles Act, 1988
According to Section 3 of the Act, no person can drive a vehicle without any authorized driving license, and without any driving license authorizing a person to drive a transport he cannot drive such a vehicle.
Section 4 states that unless a person attains the age of majority (18 years) he cannot drive a vehicle.
From Section 35 to Section 65 procedure for the registration of the vehicle has been laid down and it has been made mandatory to get one’s vehicle registered.
It is necessary for the vehicle owner to get third party insurance as stated from Sections 145 to 164.
SECTION 166 of the Act tells about who can apply for compensation in Motor Accident Claims Tribunal.
Who can claim compensation in MACT cases?
As per Section 166 of the Act, a person claims compensation if :
i)  he has sustained an injury
ii)  he is the owner of the property
iii) he is the legal representative of the person who died in the motor accident
iv)   he is the agent authorized by the injured person, or by the legal representatives of the deceased, as the case maybe.
When can compensation be claimed?
There is no prescribed limit within which the claim application has to be filed. But claiming the compensation after a long unnatural period might result in raising doubts in the minds of the Tribunal. Therefore, even though there is no prescribed limit to apply for compensation it should be claimed within a reasonable time.
According to Section 165(1) of the Motor Vehicles Act, 1988 the Claims Tribunal can entitle compensation to the claimant in the following circumstances –
i)   When the accident involves death or bodily injury to a person
ii)  When the accident results in the loss of any property of a third party
iii)  When such accidents arise out of the use of motor vehicles
Where can compensation be claimed?
The application for the claim can be filed in the following tribunals :
i) The Claims Tribunal where the claimant resides
ii)    The Claims Tribunal where the owner of the vehicle resides
iii)  The Claims Tribunal where the accident took place.
It is pertinent that Section 168 of the Motor Vehicles Act deals with the concept of “just compensation” which ought to be determined on the foundation of fairness, reasonableness and equitability because such determination can never be arithmetically exact and can never be perfect. Section 168 of the Motor Vehicles Act provides that the learned Tribunal shall conduct an inquiry into the claim petition.
Section 169 of the Motor Vehicles Act provides that the learned Tribunal shall follow such summary procedure as it deem fit to conduct such an inquiry. The inquiry stipulated in Section 168 of the Motor Vehicles Act is different from the civil trial. Section 168 of the Motor Vehicles Act casts a duty on the learned Tribunal to conduct an inquiry in a meaningful manner. The object of the legislature behind making this provision is that the victims of road accident are not left at their own mercy.
It means that “ Just Compensation” is a compensation decided by the tribunal or the courts ,which will be sufficient to the injured person or the legal representatives to the deceased person in a road accident. It will be based on fairness, reasonableness and equitability. The compensation should not be a medium of exploitation or earning on one hand and on other it should not be less than as equality  demand. You cannot measure loss of life or loss of limbs /mental agony of a person in an accident on monitory basis. The compensation should be adequate and based on principles of fairness, equality and reasonability.
The concept of “ Just Compenation”, is fundamentally concretised on certain well established principles and accepted legal parameters as well as principal of equity and good conscience.
In Yadav Kumar Vs. Divisional Manager, National Insurance Company Limited & others 2010(4)RCR(Civil)155- held that “ it goes without saying that in matters of determination of compensation both the tribunal and the court are statutorily charged with responsibility of fixing “ Just Compensation”. It is obliviously true that determination of just compensation cannot be equated to a bonanza. At the same time the concept of “ Just Compensation” obviously suggests application of fair and equitable principles and a resonable approach on thee part of tribunals and the courts. This reasonableness on the part of the tribunal and the court must be on a large peripheral field.”
The determination of the quantum of “Just Compensation” must be liberal , not niggardly since the law values life’s and limb in free country in genera our scales.[Concord of India Insurance Co. Ltd. Vs. Nirmala Devi 1980 ACJ 55(SC)]
Mr. Helen C. Rebello & Others Vs. Maharashtra State Road Transport Corporation & others 1998(4)RCR(Civil) 177– while dealing with “ Just Compensation” , it has been ruled that the word “ Just”, as its nomenclature , donates equitability , fairness and reasonableness having large peripheral filed. The largeness is, of course , not arbitrary , it is restricted by concise which is fair ,reasonable and equitable , if it exceeds; it is termed as unfair ,unreasonable ,inequitable and not just. The field of wider discretion of the tribunal has to be within the said limitations. It is required to make an award determining the amount of compensation which in turn appears to “ Just and Resonable”, for compensation for loss limbs of life can hardly weighed in golden scales.
The Insurance Act provides mechanism for fair compensation and the legal heirs of the claimants should not expect a windfall. The age and income of the deceased determine the apposite multiplier to be applied. The formula relating to multiplier has been defined in Sarla Verma and it has been approved in Reshma Kumari (2013) 9 SCC 65.  ‘Consistency’ and the principle of “Standardisation” is the watchword and a specific and certain multiple ought to be applied on the basis of age.
In Raj Rai Vs. Oriental Insurance Company Limited 2009 JT325- it was held that the Court’s duty being to ward “ Just Compensation” , it will try to arrive at the said finding irrespective of the fact as to whether any plea in that behalf was raised by the claimant or not.
PLEASE NOTE THAT
As state above Section 168 of the MVA,1988 ,the Motor tribunals is expected to fix such compensation, which may appear to be “ Just Compensation” would mean “ resonable” compensation for the injury , caused in an accident , resulted due to the negligence of the motorist. So “ Just” would mean appropriate, equitable or proper. It signifies that the compensation amount should bee so assessed as to make provision for the legal representatives of the deceased to receive or earn such peculiarly benefits as they could have obtained from the deceased if he had alive his normal life[ Surinder Kaur Vs. Bhagat Singh (1978) 80 Punjab LR732].
The grant of compensation amount , which would enable the legal representatives of the deceased to earn more pecuniary benefit than thee one that have been available to them from the deceased during his lifetime, would not be proper and grant of compensation amount which would not enable such legal representative to earn as much pecuniary benefits was available to them from the deceased during lifetime , would not be equitable.
Therefore the compensation to be assessed which can be termed as “ Just” as contemplated by Section 168 should be such as would ,if the same is prudently invested in some Schedule Bank , earn interest ,which would be equal to the pecuniary benefit, which had been available to the legal representatives from the deceased if he had not died due to the accident which resulted from negligence of user of the motor vehicle.
In Concord of India Insurance Co. Ltd. Vs. Nirmala Devi 1980 ACJ 55(SC)- the Court observed that “ the jurisprudence of compensation for motor vehicles accident must develop in the direction of no-fault liability and determination of the quantum must be liberal and not niggardly ,since law values life and limbs in a free country on a generous scales.”
The Apex Court in,  Ramla and others v. National Insurance Company Limited and others A.I.R. 2017 held that ‘just compensation’ is that compensation which is determined on the basis of the evidence produced. It cannot be considered as time-barred and doesn’t give a reason to file another case for an already increased amount. The Court also held that the Courts have the power to award compensation more than what is claimed by the claimants.
In the above-mentioned case, the claimants sought an increase in compensation awarded to them by the Kerala High Court which was Rs 25,000/-. The Supreme Court stated that under the head of ‘loss of dependency’ the amount wasn’t sufficient. Therefore, it enhanced the amount to Rs 28,000/-.
LET’S CONSIDER SOME IMPORTANT CASES FOR COMPENSATION
  1. Can a bus passenger claim full compensation in case of a bus accident?
The Court in Venkataswami Motor Service v. C.K Chinnaswamy  stated :
“ The fundamental duty of both the driver as well as the conductor is to verify specifically, whether any passenger is getting into the bus or is getting down from the bus, before actually the bus is moved from the bus stop where it is stopped, irrespective of the fact whether that place of stopping is a bus stop or not.”
Thus, it can be said that in case of an accident of a bus passenger, it will be the duty of the owner or the insurance company to compensate the victim.
  1. When both the victim and the driver are at fault?
Not every time it is compulsory that only one party is at fault. In some cases, it is more than two parties who are at fault. In such circumstances two options are there :
i) Contributory Negligence –
Here, the claimant along with the driver had contributed to the accident. It not only the negligence on the part of the driver but the claimant too. So, if the claimant has equally contributed to the happening of the accident then his compensation would be reduced to half. Otherwise, his compensation will be reduced in proportion to his negligence.
ii) Composite Negligence –
In composite negligence, the accident happens because of the fault of two or more parties excluding the victim. Here, there is no fault on the part of the victim. Thus, when more than two parties are involved in an accident and claim compensation under the third-party, the compensation will be decided in respect of the composite negligence on the part of drivers of those vehicles.
  1. Accident caused by an underage driver
If an accident is caused because of the underage driver then the insurance company is not liable to compensate the victim. The parents or legal guardian of such a child will be held liable.
  1. Compensation available to a child (victim) in case of an accident
Normally when a person dies in an accident then the compensation is assessed based on his earning capacity and his age. But what happens when a child dies in an accident. It is not as if he earns in his family so then how will the compensation be decided in such a case.
The Supreme Court in one of its cases has stated that if a child dies in an accident then while deciding the compensation child’s educational qualification, his performance in school will be considered. If the child was good in his studies then it would mean a bright future which directly means more loss. So, he would get more compensation. But still, it can be said that there is no standard way of calculating claim in case of death of a child.
  1. Compensation available in a motor vehicle accident if the victim is a wife
Once again it is a situation where the victim is not the earner of the family. The compensation cannot be reduced on the pretext that the victim is not the earner of the family so, some other member can take care of the family. Therefore, in 1994, the legislature had fixed the income of a non-earning person at Rs 15,000/- per month and in case of a spouse, it would be ⅓ rd income of the spouse who is earning for computing of accident claims.
  1. Can a Pillion Rider and a Co-passenger Claim Compensation in case of Two-wheeler and Car Accident respectively?
The Supreme Court in Oriental Insurance Co. Ltd v. Sudhakaran K.V. ,where this issue was raised, held that :
The insurance company is not liable to compensate a pillion rider or a co-passenger. It is only possible if the policy included this aspect from the beginning the required amount was being paid for the same.
In case of an accident resulting because of the negligent driving of the owner of the two-wheeler or a car then the co-passenger or the pillion rider of such car or two-wheeler will not be considered as the third-party.
MOTOR ACCIDENT CLAIM CASES IN INDIA
  1. Rajasthan State Road Transport v. Kailash Nath Kothari &Ors. A.I.R 1997 S.C. 3444.
In this case, a bus met with an accident and the driver of the bus was not the actual owner of the bus. Also, the actual owner had rented the bus to a Corporation who had appointed the driver of the bus. So, the actual owner was not in the possession of the bus. The Court held the Corporation liable for the accident and was asked to pay compensation to the victims.
  1. Mohan Soni v. Ram Avtar Tomar
The appellant, in this case, was a cart puller. One day he met with an accident which resulted in his leg being amputated. His monthly income was Rs 3,300/-. He no longer was in a position to support his family and to earn a livelihood. The Apex Court decided his compensation based on his nature of work. It was found that his loss of earning capacity was not less than 90%. Therefore, he was given a total compensation of Rs 4,01,400/- for mental agony Rs 30,000/-, for diet Rs 15,000/- and for loss of future earning Rs 3,56,400/.
  1. Raj Kumar v. Ajay Kumar
When the question of correlation between the physical disability suffered in an accident and the loss of earning capacity resulting from it was raised before the Supreme Court, it held that the effect of physical disability on the earning capacity of the victim is to be ascertained.
  1. Ayyappan v. M/s United India Insurance Co. Ltd. and Another A.I.R 2013.
In this case, the Court held that if in case any liability is there concerning the third party risk and the vehicle is not insured then the risk will have to be borne by the owner himself.
  1. R. Krishna Murthi v. The New India Assurance Co. Ltd. & Others
The Supreme Court, in this case, asked the Government to ascertain the feasibility of establishing a Motor Accident Mediation Authority in every district to ensure speedy trial of accident claims. This judgment has two main features :
  1. In the year 2017, 1,47,000 people lost their lives approximately which is more than the total population of Shillong, an Indian state.
  2. These deaths gave an exceptional rise to the number of accident claims that had already been there causing an increase in the number of backlog cases in Indian litigation.
The Apex Court, thus, realizing the necessity of resolving these claims asked for setting up of the Mediation Centers. The Court also pointed out the need for introducing an Indian Mediation Act in the parliament since the need for mediation was not only limited to motor accident claims.
  1. National Insurance Company Limited v. Pranay Sethi
In this case, the Supreme Court laid down the guidelines for assessing the amount of compensation to be paid by the offender to the accident victims who are self-employed, or have fixed salary, or have a  permanent salary. The Court held that the concept of ‘just compensation’ should be based on reasonableness, equity, and fairness.
CONCLUSION:  an accident resulted in bodily injury or demise of victim brings  pain and financial loss to the family . Motor Accidents are increasing day to day due to high speed , negligence and rush  driving. A victim may be innocent or may be in contributory to the accident. In both cases the family of victim suffers the most and to compensate them tribunal or courts award compensation. The compensation should be “ Just Compensation”, it means it is based on fairness, equality and reasonable. A compensation should not be a medium of earning profit on the other hand it should not be less than as expected to compensate loss of earning of the deceased. A compensation should be such an amount that victim shall earn in his lifetime if, he is alive.  The Just Compensation will be calculated by the tribunal and courts on the basis of case to case and on established juridical pronouncement of the Apex Court and according to the provisions of the Motor Vehicles Act, 1988. The  Laws are made for the benefit of the people. The Motor Vehicles Act, 1988 is made to prevent accidents, it is a very important law that requires serious implementation. Therefore, it is not only the Government that has to work towards its implementation but the public as well. Every person must make sure that he does not violate its provisions because in true sense it is the act of a person that results in an accident.
  1. MOTOR INSURANCE FRAUDS-DETECTION AND CONTROL
 
As you are aware that , insurance companies are considered as a custodian of monies of their policyholders. A policyholder  pays premium to insurance company with a hope that in case of financial loss, insurance company will indemnify him/her. An insurance company through insurance policies selling a promise to the policyholders that in case of loss due to insured perils, the insurance company help financially to the insured to the extent of loss. The premium paid by the insured to the insurance company is treated as consideration and insurance policy will be the contract between the insurer and insurance company.
There are some people for whom insurance has become an easy way of making money by staging various types of circumstances , accidents, submitting fraud ,fabrication and false documents to claim insurance money from insurance companies. The motor and health policies are the most vulnerable for insurance frauds.
 
Whatever is practiced in west easily find its way to India. Motor insurance and health insurance are more susceptible to insurance frauds, followed by life insurance and property insurance. A recent survey has shown that more than 50% of the third party (TP) claims in India are bogus. There are several claims that are based on bogus accidents carried out with the support of legal professionals. The Motor Insurance is the largest portfolio in the Indian non-life insurance market, which almost constitutes 40% of the non-life insurance premium.
Insurance fraud is a criminal act, provable beyond a reasonable doubt that violates statutes, making the willful act of obtaining money or value from an insurer under false pretences or material misrepresentations a crime.
Duffield and Grabosky (2001) posited that, fraud means obtaining something of value or avoiding an obligation by means of deception.
According to the International Association of Insurance Supervisors (IAIS); fraud in insurance is defined as “an act or omission intended to gain dishonest advantage for the fraudster or for the purpose of other parties”. This embraces many and varied forms of conduct, ranging from false claims against an insurance policy to some corporate frauds that are meticulously planned and intricate in their execution.
Auto insurance in India deals with the Insurance of Motor Vehicles, whether it is used for personal or commercial purposes. The insurance covers for the loss or damage to the automobile or its parts due to man made or natural calamities.
The Motor Vehicles Act, 1988, the Act came into force from 1 July 1989. It replaced Motor Vehicles Act, 1939 which earlier replaced the first such enactment Motor Vehicles Act, 1914. The act is further amended by The Motor Vehicles act, 2019.
The Motor Vehicle Act, 1988 has made compulsory for all motor vehicles whether they are used for personal or commercial purposes to have insurance cover.
The premium in case of Motor Insurance will decide on the price of the vehicle.
THE MOTOR VEHICLES ACT,1988 DEFINES SOME IMPORTANT TERMS USED IN MOTOR INSURANCE ;
Section 2(15) “gross vehicle weight” means in respect of any vehicle the total weight of the vehicle and load certified and registered by the registering authority as permissible for that vehicle;
Section 2(16) “heavy goods vehicle” means any goods carriage the gross vehicle weight of which, or a tractor or a road-roller the unladen weight of either of which, exceeds 12,000 kilograms;
Section 2(17) “heavy passenger motor vehicle” means any public service vehicle or private service vehicle or educational institution bus or omnibus the gross vehicle weight of any of which, or a motor car the unladen weight of which, exceeds 12,000 kilograms;
Section 2 (21) “light motor vehicle” means a transport vehicle or omnibus the gross vehicle weight of either of which or a motor car or tractor or road-roller the unladen weight of any of which, does not exceed 6[7500] kilograms;
Section 2(22) “maxicab” means any motor vehicle constructed or adapted to carry more than six passengers, but not more than twelve passengers, excluding the driver, for hire or reward;
Section 2(23) “medium goods vehicle” means any goods carriage other than a light motor vehicle or a heavy goods vehicle;
Section 2(24) “medium passenger motor vehicle” means any public service vehicle or private service vehicle, or educational institution bus other than a motor cycle, adapted vehicle, light motor vehicle or heavy passenger motor vehicle;
Section 2(25) “motorcab” means any motor vehicle constructed or adapted to carry not more than six passengers excluding the driver for hire or reward;
Section 2(26) “motor car” means any motor vehicle other than a transport vehicle, omnibus, road-roller, tractor, motor cycle or 8[adapted carriage];
Section 2(27) “motor cycle” means a two-wheeled motor vehicle, inclusive of any detachable side-car having an extra wheel, attached to the motor vehicle;
Section 2(28) “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding 9[twenty-five cubic centimetres];
Section 2(30) “owner” means a person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase, agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement;
SECTION 3 OF THE MOTOR VEHICLE ACT,1988 -MADE COMPULSORY TO HAVE DRIVING LICENSE, IT PROVIDES THAT;

 

