INSURANCE LAW 3 FEB 2025

Projects will be joined: 4 in a group – principle of joint guarantee applies. If your partner in
that project cheats – you also pay along with him/her.

 Case Law
o English Case Law
o Indian Case Law
 IRDAI Regulations
 Insurance Industry Practice
o Look at the policies which are in vogue – study those policies, analyse, and
present – project will have that analysis

Not a tough subject. You can sail through it only if you want to sail. It is an applied contract
and basic principles of contract apply. The contract is read in a particular manner and you
have to get a knack of it.

 Everything in the midterm is in the endterm. Up to midterm we will finish warranties

Syllabus is divided into two parts

1. General Principles of Insurance

2. Marine Insurance

Insurance evolved out of marine insurance – though it is divided into two parts – it is not a
hard and fast division. So even for GPIL – there will be reference to marine insurance
principles that will also be explained.

Books – Birds on Modern Insurance Law

For project consult MacGillivray on Insurance Law; Clarke on a few topics; Arnold on
Marine Insurance

Insurance is a way to mitigate risk. Normally one thinks of risk in terms of where one
perceives risks – an action, adventure, or circumstance – risk is inherent. Though risk is
inherent in every circumstance but in perception there are specific cases. Dealing with the
unseen and unforeseen. You overprepare.

In day to day, it used to be in marine adventure. People thought it risky – they were going
into the unseen and unforeseen. It was looked at as risky. There was risk not just because of
the behaviour of the sea – there were human risk as well like piracy, greedy kings on the way
in ports you stop. When it was risky, it was also profitable. People wanted to reduce this risk
– so insurance as a separate type of contract starts in marine adventure. Earliest examples are
bottomry bonds and respondentia. They are essentially mortgages on the ship. A bottomry
bond was – money payable to mortgagee only on the safe return of the ship. Lender will be
paid only if the mortgaged property, the ship, returns safely. It earns money and then it can
repay.

Code of hamurabi in Babylon refers to it wrt Mediterranean sea laws in the ancient times
around 6th C BC. You find references to this method of insurance. In the late 16 th and early
17th C, things started changing a bit. There was a coffee shop called Lloyds – the main aspect
of Lloyds was that at London port many of them would congregate at Lloyds for coffee and
they would exchange information wrt what they encountered in between voyages. At different
ports and sea. They would exchange what they had seen and what they had heard. It was the
place where information was disseminated in an informal manner. At an informal level,
Lloyds becomes a hub of exchange. Its business for serving coffee but people who sat there,
sea fearers and financiers, sat there to gather information. As they heard about different ships
– the urge to speculate came. A practice evolved in Lloyds – someone who would take out –
lets say there was information that a ship was damaged during voyage – what was the
possibility that it will come back in a safe condition – pieces of paper would be circulated in
Lloyds where people for certain conditions would agree to indemnify losses for a certain
extent. Certain details would be written on the piece of paper – that piece of paper would be
circulated and then people would write how much risk they would take for what
consideration (the premium). This would go around Lloyds till it reaches a level. Earlier
method was bottomry bond – mortgaged to the lenders – another method was evolving – we
are taking a risk on the ship though initially we had not financed it. Some of that particular
risk was perfectly understandable – a person was seeking to indemnify the owner of the ship
for any loss it would suffer if the ship was lost. Some people would, however, speculate. The
law of insurance does revolve around what has to specified and what is understood. There
was a mix of genuine business and pure speculation. Gambling becomes a thing in mid 19 th
C. Some people were actually indemnifying some were speculating. The speculators did
provide the liquidity in the system. So it became – Lloyds evolved over a period of time.
When we call Lloyds – the coffee shop is no longer there. Lloyds is not a company or
partnership – it is a place where people do business in a specified manner. It still operates like
a coffee shop. In the case of normal insurance market, it is dominated by corporate entities
and limited liability. Lloyd’s is a place where business is done with individuals with
unlimited liability. In the case of Lloyds because the liability is unlimited – the way they
generate confidence is – people get together to do underwriting. In Lloyds prominent people
form partnership with the writers of the policy. They get part of the premium and the losses.
Name is a prominent and well-known individual with means who has got together with
someone else to generate confidence in the unlimited liability. Every partner has unlimited
liability. They help someone sell the policy. When time to payout comes, all people will have
to contribute. That is what we mean by Lloyds – it is not a company – it is a terminology
given to a notional market place as it is now.

INTRO CONTD 4 FEB 24

Lloyd’s was a market place where insurance operated. A distinguishing feature of Lloyds is
that it is not the companies but individuals do business and unltd liability is the norm. To
afford credibility – they seek out prominent names. For lending their names – these
prominent parties take a part of the premium.

Second half of the 17th C – great London fire. Almost the entire city was burned down. After
the great London fire – fire insurance started. On the same line of marine insurance – there
were certain legislations also mandating certain provisions in the fire insurance. It was in the
nature of indemnity insurance like marine insurance. But it was still separate – it did not
suffer from the same risks. It evolved in a different manner. This new line of indemnity
insurance was covered in other insurance of property – covering risks other than fire like
burglary, earthquake, etc. They fall in the same heading as fire insurance – difference is that
the risk is different. They are part of the family of fire insurance – they resemble each other
as well and may even be referred as such.

In late 19th C – two other developments took place. Due to inventions there was vicarious
liability of the employer and the liability of the employer for injuries to the employee. It was
thought fit that the risk in this case should fall in the employer – trade and business would
suffer. To spread out the risk to society – the concept of liability of insurance, which was
compulsory in nature, that took off. Another driver for liability insurance – increased use of
motor power. Was it a domesticated animal or a wild animal – people would drive motor car
and accidents happen. It may be without negligence – it was made strict. If it is made strict
then the person concerned should have the money to pay – it was thought fit that in these
instances the MV owner should have third-party liability insurance was made compulsory. It
is in essence still an indemnity insurance.

In mid 18th C – around 1748 – two ministers of the Scottish church while drinking thought
apb=out a problem. Robert Wallace and Alexander Wester – a minister if he died – he would
be given half years salaries and the rest was dependent was pay as you go and members of
clergy would pay some amount. Now the system was unsatisfactory – it was depended on
largess of other people + life expectancy was pretty low and people died frequently. They
looked at historical data and all that data they calculated and the sum that was sufficient to
take care of it. The money would be taken – it would be invested to give loan and earn
interest. They arrived at a figure – your family would be given this much money yearly or
you can claim all of it on retirement. It was called the Scottish minister’s widow’s fund
[became Scottish Widow’s Fund and taken over by Lloyd’s and still exists] started in 1747.
An Edenborough prof of math helped with calculation. First instance of Life Insurance which
was started. This is different from indemnity insurance – the earlier three types sought to
indemnify you from loss hich you might suffer – If you did not suffer – you got nothing and
lost the differene. Life Insurance provided for an eventualty where you had to provide. Wven
where it doesn’t happen you get a certain sum of money.

LI was a proprietary right and not a contractual right. LI involved not just as a contract –
there was one – it had a proprietary right in it in favour of assured. Assignment tis not given.
Till the insurer agrees to it. But in case of LI – as it is proprietary – it was an actionable claim
or choses in action – could be assigned. This was amended in 2015. Still. By and large
property – with certain encumberances to transfer. [this was transfer of policy and not just the
benefit of the policy] in LI claim can only be made through the original holder and if it is
transferred he cannot make a claim on it.

What is insurance?

A means to distribute to risk. Instead of being on the head of one person – someone is doing
business by limiting risk. The insurer is giving it to wide variety of people – there will always
be people who do not have to claim it. The risk needs to be distributed society wide.

Few things happen – someone is distributing the risk and doing the business – will be
successful if the premium is low otherwise there is no incentive to take it. To distribute the
risk you need low premium to be alluring – we need to take an insurance. Now it is someone
who makes the calculations – but those particular calcs will be based on certain assumptions.
If those assumptions are wrong then they will go bankrupt. The insurer needs to be protect
himself. The question is how.

6 FEB 25
One insures to provide for unforeseen contingencies. It is a method of risk management- you
manage your risk by bearing an expense which may go waste if the contingency does not
arise. You can incentivize a person to bear the expense to provide for a contingency only if it
is a very small proportion compared to the potential loss that one may sustain. The moment
the expense goes beyond that particular proportion, the incentive to insure comes to an end.

Keeping it low will always incentivize more and more people so as to take the insurance
cover. Wider the universe which is covered the less the risk the insurer bears. The insurer
always bears the risk of an adverse selection i.e those who feel that they are at risk will go for
insurance. eg most people go for health insurance when they about to be hospitalized in the
future. So there is a possibility that in this cohort the insurer will make a loss. So you need to
incentivize people who don’t feel the need to get insurance. So, how to keep the premiums
low? The insurer will try to manage the potential risk by the contract itself. (the secontractual
clauses are the topics in the course.)

The first element of this is that the person concerned who is taking an insurance must have an
insurable interest in the subject matter of insurance. There should be a legally recognised
relationship b/w the person and the property. If there is no relationship, the insurance does
not begin. Person concerned will not be interested in the loss of the subject matter of
insurance. Otherwise, he forfeits his insurance. When your interest in the subject comes to an
end, the insurance and the policy also end.

