Fundamental Principles Of Insurance
Insurance is a contract, a risk transfer mechanism whereby a company (Underwriter) promised to compensate or indemnify another party (Policyholder) upon the payment of reasonable premium to the insurance company to cover the subject-matter of insurance. If you are well conversant with these principles, you will be in a better position in negotiating you insurance needs.
1. Insurable interest. This is the financial or monetary interest that the owner or possessor of property has in the subject-matter of insurance. The mere fact that it might be detrimental to him should a loss occurred because of his financial stake in that assets gives him the ability to insure the property. Castellin Vs Preston 1886.
2. Umberima fadei. It means utmost good faith, this principle stated that the parties to insurance contract must disclose accurately and fully all the facts material to the risk being proposed. That is to say that the insured must make known to the insurer all facts regarding the risk to be insured (Looker Vs Law Union and Rock 1928). Likewise, the underwriter must highlight and explain the terms, conditions and exceptions of the insurance policy. And the policy must be void of small prints.
3. Indemnity. It stated that following a loss, the insurer should ensure that they placed the insured in the exact financial position he enjoyed prior to the loss (Leppard Vs Excess).
4. Contribution. In a situation where two or more insurers is covering a particular risk, if a loss occurred, the insurers must contribute towards the settlement of the claim in accordance with their rateable proportion.
5. Subrogation. It has often been said that contribution and subrogation are corollary of indemnity, which means the afore-mentioned two principles operates so that indemnity does not fail.
Subrogation operates mainly on motor insurance. When an accident occurred involving two or more vehicles, there must be tortfeasor(s) who is responsible for accident. On this basis, the insurer covering the policyholder who was not at fault can recover their outlay from the underwriter of the policyholder who is responsible for the incidence.