(1) No person shall drive a motor vehicle in any public place unless he holds an effective driving licence issued to him authorising him to drive the vehicle; and no person shall so drive a transport vehicle [other than 1[a motor cab or motor cycle] hired for his own use or rented under any scheme made under sub-section (2) of section 75] unless his driving licence specifically entitles him so to do.
(2) The conditions subject to which sub-section (1) shall not apply to a person receiving instructions in driving a motor vehicle shall be such as may be prescribed by the Central Government.
NECESSITY OF INSURANCE AGAINST THIRD PARTY RISK
SECTION 146. Necessity for insurance against third party risks. –(1) No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force, in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter:
Provided that in the case of a vehicle carrying, or meant to carry, dangerous or hazardous goods, there shall also be a policy of insurance under the Public Liability Insurance Act, 1991 (6 of 1991).
Explanation. –For the purposes of this sub-section, a person driving a motor vehicle merely as a paid employee, while there is in relation to the use of the vehicle no such policy in force as is required by this sub-section, shall not be deemed to act in contravention of the sub-section unless he knows or has reason to believe that there is no such policy in force.
(2) The provisions of sub-section (1) shall not apply to any vehicle owned by the Central Government or a State Government and used for purposes not connected with any commercial enterprise.
(3) The appropriate Government may, by order, exempt from the operation of sub-section (1), any vehicle owned by any of the following authorities, namely: —
 (a) the Central Government or a State Government, if the vehicle is used for purposes connected with any commercial enterprise;
 (b) any local authority;
 (c) any State Transport Undertaking:
Provided that no such order shall be made in relation to any such authority unless a fund has been established and is maintained by that authority in such manner as may be prescribed by appropriate Government.
Explanation. –For the purposes of this sub-section, “appropriate Government” means the Central Government or a State Government, as the case may be, and-
 (i) in relation to any corporation or company owned by the Central Government or any State Government, means the Central Government or that State Government;
 (ii) in relation to any corporation or company owned by the Central Government and one or more State Governments, means the Central Government;
 (iii) in relation to any other State Transport Undertaking or any local authority, means that Government which has control over that undertaking or authority.
NATURE AND EXTENT OF INSURER’S LIABILITY;
 
According to section 147, the policy of insurance, issued by an authorized insurer, is required to cover certain kinds of risk up to a certain extent.
The position is as under: –
i)         The insurance is to ensure the person or classes of persons specified in the policy. An insurance contract is a personal contract between the insurer and the owner of the vehicle taking the policy, for indemnifying the insured for damage caused to a third party from an accident.
ii)        If the motor vehicle is transferred, the insurance policy lapses on such transfer, and the insurer cannot be made liable unless the policy of insurance is also transferred with the consent of the insurer.
iii)      The liability of the insurer is only to the extent of the limits mentioned in section 147(2) of the act. The insurer is, however, free to undertake greater liability, by so providing in the agreement contained in the policy of insurance.
iv)      The insurer’s liability arises under section 147 if the damage is caused by, or arises out of, the use of the motor vehicle in a public place.
v)       In (Elliot vs. grey), accident is deemed to arise out of the use of the motor vehicle even though the vehicle has been parked and the battery is taken out, or an oil tanker, which is parked on a footpath near a public road bursts and explodes and causes the death of a passer-by on the road. (Oriental fire and general Ins. Co. v. S.N. Rajguru)
vi)      If the vehicle is not insured against third party risks, the liability of the driver and the owner of the vehicle can still be there, although no insurer could be made liable in such a case.
vii)    According to section 149, the insurer must satisfy judgments against the person insured in respect of third-party risks. The liability which falls on the insured is to be discharged by the insurer, as if he were the judgment-debtor, in respect of the liability.
viii)   According to section 149(2), a notice of the proceedings, through the court, is required to be given to the insurer, and the insurer to whom such a notice has been given is entitled to be made a party to the proceedings and to defend him.
THERE ARE DIFFERENT TYPES OF MOTOR INSURANCE;
  1. THIRD PARTY INSURANCE-
Any losses arising due to damages or injury caused by the insured to a third party or third party’s property, are covered under the third-party vehicle insurance policy. As per the Indian Motor Vehicles Act, a third-party liability cover is a must and a basic requirement under a vehicle’s insurance policy.
In order to better understand the concept of third-party car insurance, let us look at some terminologies.
For example, in the event of a car accident, the parties involved are as follows: 
First party: The insured person or policy holder
Second party: The insurance company
Third party: The person who claims for the damages caused by the first party
In an event where an insured person with a third-party insurance policy is held legally liable for injuries or damage done to a third party, then his/her insurance company indemnifies the insured person.
Any losses arising due to damages or injury caused by the insured to a third party or third party’s property, are covered under the third-party insurance policy.
In the event of a car accident, an insured person with a third-party insurance policy is required to immediately inform the insurance company of the incident. If you were responsible for the accident (or the other driver believes you were responsible), it’s almost certain that a claim will be made against you, which your insurance company will be expected to pay.
So, for the speedy resolution of the claim it is of utmost importance that the insurance company is intimated about the accidental claim at the earliest This is how a third-party motor insurance works.
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i. COMPREHENSIVE OR PACKAGE INSURANCE;
As mentioned above, comprehensive car insurance is a combination of third-party insurance and own damage insurance. It provides comprehensive coverage against third party liabilities and loss or damages of the car from accidents, vandalism, fire, falling objects or floods. We can say that it is such type of insurance which provides all round protection to the vehicle from all kinds of risks, whether it relates to your vehicle or third party.
While a Third-Party insurance only covers you against third-party damages and losses, a comprehensive car insurance will cover for your own damages as well.
Without comprehensive coverage, a car insurance claim cannot be made if your vehicle receives damage that is not due to collision. For high valued cars, this type of insurance is desirable as an additional protection. Aging, wear and tear, etc. of the vehicle Electrical or Mechanical breakdown Damage to tyres and tubes. It is generally suggested that you should have a Comprehensive Insurance Policy for your car.
 ii. COMMERCIAL VEHICLE INSURANCE;
Commercial vehicle insurance is a policy of physical damage and liability coverages for amounts, situations, and usage not covered by a personal auto insurance policy. This type of business insurance covers many types of commercial vehicles—from automobiles used for business purposes, including company cars, to a wide variety of commercial trucks and vehicles.
Commercial vehicle insurance, generally covers;
  1. Bodily injury liability coverage – pays for bodily injury or death resulting from an accident for which you are at fault and in most cases provides you with a legal defence.
  2. Property damage liability coverage – provides you with protection if your vehicle accidently damages another person’s property and, in most cases, provides you with a legal defense.
  3. Combined single limit (CSL) – Liability policies typically offer separate limits that apply to bodily injury claims for property damage. A combined single limits policy has the same dollar amount of coverage per covered occurrence whether bodily injury or property damage, one person or several.
  4. Medical payments, no-fault or personal injury coverage – usually pays for the medical expenses of the driver and passengers in your vehicle incurred as a result of a covered accident regardless of fault.
  5. Uninsured motorist coverage – pays for your injuries and, in some circumstances, certain property damage caused by an uninsured or a hit-and-run driver. In some cases, underinsured motorist coverage is also included. This is for cases in which the at-fault driver has insufficient insurance.
  6. Comprehensive physical damage coverage – pays for damage to your vehicle from theft, vandalism, flood, fire, and other covered perils.
  7. Collision coverage – pays for damage to your vehicle when it hits or is hit by another object.
NOTE: Auto Insurance does not include;
  1. Consequential loss, depreciation, mechanical and electrical breakdown, when vehicle is used outside the geographical area.
  2. War or nuclear perils and drunken driving.
LET’S  DISCUSS FRAUD IN MOTOR INSURANCE
Fraud occurs when someone knowingly lies to obtain a benefit or advantage to which they are not otherwise entitled or someone knowingly denies a benefit that is due and to which someone is entitled.
 
According to the law, the crime of insurance fraud can be prosecuted when:
i) The suspect had the intent to defraud. Insurance fraud is a “specific” intent crime. This means a prosecutor must prove that the person involved knowingly committed an act to defraud.
ii) An act is completed. Simply making a misrepresentation (written or oral) to an insurer with knowledge that is untrue is sufficient.
iii) The act and intent must come together. One without the other is not a crime.
iv) Actual loss is not needed as long as the suspect has committed an act and had the intent to commit the crime. No money necessarily has to be lost by a victim.
Whenever there is theft of any vehicle, its direct impact comes on the insurance company that bears the most of the cost. So, it is important to limit the cases of theft and related insurance fraud.
TYPES OF MOTOR INSURANCE FRAUD;
1). INTERNAL AND EXTERNAL FRAUD
Fraud against the insurer by an employee, a manager or a board member on his/her own or in collusion with others who are either internal or external to the insurer. External fraud is fraud against insurer by outsiders of the insurance company such as applicants, policyholders and claimants, sometimes perpetrated in collusion with insiders such as agents or brokers, or third-party service providers. This type of fraud is common and these include, providing false statements and submitting bogus claims.
  1. UNDERWRITING AND CLAIM FRAUD
Underwriting fraud, which includes fraudulent acts perpetrated at renewal of the insurance contract, covers, for example, dissimulation of information during application (application fraud) to obtain coverage or a lower premium (premium fraud), the deliberate concealment of existing insurance contracts and underwriting coverage for fictitious risks. Since the principle of utmost good faith obliges the policyholder to report any new information that comes to his attention during the course of the contract and is likely to affect the insured risk. Claim fraud is most prevalent fraud in India which refers to deliberately inflated, false or fictitious claims.
  1. SOFT AND HARD FRAUD
The soft fraud refers to claimants seizing an opportunity to inflate the damages of an otherwise legitimate claim (claim padding or build-up). The hard fraud refers to a carefully premeditated and minutely executed scams to rip off insurance. The soft fraud is opportunistic fraud however, hard fraud is planned one. Examples of hard insurance fraud include, filing claims for bogus or staged injuries, accidents, burglaries, fires; conspiracies involving medical doctors, lawyers and patients defrauding workers’ compensation insurance; dishonest insurance agents intentionally failing to remit premiums to the insurance company; and insurers negotiating contracts or claims in bad faith.
THE EFFECT OF INSURANCE FRAUD
Motor insurance fraud affects both individuals and the insuring companies.
The following are examples of the effects of insurance fraud to individuals:
i) The average household pays higher insurance premiums to cover the cost of fraud.
ii) The prices of consumer goods rise as businesses are paying higher premiums due to increased cost of insurance claims.
iii)Cost of motor insurance rises due to fraudulent accident claims.
iv) Innocent insured are scrutinized more carefully and may incur longer periods to settle claims while under investigation.
Even though insurance companies typically pass the costs of insurance fraud on to the consumer in order to operate at a profit, insurance companies are directly impacted by insurance fraud.
The following are examples of the costs of fraud to insurance companies:
i) Every rupee that is spent on insurance fraud directly impacts the profitability for the company as claim costs rise.
ii) Insurance companies incur increased human resource costs by employing fraud units to Investigate claims.
iii)Insurance companies that do not effectively prevent fraud may lose.
iv) Insurance companies also lose investment income when a fraudulent claim is filed, as they need to make reserves for the filed claims.
APPROACHES TO DETECT FRAUD CLAIMS IN MOTOR INSURANCE
 Despite the problems inherent in dealing with fraud, fraudulent claims can be, and indeed are, detected. Fraud detection typically occurs through the discovery of anomalies or inconsistencies in the information surrounding the claim (e.g., when the circumstances of the claim do not match the account given by the claimant), identification of patterns of claiming behaviour (e.g., repeated claims for similar losses), or recognition of inappropriate claimant characteristics (e.g., aggressive manner, uncertainty and hesitance in supplying information). Following are the important approaches which can help in detecting potential fraud:
(a). PREDICTIVE MODELLING TO DETECT FRAUD AND CONTROL CLAIM COST;
This is the latest technique to detect fraudulent patterns. This technique uses advances in analytics to detect fraudulent patterns in large volumes of data residing in databases, claims management systems and third-party data sources. The predictive analytics when applied to insurance can considerably reduce the number and number of claims paid out each year and hence can save millions of rupees.
The advantage of using predictive modelling is that it not only detects claims that have easily identifiable fraud characteristics but also detects previously un identifiable fraud variables much earlier in the claim process than is possible in manual processes.
The predictive analytics is currently used in detecting fraud in medical insurance and has shown good results. Therefore, this technique can prove very useful in motor insurance to detect fraud and hence prevent to prevent loss.
(b) PRELIMINARY INVESTIGATION BY EXPERIENCED AND EFFICIENT FRONT OFFICE CLAIMS HANDLERS;
The process of investigation generally involves seeking further information, either from the claimant or from third party sources, and building up a clear account of anomalies and inconsistencies in the claim coupled with potential motives of the claimant. The responsibility for detecting fraudulent claims in motor insurance companies rests heavily with staff at the front line of the claims-handling process. Claims handlers are often inexperienced, with typical company lifetimes of less than one year, and they often lack sufficient or appropriate training in fraud detection. It has been observed that the rate at which fraudulent claims are detected are as low as 10%, suggesting that large numbers of fraudulent cases remain undetected. A great responsibility to detect anomalies and inconsistencies while processing claims at the nascent stage. Motor insurance companies have to ensure that the life of experienced front office claim handlers should be increased. Company should arrange special training for front claim handler in detecting fraudulent claims.
(c) DYNAMIC LIST OF FRAUD INDICATORS TO DETECT FRAUD;
In order to increase the chances of detecting fraudulent claims by inexperienced staff, companies have traditionally provided claims handlers with lists of fraud indicators against which to check incoming claims. Every company has their own set of indicators, though there is considerable overlap across company lists. Commercial confidentiality prevents publication of an exhaustive list of indicators. More importantly, companies do not want the public to have access to such information because the indicators would lose their predictive power if potential fraudsters became aware of them.
A decision procedure may accompany fraud indicators whereby claims that trigger a number of fraud indicators higher than a given threshold become targets for further investigation. Moreover, lists of fraud indicators fail to reflect the dynamic nature of fraud. Arguably, the use of static fraud indicators makes it less easy to detect new fraud variants than having no lists of indicators at all, since anomalies associated with new fraud variants will not trigger old indicators.
Therefore, insurance companies have to update their fraud indicator with time and make the list more dynamic than a static, also the interactivity between various indicators is must. At the same time, it a challenge for insurance companies to provide high quality service, by reducing the claim handling time.
(d) SOPHISTICATED DATABASES TO DETECT FRAUD;
Insurance companies should further take proactive steps to improve fraud detection during the claims handling process. Industry should develop several databases to assist in the detection of anomalous information at the claim stage. For example, a database should be developed which verify information provided by claimants. Second the data base should assess if claimants have a history of suspicious or similar claims. Last, it should provide repositories for sharing information about claim histories across companies and with other parties. These databases could be restricted for use of specialist investigators. However, this system also suffers from some drawbacks such as opportunities to introduce noise into record sets, such as misspellings, missing items, duplicate data, and out-dated information. Consequently, searching database systems can lead to problems, both with the failure to find expected records, and the generation of false positives through erroneous matches.
(e) USING TECHNOLOGY TO DETECT AND CONTROL FRAUD;
 The recent technologies and processes have tried to address some of the problems inherent in inexperienced staff and noise in databases by using advanced intelligent software coupled with a detailed understanding of the nature of fraud and fraudsters. One approach is to capitalize upon existing databases while overcoming problems of noise in the data using data. Data mining techniques can detect anomalies between client-supplied data and existing datasets while remaining sensitive to minor mismatches that are likely to generate false positives, and allow the detection of patterns of fraudulent activity (e.g., patterns of repeated claim activity) among complex data sets. Other new technologies draw upon profiling approaches used in criminology and forensic investigations, borrowing techniques, etc. The fraud detection process relies heavily on accurate and comprehensive communication of claims information and suspicions, especially in situations where there is no case ownership. The technological approaches show promise but are largely unproven. One concern is that the current wave of technological and process fixes seems to have been developed without a full understanding of their users, that is, the claims handling and investigation staff within the insurance industry. The systems focus upon detecting anomalies, the corollary being that claims-handling staffs are not themselves good at spotting anomalies in claims data.
FRAUD MANAGEMENT CONTROL SYSTEM;
 The fraud management control system comprises of three components. The three components are key performance indicators (KPI), activity, and fraud management system (FMS) component. KPIs are used to measure performance of a certain activity or activities, which is supported by a certain FMS component.
The Fraud Management System supports the businesses affected by these events (such as Banks, Media and Telco), provides them with the tools required for the assessment, control and even prevention of these practices in order to limit and avoid money and image loss and leveraging the wealth of information provided.
The functional model for the definition of an anti-fraud solution is based on three different components:
i) Prevention: It includes all the components of the key value such as the customer identity, the creation and delivery of the service, new IT applications and technologies, new operations and business processes, adequate SLAs.
ii) Detection and management: It includes decision-making and back-office processes.
iii) Analysis and investigation: It includes KPIs and data analyses.
In general, the first solution adopted is Data Mining. The analysis to be carried out on company data will for sure be time-intensive and complex and require a serious computational ability in order to identify appropriate statistical models for the definition of the prevention rules based on data analysis. A data mining technology enables to collect, analyze and prevent different fraudulent practices. Data mining techniques are based on the analysis and investigation of a huge database in order to define models and rules.
A Business Rule is a rule implementing or changing the behavior of a business application in accordance with the factors interacting with it. The rule defines the logic that must be applied by all the software components which are part of a business application.
The critical success factor of a company which must react to changes is the immediate, prompt and flexible use of each new business rule. BRMSs support the business requirements for continuous changes without requiring the re-engineering of IT applications.
A Fraud Management infrastructure supported by a BRMS (Business Rules Management System) can effectively and efficiently meet Fraud management strategies by increasing the flexibility and the adaptability of the different types of adopted solutions through:
  • an easy definition of new rules;
  • a quick removal of the existing rules;
  • tool boxes which can be used with simple boolean operators;
  • the powerful use of “natural language” for the definition of the rules;
  • the use of a powerful deductive method ;
  • the possibility to immediately assess the performances of new rules without a dual system ;
  • the opportunity to enter in the rule flow new cases based on the rules to “be tested”.
CONCLUSION AND RECOMMENDATIONS;
Motor insurance contributes to one third of the premium income for the non-life industry. Also, it has been experiencing losses and has a high ratio of claims payment. But shifting its failures to the shoulders of the policyholders by charging them with an increased premium and restricting them is not the way to boost itself. Insurance companies should work towards enhancing and improving their underwriting standards and research methods rather than putting the burden of their losses on the innocent customer, who already pays high premium rates. Since India is a leading IT and software provider it is easy for insurance industry to collaborate with software giants like Infosys and Wipro to create sophisticated software to detect and control fraud.
 The Indian insurance regulator should propose formation of fraud fighting organization and creation of fraud special investigation units to battle the motor insurance fraud. Public perception and attitude towards motor insurance fraud is one of the main obstacles to reducing fraud activities, hence insurance companies need to change the public perceptions towards motor insurance fraud.
Extensive research has shown that situational factors do indeed influence policyholders’ perceptions of whether a fraudulent behaviour is ethical.
Motor insurance fraud is currently a very significant problem, and there is no reason whatever to suppose that its costs, level or significance will diminish naturally over time. Hence, all insurers should join hands to create strong centrally administered mechanism to tackle the problem of fraud. It is important to develop a very strong mechanism so that all vehicles are acquired under insurance, as more than 40% vehicles in India are not covered, and these uninsured vehicles are mostly the cases of fraud. Therefore, it is required that all the vehicles need to be covered and renewed under compulsory insurance. This will help reduce possibilities of frauds and it will help insurance companies to enrich their premium pool with a comfort of paying genuine claims. This practice is mostly used by developed nations. India should adopt mechanism from these countries.
The insurance industry should create consolidated industry level database of all the insurers issuing motor policies in order to identify duplicate claims and possible fraudulent claims. Also, there is need to create and maintain a centralised database of motor claims at the main/head office, (categorising the claims into death, grievous injury, minor injury and property) for monitoring of the claims. Further to ensure efficiency and profitability, a need arises to develop system for review of the performance of advocates and investigators to ensure that only those rendering satisfactory services, are retained, and hence unnecessary costs are saved.
Let us not forget that the business of insurers is to settle claims, impartially and quickly; and the key to business reputation and growth lies in claims management process and philosophy. Therefore, it is important that while detecting and controlling fraudulent claims, the valid claims are not affected and also empathy with the claimant must not be lost even on claims which are not valid. Industry co-operation for controlling fraud and close watch on claims fraud are key factors towards growth of motor insurance at impressive rates and to reach unexplored market.
  1. ORIGINAL ASSURED’S RIGHT IN REINSURANCE CONTRACT
 