Insurance is a contract of indemnity and only a person who has suffered a loss or has the
potential to suffer the loss can be indemnified. Life insurance is not an indemnity insurance, it
is more like a property. So, there has to be insurable interest at the time of taking the policy,
but it need not be there at the time of the loss for life insurance. So, a spouse can take the
policy on life for the other spouse and later on if they get divorced, the policy will not
terminate. But in case of other indemnity insurance, if the interest in the property terminates
then the policy will also terminate. (point is that person has to have an insurable interest in
the subject matter of insurance. this rule applies to both indemnity and life insurance- it is
only that in case of life insurance the relationship is at beginning only but in indemnity it has
to be until the end.) LI is also assignable.

There is a duty of disclosure. The assured has to disclose all relevant facts which has a
bearing on the risk. Every person will not be charged the same premium, it will differ
depending on the risk he brings to the table. If you take medical insurance in your 20s then
you will pay very less premium relative to what you will pay in your 60s. The risk has to be
informed in advance so the insurer can make the call whether insurer wants to take the risk or
not and if yes then what premium he will be charging. There is a duty of good faith on both
the assured and the insurer. This good faith has to be exercised even before the contract has
been entered into. If there is no good faith in disclosure, the insurer can avoid the contract on
the ground of inducement on the basis of facts not revealed.

The third aspect is warranties. The purpose of warranty is that:

· the risk stays in the zone where it was.

· And it also tries to reduce the risk.

· Later without getting into questions of non-disclosure, the insurer can terminate the
policy- in case of avoiding the contract on non disclosure the insurer has to prove that
relevant fact was not disclosed but in case of breach of warranty the breach itself is sufficient
for terminating the contract, no need to prove whether the breach of warranty affected the risk
or caused damage or not. (warranty is NOT in the SOGA sense)

E.g. the fire insurance policy says that assured will keep working fire extinguishers within a
week. The assured doesn’t buy them in 7 days but later. If fire breaks out and even if you use
the extinguishers, still it will be considered a breach.

The question that whether something is a warranty is left to the interpretation of the court. Eg
in a burglary contract, keeping of fire extinguisher as a warranty may not be accepted by the
court as a warranty.

The fourth aspect is the loss. If the loss occurs, the insurer has the right to investigate whether
the loss has really occurred or not and if it has occurred what is the extent of the loss and
what is the cause of the loss and whether the insurer has agreed to cover that loss (whether
there is breach of warranty, non disclosure etc). Investigations are done after loss occurs and
not at the time of giving the policy to keep cost of operations low. The investigation is done
around the loss and if the assured makes a claim 2 years after the loss, it may be within the
limitation period but since investigation cannot be done the benefit will not be given to the
assured. Timeframe of notice is provided to permit investigation.

It needs to be satisfied that the loss is due to a cause covered by the insurer. The insurer
always specifies the perils it will insure. The insurer will always have certain exclusion
clauses. These clauses relate to circumstances to a loss which it will not be able to afford. Eg
a fire policy will exclude war risks, earthquakes, riots because these things will cause fire to a
large area. The insurer can cover this also but on payment of extra premium but that extra
wont be paid by all; so those who give this extra premium will get the cover.

Another method by which insurer limits the loss is average clause. Marine insurance is
average policy. fire policy is also average policy but by contract. Average policy is that my
payout will be in the same ratio that the insurance cover bears to the insured property. eg the
machine is of 10 lacs, you insure it for 5 lacs. The machine breaks down partially and you
spend 1.5 lacs in the repair. The insurer will pay 75000 (basically 1/2). The average policy is
in essence is goading you to insure the thing entirely. It disincentivizes you from insuring for
a part of the amount.

Another method is that you are your own insurer for a part of it. It is a warranty. Eg health
policies will provide that you will bear 25% expenses yourself. This is to incentivize the
person to take care of the property yourself so that it is not lost by indifference.

10 FEB 25
Insurers make profit by denying claims.

Another way is the rule of subrogation. There is a concept of abandonment (Only marine
insurance) – the person concerned abandons the ship or the cargo. If the abandonment is
accepted then the insurer is the owner of it and now the other person concerned becomes
entitled to payment as per terms of the policy. In other branches of insurance (incl marine
insurance). The concept is that of subrogation – just like abandonment – it is there for the
purpose for ensuring that the assured concerned does not profit from the loss. So, once the
insurer has paid the insured amount to him – in the case of subrogation the insurer steps into
the shoes of the assured in equity. In abandonment, he is owner in law. In subrogation he acts
through the assured.
In the case of subrogation. Let’s take for example – someone has insured his warehouse –
which suffers a fire because of negligence of the neighbour. He claims the insurance money –
he is indemnified of the loss. But in torts, he has got a claim against the neighbour. If he
makes the claim, he will be profiting from the loss – doubly indemnified. Now when he
claims, he makes the claim for the insurer against the neighbour. So that the neighbour is
made to pay up for the damage. By subrogation the insurer reduces the incentive to make a
claim for loss. It also reduces losses (theoretically at least). Practically, insurers make claims
against each other. It is like guarantee but it is not guarantee. Marine insurance has both
abandonment and subrogation. No subrogation in life insurance as there is no indemnity.

The next method the insurer reduces the loss is principles of contribution. In policies, there
is information that insurer wants – whether you have another insurer or not. First, it does not
want you to make a claim from two different parties – you might make a profit. E.g., if
someone has health insurance + employer reimbursement. If you do not disclose this
particular fact – you would have the double benefit. There is a double insurance over here.
Two or more insurance policies are covering the same subject matter against the same peril.

When there is double insurance – insurer may pay pro rata. If the clause is not there then
there is principle of contribution – the person who has paid the entire loss has the right to
make a claim on the other person. This claim is there in equity. Contribution is between
insurers. An employer cannot ask the insurer for money.

Next method to reduce loss is reinsurance. An insurer reduces risk by reinsuring. Warren
Buffet’s wealth is not by investment but he uses his corpus and leverages it to reinsure. It is
the profit of the reinsurance business that are reinvested. The insurer concerned has got a
local cover. He suffers from a locality bias – most policies are sold in a particular
geographical area. There is actual chance that they will go under because of it because risk is
concentrated. So they go to reinsurer – he is not limited by geography. So, the reinsurer has
insurance over many jurisdiction. So when he insured with reinsurer, he will be taking some
of the losses. But since reinsurer is spread over geographies, he can bear the loss and make
overall profit. Chances are that only few make a claim – most will not make a claim and that
is what the reinsurer relies on. There is an exceptional loss in one geography – he has the
breadth and financial muscle to bear this loss. Reinsurer can also get insurance for
rereinsurance.
There are different types of reinsurance policies. Two broad categories – one is treaty
reinsurance and the second is facultative reinsurance. Treaty reinsurance – every policy of a
particular type taken by an insurance company is reinsured. It can have different rates to it. It
is possible that entire loss, loss above a particular limit, particular proportion, or a certain
proportion of the policy is reinsured. Stop loss policies – if there is a heavy loss beyond a
limit then that loss will be paid by the reinsurer. Its can be for the entire business.

Facultative is where the reinsurer and insurer will decide on a policy-to-policy basis whether
to reinsure or not to reinsure. ‘Facultative obligatory’ insurer decides whether he goes or not.
If he wants to go then it is obligatory on the part of the reinsurer to reinsure it. There is an
earlier agreement – you have to reinsure it.

DEFINITION OF INSURANCE 11 FEB 25

Insurance Act defines an insurance illustratively. For long, there was reluctance to define
insurance out of fear of excluding certain policies. You know it when you see it. But for
somereasons it becomes necessary to define it: Tax – how certain policies are to be taxed and
stamped and so on: returns from an insurance policy are treated differently from other
contracts. Fire insurance claim is non taxable, Life insurance is non taxable. Then how to
decide the tax at which it is taxed; Stamp (type of tax only) – at what rate it should be
stamped; Insurance is a business which is risky for the insurer and the assured. Insurer takes
money in return of promise to take care of you in the future. So, there is usually an incentive
first of all to incentivise the salesman a bit more and taking into account the greed of a
normal human being charge a lower premium while promising a high return for it to be in
business. Till the time disaster strikes, it goes on well but when it strikes no one gets any
money. There is necessity for regulation – normally laws prevent insurance company from
indulging in businesses other than insurance. So, the business needs to be defined.

Prudent Insurance Company v Internal Revenue Commrs

How do you look at a life insurance endowment policy - you are assured of certain money in
all circumstances but you might get something extra on death on particular point of time.
Policy provided that if the assured survives, he will get 95 quid and if he dies in between he
will get 30 quid. Where a person is assured a certain some of money, whether or not the event
occurs. The CA held that it was an insurance policy. They defined what is meant by
insurance. “where one party (insurer) promises another party (assured) on payment of money
consideration (premium) to pay him or provide certain benefits on the happening or non-
happening of an event”

1. Premium has to be money

2. Insurer can pay money or equivalent benefits

Nothing happens for more than a century but then new issues start cropping up.