As you know an insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. Through insurance we analyse , evaluate ,estimate and transfer outcomes of risk/perils to the insurance company. The insurance company generally in lieu of small payment called “ Premium” issue an insurance policy( insurance contract) by insuring specified risks/perils. Please note that insurance company indemnified us in case of financial loss on happening of those insured risks/perils.
 An entity which provides insurance is known as an insurer, an insurance company, an insurance carrier or an underwriter.
The insurance companies do also secure themselves against large claim to sustain and make profit. The Re-insurance concept is insurance of insurance companies. In this process the original insurance company share ( subject to its retention) a large portion of stake to other insurance company or they contract with another insurance company to underwrite its proposal in case of large sum assured.
In this case if insurers finds that they have entered into a contract of insurance which is an expensive proposition for them or if they wish to minimise the chances of any possible loss , without ,at the same time giving up the contract, resort to have a devise called reinsurance.
Please note that “ Re-insurance Contract” is between the re-insured and the re-insurer, the assured has nothin to do with it, except so far as it guarantees him against default by his own re-insurance. He cannot sue on it. But the re-insurer’s liability would be discharged by the payment to the assured of the amount at the time of loss. The Original Contract of Insurance and Re-insurance Contracts are two distinct contracts and the re-assured remains solely liable on the original insurance and alone has any claim against the re-insurer.
A policy of re-insurance stipulates for payment by the re-insurer “ as may be paid” by the  re-insured. This means that the liability of the re-insurer is coextensive with the liability of re-insurers. When the loss or the event insured against occurs, the liability of the re-insurer under the policy of re-insurance comes into existence but the re-insurer shall have to be satisfied by evidence or admission before they may called upon to indemnify the reinsured. It means anre-insurer have all rights to ask evidences and asked by the insurer against a claim from the insured to verify genuineness of the claim.
The liability of re-insurer becomes fixed as soon as the amount payable under original policy is admitted and ascertained. Ex-gratia payments do not bind re-insurer and note that under a policy of re-insurance ,if insurer pay any ex-gratia payment to the original insured ,then re-insurer is not liable to pay his share in the Ex-gratia payment.
 
Please Note That– in case of an re-insurance contract , the insurer is bound to prove the loss against the re-insurer in th same manner as the original insurer must have proved against him irrespective of the fact whether the insurer has paid the insured or not. [Re,London county commercial Re-insurance Office(1922), 2 Ch 67].
 
STATUS OF ORIGINAL CONTRACT  & CONTRACT OF RE-INSURANCE
The Re-insurance is subject to the clauses and conditions in the original policy, and is also entitled to any benefits which the original insurance policy is entitled to.[Joyce Vs. Realm Insurance Co. (1872)41 LJQB, 372, in re, Eddystone etc.,(1892) 2Ch423].
The Clauses of the Original Insurance Policy ( between insurer and the original insured i.e. primary insurance contract) are deemed to be incorporated in the policy of re-insurance unless they are inconsistent with it. A policy of re-insurance is subject to same terms and conditions as original insurance policy. A re-insurer can raise all defence as available to re-insured in the original insurance policy.
LET’S CONSIDER -where a contract of fire insurance contains a condition providing that the claim shall lapse if a suit be not commenced within three months of rejection of the claim and a contract of re-insurance effected by the insurers, this condition will not apply to the contract of re-insurance.
 
Please Note That –
  1. If an original contract is altered without the consent or knowledge of the re-insurers, the re-insurers will be
  1. The re-insurance ends with the end of original contract of insurance.
  1. As discussed above re-insurance contract and original contract are coextensive , if original contract lapses ,then re-insurance contract also comes to an end.
  1. We know that a policy once lapsed may be renewed . In such cases re-insurance does not become detached to the renewed policy unless express provision to that effect.
 
PLEASE NOTE THAT DUTY OF GOOD FAITH WILL ON RE-INSURED IN A RE-INSURANCE CONTRACT.
The re-insured at the time of re-insurance contract is in position of an assured and the duty of good faith is cast upon him. He (re-insured) bound to communicate the  re-insurer all the facts within his knowledge material to risk. Consequently if there is any non-disclosure or concealment , the contract of re-insurance is void.
 
Please Note That-
  1. if a re-insurance policy is issued with the condition: “ subject without notice to the same clauses and conditions as the original policy” amounts to waiver of the re-insurer’s right of disclosure.[ Property Insurance Co. vs. National Protector Insurance Co., (1913) 108 LT 04].
  1. The insurer is bound to inform the re-insurer not only the all facts material to the risk which come within his knowledge at the time of the principal contract , but also such facts as he become possessed of after the execution of such contract.
  1. Are-insured is himself as he assured who takes upon himself the duty not only before , but after the contract comes into force to act with the greatest faith.
  1. In a contract of re-insurance the statements and representations made by the absurd in his original insurance contract /policy may be construed as forming the basis of re-insurance policy with the result the re-insurer would be entitled to repudiate liability in event of any statement of the assumed turning out to be untrue at the date of original policy.
  1. In Foster Vs. Mentor Life Assurance Company (1854) 23 LJQB 145– it was held that the statements and representations I the original insurance were held to have been adopted in the re-insurance policy so as to warrant their accuracy at the date of the issue of re-insurance policy. The Original Policy may be referred to in the re-insurance policy merely with the object of furnishing information to the re-insurer as to the answer given by the insured in the application.
  1. So it is duty of re-insured to inform the re-insurer the case of any change in terms and conditions of the original insurance policy/any endorsement held or any information comes to his knowledge during tenure of the original insurance policy on the basis of which original insurance policy may be terminated or become void.
 
PLEASE NOTE THAT; if a person makes a representation calculated to induce another to assume a particular liability and circumstances are afterwards ( before the liability is assumed) altered to the knowledge of the person making the representation that the alteration might affect the course of conduct of the person to whom representation was made , it is the imperative duty of the person who made the representation to communicate the same to the person to whom he had made the alterations of the circumstances and a court of equity will not hold a person to whom the representation is made to be bound by any contract entered into on the faith thereof unless communication has been made.
 
LET’S CONSIDER AN EXAMPLEan insurance company A Ltd., has issued a life insurance policy of Sum Assured Rs. 5.00 Lakhs and he discussed with company B Ltd., for re-insurance of Rs. 2.00 Lakhs. Another company C Ltd., is also interested in reinsurance and A Ltd., made a contract with C Ltd., and assume risk of Rs. 3.00 lakhs. In this case A Ltd., does not assume any risk and the arrangement with C Ltd., has not been informed to B Ltd., it was held that B Ltd., is not  liable to pay claim of Rs. 2.00 Lakhs in case of loss.
 
It is clear from above that misrepresentation by the re-insured will avoid the policy. But representation as to the nature of risk will not help the re-insurer who has not formed his own judgement of the nature of risk.
 
The re-insurer are entitled to be surrogates to all the rights of the original insurers including the right of the assured to which the original insurers are subrogated.
CONCLUSION: re-insurance is one the important instrument of risk financing and risk sharing. An insurance at the time of underwriting or before underwriting an insurance policy access his financial position, reserves and may other things to make a decision that to what extent risk he can retain and what amount of business he can re-insure. The insurer enters into a re-insurance contract with the re-insurance companies to cede excess of business than his retention limit to the re-insurance company. The reinsured and re-insurer enters into contract of re-insurance only after the re-insured entered into contract with the assured. Since the Original Insurance Contract becomes a part of re-insurance contract. All terms and conditions of  Original Contract will be incorporated into Re-Insurance Contract. It will be noted that the reinsured ( ceding company) stands in the same footing before re-insurer as an assured stands before an insurance company. The condition of utmost good faith and disclosures are applied here also. An assured has no right against the re-insurance company and he cannot sue or claim against the re-insurance company.
  1. POLICY WORDINGS AND FUNNY CASE OF INSURANCE FRAUD
 
As we know that frauds are present in every section, where money involved. The financial sector is more vulnerable for fraud than other sectors. The frauds generally happen for sake of financial gain by applying dubious methods by the fraudsters. Insurance industry is the most vulnerable for various types of fares by policyholders, intermediaries , employees and others. Since insurance companies being custodian of the money of public , then it is important for insurance companies to take all available measures to prevent frauds and to protect interest of policyholders.
Health Insurance fraud is described as an intentional act of deceiving, concealing, or misrepresenting information that result in healthcare benefits being pai illegitimately to an individual or group.
These frauds may even affect solvency position of a company, its reputation ,business and efficiency of handling claims. The fraud may lead to charging of higher premium, rejection of renewals, higher insurance co-payments, denial of future coverage and also impacts quality of care services provided by the insurers.
The policy wordings play an important role in fraud management and servicing of customers. The insurance companies are always on default side in case of any disputes in policy wordings, because the Insurance Contract( Policy) is drafted by the insurance companies.
LET’S CONSIDER A CASE a very famous and humorous incident that happen long ago.
Once Mr. X purchased a box of rare and expensive cigars and got fire insurance cover for his cigars.
The insurance company also understood the importance of thee rarity of the branded cigars and insured it with utmost good faith.
The customer smoked the entire cigars within a month and claimed to the insurer that cigars were lost in a series of small fires( which indirectly means that he has used cigars for personal purpose).
The insurance company refused to honour the claim stating that the consumption of cigars will not qualify for the claims.
A case was filed before the court and court ruled in favour of the customer stating that the insurance company did not define in its policy as “ what is considered to be unacceptable fire and acceptable fire” and hence ,ordered the insurance company to honour the claim.
The insurance company honoured the verdict of the court and paid the claim. But the insurance company had him arrested on 24 counts of arson. With his own insurance claim and testimony from the previous case being used against him, the customer was convicted for intentionally burning his insured property and was sentenced to 24 months in jail and fine.
 
CONCLUSION:the above case seems funny but point out loopholes in wordings of an insurance policy. The fraudsters generally take advantage of faulty wordings to plan their activities. The prevention of insurance frauds should be the priority of an insurance company and its depends on its internal control management, risk management procedures ,fraud management philosophy and policy ,action taken for customer education, robust system of fraud monitoring , the training and education of claim handling and policy servicing employees etc.
  1. LIFE INSURANCE AND SUICIDE: LEGAL POSITION AND JUDICIAL PRONOUNCEMENTS
The life insurance industry is one of the fastest-growing sectors in India. Currently, there are 24 Life Insurance Companies in India offering customized life insurance policies.  Life insurance corporations are in the business to gain some profit and that’s why they avoid most of the evitable risks associated with life by adding exclusion clauses that make the policy void in several circumstances.
The insurance regulator IRDAI (Insurance Regulatory and Development Authority of India) brought changes in the suicidal clause that were made applicable from 1st January 2014. Thus, all the policies which were issued before 1st January 2014 will be in accordance with old suicidal clause and for policies issued after 1st January 2014, new suicide clause will be made applicable.
The article demonstrates how the insurance industry, following judicial interpretation, as well as the resulting modification as directed by the IRDAI, has developed a suicide inclusion provision that provides the needed protection to insurers.
LIFE INSURANCE & SUICIDE
Life insurance policy is a contract between the policyholder (assured) and the insurer (insurance company), where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. In return, the policyholder agrees to pay a stipulated amount called premium either at regular intervals or in a lump sum.
In a brief statement, life policies are legal contracts and the terms of the contract describe the limitations of the insured occurrences. Specific exceptions are often written into the contract to limit the liability of the insurer. Common examples are claims relating to fraud, war, riot and civil commotion.
Life Insurance is intended and designed to protect against unforeseeable events. The protection is intended to ensure the dependants of people who die prematurely, and one of the central contemplations in buying life coverage is the security it will give in case of sudden misfortune. Basically, the insurance agency sells security and peace of mind.
The modern individual life insurance policy sold today can, however, be a complex contract, normally consisting of multiple pages setting forth the rights and obligations of each party.
This complexity of insurance policy is exacerbated when we introduce suicide in the equation.  Suicide has always presented a problem to the insurance industry because of the possibility that insurance may be purchased by persons who are planning to take their own lives at, or near, the time the application is made. Suicide cases present conflicting issues. On the one hand, society has an interest in protecting the innocent beneficiary, often economically dependent on the insured, from economic ruin. On the other hand, suicide has long been held by courts not to come within the coverage of ordinary life insurance policies or within the accident feature of a life insurance policy because the insurer should not be required to pay for the wrongful act of the insured.
Please Note That , Insurance is intended to protect against unforeseeable incidents; suicide, specifically, is not considered an insurable risk because the time of death lies within the insured’s control. Thus, the payment of benefits for a planned suicide by the insured is in direct contradiction to the purpose of insurance.
  1. Committing Suicide May Not Be Considered as An Event of Uncertainty, So Does Life Insurance Cover Suicide Cases?
The risk insured against in a life policy is death and death may be caused by disease, accident, negligence or wilful misconduct of the insured person himself or any third person. When the event insured against, namely death occurs, the insurer is liable to pay normally under the contract. But as in other branches of insurance when the event insured against happens due to the willful and wrongful acts of the assured or his agent, it absolves the insurer from liability.
Here the concern is with the effect of illegality on life policies, the effect of the assured’s suicide on claims by his personal representatives and assignees and the refusal by the courts to allow an assured who has caused his own death or anyone claiming through him to benefit from a life policy. Earlier ordinary life policy did not cover the risk of the commission of suicide by the insured while sane. However, this policy has witnessed a change in
II. Current Scenario under Indian Law
The instancesf suicide in India are expanding each year, which has pushed our nation among the main 12 nations with the most extreme number of suicide cases every year. Close to 8 lakh people commit suicide every year around the world and 17% of cases of them are from India. The real explanation behind the increased cases of suicide is depression, family problems, illness and many more. It is very difficult for the family to deal with such unexpected event and losing the only financial security in the form of life insurance due to exclusion of suicide from being covered under the policy measures only increases the difficulties of the family.
The judicial decision of various courts in India has not preferred to follow the rule laid down in Beresford’s case. Committing suicide is not a crime in India and hence the rule laid down by the House of Lords in Beresford case has no application in Indian insurance law cases. Because there is no applicability of any such rule the insurers are often liable to cover the suicidal death claims. However, attempt to suicide is punishable under IPC, 1860. In the case of Faquir Singh v. Union of India the court observed that denial of benefit of postal insurance to the father of the insured whose death occurred due to committing suicide is improper. The insured in the case died of asphyxia due to the use of a rope around the neck causing cardiac failure.
In another case of Northern India Assurance Co. v Kanhayala, there was a condition inserted in the policy that said that the policy would become void if the insured committed suicide within the one year from which the policy came into existence. The facts suggest that the insured assigned the insurance policy to his son and within the 13 months he committed suicide. In the case, the court witnessed the fact that committing suicide is not a felony in India unlike provided under English Law and hence such principle is not applicable in India. Based on that, judgment was ruled in favour of the insured.
Later, in the case of Scottish Union and National Insurance Co. v. Jahan Begum,   the court decided the question of whether suicide is opposed to public policy in India. After an elaborate reference being made to the Beresford case, the court held that suicide is “unhesitatingly” not against public policy.
III. Why ‘Suicidal Death Cover’ Is Applicable After 1 Year?
Most life insurance plans provide suicidal death cover after a period of one year. However, if the policyholder commits suicide before a period of one year then his/her family (whosoever is the nominee) may not be able to avail the benefit of getting the full sum assured. Rather, the insurer may just provide the family with the benefit equals to a certain percentage of the premium paid during the policy term.
The restriction on paying the sum assured before 12 months expiry helps insurance companies in preventing insurance fraud. There can be instances where the insured person has run up a huge debt and wants to get rid of this situation by buying life insurance first and then committing suicide. It is thought that the duration of 12 months is enough to bring the insured person out of the mindset of taking such a direct step.
Further, in the recently held case of Life Insurance Corporation of India v. Jaswinder Kaur,   by the NCDRC, Delhi the suppression of material facts as of the suicidal tendencies in case of Bipolar Disorder to insured stands a relevant one and hence mandates to be disclosed to the insurance company. The facts of the case say that the respondent’s husband took a life insurance policy on 4.12.2012 with death sum assured of Rs. 5 Lakhs wherein the Respondent was made the nominee. The Insured committed suicide on 26.9.2015 i.e. after two years nine months. The Respondent’s claim was repudiated on 24.6.2016 on the ground that the deceased had concealed material fact while filling the proposal forum. The case of the Petitioner is that while filling the proposal form the medical information was wrongly filled and he suppressed information that he was suffering from Bipolar Disorder and theclaim was rightly repudiated. Insurance is a contract of utmost Good Faith and the assured is under a mandate to make correct disclosures.