Dept of Trade v Christopher Motorist Association Ltd

Benefits given to members should be an insurance policy. Members of an association on

payment of association fees – if they were unable to drive a vehicle because of injury or any
other reason (DL impounded) then the assc will provide them with chauffeur services or a car
with a chauffer. It was held that this was an insurance policy providing chauffeur or car with
a chauffeur was a provision for an insurance policy. The chauffeur being provided was not an
employee of the assc – they arranged and paid for it (same with the car). The insurer need not
provide you with money – can provide equivalent benefits.

Medical Defence Union v Dept of Trade

The association provided for legal services to its doctors if they made a request when sued for
professional negligence. If it had been limited to that it would have been insurance but the
fineprint here was that the union reserved the right to provide or not to provide legal services.
Though it was never known to decline requests for legal services but it still was not an
insurance policy. In insurance you are bound to provide those particular services if the person
concerned asks for those services. This is different from an excludable event as the event
there is defined. The judge had an opinion – it is something which the insurer pays for and
not a part of its business. If the lawyers were an employee then it’s a service not an insurance.
It is an insurance if I arrange for you to consult someone. Insurer needs to pay for it.

In life insurance policies some benefits are provided regardless of the contingent benefit

NM Superannuation Pty Ltd v Young; Fuji Finance Inc. v Aetna Insurance

First case is a case from NZ and Au. Was company providing insurance? It entered into
contract with different organisations whereby the employees were provided certain benefits
when (a) retirement (b) dies (c) leaves/fired/terminated. Depends on the length of service but
in all three cases the amount payable would have been the same. Whether this can be
regarded as an insurance policy or not? The court held that this was also an insurance. On the
happening or the non happening of an event – you pay. There is uncertainty among the three
options. It is still insurance – does not have to be an adverse event. Giving pension etc are
also done by LIC – is also part of insurance business. Pension policies and annuities are also
part of insurance policy – pension has been separated out in india but it is still an insurance
business. If a person retires – he was supposed to buy an annuity – till how long will this be
paid. If he lives for 90 years it will be paid for 90 years but if he dies early it ends at 65 years.
In the EU, smokers got a higher annuity because they will not live long.

Fuji Finance v Aetna Insurance There was an insurance co taken over by Aetna. Fuji had
deposited certain some of money for the benefit of its employee (someone tamed Todd) was
given 50,000 pounds (deposited in his favour). The Co. that issued and taken over by Aetna
(This was a Unit Linked Plan) – how the investments are performed you will be paid out. You
could change what you were in – can go from stocks to gold to bonds etc. Unfortunately,
someperson who formulated this policy said – based on price on the previous day we will
determine the price of the switch on 9.00AM and the person concerned has the option to
switch upto 2.30PM next day. Tatt would switch frequently 50K became over a million pound
then the company realised the mistake and changed the switch timings and he could only
make 8% in a year and made 1.1M. Surrendered and got the surrender value and made Fuji
make a claim on Aetna for BoC. They subscribed because of a certain way of doing business.
Aetna – if we continued the amt payable (90% returns in a year) would have been 4,60,000
times the GDP of GB. In LI there is a notion of surrender – it is a property valued at
something. It would take a certain cut and buy out that policy.

Fuji finance said this was not an insurance contract – it was a normal contract to manage and
the company concerned breached it by changing the way the switch was to be done there was
a breach of contract which the court cited the NM Superannuation case. TC accepted Fuji
but CA overturned citing NM Superannuation. It is a life insurance contract.

[There is a type of insurance called Keyman insurance. Key personnel in the employer
are given benefits which are not immediate but are theirs. It used to be a method of
providing tax free emoluments (LI was not taxable) – this was type of a keyman
insurance policy – though he was still in employment, money could be withdrawn. This
still LI because when will the money be taken back]

If there is an uncertainty with regard to anything even when the money will be withdrawn it
is still part of insurance business.
 13 FEB 25
Insurance will be regarded as life insurance even if the amount which will be payable in all
circumstances will be the same. Death, retirement, left employment, breaking the policy. That
does not make a difference. The reasoning of the court has been that there is an element of
uncertainty.

--

One issue which crops up is that sometime a warranty is built into the product you buy and
you pay premium for it. E.g., when you buy a laptop, there will be a one year warranty and
for some amount extra there will be an additional warranty. In case of certain services you
buy – a certain warranty for some extra sum. The question is whether this is an insurance.
Card Protection Plan Ltd v Custom and Excise Commr the issue arose. In this case, the
person provided a service that if you lost your card you could call up and for the use of those
particular cards – if they had been used in the interim period before they were blocked – there
was protection wrt the money spent on the card. Now the company concerned took a policy
and for the benefit of its card holders – it took the cover. There were two limbs of the policy –
(a) if the person lost the card, he would call up and it would be blocked; (b) the person was
protected from loss by an insurance policy from the usage of the card.

Whether this was an insurance policy. CPL wanted to say that it was an insurance policy and
therefore it was not liable to pay VAT and revenue said that the limb of insurance should not
be taxed but the blocking should be taxed.

It was held that you look at the primary purpose behind the contract. Whether the purpose is
insurance or the purpose behind the insurance is something else and it will be regarded as
that. Some ancillary features that are there – those will not define a contract. The primary
purpose here was insuring unauthorised use of the card. It was indemnity from the potential
loss of the card. Additional facilities were additional in nature. Flip it – buying a product +
additional warranty – protecting against loss – but if you look at it is that the contract is in
essence a sale of good. Certain additional features will not make it an insurance contract. If it
is a separate contract, it can be insurance despite the discount you get.
Insurable Interest
In insurable interest, there are three different streams with regard to the law. Originally, there
was no requirement of an insurable interest. The Court would determine whether the contract
was in essence a wagering contract or it was an insurance constract. Once they determined
that it was in essence wagering, they would take their hands off and enforce it regardless of
insurance contract. If in essence it was an insurance contract, then they would look at
insurable interest in the subject matter. This was odd and led to awkward situations – I took
an insurance policy for 10k pounds. If I have insurable interest I can claim 500 pounds and if
it is not insurance I get entire 10k pounds.

Later on, as most policies were marine policies, the insurance came upon certain terms and
conditions – addl premium they bartered away their right to contest that it was an insurance
contract. They were still saying it was an insurance but the T&Cs – policy is itself proof of
interest. The insurer will not contest in the court on the ground that the claimant was devoid
of any interest. This was a proof of interest – called the PPI (policy proof of interest) policy,
interest or no interest policy and Another variant – no right of salvage with the insurer. In
subrogation – insurer becomes entitled to subject matter (the salvage – whatever is left). The
insurer has the benefit of it.

These policies were found to be harmful and 1745 marine insurance act was passed by which
on His Majesty’s (HM) or his subjects Ship, Cargo, or freight (SCF) cannot enter into wage.
It was made illegal to enter into such a contract – not just void. The application of this
particular clause was only with regard to SCF where the interest was of the HMSubejcts. So
where others were involved, it was not prohibited. The law stated that PPI policies, interst or
no interest policies, and salvage policies were also expressly banned regardless of insurable
interest on HMSubjects ships, cargo, and freight were banned.

Person concerned had to have an insurable interest at the time of tking the policy or have an
expectation of it.

18 FEB 25
Marine insurance act 1745 laid out that insurance done without insurable interest or
expectation of insurable interest was void as well as illegal on HMS,C,F; not just void, also
illegal; limited to HM and subjects. Fourth, three popular forms: Int or no Int, PPI, and
Policies w/o benefit of salvage were explicitly declared to be void.

This was followed in 1843 Act also. Then 1906, which is reflected in Indian Marine
Insurance Act 1963 but it is not illegal – just void. Second development is that the principle
was applicable to HMS,C,F but also to other marine policies.

Having started with marine insurance, it was thought dangerous to wager on S,C,F – it was
extended to life insurance. 1774 Life Assurance Act was enacted. For some time there was a
debate with regard to it whether it applied to indemnity insurance or not (now settled that it
does not). Policies on HM Subjects were illegal. So LI provided that a person concerned at
the time of taking the policy, he has to have an insurance on the life of the person concerned.
The insurance taken shall be to the extent of the insurable interest – nothing more than that.

1. Person has unlimited insurable interest in his own life and in the life of their spouse.
2. Every other life – insurable interest needs to be shown. (+ can only insure to the
insurable interest)

If policy more than insurable interest – the policy is illegal and void (but no punishment
prescribed). For e.g., creditor in the life of debtor – there is an interest even if their security.

 Marine insurance need either II or expectation of II. LI needs an II.

 Latest iteration of Marine I – policies void. LI – not just void BUT ALSO ILLEGAL.
 MI – needed II but extent was irrelevant – paid only what you lost anyway and
nothing more. (it is an indemnity contract) – need II at the time of taking and
claiming. Life assurance – only when taking the policy. At the time of claiming no
need – it is a property and can be assigned. Assignee need not have II.
 The person concerned is not supposed to be indemnified – what about speculating in
the nameof II. Needs to have a policy only to the extent of II [see sanika’s notes here
– eepy]

Non-Life and Non-Marine insurance

It was gaming act 1845 that made wagering void – s 30 of Contract Act. In rest of branches,
this rule evolved. If it is a wagering contract – the contract is void. To be a ewagring contract
= the person concerned should not have II at the time of taking of the policy then it is a
wagering contract. At the tiem of loss you anyway need an II or else you would not be paid
of.
Just like in marine insurance, it does not matter what is the extent of II – all the law require is
II. Extent of II does not matter. In the intervening period, value of II may rise.

Life Insurance, Marine Insurance, non0Marinw indemnity insurance where the rules of
voidness and II are different

S 7 of MI Act (1963) defines II – limited to indemnity insurance “every person has an II who
is interested in a marine adventnture. In particular – the act does not limited it, only
illustrating – In particular a person is interested in a marine adventure where he stands in any
legal or equitable relation to the adventure or to any insurable property at risk therein, in
consequence of which he may benefit by the safety or due arrival of insurable property, or
may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur
liability in respect thereof.

1. Benefit
2. Loss
3. Laiibility

Either of these needs to be there. If there is no legal (or equitable) relationship – then
howsoever you may stand to benefit or loose – you don’t have an insurable interest.

Lord Mansfield laid down the ground rules of insurance law in 18 th C. In Lucena v Craufurd
– Mansfield said “one has an insurable interest in the subject matter if one stands in a
relationship where there is an expectation which is not known to fail”. Legal and equitable –
he was stretching doctrine – if there is a situation not known to fail. Facts: ships captured in
war were captured in war were insured by the Commr. They were brought to English ports
where they would be declared as prize by the naval court – then the person who captured it
would become the owner. In the intervening period – capture at high sea and brought to port,
there was risk. There was an expectation never known to fail – if you have bought it to the
port: there was no situation where this was not a prize. In such a situation, it should be II –
the majority of HoL disagreed with him. There was no II in that situation. Before it is
declared as a good prize, one does not have an insurable interest in it. This was reaffimed in
Routh v Thomson where all the Lords rejected Mansfield’s views.

Legal relationship with property can be of many forms – ownership is one of it. There can be
lessee, security, who owes a liability with regard to the property, any form with regard to it. If
it is an irrevocable license (even in essence) there is legal relationship.

Siu Yin Kwan Case The Life Assurance Act applied only to non-indemnity insurance.
The person concerned can assure only to the extent and up to the duration he will be having
an insurable interest.

II is required only at the time of taking the policy and not at the time of incurring loss.

Godsall v Boldero a creditor took a life insurance policy on his debtor. The debtor pre-paid
the debt and when the debtor died, he had no exposure to the creditor. A claim was made and
insurance company resisted it. The Court upheld the insurance companies claim that there
was no longer a II as the debt was paid.

This decision was criticised by the insurance industry and they acted as if the decision had
not come into effect.

Dalby v India London Life Assurance a vicar insured the life of his patron, the duke, as an
employee of the duke for GBP 3,000 with the India London Life Assurance. After he had
insured it. The insurer took a re-insurance policy. The vicar surrendered the policy after a few
years. Once he had surrendered the policy – the insurer had no exposure to the life of the
duke. The re-insurance was still continuing and when the duke died the insurer made the
claim on the policy against the reinsurer. So Godsall v Boldero was overturned and it was
held that insurance under the life assurance act is not an indemnity insurance. All you require
is an insurable interest at the time of taking the policy and not at the time of the loss.

Insurable interest in the life of the spouse is unlimited.

1. Creditor-Debtor: only the debt that you have given. Interest will be earned in the
future. If interest has accrued and not been paid then there is insurable interest on it. If
it is a deep discount bond (face value 20k, issued for 5k, repayable at face value) –
you have it on the value. Only upto the duration of it, nothing more than that and you
assume the person concerned will pay on time.
2. Employer-Employee relationship: depends on the terms of the employment. If the
employment is day to day. Your insurable interest is just one day and one day wages.
If employment is 10 years but terminable at one months’ notice, it is 10 years.
Employer generally does not have an II in the life of an employee because the
employee is replacable. It is only when the employee brings to the table something
which cannot be replaced – alternatives are not easily available – only then you can
say that the employer has an insurable interest in the life of the employee. It is not that
the replacement will not be there – it is not easy to find. The employer needs to prove
it, if the employee is a generic employee – there is no general II. So, you have Key
 Man Insurance Policy. Used to be a method to compensate employee in a tax-free
manner by assigning it to the employee concerned. This was closed in the act – the
premiums are concerned taxable. You have to judge whether the person is a keyman
or not. It will also be difficult to judge what the extent is.
3. Relatives – a person does not have an insurable interest in the life of his relative
howsoever they may be close (other than a spouse) as per English Law. There has to
be some legal relationship for him to say that there is an insurable interest. A child in
the life of the parent – you need to have a maintenance order then the II is the value of
the maintenance order. The Act is not applicable to India, by section 30 we infer the
other policy practices are applicable to India. But wrt relatives – it is contested not on
the ground of II but on s 30 of Contract Act – wagering contract.

Manish Shankar Someshwar Pandya v Allianz Und Stuttgartez Life Insurance Act 1930

Case of Delhi decided by Lahore HCt. The P sent a proposal to insure the life of his brother,
G.S. Pandya – the Co. returned the proposal saying that there was no II. GS Pandya should
propose on his own life. So it went with his signature but filled by Manish Shanker. The
proposal was accepted. After the proposal was accepted, immediately he assigned it to
Manish Shanker Pandya. Before the proposal, a medical examination was done and it was
cleared by GS Pandya. The proposal was accepted in Oct. By early December it was assigned
to Manish Shanker Pandya, he also paid the premium. In after 7 months, GS Pandya died
(Early July). Manish Shanker made a claim and it was contested that it was a wagering
contract and against public policy.

The question arose: what is the law applicable to India. Is it the American Law which is
applicable. In USA, the p’le is that the person should not wager on life of another but is there
a relationship which is subsisting bw the proposer and life assured by which you could say
that the proposer is not interested in the death of the assured, you can have an II. So, siblings
had an II in the USA. Court looked at MacGillivery – person has II in life of another – (i)
related, (ii) element of dependency, (iii) expected to continue. Because there is an element of
dependency which will continue in the near future.

In effect it is someone else taking the policy. So you look at the situation – who is paying the
premium, how soon after was it assigned, who filled it. It was not GS Pandya who took the
policy, the Court determined that essentially Manish Shankar took the policy. Second, Manish
Shanker claimed that he had an insurable interst in GS Pandya’s life because GS was his
employee. Manish Shanker gave his brother Rs 11 a month – had nothing to do with
employment. GS Pandya helped out at Manish Shanker’s clinic as a compounder. Because he
stayed with you and helped you out, there was no insurable interest. A case was discussed in
this:

Barnes v London Edenborough Glasgow Assurance Co Ltd was discussed. In the facts of
this case what happened was – A step sister gave a word to her dying step mother that she
would take care in her absence of her step daughter and she took life insurance on the life of
the step sister, which the court okay-ed. The Court upheld and Manish Shanker said that it
was alright. But as the court pointed out, in another case, the English Court pointed out that
the judgment can be justified on the ground that the sister taking care expected to be repaid.

20 FEB 25
If an interest is contingent or defeasible interest then also there is an II. So, someone buys a
life-estate from someone else. The length of the right in the property depends on the life of
the person whose life-estate it is. He has an insurable interest in that person’s life. Hindu
succession act – widow had a life-estate in the property of the deceased spouse: so the time
for which it could be enjoyed was on the life of the widow.

Another is partner in the life of another partner (partnership business). He has an interest, but
the measure of that particular interest would be many – till the time he is alive – he is also
jointly liable. Liability is on surviving partner if the partner dies. Second is, if he dies, then
theoretically the partnership firm is split (there is a partition). Third, keyman insurance –
partners bring specific skills, network, etc. Death will deprive the firm of those skillsets.

Insurable interest of property

Ownership definitely gives a insurable interest. Whether you own it in your right or whether
you own as a trustee – a person has an insurable interest. If the interest is equitable – that is
also an insurable interest. A person who has entered into a contract to buy has an insurable
interest. This depends on how much he legally loses when he loses the property. (so how
much you’ve paid). If you are the beneficial owner of that property, you have an insurable
interest in that property because beneficial ownership is in equity. So members of a JHF have
II in the family property.
Proprietary rights in the property give you have insurable interest. So the lessee of the
property has an insurable interest. If the lessee concerned has to pay the lease rent, for the
remaining period you have insurable interest. If lessee is liable for damages – then to the full
value of the property. If you have to pay the lease rent for the remaining period, even if you
are not in possession of it – you have an II. Similarly for lessor – the damage which he suffers
is – losing the lease rest, the ownership of lost property.

If the property is secured, the security given for the property is an II for the security holder.
Whether it is hypothecation, mortgage, charge, etc. What is the extent of the II – mortgage
property might be worth Rs 100 and there are 4 mortgages on it worth Rs 100, there is a fifth
mortgage of Rs 40. Whether the junior most mortgagee has an insurable interest. If at the
time of creation of the mortgage, the property had been sold, the person might not have got
anything.