 

According to research conducted by the Public Health Foundation of India on suicide rates in India between 1990 and 2016, India accounts for a growing share of the world’s suicides. As of 2016, India’s suicide rates exceed the global averages, and the causes of suicide deaths in India have been linked to factors like financial debts, lifestyle ailments, mental illness, higher education levels and lower fertility rates.
IV. Does Term Insurance Cover Suicide?
Term insurance does cover suicide, and it financially helps the emotionally distraught family of the insured by paying back some premium amount. However, in reality, it all depends on the terms and conditions of the policy. Term policies issued from 1 January 2014 provide suicide death cover to the insured’s family subject to following terms and conditions:
Suicidal death cover of a term insurance plan is applicable after 12 months of policy issue or 12 months after the policy revival.
If the insured’s death is caused by suicide in the above-mentioned circumstances, the nominee is eligible to be paid the full sum assured or the death benefit as per the policy clauses. The coverage of suicidal death after one year was to prevent insurance frauds where an individual stuck in financial debt would want to take undue advantage of buying a term policy and then commit suicide for his family to claim the death benefit. Insurers assumed that this one-year duration would be sufficient enough to discourage policyholders from taking such extreme decisions for the sake of money.
However, this above clause for term insurance has been further relaxed to cover suicide deaths occurring within 12 months of term policy issue, or policy revival. If the insured commits suicide within 12 months of term policy issue or revival, the nominee is not entitled to receive full death benefits, but the insurer may just pay the nominee a benefit that equals to a certain percentage of the premium paid during the policy term by the policyholder. If the policyholder commits suicide within 12 months from the date of the planned revival, only 80 per cent of the premiums paid shall be payable as a death benefit to the nominee. 
  1. PERSONS ENTITLED TO PAYMENT UNDER AN INSURANCE POLICY
 
The insurance provides us short range as well as long range relief. The short-term relief is aimed at protecting the assured from loss of property and life. The long-term object being industrial and economical growth of country and the society.
Insurance has become one of the most important necessities in our life. As we have seen from previous two years, whole humanity has suffered huge loss of life due to COVID-19 pandemic. This pandemic has ruined various families and claimed their bread-and-butter earners.  Many people have forced to expend their hard-earned savings on medical bills and become financial vulnerable.
We are purchasing insurance policies for safety to yourself, your family and financial independence. The insurance policies are of various types and provide by various types of insurance companies.
There are life insurance, general insurance and health insurance companies with their products in market. Through Insurance, we reduce our risk or transfer our risk to insurers by paying a small amount of premium. Insurance companies keep you financially protected against insured risks and protect your life and property.
Some insurance policies only provide risk cover and some are used to provide risk cover as well as investment options. The life insurance policies generally provide insurance as well as investment options, on the other hand general insurance products provides only safety against risk.
As you know that  the life insurance contract can provide creditors with a guarantee for the payment of a debt or credit. Therefore, the policyholder and the creditor, e.g., the lending bank, may pledge the life insurance contract as a security.
It can also be used as a financial instrument, but in real sense it is not a financial instrument.
When there’s a collateral on a life insurance contract, the policyholder gives his life insurance policy as a guarantee to a creditor. In exchange he obtains a claim (within the limits of the provisions of the contract). It ensures the creditor is paid in priority if the borrower/debtor’s fails to meet his obligations.
Pledging a life insurance contract refers to the policyholder handing it over to a creditor, as security for a debt.
In this article we are going to understand the real person to whom insurance company will pay insurance claim and discharge itself from liability.
The Insurance Act, 1938 is based on insurance rules and regulations applicable in England, various provisions of insurance law have been taken from laws enforced in England. Since the Insurance Act, 1938 has been promulgated before independence of India.
The Insurance Act, 1938 after its promulgation has come through various amendments and changes to cope with changing customs and requirements of Indian Society.
The transfer or assignment of policies of insurance are governed by the provisions of the Transfer of Property Act, 1882 (as amended from time to time). Provisions of Section 38, of the Insurance Act, 1938 applied only to life insurance policies. The provisions of   the Transfer of Property Act, 1882 apply to all types of insurance policies.
Prior to the enactment of the Insurance Act, 1938 the position regarding assignment and transfer of the insurance policies was the same as that, in England. Even with the enactment of the Insurance Act, 1938 the legal position of a nominee remains more or less same as contemplated in Section 132 and 135 of the Transfer of Property Act, 1882 except to the extent in Section 39 of Insurance Act, 1938.
SECTION 3 OF THE TRANSFER OF PROPERTY ACT, 1882 ,DEFINES “ Actionable Claim” as : “ Actionable Claim”, means a claim to any debt ,other than a debt, secured by mortgage of immovable property or by hypothecation or pledge of immovable property, or  to any beneficial interest in movable property not in possession either actual or constructive of the claimants ,which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent ,accruing, conditional or continent.”
SECTION 132 IN THE TRANSFER OF PROPERTY ACT, 1882
Liability of transferee of actionable claim. —The transferee of an actionable claim shall take it subject to all the liabilities and equities and to which the transferor was subject in respect thereof at the date of the transfer.
Illustrations
(i) A transfers to C a debt due to him by B, A being then indebted to B. C sues B for the debt due by B to A. In such suit B is entitled to set off the debt due by A to him; although C was unaware of it at the date of such transfer.
(ii) A executed a bond in favour of B under circumstances entitling the former to have it delivered up and cancelled. B assigns the bond to C for value and without notice of such circumstances. C cannot enforce the bond against A.
SECTION 135 IN THE TRANSFER OF PROPERTY ACT, 1882
Assignment of rights under policy of insurance against fire.—Every assignee by endorsement or other writing, of a policy of insurance against fire, in whom the property in the subject insured shall be absolutely vested at the date of the assignment, shall have transferred and vested in him all rights of suit as if the contract contained in the policy has been made with himself.
SECTION 39 IN THE INSURANCE ACT, 1938
39 Nomination by policy-holder. —
(1) The holder of a policy of life insurance on his own life may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death:
Provided that, where any nominee is a minor, it shall be lawful for the policy-holder to appoint in the prescribed manner any person to receive the money secured by the policy in the event of his death during the minority of the nominee.
(2) Any such nomination in order to be effectual shall, unless it is incorporated in the text of the policy itself, be made by an endorsement on the policy communicated to the insurer and registered by him in the records relating to the policy and any such nomination may at any time before the policy matures for payment be cancelled or changed by an endorsement or a further endorsement or a will, as the case may be, but unless notice in writing of any such cancellation or change has been delivered to the insurer, the insurer shall not be liable for any payment under the policy made bona fide by him to a nominee mentioned in the text of the policy or registered in records of the insurer.
(3) The insurer shall furnish to the policy-holder a written acknowledgement of having registered a nomination or a cancellation or change thereof, and may charge a fee not exceeding one rupee for registering such cancellation or change.
(4) A transfer or assignment of a policy made in accordance with section 38 shall automatically cancel a nomination:
Provided that the assignment, of a policy to the insurer who bears the risk on the policy at the time of the assignment, in consideration of a loan granted by that insurer on the security of the policy within its surrender value, or its reassignment on repayment of the loan shall not cancel a nomination, but shall affect the rights of the nominee only to the extent of the insurer’s interest in the policy.
(5) Where the policy matures for payment during the lifetime of the person whose life is insured or where the nominee or, if there are more nominees than one, all the nominees die before the policy matures for payment, the amount secured by the policy shall be payable to the policy-holder or his heirs or legal representatives or the holder of a succession certificate, as the case may be.
(6) Where the nominee or, if there are more nominees than one, a nominee or nominees survive the person whose life is insured, the amount secured by the policy shall be payable to such survivor or survivors.
(7) The provisions of this section shall not apply to any policy of life insurance to which section 6 of the Married Women’s Property Act, 1874 (3 of 1874) applies or has at any time applied:
Provided that where a nomination made whether before or after the commencement of the Insurance (Amendment) Act, 1946, in favor of the wife of the person who has insured his life or of his wife and children or any of them is expressed, whether or not on the face of the policy, as being made under this section, the said section 6 shall be deemed not to apply or not to have applied to the policy.
SECTION 6 IN THE MARRIED WOMEN’S PROPERTY ACT, 1874
Insurance by husband for benefit of wife: –
(1)  A policy of insurance effected by any married man on his own life, and expressed on the face of it to be for the benefit of his wife, or of his wife and children, or any of them, shall endure and be deemed to be a trust for the benefit of his wife, or of his wife and children, or any of them, according to the interest so expressed, and shall not, so long as any object of the trust remains, be subject to the control of the husband., or to his creditors, or form part of his estate. When the sum secured by the policy becomes payable, it shall, unless special trustees are duly appointed to receive and hold the same, be paid to the Official Trustee of the State in which the office at which the insurance was affected is situate, and shall be received and held by him upon the trusts expressed in the policy, or such of them as are then existing. And in reference to such sum, he shall stand in the same position in all respects as if he had been duly appointed trustee thereof by a High Court, under Act No. XVII of 1864 to constitute an office of Official Trustee, section 10.
Nothing herein contained shall operate to destroy or impede the right of any creditor to be paid out of the proceeds of any policy of assurance which may have been affected with intent to defraud creditors.
(2) Notwithstanding anything contained in section 2, the provisions of sub-section (1) shall apply in the case of any policy of insurance such as is referred to therein which is affected-
(a) by any Hindu, Muhammadan, Sikh or Jain-
(i) in Madras, after the thirty-first day of December, 1913, or
(ii) in any other territory to which this Act extended immediately before the commencement of the Married Women’s Property (Extension) Act 1959, after the first day of April, 1923, or
(iii) in any territory to which this Act extends on and from the commencement of the Married Women’s Property (Extension) Act, 1959, on or after such commencement;
(b) by a Buddhist in any territory to which this Act extends, on or after the commencement of the Married Women’s Property (Extension) Act, 1959:
Provided that nothing herein contained shall affect any right or liability which has accrued or been incurred under any decree of a competent court passed-
(i) before the first day of April, 1923, in any case to which sub-clause ( i ) or sub-clause (ii) of clause (a) applies; or
(ii) before the commencement of the Married Women’s Property (Extension) Act, 1959 (61 of 1959), in any case to which sub-clause (iii) of clause (a) or clause (b) applies.
NOMINATION -In life insurance policy, policyholder nominates a person to whom an insurer must pay policy proceeds in case of his demise. A nominee is the person to whom insurer recognize at the time of paying proceeds of the insurance. No other person will be entertained if there is nomination. A nominee can be any people such as your parents, spouse or children, relatives or friends etc., but insurance companies generally avoid registering unrelated parties as nominee due to lack of insurable interest of those unrelated parties in the life of the insured.
Generally, insurers are in practice to take nominee’s details in proposal form and the nomination will be printed on the insurance policy. If insured has not nominated at the time of taking insurance, then he can do so during tenure of insurance policy and before his/her demise. The nomination can be made through endorsement and it can be changed many times during life time of insured and tenure of the policy.
It is duty of insurance company to inform the insured through written letter about nomination.
Please note that a nominees must be major and of capable to enter into any contract. A minor will be nominated if a policyholder appoints a custodian, who will administrate the insurance proceeds after demise of insured till minor become major.
Please Note That; successive nomination is also allowed, you will nominate more than one person, such as suppose Mr. A has three sons X, Y, Z he can nominate as first Mr. X failing him Mr. Y and failing him Mr. Z. It means in this case policy proceeds first payable to Mr. X and if he is not alive then it will be paid to Mr. Y and so on.
Mr. A can also distribute policy proceeds among nominees such as Mr. X, Mr. Y & Mr. Z will receive policy proceeds in ratio of 20:30:50 and same will be endorsed on the policy documents by insurance company.
PLEASE NOTE THAT;a policyholder can change his nomination many times during his life time and tenure of the policy. Insurance company is required to register each nomination and last nomination made by insured/policyholder will be valid and considered at the time of payment of proceeds. An insurance company will inform insured each time nomination details in writing.
BENEFICIAL NOMINEE; this will include the immediate relatives of a policyholder, if a policyholder nominates his spouse, parents or children then in this case these are the beneficial nominees of the policyholder. Generally, insurance companies are paying insurance proceeds to the nominees and legal heirs of deceased claim their right from nominee. Now even though legal heirs claim benefits from the insurer, the insurer will pay the insurance proceeds to the beneficial nominees only.
In absence of nomination, it will be difficult to decide true legal heir and person able to received insurance proceeds after demise of the insured.  Insurance companies in this case requires certificate of Administration, Succession Certificate from court, this process is lengthy and tedious. So, for better management of your insured amount, nomination is necessary. In absence of nomination the objective of immediate relief to the family of the demised insured will be defeated. The proceeds will not be given to legal heirs unless there will be consent will be there.
SOME JUDICIAL DECISIONS DEFINES POSITION OF A NOMINEE
Sabita Devi Vs. Usha Devi [ AIR 1984 SC 346]- it was held by the Supreme Court that a nominee has merely the power to collect the money under the policy but the nomination does not confer any title on the nominee in the money received. The nominee has right to give a valid discharge to the insurer and has right to sue. The nominee holds money in trust for the benefit of legal representatives.
In this case the insured has nominated his mother and on her death his widow and legal heirs, the LIC after death of the insured refused the payment of claim because of two counter claims by his widow and his mother and son. In this case the nominee widow of the deceased has claimed as absolute right to the policy money in exclusion of other i.e., his son and mother.
The apex court did not hold her absolute right on the basis of mere nomination under provisions of Section 39 of the Insurance Act, 1938 and stated that the nomination does not confer any beneficial interest to the nominee as the nomination only specified the person authorized to receive payment on the death of the assured to give valid discharge the liability of insurance company. The amount received in the hands of nominee will be payable to legal heirs or representatives in accordance with the law of succession which governs them.
Supreme Court added that provisions of Section 39 does not operate as a necessary third kind of succession which is styled as “Statutory Testamentary”.
Sarojini Amma Vs. Neelkhantha Pillai [ AIR 1962 ALL 355] it had been held by Hon’ble Allahabad High Court that a nominee has a bare right to collect the money the money due on the policy and to give discharge to the insurer but the nominee is not the owner of the money which has to be made over to the legal representatives of the assured as the nominee acts as a receiver.
Delhi High Court had given contrary decision of the cases referred above in Uma Vs. Dwarka as [AIR 1982, Del 36].  It was held that Section 39 not lay down that the nominee has any liability to account for any person. The court added that the obvious meaning of Sub Section (1) and (6) of Section 39 is that the insurer must pay to the nominee and the nominee left to deal with it in any manner he decides. In this case the court had not considered natural justice the legal representatives of deceased or person opted for insurance policy has right to claim their share in the amount of insurance proceeds.
CONCLUSION:  the decision of Supreme Court in the case of Sabita Devi Vs. Usha Devi as referred above has decided the contentious issue of utilization of insurance proceeds in the hands of a nominee. Please note that nomination is necessary to get proceeds of insurance in time and without any dispute. The insurance company in case of nomination, pay the insurance proceeds to the nominee and discharge its liability. Now here the nominee is responsible to distribute the insurance proceeds among the legal heirs or legal representatives of insured according to prevailing or applicable succession law on the family.
  1. COMPLIANCE RISK MANAGEMENT
Compliance Risk is a risk that the Company’s actions or inactions might result into potential regulatory interventions or regulatory actions, which could adversely affect the Company’s reputation. This one of the important risks in Insurance Sector. The Regulator of Insurance IRDAI has penalised many Insurance Companies, Insurance Intermediaries, TPAs, Insurance Brokers etc., for non-compliance and non-fulfilment of regulatory requirements. In some cases, IRDAI refused to renew licenses given or revoked license of an Insurance Company on the basis of non-compliance.
Generally, penalty orders are published in newspapers and shown on the website of the Authority this will lead to damage of reputation of the Company in the market, which will also affect trust of market as well as prospects and policyholders of the Insurance Company.
A company against whom regulator has imposed many penalties for not complying rules and regulations specified shows that the insurer does not have appropriate Corporate Governance and Internal Control commensurate with the size and diversity of the insurer.
The Government and Regulator have come with various guidelines, rules, regulations, circulars, notifications and instructions to protect the interest of innocent general public.
The general public or prospects for an insurance product on the basis of assessment of financial stability and strength of an insurer decide to take insurance cover from them. In case an insurance company become insolvent or not able to pay claims of its policyholders at the time of risk or event insured, then general public as well as regulator loose confidence in the insurer and through regulation terminate the license of insurance company keeping welfare and interest of policyholders in mind.
It is very important for an insurer or insurance intermediaries to follow all specified rules and regulations and submit required returns with various authorities for authorities to access their financial strength and their ability to pay future as well as present claims of its policyholders.
It is duty of all players in insurance industry i.e., insurance companies, insurance intermediaries, agents and others to follow rules, regulations and instructions of the regulator for development of insurance industry and protection of interest of their policy as well as stakeholders. These regulations need the insurance players operates fairly and ethically while dealing with public money, comes to their coffers by way of premium. Insurance companies are considered as custodian of public money and they should act on fair and ethical ways.
What is the meaning of compliance risk management?
Compliance risk management is the process of identifying, assessing and mitigating potential losses that may arise from an organization’s noncompliance with laws, regulations, standards, and both internal and external policies and procedures.
Compliance risk management, which is a subset of compliance management, involves identifying, assessing, and monitoring the risks to your enterprise’s compliance with regulations and industry standards, putting internal controls in place to ensure that you are compliant, and monitoring those controls to be sure that they’re effective on an ongoing basis.
A compliance risk management program notes the material losses and exposures to your organization that non-compliance could cause, including legal penalties, fines, business loss, and reputational loss.
Compliance Risk Management aims to proactively identify the compliance risks by respective functional units, identifying the current controls and taking corrective actions to mitigate the Compliance Risks.
Compliance risk is any threat to an organization’s financial, organizational, or reputational standing. A well-defined compliance process can reduce your organization’s overall risk of violating these standards—and facing the consequences.
Compliance management and risk management are related, but they are not the same thing. Risk management involves predicting and managing risks to help an organization protect itself from risks that might eventually lead to non-compliance. For its part, compliance management is the process of managing compliance within the boundaries of a time frame and a budget. Non-conformance to compliance regulations is also a risk.
PLEASE NOTE THAT:
Business is changing so rapidly that the old, reactive ways of managing compliance risks might lead organizations to fall behind the competition or leave them exposed to larger regulatory or reputational risks than they ever expected.
This is why some organizations are finding ways to better manage compliance risks and be more risk intelligent, which involves being more aware of today’s risks. You need an integrated compliance model across the organization to keep compliance risk in check, and to ensure that ethics policies are followed at every level in the organization.
It requires a holistic approach toward managing compliance in an organization. The goal is to provide a single, enterprise-wide solution toward managing compliance. The benefits of an integrated compliance strategy include reduced risk, faster time to market, reduced costs, enhanced customer experiences, and more.
It is duty of Chief Compliance Officer to put in place a framework for identification and mitigation of Compliance Risks.
PLEASE NOTE that compliance of various regulatory rules and guidelines are the duty of functional heads of Insurance Company and not Chief Compliance Officer. Thus, it is clear that the Compliance Risks Management process is owned by respective functional units and Chief Compliance Officer will facilitates them in compliance.
AN EFFECTIVE COMPLIANCE RISK MANAGEMENT PROCESS INVOLVES THE FOLLOWING STEPS;
(1) Identification of Potential Compliance Risks;
(2) Rating of Risks;
(3) Current Control in Place and evaluation of adequacy of Current Control;
(4) Identification of new actions required to mitigate the risks;
(5) Projected risk rating after implementation of new actionable;
(6) Presentation of Compliance Risk Registers;
(7) Follow up review meetings with risk owners and actionable owners;
(8) Discussion with EXCOM on the Compliance Risk Management Program.
LET’S DISCUSS POINT WISE;
  1. IDENTIFICATION OF POTENTIAL COMPLIANCE RISKS;
First, we need to have clear understanding of various regulations, circulars and guidelines issued by the Authority and applicable to your Company. The Compliance Officer discusses the compliances required for various processes within the function with the concerned functional head and assist the functional head in identification of the potential gap. It is to be noted that for operational compliances, it is the functional head who is the best aware of the potential gaps and the possible exposure to the compliance risk.
Let’s consider an example, we know that Regulatory TAT for issuance of an insurance policy if 15 or 30 days from the date of receipt of proposal form by an insurance company. Now the functional head of Operations Department is COO and he is the best person, who knows how many instances company has breached regulatory TAT and he will come with solutions and actions to reduce TAT breaching and ensure compliance with regulatory TAT.
NOTE: All Compliance Risks must have a risk owner. There will be only one risk owner for one compliance risk.
 