This issue arose in Westminster Fire v Glasgow Provident. Westminster tried to resist the
claim – if the property had been sold, junior most mortgagee would not have been satisfied.
Held for the mortgagee: the junior most mortgagee has a reasonable expectation – if the fire
had not occurred then the senior mortgages would have been paid off and then his mortgage
would have been sufficient to satisfy his mortgage. That expectation was quashed by the fire
so Jr most mortgagee has an II to the full value on the basis that if the fire had not occurred
then sr mortgages would have been satisfied and property would have been sufficient to
satisfy the junior most mortgagee.

Whether the person concerned is a licensee in the property – does he have an insurable
interest in the property. – you don’t have a legal right in the property – may be kicked out at
will. If there is a circumstance where one can say that the person concerned has in essence an
irrevocable licence then there is an II.

Gaulstone v Royal Insurance Co & Anthony John Sharp vs Sphere Drake Insurance
(Moon Acre Case).

In (19th C Britiain) Gaulstone, the husband was a fraud. He had transferred the house and the
household goods to his wife and declared bankruptcy. He had an insurable interest – he
insured the goods in his own name and then made a claim upon the furniture. Now one aspect
is whether the person is honest etc – different manner – but did the person have an II in the
furniture. The wife had a license to use the furniture but he had an II in the furniture though
he was a licensee because an irrevocable license is as good as a lease. This is irrevocable by
circumstances. Though it was a license, in nature it was an irrevocable license.

Then the Moon Acre Case. Anthony John Sharp v Sphere Drake Insurance – The person
concerned was the shareholder of a Co through which he owned a Yacht. He had transferred it
to the Co. Yacht was damaged in the fire – one issue was whether he had an insurable interest
in that property. Now, the Yacht concerned – it is essentially for the purpose of personal use.
It is not held for business purposes. So the Court said that in the circumstances of it, there
was in essence an irrevocable license – he would not have said that his company takes back
the yacht from me. Because he was the sole shareholder of it so he was deprived of the
enjoyment of that particular yacht. This was virtually irrevocable license (again a
circumstances case)

Another is irrevocable by contract.

Shareholder Cases (Different Topic)

MacAura v Northern Assurance; Cosmopolos v Constitution Insurance Company of

Canada; Wilson v Jones.

MacAura transferred forest in lieu of shares to company. Timber and everything was
transferred to the company – he was in a controlling position. The timber was insured in his
own name and after two weeks, a fire occurred and it was lost. He made a claim – the
insurance company rejected the company which the court upheld – as a SH you had no
insurable interest. Your II was in the value of the shares, which is depended on the peril (the
fire). But you did not have an II in the timber itself. You could have insured it, the value of
the shares, if it was affected by the fire, but you did not have a direct interest in the timber so
you cannot claim on the timber itself.

Cosmopolos – The MacAura case was criticised: they came to a factual expectancy case.
Where you stand in relationship to the property whether factually you would be making a loss
or not. In Cosmopolos, the person concerned – he was doing business in the name of the
company. The property was leased, the premises from which he was doing business – those
premises were leased in his own name. They knew of the fact that he was doing business in
the company’s name. When the business assets were lost – the insurance co rejected the claim
that the assets were of the co. Court: you knew at the time of the insurance that business was
in the name of the co but lease was in his name. The assets on the premises are of the co of
which he is a sole shareholder. Person concerned, if he is going to loose then you cannot say
that the person is not interested in the fire not happening. The question is whether he is
wagering or he is interested in the property not being property. He has a factual relationship.

Wilson this is a marine insurance claim – cables were being laid and a person who owned
shares in the telegraph company got a marine policy with regard to it and it was held that he
could claim on it. Rai Has Doubts – The court just said that you had an insurable interest in
the marine adventure.

24 FEB 25
Contingent and Defeasible Interest
In case of contingent and defeasible interest, also a person would be having an insurable
interest. E.g. In a voidable contract – so the person who has an interest in a contract to buy
something there is an insurable interest until its voided by the person who can avoid it. Stolen
property – no insurable interest. It is not in the public interest to allow insurable interest in
stolen property. If a person is in possession of a property (lost and not claim, for e.g.) then the
person has an insurable interest. Possession is 9/10ths the law – unless a person with a better
title comes and makes a claim – the possessor will end up with ownership rights.

Though he might have come across it without the explicit or implied consent of the owner.
But till it is contested, there is an insurable interest.

Right under a time barred contract – no insurable interest as there is no right in equity.

In an unregistered contract, required to be registered, generally if there is an equitable interest

then there is an insurable interest. For e.g., equitable mortgage. You have to judge it, it cannot
be a void contract.

Vendor-vendee: the owner of a property always has an insurable interest. He can insure it.
So the vendor who has entered into a contract to sell has an insurable interest as well as the
perons who has contracted to buy it. At the time of the loss, who can claim it. If by contract,
the loss is upon the vendee then vendor cannot claim it if it is upon the vendor then vendee
cannot claim it. If the vendee has paid the price or part of it – that is an insurable interest but
if the vendor pays me back, subrogation happens and I have to pay the money to the insurer.

Sometimes, the sale might have occurred and property has moved. This ends the insurable
interest but he might retain a liability – liable for the loss till the property is in his possession
for e.g. There the vendor has an insurable interest to the extent of the liability retained by the
vendor.

Bailer-bailee: Bailor as owner has insurable interest. Bailee also has an insurable interest for
the bailment charges. If he has made himself liable, he has an insurable interest. The question
is where he has not made himself liable – what is the extent of the insurable interest. This
issue arose is Waters v Monarch Fire and Life Assurance – Waters was the owner of a
warehouse, a wharfinger, as per the contract that waters had with the bailor was – the bailee
was not liable for the loss of any good which were stored in that particular warehouse. Goods
were loss in a fire and the bailee claimed the full value from the insurer. Insurer contested that
the interest was limited to bailment charges and as per the contract there was no liability on
the wharfinger owner. Since there was no liability, there was no question of indemnity
arising. One – whether you are legally liable and Second – even if not strictly legally liable,
you feel that as a businessperson it is your moral responsibility to take care of the loss
because your future business depends on goodwill. In this situation, though legal loss was
limited to the bailment charges but it could make a claim on the entire amount (value of the
goods). He cannot keep the money – the money will be held in trust for the benefit of the
goods owner.

Tomlinson v Hapburn same principle applied in the case of carriages. A carrier of goods
could ensure not just for himself but for his customers also.

Contractors: The contractor concerned has an insurable interest in the contract works. How
it works is: the contracting party, he pays piecemeal. It is never an insurable interest in the
whole building. It will only apply to the part tht remains to be paid for. At the time when he is
excavating the land – he is paid once he is done – he will put the pillars then paid for that.
The parts he is paid for are not II. Contractors have subcontractors with them and usually the
contractor will take an all-risk policy where the person concerned insures for himself and also
for the benefit of those who are associated with him in doing the work. In this issue, the
liability was hotly contested of the contractors and subconstractors.

PetroFina (UK) Ltd v Magna Load Ltd; Stone Wickers Ltd v Appledore Ferguson
Shipbuilders Ltd; National Oil Well UK Ltd v Davy Offsure Ltd

These cases went on a particular stance – the question in this case was the – because of the
subcontractor’s negligence or action the contract suffered a loss. In Magna Load Ltd the
contractors had a work for expansion of refinery capacity. So different parts of the work were
there and one part involved the putting of cracking units for which a subcontractor was hired.
Because – when he lifted up – they will and a loss was suffered. The contractor did not pay
the money – the subcontractor had money due so those particular invoices were not paid and
a claim was made by the subcontractor who thought that the insurer had prevented the
payment on those invoices. In Appledore, there was a ship being build. The properllers of the
ship were to be supplied by a subcontractor. And they were defective and because of which
ship was damaged (not yet handed over). In National Oil Well there was offsure drilling.
Subcontractor was to provide certain works which were defective for which a loss was
suffered. All the three involved – the contractor paid and after he had paid, he wanted himself
to be subrogated against the sub-contractor. In all these cases there was a contractors all-risk
policy. The question was: what was the extent of subcontractors insurable interest in the
contract works – the entire thing or only to the work which he was doing. The defective
propeller affected the entire ship and the contractor has to pay 10 lacs whereas the part was
only 50k. The subcontractor has an II but is it only to that part? It cannot extend to the entire
ship. If there is damage to the ship because of those propellers – the subcontractor concerned
is liable for the damage, that is what the insurer’s plea was.

The court said – if we take this logic, because every minor part has the potential to destroy
the entire subject matter. The person concerned is liable – then the insurance will not cover it
as per the insurers argument. So, every person would be taking an insurance for the entire
subject matter and not just their own parts. It is a godsend opportunity for the insurer – the
ship would be insured by every subcontractor. This particular thing would increase the cost of
insurance manifold, which cannot be the intention when the policy was taken and this is
against public interest.

25 FEB 25
Deepak Fertilizers & Petrochemicals Ltd v ICI Chemicals and Polymers Ltd in this case the
company gave a design contract to a company which was taken over by ICI. Deepak had
taken a policy that covered him and the contractors (building an ammonia plant). Devi had
supplied the design for the ammonia plant. The plant was commissioned and once it had
started, the explosion occurred due to which loss was suffered and that fault was laid down to
something inherent in the design of the plant. Deepak made the claim that it was paid and
now the insurer concerned started its proceeding against the designer. Question was whether
the policy taken by Deepak would cover the designer. All the above cases were cited for the
proposition that the subcontractor is not liable and that the policy covers the subcontractors.
The court rejected the contention – not that the above cases were overturned, it is still good
law. The court said that the insurable interest cannot continue for an undefined period. The
contractors and subcontractors II is there in that particular project only till the time the project
has been delivered. After that, the insurable interest comes to an end. It is not that they cannot
take an insurance – they can take an insurance but it’s a liability insurance. (ensuring your
estate) Sub contractors – the policy that Deepak had taken – the policy after the delivering of
the plant, the II of the parties concerned (the contractors, sub contractors) came to an end.
The proprietary II came to an end. There is a liability, that could be insured but was not the
insurance here. Till the time the project is not finished, you have an II in the entire thing. It
does in some sense upturn PetroFina and Wickers.

Formation of Contract of Insurance

An insurance contract to come into existence, there might be many different things, 5 things
have to be there. If they are not there, it does not come into existence – others can be inferred
from market practice.

1. Definition of the risk covered

2. The duration of the cover
3. Amount of premium
4. Mode of payment
5. Amount payable on loss

Starts with (2)

Duration of Cover
A person might need an insurance immediately – you make a proposal. When you make a
proposal then the Insurance Co goes through it and then decide whether it will grant you the
insurance or not. Since it will go through it, it needs time and many times, you want it
immediately. As a market practice, the insurance Co issues a Cover Note. It is an insurance
till a proper insurance is given – you might be insured for a specific duration for 15 days/1
month. It might be that cover extends till the policy is negated (depends on the terms). It is a
small piece of paper – not detailed like other policy. Still, the person concerned is supposed to
know the terms of the detailed policy.
General Insurance Co v Chand Mull Jain The Court held that you are supposed to know the
general insurance of the type of policy which you have taken. The person had taken a fire
insurance policy and whatever is the normal practices wrt fire insurance policy are supposed
to be known to CMJ. Now the proposal form will have those terms mentioned but even if it is
not, those usually included are imputed to the person concerned. But if there is T&C which
imposes a specific duty (intimating within one week as opposed to as soon as possible, i.e., if
it is not the usual practice) – that is not imputed. That has to be brought to the knowledge of
the accused.

When does cover start:

One is the date given in the policy – The general principle in English law is that the cover
starts at the end of the day, i.e., in the midnight of the day and the next day.

But in New India Assurance v Ram Dayal the SC held that if a date has been given then the
cover supposed to start at the start of the day, i.e., midnight of the date and the previous day.
This was a MV insurance case – person went to renew the cover after he had an accident.
Was the accident covered. Mishra J held that the person had the benefit of the insurance cover
when he took the insurance after having an accident.

Normal principle is that if date is given then the thing happens at the beginning of day. That
principle was used by Mishra J. Only thing is that, insurers changed the policy by stating that
the insurance starts from the last moment of the day. So they have covered themselves with
this clause.

Date of proposal (EoD specified in policy), Date of payment of premium (EoD specified
in policy), Commences at a future date, policy can be antedated. In life insurance it is
common to antedate policy (to get benefits under IT, second – bonus from insurance co.,
lower age of entry so premium would be lower., insurer gets benefit -risk distribution
theoretical risk without practical risk and gets the premium for the period).

LIC v Dharamveer Anand Mr Anand had insured his daughter (a minor girl). He got the
policy antedated by 10 months. The policy had a condition that if the person concerned
commits suicide or suffers an accident not in a public place within 3 years of the policy then
the insurer would return only the premium and not policy amount. Now, the girl unfortunately
committed suicide after 2.5 years. From the date the policy risk starts was more than 3 years.
But the date when policy was issued was 2.5 years. The father claimed money and LIC
contested it. LIC lost in consumer fora. LIC was agreeable to give the full money, it went to
SC on the point what is the date of the policy – risk commencing or the date of issuance of
policy 31 march 1990 or May 1989. Court held that the policy is from the date of issuance
and not commencement of risk. (hard cases make bad law) LIC as a matter of strategy they
gave concession of money. The date of policy ending will be from antedated date.

Marine insurance has a lost or not lost policy which is an exception. Generally insurance
policy is not given with retrospective effect. But, we can have an insurance policy which is
retrospective (covers an occurred loss) provided the parties concerned did not know of the
loss or they were unaware of the extent of the loss. This was quite common in marine
insurance. These are called lost/not lost policy which covers loss which may have occurred.

2 MAR 25
When does the cover end?

1. Defined date

New India Assurance v Ram Dayal – Should end at the beginning of the date. Practice is that
it ends at the EoD. This is put in writing in the policies.

2. Occurrence of an event

After an event occurs – the policy may come to an end. Usually marine insurance – ship
reaches the port of destination.

3. It can have combination of timeline and defined event.

4. Certain timeframe post occurrence of an event – 24/48 whatever hours of port of
destination – too find out if the ship is fine or not
5. Maximum amount payable under the policy has been paid

Cover 5 lac 5 years. 5 lac paid in 2 years – policy end.

6. Determination at the option of the parties as per the policy

Parties concerned have been given the power to end the policy. The assured concerned might
end the policy – insurer will pay back a certain premium. Theory is that if a person has been
insured even for one day – insurer has earned the premium so does not need to return but by
contract it provides for return. When insurer terminates generally there is pro rata return of
premium.
If the insurer terminates – what is the timelines: Sunfire v Heart; Central Bank India v
Hardcore Fire Insurance; General Insurance Society v Chand Mal

These clauses that they can be ended when he wants have been upheld in the first two cases.
Sunfire – sugarcane insured and fires were occurring around it. One or two claims happened
and then the insurer society terminated the society and the farm burned down. The mischief
has started occurring but the insurer was allowed to terminate. Quoted in Central Bank of
India at the time of independence when riots were happening in Punjab – goods in
warehouse. Riots were occurring in Amritsar – there were instances of burning down. The
insurance co told the person to transport the goods from warehouse to another place. This he
failed to do and insurance co terminated the risk and goods got burned down. SC upheld the
withdrawal of the cover. Again in Chandmal Jain – the power is still there but when the
power comes to an end? A person insured his building and thatch structure which were used
as residence and warehouse – 51 to 65K. Gave proposal for fire insurance, flood, etc. prop
was in a town on the bank of ganges. Cover note issued for one month. At the end of June –
Ganges started eroding – exactly after one month – letter to Chandmal that they were
withdrawing the cover. The person’s plea was that – when the cover was withdrawn – the
peril had started operating. IT was difficult for him to get it insured with another insurer. The
fire insurance policy cited the two cases – a clause of the policy had the power. The person
taking the cover note is supposed to know. The insurer cannot withdraw after the peril has
started operating. In this particular case the peril had not started operating when the insurer
withdrew the cover. When the cover was taken – the building was 400-450 ft away from the
ganges. When the current was swift – some erosion had started but it was still 400 to 450 ft
away from the ganges. And 10 days from comm still 200 ft. So they said peril had not started
occurring. Whether peril has started – will depend on circumstances.

IRDAI has come up with protection of policy holder interest regulation 2017. Regulation 11
and 12 – what they have done is: life insurance there is no withdrawal of cover.

General insurance policies have been categorised into:

1. Health insurance – Regulation 12(21) They have said that it has to have the clause
mentioned – when can it be withdrawn. In health insurance, the person might become
more risk prone during the duration of the policy. [increasing risk cannot be a
ground for cancellation – who else will insure it]
 2. Non Commercial Insurance – The insurer can avoid the policy on grounds of non-
disclosure, fraud, misrep or non-cooperation like in Central Bank v Harcore Fire.
Regulation 11(13)
3. Commercial insurance – principle of Chand Mal Jain will be applicable.

7. Breach of condition/warranty – automatically. Insurer might wave the breach that is

different but the insurers policy terminates automatically on breach.

3 MAR 25
[see warranty in Sanika Notes]

Renewal of Cover

Generally ought to be renewed as soon as over. Insurers generally give some days of grace.
The assured concerned is not supposed to be covered in the days of grace. When he renews it,
it is as if it is renewed from the previous date. Why does he want it? Assured might have
accumulated some benefits on the policy which will be given on renewal. He would be
getting motor insurance, vehicle insurance, the assured is usually given a discount. In health
insurance – assured gets bonus cover. Certain benefits are given on renewal. The insurer is
benefitting by the fact – saves on markting, retains the consumer. In Life Insurance – there is
a problem.