  1. RATING OF THE RISKS;
Risk Rating – is the exercise of assigning a rating to understand the seriousness of the risks. In an insurance company there could be many risks, which need to be managed including Compliance Risks. But it is important first to prioritise and focus the attention of the management on risks on those, which deserves priority.
Rating a risk helps understanding the gravity of the risks and decide on those which management wants to focus first.
Once Compliance Gaps are identified, the nest steps would be to prioritise the risk based on below mentioned two parameters;
  1. Probability of Occurrence of the risk;
  2. Consequences if risk occurs.
This would help us identifying the risks which needs to be focused first.
  1. CURRENT CONTROL IN PLACE AND EVOLUATION OF ADEQUACY OF CURRENT CONTROL;
Now after identification or gaps and rating of risks, next step is to identify Current Controls in place in the organisation and its adequacy to check and mitigate Compliance Risks. Taking stocks of these controls is intended to decide what are the additional controls which are feasible and essential to eliminate or mitigate the risks.
Let’s consider suppose, the risk of increasing number of customers complaints or grievances on mis selling reported to the Regulator. This would be in high-risk category. Now it is imperative to first identify what measures the company has in place to avoid increasing number of complaints.
We have to check at the point of sale what kind of controls are in place to avoid mis selling, like benefits illustrations signed by customer, product brochures containing details product features given to the customers etc.
The next step would be to check if there is any finetuning required to be existing controls or any measures to control the compliance risk.
 
  1. IDENTIFICATION OF NEW ACTIONS REQUIRED TO MITIGATE RISKS
Now identifying new actionable is next logical step to mitigate or eliminate risks. The Chief Compliance Officer must assist the COO in identifying the additional steps required.
Root Cause Analysis is an important process at this stage. For example, if customer understanding is the core issue of mis selling, can the COO consider a verification mechanism to confirm if customer understood the essential features of the product, he or she is purchasing. The probable new action here be identified as “Customer Verification”, either in person or through phone call, depending on the size of the case.
NOTE: New set of actions must be clear and specific (no mother hood statements allowed) and will have a deadline and name of person responsible for taking action. There could be multiple persons involving multiple actions.
 
  1. PROJECTED RISK RATING AFTER IMPLEMENTATION OF NEW ACTIONABLES;
This is expected risk rating after all the actionable identified are implemented. This gives the target to be achieved and is a useful guide for the risk owner.
  1. PREPARATION OF COMPLIANCE RISK REGISTERS;
A Compliance Risk Register needs to be prepared giving all the above information properly documented and signed off by the respective owner. This becomes the “Mother Document “, for future reference.
Risk Registers are prepared for each and every risk. The register typically contains the following information;
Definition of Risk- this definition must be something like a Headline in the newspaper. it gives a summary of the risk in 2 or 3 lines. It must be clearly what the risk is and what it could lead to or result into.
Example- the definition of risk of earthquake could be as follows;
“Risk that”, the earthquake occurs in Bay of Bengal leading to Tsunami in East Indian Coast, resulting into mass destruction of lives and catastrophic claims to the Company”.
(a) Owner of risk-normally there can be only one owner;
(b) Current rating of risk based on two parameters given above;
(c)  Current controls in place- this section lists down the current control measures already up and running to maintain risk at the current rating;
(d) Actionable identified to be performed by various functions to mitigate the risk or in an extreme scenario, for justified business reasons, to live with the risk.
(e)  Name of the person responsible for taking actions- it could be the owner of the risk;
(f)   Estimated risk rating -assuming that actionable are implemented on time. This rating should normally be lesser than the risk rating before the actionable were taken.
  1. FOLLOWUP REVIEW MEETINGS WITH RISK OWNER AND ACTIONABLES OWNER;
KEY RISK REPORT– is the aggregation of the risk register for the key risks identified by the management and is prepared to evaluate and discuss the Company’s Key risks from time to time. Monitoring of key risks report is performed on an at least quarterly basis by the management with the assistance from Risk Management Function. Further Key Risks Report is also discussed at the management and Board level Risk Committees.
The most important step in the Compliance Risk Management process, is the fallow up meeting, at least once a quarter with the risk owner and the actionable owner together to review progress, find out the reasons for sluggishness in progress, if any, and removing the blocks in progress with the help of EXCOM members (Management Committee comprising of all direct report to CEO).
A follow up review meeting may sometimes reveal that the action identified might have to be modified, dropped or new action identified, due to change in circumstances. While such changes are acceptable, there cannot be significant changes to the actions identified. It only denotes that the initial exercise of identifying the actions was not properly done. Further, it results in avoidable wastage of time and efforts.
  1. DISCUSSION WITH EXCOM ON COMPLIANCE RISK MANAGEMENT PROGRAM;
Compliance Risk Registers must be presented to the EXCOM by the Chief Compliance Officer for their review and advice. This exercise must be done at least once every half year. Any instructions given by EXCOM must be implemented by the Chief Compliance Officer.
Reporting these risks ensures that Senior Management receive the necessary information required to perform their oversite function and to make timely and effective decisions.
CONCLUSION: Since the concept of insurance is based on the concept of pooling of risks of many to pay the claims of few insured, who has suffered insured loss and in other words we can say that the concept of insurance involves a transfer of risk from one party, such as an individual or company buying an insurance policy, to another, such as an insurance company. Insurance companies themselves are prone to many risks in running the insurance business and need to take steps to eliminate or mitigate these risks. There may be various types of risks an insurance company is facing such as Financial Risk, Reputational Risk, Compliance Risk, Legal Compliance Risk etc. The Compliance Risk is the most important risk factor for insurance companies. The Regulator has issued various rules, regulations, guidelines and from time-to-time Circulars and any non-compliance with these will lead to reputational, financial risk to an Insurance Company. In some cases, IRDAI may refuse to renew license or cancel license of insurance company in case of non-compliance. Unless insurance companies manage their risks, they will not be in a position to effectively deliver their values to the customer and stay afloat in the business to achieve their goals.
  1. MURDER TO BE TREATED AS AN ACCIDENT- NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
The apex consumer body, the National Consumer Disputes Redressal Commission (National Commission), while hearing an appeal filed against the order of the Maharashtra State Consumer Disputes Redressal Commission (State Commission), has recently held in Royal Sundaram Alliance Insurance Co Ltd v Pawan Balram Mulchandani that murder of an Insured is to be treated as an accident under a personal accident policy, unless expressly excluded and/or caused as a result of the Insured’s own deliberate acts.
The National Commission’s ruling was in relation to an accidental death claim raised by the deceased Insured’s son in 2009. The Insured was murdered in relation to a property dispute, while returning from his place of work. The respondent filed a death claim with the Insurer under the personal accident policy, but it was repudiated on the ground that the death was not due to an “accident”, but was a case of a “murder simplicitor”.
The respondent filed a complaint before the State Commission which directed the Insurer to pay the sum assured of ₹2,000,000, along with accrued interest.
This order of the State Commission was the subject matter of challenge in the present appeal.
CONTENTIONS:
Before the National Commission, the Insurer primarily raised 3 contentions:
  1. Since the culprits had intentionally murdered the Insured, it was a case of murder, which did not fall within the scope of the policy;
  2. That the complaint was filed after considerable delay of 2 years, and was hence barred by limitation under the Consumer Protection Act 1986; and
  3. That where the dominant intention of the act of felony was to kill any particular person, then such killing was a murder simplicitor, and not an accidental murder.
 
 
SCOPE OF THE TERM “ACCIDENT”:
The National Commission first considered whether the murder was to be considered under the definition of “accident”, and subsequently, whether the Insurer’s repudiation of the claim was valid.
In this regard, the National Commission referred to the UK Court of Appeal’s judgment in Nisbet v Rayne and Burnwhere when a cashier was robbed and murdered, it was held that murder was an accident from the stand point of the person who suffered from it. The National Commission noted that the death of the Insured took place due to injuries caused by external, violent, visible means, and did not find any evidence suggesting that the Insured put himself to risk of injury by either an immediate wilful deliberate act or carelessness or instigation or aggression.
The National Commission thus reached the conclusion that in case the immediate cause of injury was not the result of any deliberate or wilful act of the Insured and the incident was not expected on the part of the Insured, the murder was to be considered an “accident”.
POLICY EXCLUSIONS:
The National Commission also examined the exclusions under the policy and noted that while the policy contained exclusions for “intentional self injury, suicide or attempted suicide” and “war, rebellion, revolution, insurrection, mutiny, military or usurped power”, none of the policy exclusions were applicable in the present facts and circumstances of the case. Since the insurance policy did not explicitly state that the Insurer would not be liable for death caused due to the act of murder, the National Commission was of the view that the Insurer’s claim repudiation was unjustified.
STATUTE OF LIMITATION:
The claim was repudiated on 26th May 2009 and the respondent’s complaint before the District Forum was disposed of on 5th August 2011 on the ground of territorial jurisdiction. The National Commission noted that since the limitation period under the Consumer Protection Act was 2 years, and the respondent’s right to approach an appropriate forum remained unaffected, the objections on limitation and territorial jurisdiction were erroneous and lacked merit.
 
OTHER ISSUES CONSIDERED:
The National Commission also applied the doctrine of “Contra Proferentum”, noting that the Insurer had left gaps and ambiguity in the policy terms and conditions, and held that in case of ambiguities in adhesion contracts such as an insurance policy, the interpretation is to be done in favour of the Insured. The Commission also held Insurer’s actions repudiating the claim per its own interpretation, to be tantamount to unfair trade practice. The Insurer was directed to discontinue its unfair trade practice immediately, unless such claims were expressly excluded and specified to be excluded in its policy terms and conditions.
The Commission directed the Insurer’s CEO to file a report-in-compliance before it within a period of 3 months, and noting the difficulty caused to the Insured’s family, the Commission further awarded an additional compensation of 2,00,000 to the respondent.
CONCLUSION:
On the basis of the foregoing, the National Commission held that an act of the murder must be treated as an accidental death if the same is not the result of any deliberate act of the Insured himself. Consequently, the Insurer’s appeal was dismissed, and the State Commission’s order was upheld by the apex consumer body.
  1. WHISTLE BLOWER POLICY IN INSURANCE COMPANIES
A Whistle Blower is a person who exposes any kind of unethical activity, item or information that is deemed to be illegal, unconstitutional or not correct in an organisation. A business organisation is established for profit through business transactions. The business should be carried out according to rules and regulations of law of land. Anything which is against law of land and against Public Policy is not allowed. Anything, which is incorrect, unethical against law is also against the organisation and should be stopped or early detected so that appropriate remedial actions should be taken.
A person who reports such act is called a “Whistle Blower”.
A Whistle Blower brings such unethical, irregular or unconstitutional acts to the knowledge of his /her superiors or to the management of the organisation. He may by contacting a third party related to the organisation can bring above matter in view of the management. The third party may be Statutory Auditor, Consultants or other authorities not related to day to day work of concerned organisation.
“Wikipedia” defines it as “A Whistle Blower “is a person who exposes any kind of information or activity that is deemed illegal, unethical or not correct within an organisation that is either public or private”.
IRDA Guidelines also advised to Insurance Companies to put in place a “Whistle Blower” policy, whereby mechanisms exist for employees to raise concerns internally about possible irregularities, governance, weaknesses, financial reporting issues or other such matters.
An employee through this mechanism brings that information or report that information to the management or third party.
A Whistle Blower Policy should cover following matter;
  1. Awareness of the employees that such channels are available, how to use them and how their report will be handled;
  2. Handling of reports received confidentially, for independent assessment, investigation and where necessary for taking appropriate follow-up actions;
  3. A robust mechanism to protect employees, who make report in good faith and for benefit of the organisation;
  4. A system of briefing to Board of Directors;
  5. A full proof system and learning process to encourage employees to report such activities by using such mechanism.
This Whistle Blower Policy provides a system to the Directors, Employees and Outsiders to report without fear any instance of actual or suspected violation, wrong doings or any unethical or improper doing, which will impact adversely on image or financial position of an organisation, through appropriate forum.
WHISTLE BLOWER PROCESS;

No addition can be done against the fictitious entry in the books of accounts

OBJECTIVE;
The Policy needs to ensure that concerns are properly raised, appropriately investigated and addressed by attempting to;
  1. Define the events that trigger a whistle blower complaint;
  2. Define process of lodging complaint;
  3.  Define various committees/ teams and their roles in implementation of the Policy;
  4. Outline full proof process of investigation and handling of information;
  5. Outline process to protect employee by being discriminated for reporting such information within an organisation or policy to not disclose employee’s information within organisation.
EVENTS /COMPLAINTS TO BE COVERED UNDER THE POLICY
The IRDA Guidelines don’t provide list of events/nature of complaints to be consider under the Whistle Blower Policy. Following are some activities, which must be considered;
  1. All unlawful acts whether civil or criminal;
  2. Failure or breach to implement well define Company Policies or various matters;
  3. Knowingly breaching of any rules or regulations of Central/ State or other law of lands, even in personal capacity;
  4. Unprofessional conduct or business activities by any stakeholder of the company;
  5. Fraudulent or corrupt practices, within or outside of organisation such as giving bribe to take or seek undue advantage or accepting any gift from outsiders to compromise on the policies of the Company;
  6. Any practice which is harmful to any person or property of public or the organisation;
  7. Failure to take appropriate step to mitigate any risk or to comply with any law or regulation, which will impact heavily on the Company.
APPLICABLE PROVISIONS OF COMPANIES ACT, 2013
Section 177 of the Companies Act, 2013, certain companies have to establish Vigil/Whistle-blowing mechanism to report unethical behaviour or act or other concern to the management.
Section 177(9)- provides that every
  1. Listed Company;
  2. Campines which accept public deposit;
  3. Companies which have borrowed money from banks and public financial institution in excess of Rs. 50.00 Crores
Shall establish a Vigil Mechanism for directors and employees to report genuine concern in such manner as may be prescribed.
Section 177(10)- Safeguard against victimization
  1. Policy against victimization of person using the Vigil Mechanism;
  2. Provide access to the Chairman of Audit Committee in appropriate or exceptional cases;
  3. Display Vigil Mechanism Policy on the Website of the Company;
  4. A report on “Vigil Mechanism” to be included in the “Board Report”.
Schedule IV- Code for Independent Directors;
  1. Ascertain and ensure that the company has an adequate and functional or exceptional case;
  1. Ensure that interests of a person who uses the mechanism are not prejudicially affected.
WHISTLE BLOWING CHANNEL
No addition can be done against the fictitious entry in the books of accounts
PROVISIONS UNDER SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS 2015
Regulation 4(2)(d)(iv)- Provides that the listed entity shall derives an effective whistle blower mechanism enabling stakeholder, including individual employees and their representative bodies, to freely communicate their concern about illegal or unethical practices.
Regulation 46(2) (e)- provides that the listed entity shall disseminate the details of establishment of Vigil Mechanism / Whistle-blower Policy information on website.
Regulation 18(3) read with Part C Role of Audit Committee and Review of Information by the Audit Committee – provides that Audit Committee shall review the functioning of the Vigil Mechanism / Whistle-blower Policy of the Company.
Schedule V Corporate Governance Report- Provides that the Annual Report should contain a separate section on Corporate Governance Disclosure. The Corporate Governance Report should make a specific disclosure with regard to the details of establishment of Vigil Mechanism/ Whistle-blower Policy, and affirmation that no personnel has been denied access to the Audit Committee.
CONCLUSION:  being a democratic country our policy makers seek that a democratic culture should be prevail in public as well as in Private organisations. Every person whether he is a stakeholder or not should be given a mechanism to report his concern or any unethical behaviour to the appropriate forum. If Whistle Blower Policy/ Mechanism is appropriately implemented in any organisation, whether it is government or private, shall prevent future loss related to financial matter, image or public at large.
  1. TYPES OF FRAUD IN INSURANCE AND REMEDIES
In this article, we discuss the legal actions which can be taken up by the insurance companies against fraudulent insurance claims.
  1. What is an Insurance Fraud?
The Indian Insurance Act does not contain definition for ‘insurance fraud’. Neither have any specific laws connected to insurance fraud been spelled out in the Indian Penal Code,1860(IPC). The Indian Contract Act,1872 (ICA) also doesn’t have any specific laws pertaining to insurance fraud. Even though sections related to forgery or fraudulent acts can be applied in the IPC, it does not succeed to deter the commission of the fraud. Insurance fraud occurs when people deceive an insurance company in order to collect money to which they are not entitled.
 