Pritchard v Merchants & Trademans Mutual Insurance Society

You pay the premium monthly, the insurer deducts the rest of the year’s premium he will
deduct in giving out the payment. The premium accumulates in the first instance – it becomes
due in the first instance. Rest of the months are a loan to you. If insurance company gives you
cover during the days of grace – they will deduct the annual premium and pay you the rest of
the amount.

In Pritchard one month grace was given. Person died on the last day without paying the
premium and his successor on the following day paid the premium. The insurance co
accepted the premium – a claim was made and it was contested. What is the status of life
insurance? Is LI for 25 years – is it insurance for 25 years with monthly premium or it’s an
annual insurance with a right to renewal on same terms and conditions for 24 years. Whether
it is one insurance for 25 years with premium payable annually or it is an annual policy with
right to renewal. If it is a 25 year insurance – then the person concerned is covered in the days
of grace. If it is an annual policy then in that case – if premium is not paid then he is not
covered during the days of grace. The assured’s contention was that it is a 25 year policy,
therefore the assured is covered during the days of grace. The Court rejected this saying that –
a LI policy is an annual policy where an assured has a right to renewal – it differs from a non-
life policy as renewal is a right. Renewal is on the same terms and conditions. This was
reiterated in later cases. Though doubts were expressed in some cases.

As per the directives of IRDAI – the assured is covered during the days of grace. In India, in
a life insurance policy, an assured is covered during the days of grace. So it is a policy for 25
years with responsibility to take the premium annually. (But the premium remaining only for
one year will be deducted).

Mukkut Lal Duggal v United India Insurance The person concerned took a health insurance
policy – in 4 years after taking the policy – he went through multiple procedures. So United
India Insurance did not renew policy on the ground that the person concerned was not a good
risk. DHC: It cited a SC case - refusal renewal (public sector company) must be a considered
decision (Article 14). Then the second thing is that it is a public sector – so Right to Health
(Art 21) all those grounds it took – you cannot deny a person health insurance. In Mukkut Lal
Duggal – there is a duty to renew health insurance if the person wants to renew. In LI if the
assured wants to renew, there is duty to renew – it is a year to year policy with an option on
the assured whether he wants to renew and if he wants to renew – should be renewed [not
necessarily on the same terms but again cannot exclude coverage which he has claimed] (The
logic is applicable only to PSU but the language does not limit itself to public sector –
was a writ + fundamental rights; second, there have been instances where DHC has
directed the IRDAI to ask insurers to provide for certain kinds of HI policy; third, if
someone gets a condition while he is in your policy – no other insurer will take that
person so there ought to be a duty to have it)

It differs from LI – can charge higher premium in HI

Reinstatement of LI Policy.

Sometimes LI policies lapse. In LI there is an element of property in it. If it has lapsed but
you don’t get full value of the property. When it lapses because of nonpayment of premium.
Insurance companies are required to provide the facility of reinstatement of policy. The
person concerned on providing a certificate of good health – it will be reinstated and you pay
the premium for the interim period + any penalty if there are returns on the policy. Oftentimes
the assured needs to pay a higher premium initially.

Though as if it is a continuation of the old policy, there is a duty of disclosure regard to

reinstatement. There is no duty of disclosure on renewal.

Premium
Amount and Mode of Payment

Amount of premium – the amount of premium should be decided before the policy comes
into existence. One is you decide the premium amount in advance. But it might not be
decided that way – there might be a methodology for calculation of premium. So the insurer
might provide that the premium will be calculated like this but if you want addl risk – pay
addl premium as and when you take those risks. Exact amount may not be fixed in advance –
provision to pay in advance for addl risk.

In Marine Insurance – you have Mutual Indemnity Assurance Societies. In MV Act you have
State Transport Cos are excluded. Instead of paying premium to the insurer, they can create a
separate fund – they can deposit a certain money and from that money – that liability will be
paid of. It might be third party but it operates on this.

Thereafter ship owners agreed that they will pay the fund money depending on how much
risk can be attributed to each ship. So a ship that does only coastal shipping in India – that is
one risk. There is a ship that goes to the black sea, there are different risks. So proportion they
agree on – wherever you go you tell us in advance – taking into account the liability of the
mutual society – in that proportion you will pay, regardless of which risk is actually realised.
The premium is paid based on how much risk they are contributing – there are multiple
factors: types of cargo, routes, warzones, etc. When the payments are paid out – liability will
be according to risks incurred.

Payment of Premium

S 64VB of the Insurance Act provide that the risk can commence only after the premium has
been paid. It cannot commence before the premium has been paid. Issues arise – where
premium has been paid by cheque and the cheque bounces. Oriental Insurance Co Ltd v
Inderjeet Kaur and National Insurance Company v Seema Malhotra.
In Inderjeet Kaur an insurance by cheque was taken by a laurie. The policy was issued to the
laurie. The cheque when it was presented (with lethargy) it bounced. Notice was issued – no
insurance cover because the cheque has bounced but the policy was there. The Laurie
rammend into a SUV and Inderjeet Kaur made the claim. The insurance company tried to
avoid the claim by s 64VB. What the court said was – you issued the policy on the basis of
that cheque – you could have taken the precaution of seeing that the cash was encashed
before you took the policy. The insurer was held liable to the deceased’s estate. The issue here
was a third-party liability – based on which the Laurie was on the street. [the laurie was on
the street because of the insurance – it would not have been on the street if you had not issued
the policy – equity type of reasoning]

In Seema Malhotra a Maruti car was brought and a cheque was issued for the policy. The car
went out – the next day the cheque was sent for collection and it bounced the next day itself.
There was no delay in this circumstance of sending the cheque. Before the cheque was sent
for collection – he went out with his car but he and another person died in a car accident
(both sitting in the car). A claim was made in this case – two persons sitting. The Court here
said that Inderjeet Kaur should be limited. The Inderjeet Kaur what was at stake was third
party insurance. Whether the person does not have adequate funds for the insurance to be
valid – third party cannot know about it. It was an innocent third party. In this case – the
person himself was on the roads on the basis of a cheque which was issued. He cannot really
speaking – he was aware that this was an invalid insurance so he cannot get the benefit of his
own wrong.

In the case of life insurance – person might make someone an agent to pay the money. If the
agent does not pay – it is the fault of the agent but he is your agent. If the agent concerned
does not pay you cannot claim from insurance company. If the agent is of the insurance
company – then the insurance company will be liable. DESU v Basanti Devi – what it has is
the – you allow the employer in PSU – money is deducted from your salary and paid to LIC.
So Basanti Devi’s husband had filled the form for deduction. Money deducted but DESU was
in dire financial state so it did not pay off the money. When the husband died – it was
revealed that money was not paid in time. What the court held was that in this particular case
– the methodology taken into account – DESU was the agent of LIC for the collection
premium and paying it over. It was not the agent of the deceased. The facility was provided
by LIC only to PSU – and there was no facility to have automatic deduction otherwise.
Duty of Disclosure
80% of the cases are either on duty of disclosure or on breach of warranty. – First enunciated
by Lord Mansfield in Carter v Bohen – a fort in Sumatra was sought to be insured by the
governor. The fort was being insured because of the possibility of the anglo French war
breaking out. So the fort was sought to be insured for that reason. Now, when the fort was
taken over – the insurer sought to avoid the policy on the ground that it was not told about the
vulnerability of the fort and of the possibilities of the war. Now, lord Mansfield enunciated
that – insurer giving an insurance is essentially takin a bet. It’s a speculation whether the risk
will arise or not arise. His speculation can only be based on the disclosures made by the
assured. The insurer himself will never be in a position to understand the risks that are there.
His ability to understand risk. Insurance contract is a contract of good faith where there is a
duty of disclosure on the assured. This is a good faith contract where the good faith starts
even before the contract starts running. The good faith duty starts before the contract starts
running but during the course – based on goodfaith the contract is there. This good faith has
to be maintained through the course of the contract. This duty of goodfaith is on the assured
and also on the insurer. In a case – an assured sought insurance on the basis of a ship not
being heard of – the reinsurer was aware that the ship had returned safely but the person
seeking the cover did not know – in this case the duty of good faith was breached by insurer.
Though it hardly makes a difference of having good faith on the insurer.

This duty of good faith is vis a vis facts that insurer does not know of. If the insurer is aware
of the facts or is supposed to be aware of the facts then there is no duty to tell the insurer. If
facts are of common knowledge or it’s a case of a business you are in you ought to be aware
of then there is no duty to reveal.

In Carter there were rumours of an anglo-french war breaking out and everyone was taking
into account – if a war broke out it would have implications for the far east. The fort was a
well known fort about which people knew and its vulnerabilities – there was no breach of
duty of good faith – you ought to have known about it being in the business. What you have
to understand is the circumstances in which the law evolved. Law evolved in a certain
circumstance – the insurance was taken by businessman. It was the insurance brokers that
moved around and got subscription to the cover. Those who were insuring and those who
were your agents who moved around and got you insured were part of the same coterie
involved in getting insurance and insuring. Since you were part of the same circle you ought
to have known what other knows and what another is interested in knowing and you ought to
tell him what he is interested in knowing. It is a different matter – subsequently consumer
who were not part of the business started taking insurance but it was a different matter. The
law had evolved that it was businessman taking insurance – they are advised by people who
daily deal with insurance and are aware of trade practices. What needs to be disclosed is not
from perspective of what the consumer thinks he ought to disclose – but what the insurer
thinks you ought to disclose.