LET’S CONSIDER DEFINITION OF FRAUD:
The Insurance Regulatory and Development Authority (IRDA) has on several occasions taken up the  International Association of Insurance Supervisors’ (IAIS) definition, “an act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties.”
The Federation of Indian Chambers of Commerce & Industry define insurance fraud as, “The act of making a statement known to be false and used to induce another party to issue a contract or pay a claim. This act must be wilful and deliberate, involve financial gain, done under false pretenses and is illegal.”
 Insurance fraud refers to any duplicitous act performed with the intent to obtain an improper payment from an insurer. Insurance fraud is committed by individuals from all walks of life. Law enforcement officials have prosecuted doctors, lawyers, chiropractors, car salesmen, insurance agents and people in positions of trust. Anyone who seeks to benefit from insurance through making inflated or false claims of loss or injury can be prosecuted.’’
  1. Types of Insurance Fraud
The Insurance Regulatory and Development Authority (IRDAI) of India which is the apex body and overseeing the business of Insurance in India sets out these 3 broad categories of fraud –
  1. Policyholder Fraud and/or Claims Fraud – Fraud against the company in the purchase and/or execution of an insurance product, including fraud at the time of making a claim.
  2. Intermediary Fraud – Fraud perpetuated by an insurance agent/Corporate Agent/intermediary/Third Party Administrators (TPAs) against the company and/or policyholders.
  3. Internal Fraud – Fraud/ misappropriation against the company by its Director, Manager and/or any other officer or staff member (by whatever name called).
  1. Claims Related Fraud
Policy holders may generally commit these kind of frauds :
  1. Hiding a pre-existing condition: most individual health policies give a definite waiting period for a pre-existing condition/disease. The policyholder by falsifying the report of a pre-policy health check up, conceal this fact.
  2. Fabricated documents to meet terms and conditions of the Insurance: Youthful and Healthy people are an obvious choice for insurance by the companies. Any person with a different attribute, for example, a person aged, may not necessarily face rejection of his application but may be charged more premium. In this case people try to conceal age or chronic diseases. Faking disability also comes under this.
  3. Duplicate bills of exchange: Submission of forged or inflated bills is also fraud, especially when no expenses have been undertaken. The objective of health insurance, to cover the medical expenses incurred when one has diseases or requires surgery, is defeated then. An insurance policy is not supposed to be profitable.
  4. Withholding information of multiple policies: It is the responsibility of the insured to inform all the other insurers of the existing policies whether group, individual to prevent the making of multiple claims on an issue and make a profit out of it.
  5. Participating in fraud rings: A person might collude with another like an agent or doctor or providers to make a false claim, for example, alter information at their bequest to make a claim.
  6. Orchestrated accident: A person might stage an accident so that they can call for compensation for their medical and hospital expenses.
As the social health insurance takes a steady upward come, the victims of health insurance might be more in nature.
  1. Current Action against fraud
i)  No fraud Management policy has been properly documented or implemented till date by the various insurance regulatory authorities or the government.
ii)  These are the various actions which can be taken when it comes to insurance fraud and the actions are limited to :
a) Rejection of claims of serious fraud – in all cases brought out in the court if the guilt is found out, the claim is outright rejected;
b)  Fraud can also lead to cancellation of policy in serious fraud cases, however, this does not generally happen in abuse or misdeclaration;
c) There are only limited actions which can be taken against the agents due to lack of a comprehensive legal framework to punish the same;
d)  Most of the insurance companies do not have an underwriting as a part of their disclosures or documents, about what action will be taken against the consumers in case of misdeclaration or non declaration of material information.
5.     Setbacks
Due to the mounting backlog of pending cases in the judicial machinery of our state, taking legal action against fraud is not a common occurrence and fraud of amounts not big enough are let go off as opposed to the heavy investment of time and energy in pursuing the same.
Even if legal remedies are taken or help of the court is availed due to various reasons and the design and process of the law sometimes make the recovery of the money lost by fraud are a rare occurrence.
  1. Legal Provisions under Indian Penal Code,1860
The provisions which can be applicable in such cases are –
  1. Section 205- False personation for purpose of act or proceeding in suit or prosecution.—Whoever falsely personates another, and in such assumed character makes any admission or statement, or confesses judgment, or causes any process to be issued or becomes bail or security, or does any other act in any suit or criminal prosecu­tion, shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.
  1. Section 420- Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the person de­ceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.
  1. Section 464 Making a false document- [A person is said to make a false document or false electronic record—
i)  First —Who dishonestly or fraudulently—
(a) makes, signs, seals or executes a document or part of a document;
(b) makes or transmits any electronic record or part of any electronic record;
(c) affixes any  [electronic signature] on any electronic record;
(d) makes any mark denoting the execution of a document or the authenticity of the [electronic signature],with the intention of causing it to be believed that such document or part of document, electronic record or  [electronic signature] was made, signed, sealed, executed, transmitted or affixed by or by the authority of a person by whom or by whose authority he knows that it was not made, signed, sealed, executed or affixed; or
ii) Secondly — Who, without lawful authority, dishonestly or fraudu­lently, by cancellation or otherwise, alters a document or an electronic record in any material part thereof, after it has been made, executed or affixed with  [electronic signature] either by himself or by any other person, whether such person be living or dead at the time of such alteration; or
ii) Thirdly — Who dishonestly or fraudulently causes any person to sign, seal, execute or alter a document or an electronic record or to affix his  [electronic signature] on any electronic record knowing that such person by reason of unsoundness of mind or intoxication cannot, or that by reason of deception practised upon him, he does not know the contents of the document or electronic record or the nature of the alteration.
  1. Section 405. Criminal breach of trust.— Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust’’.
As seen above from the comprehensive and elaborate explanations/definitions all these sections under this law can be used to persecute in case of insurance fraud however due to the time and cost involved, parties generally refrain.
  1. Legal Remedies under The Indian Contract Act, 1872

 

  1. Misrepresentation within the meaning of Section 18of the ICA
  2. The contract of insurance is also void in as per Section 10read with Section 14(4) and Section 18 of the ICA generally in cases of fraud.
  3. As per Section 20of the Indian Contract Act, 1872, the agreement is void where both parties are under mistake as to matter of fact. Some factors are essential for insurance cover.
  1. Other measures which can be taken
Steps such as having a comprehensive fraud and abuse management policy which covers types of fraud and abuse alongside with policies, procedures, and controls, company action being documented and implementing a review mechanism should be taken by insurance companies also so that they are also in a position to take legal action.
Sharing of knowledge and data should be more prevalent with the victims of fraudulent insurance claims, this data should include fraud patterns and case studies, fraud customer list and intermediaries, fraudulent providers and investigators etc.
Most importantly awareness should be brought about the due legal process to be followed before reporting a case. Reporting to external bodies such as Medical Council of India, IRDA, and corporate Human Resources can also be tried.
CONCLUSION
There has been a growing instance of fraudulent insurance claims and the Supreme Court also in January 2017 has stressed on the need for framing guidelines with the suggestions of the states and the insurance companies to rule out such cases. In some cases claims are also filed wrongly under different acts. It is important to evolve an efficient legal framework and take recourse to the existing one as well to prevent such plunder of the money of the public.
  1. TRANSFER OF ACTIONABLE CLAIMS
 
Actionable Claim:  is a claim to any debt, other than secured by mortgage of immovable property or pledge or hypothecation of some movable property, or to any beneficial interest in movable property, not in possession either actual or constructive of the claimant.
Section 3 of Transfer of Property Act, 1882 defines ;  “ actionable claim means a claim to any debt , other than a debt secured by mortgage of immovable property or by the hypothecation or pledge of movable property , or to any beneficial interest in movable property not in the possession, either actual or constructive , of the claimant, which the civil courts recognises as affording grounds for relief, whether such debt or beneficial interest be existent, accruing ,conditional or contingent.”
Lets’ analyse above definition;
A. Actionable Claims means a claim to –
A. Any debt, other than a debt secured –
  1. By a mortgage of immovable property, or
  2. By hypothecation or pledge of movable property, or
B. Any beneficial interest in the movable property- not in possession (either actual or constructive) of the claimant;
 C. which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.
NOTE: it means that Actionable Claim relates only to unsecured debt and beneficial interest of a claimant in movable property not in his possession.
The Transfer of Property (Amendment) Act, 1990 defines;
An Actionable Claim comprises of –
  1. a claim to unsecured debt or;
  2. a claim to any beneficial interest in movable property not in actual or constructive possession of the claimant.
Debt:  we know there are two types of movable property; Tangible and Intangible, in tangible property, we can feel it and have its possession such as car, residence, jewellery, furniture’s etc. This type of properties has physical existence. In case of Intangible Properties, there are rights or obligations, which we enjoy. The existence of intangible movable can be known only when the person having such right claims it by an action in the court of law.
The “Debt” includes a sum of money due by one person to another and which includes not only the amount payable at the time but also the sum of money which is not immediately due but might become payable after sometime. A sum of money which become payable in future due to present obligations will be considered as a Debt.
A Debt may be Secured or Unsecured. Where a debtor gives security of any immovable or movable property to secure payment of debt, called Secured Debt and other the other hand where no security has given for payment of debt, called unsecured debt.
An Unsecured Debt is treated as Actionable Claim.
  1. Where a debt is already due and become payable is called “Existing Debt”
  2. on the other hand, where a debt or sum of money is due at present but payable on a future date, it is “Accruing Debt”;
  3. Where the claim for a sum of money exists but the payment depends upon the fulfilment of any condition, the debt is known as “Conditional Debt”.
CLAIMS WHICH ARE HELD TO BE ACTIONABLE CLAIM; following claims are included under the category of Actionable Claims;
  1. A Claims for arrears of rent;
  2. A share in partnership;
  3. A Claim for money due under any insurance policy;
  4. A claim for rent to fall due in future accruing debt;
  5. A Claim for the return of earnest money;
  6. A Claim for unpaid dower of a Muslim Woman;
  7. A right to get back the purchase-money when sale is set aside;
  8. A benefit of an executory contract for the purpose of goods is a beneficial interest in the movable property;
  9. A right to proceeds of a business.
CLAIMS WHICH ARE NOT TREATED AS ACTIONABLE CLAIM;
  1. A Decree is not an Actionable Claim;
  2. A Right to get damages under the law of torts or for breach of contract;
  3. A Claim to mesne profit is not an actionable claim but it is a mere right to sue;
  4. A Copyright;
  5. A Debt secured by mortgage of immovable property or hypothecation of movable property.
TRANSFER OF ACTIONABLE CLAIM:  Section 130 of Transfer of Property Act, 1882 provides that
(1) The transfer of an actionable claim (whether with or without consideration )shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, shall be complete and effectual upon the execution of such instruments, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not:
Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer.
(2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor’s consent to such suit or proceeding and without making him a party thereto.
Note —Nothing in this section applies to the transfer of a marine or fire policy of insurance
or affects the provisions of section 38 of the Insurance Act, 1938 (4 of 1938)].
LET’S ANALYZE PROVISIONS OF SECTION 130; 
  1. It provides that the transfer of both types of actionable claims, i.e. with or without consideration are affected by execution of an instrument in writing. The instrument must be signed by the transferor or his duly authorised agent;
  2. It must be affected by instrument in writing signed by the transferor or his duly authorised agent. It is not necessary that the assignment should be made by a separate document. Only an endorsement on the back of the document containing actionable claim is sufficient for the purpose;
  3. Transfer of actionable claim takes effect only after execution and signing of the instrument. After execution, all the rights and remedies of the transferor vest in the assignee. The Assignee(transferee) becomes entitled to recover the claims and sue in his own name. The assignee also become liable for all the liabilities and equities to which the transferor was subject at time of the transfer.
  4. Assignment of Insurance Policy: The insured has assigned his policies to a bank. He then made a claim as a complaint under the Consumer Protection Act against the insurance company. In this case it was held that the Bank has right to claim amount from insurance company on the basis of decree passed by consumer court. The Bank need not to get permission from the insured.
  5. Subrogation of claim under insurance: A consignor has filed a suit against the carrier of cargo for loss of stock due to negligence and heavy rain. The insurance company after accessing claim amount has paid to the consignor and filed a recovery suit against the carrier on the basis of letter of subrogation and power of attorney received from the insured(consignor) in its own name. The court held that the suit of recovery of loss should be in the name of consignor name, not in the name of the insurance company on the basis of Power of Attorney;
  6.  Notice of Assignment: A notice of assignment to the debtor is not compulsory to perfect the title of the asignee(transferee) but until the debtor receives notice of the assignment to a third person, his dealings with original creditor shall be protected. Thus, it is necessary for an assignee to give notice to the debtor as soon as possible;
  7. Exception: the provisions of Section 130 are not applicable to the transfer of a marine or fire insurance policy or affect the provisions of Section 38 of the Insurance Act, 1938.
InduKakkar Vs. Harayana State Industrial Development Corporation Ltd., AIR 1999 SC 296C (1999): The Supreme Court held that the transferee cannot compel the corporation allotting the land to treat him as an allottee. In this case a plot was allotted to the allottee for the establishment of an industrial unit within a specified time-period by the Industrial Development Corporation. The original allottee has transferred the plot without the consent of the corporation. The Supreme Court held that the corporation could not ne compelled to treat him as an original allottee. He has no locus standi to challenge the order of resumption passed by the corporation.
Section 131 of The Transfer of Property Act, 1882 deals with Notice in case of assignment of Actionable Claim:  provides that every notice of transfer of actionable claim must be in writing and signed by the transferor or his duly authorised agent in this behalf. Where transferor refuses to sign, then the notice must be signed by the transferee or his agent. The notice must be in express terms of notice and name and address of the transferee must be written clearly on the notice. Notice must be unconditional.
SadasookRamprotap Vs. Hoar Miller & Co.   it was held that there is no time limit within which the notice must be given. Notice given within one year was held to be reasonable.
Section 132 of the Transfer of Property Act, 1882 deals with Liability of Transferee of Actionable Claim; the transferee of an actionable claim shall take it subject to all the liabilities and equities and to which the transferor was subject in respect thereof at the date of the transfer.
Example:
  1. Let’s consider Mr. X transfers to Mr. Y a debt due to him by Mr. Z, Mr. X being then indebted to Mr. Y. Mr. Z sues Mr. Y for the debt due by Mr. Y to Mr. X. In this case Mr. Y is entitled to set off the debt due by Mr. X to Mr. Z, although Mr. Y was unaware of it at the date of transfer.
Note: – The principal of this section is that the assignee can get no better title than the assignor. If nothing is due to the assignor the assignee gets nothing.
Section 133 of the Transfer of Property Act, 1882 provides that: Where the transferor of a debt warrants the solvency of the debtor, the warranty, in the absence of a contract to the contrary, applies only to his solvency at the time of the transfer, and is limited, where the transfer is made for consideration, to the amount or value of such consideration.
A warranty of solvency is not implied. Warranty is sometimes given by the transferor as a precautionary measure that the debtor is solvent so that the transferee becomes assured that he may not lose his claim. The warranty of solvency of debtor is limited only for the time of transfer or time of the assignment. Where the transfer is for consideration, such warranty extends only to the amount of such consideration.
Section 134 of Transfer of Property Act, 1882 provides that; where a debt is transferred for the purpose of securing an existing or future debt, the debt so transferred, if received by the transferor or recovered by the transferee, is applicable;
  1. First, in payment of the costs of such recovery;
  2. Secondly, in or towards satisfaction of the amount for the time being secured by the transfer; and
  3. Residue if any, belongs to the transferor or other person entitled to receive the same.
Section 135[ inserted by 1944 amendment act]  of the Act, 1882 Assignment of rights under policy of insurance against fire.—Every assignee by endorsement or other writing, of a policy of insurance against fire, in whom the property in the subject insured shall be absolutely vested at the date of the assignment, shall have transferred and vested in him all rights of suit as if the contract contained in the policy has been made with himself.
Section 135 provides that any assignee of a policy of insurance against fire, in whom the property in the subject insured shall be absolutely vested at the date of the assignment shall have transferred and vested him all rights of suit as if the contract contained in the policy has been made with him.
Note:  Section 130 of the Act, 1882 exempts the assignments of marine or fire policies of insurance from its operation because mere assignment of such policy does not entitle the assignee to the ownership of the subject matter of policy.
SECTION 137 of the Transfer of Property Act, 1882:  the provisions of Sections 130 to 136 of the Transfer of Property Act, 1882 dealing with transfer of actionable claim do not apply to stocks, shares or debentures , or to instruments whish are for the time being , by law or custom, negotiable ,or to any mercantile document of title to goods.
Mercantile Document of Tile of Goods; includes a bill of landing, dock-warrant, warehouse-keeprs’ certificate, railway receipt, warrant or order for the delivery of goods, and any other document used in ordinary course of business as a proof of the possession or control of goods, or authorising or purporting to authorise ,either by endorsement or by delivery, the purpose of the document to transfer or receive goods thereby represented.
CONCLUSION:Negotiable Instruments are governed by the provisions of Negotiable Instrument Act, 1881, such instruments are assigned or transferred by endorsement and delivery or mere delivery. However, a negotiable instrument may also transfer like and actionable claim. The assignee under the Transfer of Property Act, 1882 will acquire no more than the right, title and interest of the assignor but under transfer in Negotiable Instrument Act, 1881 the endorsee will have all rights and advantages of a holder of instrument in due course.\
  1. RETURN OF PREMIUM UNDER A CONTRACT OF INSURANCE
Insurance is playing a vital role in our life now days. After this COVID-19 pandemic, we have realised the importance of insurance and government has also provided various facilities to general public to secure their lives and properties from various types of risks. Through insurance we shall reduce the impact of risk insured. The risk may be on our lives such as accidental, due to diseases, injury etc., and on our property, business, profits etc. We enter into a contract with insurance companies, through policy of insurance by paying a consideration in the form of premium.
The contract of insurance is based on good faith, the insured /prospect have to disclose all relevant facts, required by the insurance company to underwrite risk and decide premium.
In some cases, there may be disagreement between insured/prospect and the insurance company. An insurance company shall provide a free look period of 30 days to the insured from the date of issue of insurance policy to check the terms and conditions of the policy and decide whether he/she wants to continue with the insurance policy or not. If insured wants to terminate or opts out of insurance policy or not agree on terms and conditions of the policy, he has to intimate to insurance company his/her decision. The insurance company will return the premium received within a period of 15 days from the date of receipt of intimation according to IRDAI (Protection of Policyholders) Regulations, 2017.
Premium, is the consideration for the risk run by the insurers, and if there is no risk there should be no premium. If risk is not run, consideration fails and it is inequitable for the insurer to keep premium paid, whether it is a fault on the part of insured.
The underwrites receives a premium for running risk of indemnifying the assured, and if for any cause the risk is not run, the consideration for which the premium or money put into its hands, fails therefore it out to return premium received.
The right to the return of the premium is enforceable by an action for money had and received and not by an action on the policy.
 
LETS’ CONSIDER SOME PROVISIONS OF THE INDIAN CONTRACT ACT,1872
Section 64 in The Indian Contract Act, 1872
Consequences of rescission of a voidable contract. —When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding avoidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.
Section 65 in The Indian Contract Act, 1872
Obligation of person who has received advantage under void agreement, or contract that becomes void.—When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.
Section 65 includes the case of an agreement which is void ab-initio, and thus risk is never run, and the suit for the recovery of the premium should be treated as a suit for money had and received.
The provisions of Sections 64 & 65 of Indian Contract Act, 1872 do not mean that the person rescinding a contract must restore all that he has received under, it irrespective of what he has given. He should be made to restore any balance of advantages received under the contract which can be clearly separated off from the advantage for which consideration has been given by him.
SOME CIRCUMTANCES IN WHICH RISK IS NEVER RUN; in below mentioned circumstances it will be considered that risk never run and the insurer is required to return premium received;
  1. Where before the policy comes into force the subject-matter of insurance ceases to be in existence;
  2. Where subject-matter is wrongly described;
  3. Where the insured had never any insurable interest in the subject-matter;
  4. Where the policy issued is ultra vires the company;
  5. Where the policy is void on account of some illegality;
  6. Where the policy is void on account of some breach of a condition precedent.
  7. Where the insurance is avoided by the insurers on the grounds of breach of warranty the premium can only be recovered back if it is shown that there was breach ab initio.
We can draw from above that under a valid policy the risk has once commenced to run, the whole of the  premium for that risk is immediately deemed to have been earned, and even though the insurers should shortly afterwards be relieved of the risk for the reminder of the term, the assured is not entitled to a return of the premium.
Example:  lets consider a condition Mr. A an assured and M/s. XY Ltd., an insurance company reside in same city, where war breaks out. In this case where an insurance is legal and binding in its inception, but afterwards becomes illegal. The insurer, XY Ltd., is not liable to the return of premium.
Section 56 of the Income Contract Act, 1872
Agreement to do impossible act:
An agreement to do an act impossible in itself is void.
  • Contract to do act afterwards becoming impossible or unlawful:
A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
  • Compensation for loss through non-performance of act known to be impossible or unlawful:
Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.
Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties. (Naithati Jute Mills Ltd. V. Khyaliram Jagannath, AIR 1968 SC 522) (Para 7).
THE DOCTRINE OF FRUSTRATION;
The principal of frustration of contract is contained in section 56 of the Indian Contract Act, 1882. The principal underlying the section is that performance of contract can be avoided if on account of happening of an event which is not the result of action of either party, the performance of contract may be avoided.
The Doctrine of Frustration as embodied in Section 56, of the Contract Act, may apply if below mentioned three conditions satisfied;
  1. A valid and subsisting contract between parties;
  2. There must be some part of the contract yet to be performed;
  3. The contract after it is made, become impossible.
The Doctrine of frustration is applicable only where performance of contract become impossible.
Note: after discussion on provisions of Sections 56 and 65 of the Indian Contract Act, 1882 it would be seen that the premium or proportionate of it could be recovered or refunded even where risk has begun to run.
NOTE:
  1. When insurer elect to set aside the contract on the ground of innocent misrepresentation, non-disclosure, concealment or mistake, the assured is entitled to the return of the premium, in absence of fraud on his part and of any express conditions to the contrary;
  1. Fraud on the part of insurers create a valid claim for the return of the premium;
  1. Prince of Wales Insurance Co. Vs. Palmer; it was held that the insurers were not allowed to retain premium for their own use, when policy was set aside on the ground of fraud and lack of insurable interest;
  1. British Equitable Insurance Co. Vs. Musgrave; the premium in similar case was not refunded on the basis of cancellation clause in the policy;
  1. Biggar Vs. Rock Life Insurance Co.: “ if plaintiff is entitled to anything , I think the most he could have asked for would be that the court should say that the contract is void on the ground of either fraud or mistake, with the consequences perhaps he may entitled to return of premium”.
  1. When there is fraud or inducement by an insurance agent, to the insured to subscribed insurance policy.
LAWS IN INDIA GOVERNING REFUND OF PREMIUM;
A contract of insurance is like any other contract, is a contract between and insured and insurance company. The amount of premium paid will be treated as consideration paid to conclude the contract.
SECTION 64VB OF THE INSURANCE ACT, 1938 PROVIDES THAT;
No risk to be assumed unless premium is received in advance. —
(1) No insurer shall assume any risk in India in respect of any insurance business on which premium is not ordinarily payable outside India unless and until the premium payable is received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until deposit of such amount as may be prescribed, is made in advance in the prescribed manner.
(2) For the purposes of this section, in the case of risks for which premium can be ascertained in advance, the risk may be assumed not earlier than the date on which the premium has been paid in cash or by cheque to the insurer.
Explanation. —Where the premium is tendered by postal money order or cheque sent by post, the risk may be assumed on the date on which the money order is booked or the cheque is posted, as the case may be.
Section 65 of the Indian Contract Act, 1882 provides that;
“When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.”
Note: the main object of Section 65 of the Indian Contract Act, 1882 is not to make a new contract between the parties, when the contract entered into by them has been discovered to be void but only to restore the advantage received by one party thereunder to the other.
Section 65, Contract Act codifies the rule of equity. Only two classes of contracts are mentioned in this section;
  1. Contracts that are discovered to be void;
  2. Contracts that become void;
Lets’ consider one by one;
1.Contract that are discovered to be void; it means and includes contracts which are void as initio. The general rule of contract is that the parties entering into contract presumed to know the applicable laws and hence if the contracts are void ab initio to the knowledge of the parties , or if parties are presumed to have knowledge of such void transactions it is no contract at all and it cannot be said to be discovered to be void and hence provisions of Section 65 do not apply here.
PrabhumalGulamal Vs. BaburamBassesar Das;  it was held that “the agreements were void to the knowledge of both parties at the time they were made , and it cannot , therefore , be said that it was discovered to be void , or when a contract become void any person who has received any advantage under such agreement is bound to restore it.”
Srinivas Ayyer Vs. SeshaAyyer; Justice Blackwell “The words discovered to be void”, are more opt to describe an agreement which was void ab initio, but not then known to the parties to be so than to an agreement of which illegally must be taken to have been always know to them”. Where the contract void ab initio the consideration cannot be refunded.
2. Contracts that become void; it refers to those contracts which are perfectly valid and binding at the time when they are entered into, but subsequently become void on happening of certain events. In contract of Insurance, it is submitted, where a contract is binding and enforceable in its inception but subsequently on account of a breach of warranty or the happening of some event like, war or for any other cause, the contract become void the premium paid thereunder cannot be refunded.
CONCLUSION: The IRDAI(PPHI) Regulations, 2017 and PPHI Guidelines provides that the premium should be refunded within a period of 15 days from the date of receipt of request from policyholder. We have discussed various aspects on refund of premium based on provisions of the Indian Contract Act, 1882 and the Insurance Act, 1938 and have drawn conclusion that the premium amount received by insurer should be returned to the insured on fulfilment of specified conditions.
  1. SURRENDER VALUE OF AN INSURANCE POLICY
Surrender of Insurance Policy means to in cash  a life insurance policy before benefits are due to be paid. The Surrender Value of an Insurance Policy is the amount given to the insured at a time, when he is unable to pay premium related to Insurance Policy.
At a particular time, when insured is not able to pay further premium and he has paid earlier premiums related to surrendered insurance policy. It is cash value of an Insurance Policy at a particular time. It is the portion of premiums paid or another amount recoverable on an insurance policy if the policy is cancelled immediately after having been issued.
Let’s us discuss some more definitions;
It is the amount the policyholder will get from the life insurance company if he decides to exit the policy before maturity.
INVESTOPEDIA:
  • The cash surrender value is the sum of money an insurance company pays to a policyholder or an annuity contract owner in the event that his or her policy is voluntarily terminated before its maturity or an insured event occurs.This cash value is the savings component of most permanent life insurance policies, particularly whole life insurance policies.
  • Depending on the type of policy, the cash value is available to the policyholder during his lifetime.
INSURANCEOPEDIA:
  • Surrender value is the amount of money that a policyholder or annuity holder would get from the insurance company in case they voluntarily terminate the policy before its maturity date or the insured event occurs or.
  • It is also known as cash surrender value or cash value.
From above definitions we shall draw a conclusion that Cash Value and Surrender Value of an Insurance Policy are the same. But there are many differences between Cash Value and Surrender Value related to an Insurance Policy.
CASH VALUE:
Cash value, or account value, is equal to the sum of money that builds inside of a cash value-generating annuity or permanent life insurance policy. It is the money held in your account. Your insurance or annuity provider allocates some of the money you pay through premiums toward investments—such as a bond portfolio—and then credits your policy based on the performance of those investments.
SURRENDER VALUE:
The surrender value is the actual sum of money a policyholder will receive if they try to access the cash value of a policy. Other names include the surrender cash value or, in the case of annuities, annuity surrender value. Often there will be a penalty assessed for early withdrawal of cash from a policy.
Conclusion we can draw from above definitions;
  • Cash value, or account value, is equal to the sum of money that builds inside of a cash value-generating annuity or permanent life insurance policy.
  • In most cases, the difference between your policy’s cash value and surrender value are the charges associated with early termination.
  • After a certain period, the surrender costs will no longer be in effect, and your cash value and surrender value will be the same.
Note: in case of early surrender of insurance policy, the insurer shall deduct some penalty or charges from Cash Value of Insurance Policy at the time of surrender of policy. It means Surrender Value is less than Cash Value in early termination of Insurance Polices but after a period of time as mentioned in the terms of issue of Insurance Policy, Surrender Value and Cash Value are equal.
 
LET’S SEE HOW WE CALCULATE SURRENDER VALUE OF A LIFE INSURANCE POLICY;
The Formula generally used for Calculation of Special Surrender Value is;
SSV= {BSAx (NP/TNP+BR} xSVF
Or
Special Surrender Value= {Basic Sum Assured (Number of premium paid/Total Number of premiums payable) + Bonus received} Surrender Value Factor
The Surrender Value depends the number of years you have paid the premium and bonus received during tenure of policy.
There are two types of Surrender Value;
  1. Guaranteed Surrender Value;
  2. Special/ Cash Surrender Value.
GURANTEED SURRENDER VALUE: is often mentioned in policy documents and Special/Cash Surrender Value will be calculated at the time of receivable of request of surrender from the insured.
NOTE:  an insured is eligible to receive Guaranteed Surrender Value if he has paid premium for a continuous period of three years. It is 30% of premium received less amount of first year premium paid.
Example: Let’s us consider Mr. A has taken an insurance SA Rs. 5,00,000/- for a period of 20 years and premium payment Rs. 25,000/- for annually. He has paid three premiums at the time of requesting surrender of policy. In this case total premium paid by him is Rs. 75,000/-. Now in this case he will received (75000-25000) *30/100= Rs. 15000 only.
SPECIAL OR CASH SURRENDER VALUE:
Before special surrender value, we must understand paid-up value. If you stop paying premium after a specified period, your policy will continue but with lower sum assured. This reduced sum assured is called paid-up value or paid-up sum assured.

Paid-up value is calculated by multiplying the original sum assured and the ratio of the number of premiums paid to the number of premiums payable.

Example:Mr. A paid the Rs 25,000 annual premium on a quarterly basis, and the sum assured is Rs 5 lakh for a policy term of 20 years. If Mr. A stop paying after three years, that is, have paid 12 premiums, the paid-up value will be Rs 5,00,000X (12/80).
In this case, 80 (20X4) is the number of premiums you were supposed to pay and 12 (3X4) is the number of premiums you have actually paid.

 

The paid-up value is Rs 75,000. This is the sum you will get at maturity or your nominee will get after you die. Paid-up value plus bonus is the total paid-up value. Mr. A has accumulated bonus of Rs. 60,000 as bonus.
Let’s consider Special Cash Value:
Total Premium payment terms= 20*4=80
Total Premium paid=3*4= 12
Total Paid Up Value= Total Premium Paid + Bonus Accumulated=Rs. 75000+ Rs. 60000=Rs. 135000
Surrender Value factor= 27.76%
Special Cash/Surrender Value= {500000*12/80+60000)} Surrender Value Factor=135000*27.76%= Rs. 37,260/-
Insurance Regulatory Development Authority (IRDAI), the regulator has notified IRDAI (Acquisition of Surrender and Paid Up Values) Regulations, 2015 on 16th September, 2015 and shall be applicable to the products offered by the insurers which are approved by Authority.
Regulation 3 deals with Surrender Value and Paid Up Value under insurance policies offered by Life Insurers-
a. Every policy offered by life insurer under a linked platform –
(i) Shall provide surrender value in accordance with Insurance Regulatory and Development Authority (Linked Insurance Products) Regulations, 2013, as amended from time to time.
(ii) Shall comply with all the provisions related to surrender or discontinuance in accordance with the Insurance Regulatory and Development Authority (Linked Insurance Products) Regulations, 2013, as amended from time to time.
 b. Every policy offered by life insurer under a non-linked platform-
(i) Shall provide surrender value in accordance with the Insurance Regulatory and Development Authority (Non-Linked Insurance Products) Regulations, 2013, as amended from time to time.
(ii) Shall comply with all the provisions related to surrender in accordance with the Insurance Regulatory and Development Authority (Non-Linked Insurance Products) Regulations, 2013, as amended from time to time.
(iii) Which has acquired a surrender value shall not lapse by reason of non-payment of further premiums but shall be kept in force to the extent of paid up sum assured and the subsisting reversionary bonuses including guaranteed additions, if any.
(iv) The paid-up sum assured in 3 (b) (iii) shall be calculated by means of a formula as approved by the Authority, and contained in the terms and conditions of the policy.
v) For policies wherein the amount of premium payable is fixed and are of uniform amount, the paid-up sum assured (before inclusion of reversionary bonuses or the guaranteed additions, if any).
  1. On death shall not be less than the ratio of the total period for which premiums have already been paid bears to the maximum period for which premiums were originally payable multiplied by the sum assured on death.
  1. On maturity shall not be less than the ratio of the total period for which premiums have already been paid bears to the maximum period for which premiums were originally payable multiplied by the sum assured on maturity.
  1. Adjustment shall be made to the paid-up sum assured calculated as above on account of survival benefits paid, if any.
(vi) For policies other than as mentioned in 3 (b) (v) above, the Authority may approve a different formula for calculation of paid up sum assured.
(vii) The Regulation 3 (b) (iii) above shall not apply,
a) Where the paid-up sum assured of the policy exclusive of attached bonuses and the guaranteed additions, if any, (under other than Micro Insurance and Health Insurance Business) is less than Rupees One Thousand Two Hundred and Fifty.
(b) Where the paid-up sum assured of the policy exclusive of attached bonuses and the guaranteed additions, if any (under Micro Insurance and Health Insurance Business) is less than Rupees One Hundred.
(c) Where paid up sum insured takes the form of an annuity of less than Rupees Two Hundred Fifty per month.
  1. A life insurance policy may be terminated after expiry of revival period by paying the surrender value if the paid-up sum assured of the policy is less than as specified under 3 (b) (vii) above.
  1. The Authority may issue instructions for payment of surrender value under extraordinary circumstances.
On July 8, 2019, Insurance Regulatory Development Authority (IRDAI) came up with some new rules on Unit Linked (ULIPs) and non-linked life insurance plans.
New Rule -Other than single premium products: The minimum guaranteed surrender value shall be the sum of guaranteed surrender value and the surrender value of the any subsisting bonus and any guaranteed additions already attached to the policy.
The guaranteed surrender value shall be at least:
  1. 30% of the total premiums paid less any survival benefits already paid, if surrendered during the second year of the policy, and
  2. 35% of the total premiums paid less any survival benefits already paid, if surrendered during third year of the policy.
  3. 50% of the total premiums paid less any survival benefits already paid, if surrendered between the fourth year and seventh year of the policy
Meaning – For the previous policies, the surrender value could be acquired only if a minimum of 2 premiums had been paid. Though there were few policies which could acquire surrender value in the 2nd year itself.
Now, it is compulsory to give surrender value after the 1st premium has been paid. In simple words, a customer can surrender the policy in the 2nd year itself and minimum 30% of the premiums paid back will be returned to the customer. The customer would also receive the surrender value of the guaranteed bonus which was promised at the beginning of the policy.There is not much difference in the surrender value after the 2nd year – Previously, the minimum amount was 30% of the premium for surrendering after 2 years whereas now it is 35%.
  1. WHAT IS MICRO INSURANCE
As you are aware that India is a country of opportunities, being second largest populated country in the world and continuously growing.  A number of start-ups are raising due to initiatives of government and technological development. India have largest skilled workforce in the World and whole World has recognised India calibre and strength.
The insurance now a days become essential need for healthy living. Insurance provides us risk cover against unforeseen future. It provides us financial support in distress. But todays only 3.50% Indians are insured. The main cause of low insurance coverage in illiteracy and ignorance.
There are many insurance companies in the Indian Market and a lot of products have been introduced by them. Every product carries various terms, conditions and disclaimers, which confuse customers.
While in India ‘Micro Insurance’ refers to providing insurance to low income families, a broader, globally accepted definition is where insurance products provide a specific coverage for a specific need at a lower cost to customers. Unlike generic products, ‘micro insurance’ brings down the cost for consumers by putting in innovative constraints on ‘coverage’, ‘time’ or usage.
Micro Insurance product is designed to meet the needs of persons, especially residing in rural areas, whose primary requirement is basic insurance coverages in life, such as payment of insurance benefits upon death of bread winner, to the family or health insurance etc. The intention is to provide low cost and affordable insurance to those persons, who are living in rural Indian and have no source of income other than farming and labour.
Micro Insurance Products generally based on
  1. i) Time based constraints;
  2. ii) Event based constraints and
iii) Need based constrains.
In other products insurer generally assume that the customer is exposed to equal level of risk over the entire year. Micro Insurance products are generally on the basis of use, such as a customer thinks to take insurance for a short term while he is going to abroad, etc.
Micro- insurance plans are based on extremely low premium rates. Because of its affordability and specificity, majority of Indians can get the advantages of insurance.
A Micro Life Insurance Product is therefore a pure term insurance product, or endowment assurance product or health insurance product with or without accident benefit.
A General Micro Insurance Product includes health insurance, insurance coverage on huts, livestock’s, tools or instruments or any personal insurance contract.
IRDAI (Micro Insurance) Regulation, 2005 provides maximum and minimum sum assured limit for Micro Insurance Products in Schedule I and II of the regulation. For any product the sum assured cannot be less than Rs. 5000/- and more than Rs. 50000/-.
Micro Insurance Products of insurance companies are sold through Non-Governmental Organisation or a Self-Help Group or Micro Finance Institutions or a Non-Profit Organisations as their agents.
A General Insurance Company and a Life Insurance Company may tie up to sold Micro Insurance Products to customers.
A Micro Insurance Product may be distributed by a licensed agent or insurance broker, but Micro Insurance agent is prohibited from distributing any insurance product other than Micro Insurance Product.
A Micro Insurance Agent is allowed at act as agent for one Life Insurance Company and one General Insurance Company at a time by entering into an agreement with them. The agents will be duly registered with IRDAI and go through necessary training before selling any Micro Insurance Products.
With the notification of the IRDA (Micro-insurance) Regulations 2005, by the Authority, there has been a steady growth in the design of products catering to the needs of the poor.

 

The flexibilities provided in the Regulations allow the insurers to offer composite covers or package products.
Insurance companies are now offering already approved general insurance products as micro-insurance products with the approval of the Authority, if the sum assured for the product is within the range prescribed for micro-insurance.
CATEGORY OF PRODUCTS: ENDOWMENT/ SAVINGS/ PENSION
FEATURES:
Under this category, there is life protection, both on survival and death. Pension can also be built into the product. Some Insurers offer accident benefit and permanent disability benefit during the premium paying term only, or for the full term. The sum is capped between Rs 30,000 and Rs 50,000. A majority of the insurers offer policies under the non-medical scheme and automatic acceptance if size of the group is more than 200 members.
It is possible to offer an automatic cover facility after two years of premium payment. A policy bond is given and administration is done through a micro-insurance agent.
EXCLUSIONS:
Some Insurers may exclude the risk coverage for the first 45 days. Suicide during the first year is covered to protect the third-party interest/ refund of premiums, excepting in the case of some insurers.
PROSPECTS:
While it is popularly sold as an individual policy, Group Endowment is currently being issued by some Insurers for economically weaker sections.
CAPPING:
Insurers are allowing a maturity age of up to 60 years, capping premium payment up to 45/ 50/ 55 years under different modes of premium payment, including monthly payment with the maximum term being 10/ 15 years.
 
 
FREELOOK CANCELLATION:
Insurers are offering a free look cancellation during the 30/ 15 days period, after receiving the policy bond. Most of them are giving a 30-day grace period. All are giving liberal surrender values after 1/ 2/ 3 years.
CATEGORY OF PRODUCTS: PROTECTION (TERM INSURANCE)
BENEFITS:

 

Life risk with accident benefit, is generally being offered under term products. A majority offer accident benefit and some offer permanent disability benefit too under term products.

CAPPING:

 

No one is paying any Bonus in addition to the sum assured. The sum assured is capped between Rs 5,000 and Rs 50,000 or is defined as 100 times the annual premium. Some are giving refund or more than 110% of premium at maturity under term products. Others are not giving any maturity value. Majority are offering under non-medical scheme. Automatic acceptance if size of the group is more than 200 members.
REFUND OF PREMIUM:
Most insurers are giving a refund of premium in case of suicide during the first year. Some entertain a refund for Single premium cases only.
TERMS OF PRODUCT:
While majority offer one-year term, some are offering 5/ 10-year terms under Group product.

TERM OF POLICY:

Insurers offering Individual Term are offering 3/5/10/15 (premium paying term restricted to 10 years) year policies. Majority are allowing different modes of premium payment, including Monthly and Yearly premium.
FREELOOK CANCELLATION:
Insurers are offering a Free look cancellation during the 30/15 days period after receiving the policy bond. Majority are giving a 30-day Grace period. Revival eligibility varies between 6 months to 2 years.
CATEGORY OF PRODUCTS: HEALTH
BENEFITS:
Disability, hospitalization, loss, etc. Popular format of Health insurance cover is a fixed sum in case of the hospitalization (Pre, during and Post). Generally, benefits are 150 Rs/day hospitalization expenses, consultant fee up to Rs 4500/hospitalization, diagnostic expenses up to Rs 4500/hospitalization, transportation expenses Rs 350 per hospitalization. One overall limit for hospitalization may be defined as Rs 15,000 and overall sum Insured for one year defined as Rs 30,000. Group products with discounts offered to the members/clients of MFIs and NGOs and to specific sections of the population (such as all the BPL families in a state).
CONDITION:
Entire family needs to be covered under one Sum Assured, any number of times.
CATEGORY OF PRODUCTS: PROPERTY
COVERAGES:
Mainly for Rural and Urban poor. Making good damage cover/loss/ input costs/ recurring costs due to natural causes/theft/accidents/burglaries/cover against diminished agricultural input/loss due to electrical/mechanical breakdown.
KEY RISKS:
Key risks faced by low-income households like package cover and crop insurance product. Loss to livestock due to death, disease and accident dwellings – Fire policy for dwellings and contents Breakdown of agricultural implements cover for poppy/crops against inadequate/variation in fall/variations in different weather parameters. Limit based risk cover or on case by case basis.
Actual loss/market value whichever is less is reimbursed in case of Live Stock all indigenous, cross bread animal/birds defined Submersible/non-submersible Pump set up to 25/30 HP defined Building (Structure) / contents (belongings)/both defined.
EXCLUSION:

 

Loss of life due to accident/diseases even in case of epidemics.
CATEGORY OF PRODUCTS: Personal Accident
Target Prospects:
Low income groups/Kissan Credit card holders/girl child parents/married ladies.
COVERAGES:
Death/Permanent Total Disablement/Total and irrecoverable loss of limb/eye sight Medical expenses during/pre/post hospitalization Percentage of Sum Assured on case by case basis entire family is covered under one Sum Assured any number of times All fees for surgeons/anesthetists/consultants/associated expenses of hospitalization under one Sum insured Parent of girl child /women covered with beneficiary as the girl child/insured women for death/PTD/ Total and irrecoverable loss for a limit.
  1. RIGHTS AND LIABILITIES OF THIRD PARTY IN MOTOR INSURANCE
A. Introduction to Third Party Insurance terms
Insurance is a contract whereby one party agrees to compensate the loss or discharge the liability of another person. And in case of motor insurance in India, this also includes the loss suffered by third person. Motor insurance and all third-party rights and liabilities with respect to it are covered by Motor Vehicle Act 1988, in India.
Part XI of the Act,i.e. Insurance of motor vehicle against third party risks (from section 145 to 164), solely deals with provisions related to third party. Apart from the said Act, the Insurance Act, 1938 via its section 32-D creates obligation of insurer in respect of insurance business in third party risks of motor vehicles.
It is a mandate, provided by legislature under section 146, to not to use any vehicle in public place without any valid third-party insurance. As the following law suggests, that, drivers must carry at least a minimum of bodily injury liability and property damages liability coverage, causing third party insurance as a mandate for all motor vehicle.
In Govindan v. New India Assurance Co. Ltd., it was stated that third party insurance is compulsory under the law should not be overridden by any clause in the policy. Having said that, there are two types of policies in motor insurance sector. One is first party and other is known as third party. India has a mandate regarding the later one. And these third-party policies are beneficial to both insured person and third parties.
There are some specific requirements to be followed by these policies as per Indian law. An authorised insurer insures persons or class of persons against death or bodily injury to person (including owner of goods or his authorised representative) or to any passenger of public service vehicle and any damage to goods carried by or to any property of third-party vehicle cause by the use of vehicle in public place. Such policies shall cover any liability in respect of any accident up to the limit of amount of liability incurred and a limit of rupees six thousand, in case of damage to any property of third party.
Further requirements of the act are that a certificate of insurance must be granted to insured person. The certificate should be granted in prescribed forms and manner and containing the prescribed particulars of any condition subject to which the policy is issued and of any other prescribed matters. Moreover, if certificate of insurance has not been granted and a cover note of insurance policy has been provided to insured, it is a duty of insurer to grant such certificate within seven days of expiry of cover note.
Motor Vehicle Act 1988 allows transfer of certificate of insurance under section 157. When one party wishes to transfer the ownership of vehicle, he also has to transfer the insurance policy to new owner. The policy shall deem to be transferred to new owner from the date of its transfer. The procedure stated in the framework prescribes that transferee shall have to apply within fourteen days from date of transfer to make necessary changes with the concerned authority.
IKarnataka SRTC v New India Assurance Company Ltd., vehicle, in this case, was not completely transferred and was given on hire under lease agreement by registered owner. Court determined the question of insurance company’s liability and it was held that an agreement for lease on hire cannot be said to be an excluded contractual liability and thus, the insurer was held liable.
In Rikhi Ram case, (decided under the ambit of Motor Vehicle Act, 1939), Court held that the liability of the insurer does not cease in so far as the third-party victims are concerned even if the transfer of the vehicle is affected without notice to the insurer.
Further, not withstanding the provisions of Workmen’s Compensation Act, 1923, no need of a policy to cover liability in respect of death or bodily injury to an employee. Adding to it, such employee should be engaged in driving the vehicle, engaged as a conductor or examiner of tickets of public service vehicle or if it is a goods carriage, being carried in the vehicle.
Apart from these circumstances, policy shall not be required to cover any contractual liability.Also, there is no necessity of insurance against third party risk, if appropriate government has exempted any vehicle of central government, state government, any local authority or of any state transport undertaking. A vehicle carrying or when it is meant to carry hazardous or dangerous goods, it shall be insured under Public Liability Insurance Act, 1991.
Further, insurance companies are entitled to drop a claim if the vehicle was used for hire or reward (when on date of accident it did not had permit for hire and reward), for organised racing and speed testing, where a vehicle is a transport vehicle and did not had permit to transport the goods on date of accident, without side-car being attached where the vehicle is a motor cycle. Insurance company, by an express clause, exclude by name, any person is disqualified for holding or obtaining licence or does not have licence, for the period of disqualification. Insurance Company can also exclude its liability for injury caused or contributed to by conditions of war, civil war, riot or civil commotion. And any policy is void on the ground that it was obtained by the non-disclosure of a material fact or by a representation of fact which was false in some material particular. In addition, it is highly required that insured person take reasonable steps to prevent the accidental event.
 In New India Assurance Co. Ltd. v. Yeo Beng Chow it was observed that insurance company filed case against policy holder in Federal Court of Malaysia after discharging the liability. It was contended by insurers that insured person failed to take reasonable steps to safeguard the motor vehicle from loss and maintaining it in efficient manner. The privy council allowed the appeal which was from a judgment rendered by the Federal Court of Malaysia. His Lordship, Viscount Dilhorne in delivering the judgment of the Board said: Insurance companies can insert such conditions as they choose and if the conditions inserted are accepted by the insured, they are binding upon him. There is no obligation on an insurance company to relate the conditions to particular aspects of the policy.
B. RIGHTS OF THIRD PARTY
RIGHT TO RECEIVE INFORMATION– Insured or any person against whom a claim is made in relation to liabilities incurred to any other person by insured or, as the case may be, any other person shall not refuse to provide the information to person claiming. He will not refuse to state whether he is insured or was insured or would have been insured (if insurer had not avoided or cancelled the policy) with respect to the liability by any policy issued to him. He (Third Party) may also require the information to ascertain whether any rights transferred to and vested in him under section 15 or whether there exists any contract of insurance which directly or indirectly affects his rights.
RIGHT TO REMAIN UNAFFECTED –This right arises in following cases. First, where any judgment or award has been passed against insured person and secondly, when policy unlawfully restricts the liability of insurer and thirdly, in case of settlement between insurer and insured person.
Motor Vehicle Act, 1988 prescribes an insurer to pay third party any amount not exceeding sum assured or any amount payable in respect of costs or any sum payable in respect of interest on that sum, in relation to a liability, if insurer has obtained any judgment or award in his favour against insured person. Thus, the claim of third party cannot be fallen down due to any judgment or award passed against insured person. The above right is not absolute and therefore, the said right cannot be exercised until or unless insured person was not notified by court regarding proceeding.
After grant of certificate of insurance, if it is found that the policy unlawfully restricts the liability clause of insurer, such clauses are of no effect. Moreover, every settlement made in respect of claim will not be valid unless third party is a party to that settlement. And death of an insured person shall not create a bar to any cause of action against his estate or against insurer with respect to any cause of action arising out of event mentioned under Chapter XI. Also, if insurer asks insured person to repay the sum paid to third-party as amount of compensation, insured person has to do it for the reason that he had not all reasonable steps to safeguard occurrence of loss or damage. In this condition, third party will remain unaffected. 
TRANSFER OF RIGHT OF INSURED, AGAINST INSURER, TO THIRD PARTY –Generally, the liability raised against insurer by third party in relation to an event which is secured by way of insurance policy by insurer will be fulfilled by insurer. However, in case of insolvency of insured person, his rights against insurer under the policy shall be transferred to and vest in the third party to whom liability was so incurred. Any condition in insurance policy which directly or indirectly alters the right to transfer shall be of no effect. Upon transfer of rights, insurer will be in same position to fulfil the liability incurred to third party as he would have been to insured person. In case where the liability raised is more than the liability of insured person to third party, insured party has to pay the balance to third party.
LIABILITY OF INSURER TOWARDS THIRD PARTY– As per section 147(2) of Motor Vehicle Act, policies shall cover any liability in respect of any accident up to the limit of amount of liability incurred and a limit of rupees six thousand, in case of damage to any property of third party.
In Bhoopathy v. Vijayalakshmithe Madras High Court is of opinion that no bar is to be imposed as to when the liability of insurer ceases to exist i.e. it is void. It was the case of fracture of wrist, caused due to motor accident in which plaintiff was dashed against and injuries were sustained. Event took place on 4th December 1958, where car originally belonged to second defendant, which was sold to first defendant on 11 August 1958. The insurance policy of second defendant covered him till 12 September 1958. Thereupon the first defendant applies to another policy and starts paying premiums. The Court held that when the vehicle was transferred, insurance policy collapsed. And insurance company of second defendant was not liable for paying the damages. In National Insurance Co. Ltd. v. Swaran Singh,  The Apex Court observed:
The liability of insurer is statutory one. The liability of insurer to satisfy the decree passed in favour of third party is also statutory. The insurance company cannot shake off its liability to pay compensation only by saying that at the relevant point of time the vehicle was driven by a person having no licence.”
HIT AND RUN MOTOR ACCIDENT – Insurer, for the time being carrying business of general insurance in India, shall compensate for death or grievous hurt resulting from hit and run motor accidents. In case of death, a fixed sum of twenty-five thousand rupees and in case of grievous hurt, a fixed sum of twelve thousand and five hundred rupees. But if the said compensation amount is been already paid to legal heirs or person injured under any other provision of act then such compensation amount will be refunded back to insurer.
No need to establish death or permanent disablement–The claimant is entitled to get compensation amount for death or permanent disablement due to accident as per second schedule, to person or his legal heirs and he is not required to plead or establish death or permanent disablement arisen due to any wrongful act or neglect or default.
C. NDUTIES OF THIRD PARTY
In claiming a sum from insurer in event of a road accident, a person (third party) has to face a complex claim process. The process starts with filing of a FIR and obtaining charge-sheet against the insured person or as the case may be against the offender.  Next step is to approach Claims tribunal. The case will be evaluated on the basis of evidences by tribunal and third party is entitled to claim its amount of compensation after the court adjudicates the matter in his favour.19In addition, it is not always other parties who have all liabilities with respect to an event causing injury or death to person or property of third party.
LIABILITY TO PAYBACK  – In occurrence of an event, causing death or injury to person or property of third party which is falling under chapter xi of the said Act, if insurer has paid the third-party excess amount than the amount in relation to which liability was incurred, the third-party is liable to payback the excess amount to insurer or, as the case may be, to insured person. Also, if the compensation amount is been already paid to legal heirs or person injured, such compensation amount will be refunded back to insurer.
DUTY TO PROVIDE INFORMATION – As per Motor Vehicle Act, it is a duty of both insured and third party to furnish details of accident or event to concerned authority or person. In case where surveyor needs some information regarding the incident from third party, he cannot refuse to provide surveyor the needed information. As per section 160 of Motor Vehicle Act, 1988, there exist duty of third party to furnish particulars of vehicle involved in accident to concerned authority. As per section 134(b), if third party is a driver of vehicle by means of which any accident took place, it is his liability to report the incident to police station.
DUTY TO CARRY VALID DOCUMENTS–It is a duty of third person in motor insurance contract to make compliance to all requirements of chapter xi of the act otherwise a company is in good position to drop his/her claim. Therefore, insurance companies are entitled to drop a claim if the vehicle was used for hire or reward (when on date of accident it did not had permit for hire and reward), for organised racing and speed testing, where a vehicle is a transport vehicle and did not had permit to transport the goods on date of accident, without side-car being attached where the vehicle is a motor cycle. Insurance company, by an express clause, exclude by name, any person is disqualified for holding or obtaining licence or does not have licence, for the period of disqualification. Insurance Company can also exclude its liability for injury caused or contributed to by conditions of war, civil war, riot or civil commotion.
In, Zamindar Motor Transport Co. P. Ltd. v. New India Assurance Co. &Ors it was held that insurance company does not have any right to recover the amount of compensation from the appellant in respect of the compensation paid by it to the claimants. In this case, insurance company pleaded that the driver of the bus had produced a licence dated 30.04.1995 which was valid on the date of the accident than the driving licence purported to be seized by the police in the criminal case.
The Appellant was satisfied about the genuineness of the licence and, therefore, it did not commit any breach of the condition of the policy under Section 149(2)(a)(ii) of the Motor Vehicles Act, 1988 (the Act).As per Section 14(2)(a)(ii) of the Act, a driving licence issued to drive a transport vehicle is effective for a period of three years and thus, the licence issued on 30.04.1995 would be valid till 29.04.1998. Issue involved in the case was; The Appellant Zamindar Motor Transport Company Private Limited impugns the award dated 22.01.2005 passed by the Motor Accident Claims Tribunal (the Tribunal) whereby a compensation of Rs. 6,24,000/- was awarded in favour of the Respondents. While granting the compensation, the Tribunal observed that since the driving licence held by Narender Kumar was fake, there was breach of the policy conditions and thus the Respondent i.e. New India Assurance Company Limited shall be entitled to recover the awarded compensation from the owner of the offending bus.
DUTY TO COMPENSATE – In the event when claims are made, losses should be minimised. These includes segregation of damaged property from rest of the property, obtaining competitive quotes for the repairs/ replacements that may be required etc. If third party is found guilty of losses/ damages, then should be held responsible so that rights of recovery are protected.
DISCLAIMER:  The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.

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