We have the prudent insurer test – what needs to be disclosed is not reasonable man test but
what a prudent insurer think it ought to be disclosed. The court sits in the shoes of a prudent
insurer to think what he would think ought to be revealed.

4 MAR 25
See Carter from sanika/ayan’s notes.

It is a duty of good faith starting before the insurance contract is entered into. This duty of
disclosure is there till the insurance contract is there. Good faith might be there even in
instances after the contract has been entered into, this has to be displaced because making a
fraudulent claim on the insurer is a breach of that duty.

Duty of disclosure is there even after the insurance contract has been entered into. It is
judgment whether contract has been entered into or not – till that time you have duty of
disclosure.

Canning v Farquhar; Harrington v Pearl Life Insurance; Looker v Law Union and Rock
Insurance Co; Abhimanyu Choubey v Insurance Ombudsman

person had made a proposal for a life insurance policy and the insurer accepted it and said
that the insurance will start after the proposer had paid the first premium. Before the payment
of the premium, Canning fell from a rock. His relation went to the insurer – a cheque was
written out and that relative went to the insurer to deposit that cheque. While depositing the
cheque, the relation told the insurer of the accident and the insurer refused to take the cheque.
After a few days Canning died and the estate claimed the money. They argued that the insurer
had accepted the proposer and the cheque was proffered before the death which was not
accepted by the insurer. So, the payment should be deemed to have been made for the
insurance policy to come into effect.
The Court held that the insurance was of a person who was reasonably healthy at the time
when it was accepted. Till the time the concerned person deposited the cheque, that state of
affairs had it continued then the insurer is bound to accept that. There was a material
alteration in circumstances in the intervening period. The risk was completely different from
the risk which the insurer had insured. It was no longer a healthy person who was on a
sickbed. There was a material alteration of circumstances. The insurer when he refused to
take the premium – it was perfectly legitimate for it. The condition of paying the premium
according to Rai was a counter offer and could be revoked.

Harrington v Pearl Life Insurance person had made a proposal for insurance in May which
was not persued. But for the proposal a medical examinaartion was done in May itself. No
policy was taken at the time. In Oct he made another proposal with the statement that his
health was the same. The proposal was accepted by the insurer with the proviso that risk
starts with the payment of the first premium. The policy was assigned to his creditor –
Harrington paid the first premium by Cheque and after one or two days the life assured died.
Unlike Canning the insurer had taken the premium but the insurer successfully contested the
liability – the grounds of it were that till the time payment has been made – i.e., the contract
is final – any material change in circumstances need to be communicated to the insurer. [He
fell ill before the payment of the first premium]

Similarly in Looker the insurer specified that till the first premium is paid the insurer had a
right to revoke the policy. It imposed on the proposer the duty to communicate change in
circumstances. The proposer also specified that risk starts after paying first premium. Fell ill
before payment of premium and got diagnosed with pseumonia. The cheque was filled and
paid in. After the cheque was accepted the proposer died. On predictable lines + addl facts:
there was a contractual duty to communicate change in circumstances and reserved the right
to revoke the policy if the circumstances had changed – the insurer was exonerated. [what I
need to disclose is what the insurer would consider relevant – common cold: no;
cigarette: disclose]

Abhimanyu Choubey made an insurance proposal with LIC and as the practice of LIC was –
he had already deposited the first premium. Now it was for the insurer concerned to accept
the policy proposal. Between acceptance and giving of proposal + premium cheque, the
proposer met with an accident. The proposer died after the insurance policy had been sent
out. The question was wrt – the Court cited Harrington & Looker. Till the time the insurance
contract is final – the assured has a duty to disclose any circumstances that are material to the
risk. The difference from the English cases is – here the premium was already paid. The
insurer would either return the cheque – still there is a duty to disclose even if a premium has
been paid till proposal has been accepted.

If the policy concerned is going to be renewed – there is a duty of disclosure in its renewal.
Only thing is – in the case of life insurance – there is a right of renewal so there is no duty of
disclosure. If in a LI you are taking addl benefits – duty of disclosure will kick in.
Reinstatement – there is duty. Many LI have riders – when a baby is born you get extra
benefits etc – there will be a duty of disclosure.

Sometime the insurer concerned has to decide the premium it will charge from you – a duty
of disclosure will be a continuing one throughout the policy. Bank Of Nova Scotia v Helenic
Mutual War Risk Assc aka the Good Luck Case: For the premium to be decided it was
necessary to decide if the ship had gone to the war zone. The ship went to the warzone but
this was not communicated. That was a breach of duty of disclosure – you normally do not
keep inflammable substances in the warehouse – the insurer provides you an option on
disclosing + higher premium. So when you start keeping it – you need to disclose it even if
they do not cause the fire. It will be breach of duty – you kept (did not disclose), they were
dispatched, and then fire occurs without them – this is breach of duty.

BlackCage Shipping Co (Litseon Pride Case) – the ship went into a warzone, the assured
had to inform the insurer as soon as possible and pay the additional premium. The ship went
into the persian gulf – Euphrates river – then it was hit by a missile. On Aug 9 they sent a
telegram saying we intended to inform you but for some reason it was not delivered (they had
a copy of the letter). The letter was never sent actually but nevertheless the court held that
there was a continuing duty of disclosure upon the assured if the terms of the contract could
be varied even after entering into a binding contract i.e., extra risk can be taken by payment
of an extra premium or so on. Then there was a continuing duty of disclosure on the part of
the assured even after a binding contract. In New Hapshire Insurance Co v MGN – it was
that few fidelity insurance policies were taken, i.e., an employee not being loyal by MGN
who was one of the billionaires in UK (rival of Mudock). Lot of money had been siphoned
off from the co – finally Maxwell (MD and Employee of MGN) committed suicide by
jumping off his Yacht. MGN now claimed the money from new Hampshire insurance. One of
the grounds they tried to avoid – if the company came to know about the breach of fidelity, it
ought to have told the insurers because there was upon because the insurers reserved with
themselves the right to terminate the contract. The right to terminate could only be exercised
if they were told of the facts of the case. The fact that money had been siphoned off was not
revealed to the insurer so the insurer could avoid the contract. The Litseon Pride ratio is
limited to where terms could be altered i.e, increased premium can be claimed or change the
term of the contract itself. Not to be applied in situations where the insurer concerned can
terminate the contract based on the information. You insure for over a year – the
circumstances of contract will change inevitably – situations not in your control. If you have
the duty to disclose it and the insurer can terminate the contract – the reason to take an
insurance contract comes to an end. Litseon Pride was in his control and higher premium was
payable. Merely because there is a right to terminate – the duty to disclose does not arise.
This is the purpose of insurance.

What needs to be disclosed

Every material fact which the assured knows or is deemed to know – deemed to know there
are separate duty in commercial and non commercial insurance.

In Non-Commercial i.e., consumer insurance – Economides v Commercial Insurance Union

Co. Facts were that person had taken a burglary insurance policy. What normally burglary
insurance is – if there is too much of a valuable things then that is incentive for the burglar to
break in. The policy stated what the valuables were and the amount payable by insurer was
capepd and an average proportion of what he would pay. The assured’s parents came to live
with him in London. The burglary insurance limit was increased – the father does not tell the
assured the true value of the jewellery which his mother had. The kitchen cutlery and
jewellery was valued by them under 4,000 GBP but actual value was closer to 27,000 GBP.
The average policy was issued to the assured. Burglary happened and assured claimed. While
there was a limit on how much would be paid – the insurer tried to avoid the policy on the
ground that the assured had not communicated to him the full value of the jewellery in the
house. The assured himself never knew of the fact – the father never told him of this – the
question was whether he was deemed to know the value of the jewellery in the house. The
Court said that in the case of consumer insurance – a person can only be said to know what
he really knows. A deeming provision cannot be imputed to him. In one case – a person
concerned had some boils in his groin – ignored them and they were cancerous – had taken
life insurance. Until and unless the person knew or had suspicion that this was something
serious and was trying to avoid what it really was – if he did not know that it was cancerous
you cannot say he knew about it. If he thought it was minor that would resolve itself – then its
fine. [for things that are commercially available freely – assumed that you have a rough
idea]

Commercial Insurance

Manifest Shipping Co v Unipolaris Insurance Co Ltd & Lee Reunion Europeene (StarSea
Case); Australia New Zealand Bankd v Colonial & Eagle Wharfs; London General
Insurance v General Marine Underwriters Assc; Simner v New India Assurance Co; PCW
Syndicate v PCW Reinsurers; Blackburn Low and Co v Vigors; Blackburn Low and Co v
Aslam

In Vigors – the person concerned was an insurer who had insured a ship named State of
Florida, the insurer was based in Glasgow. The ship was not heard for sometime and so he
sought to reinsure it. Contacted a broker in London to get it reinsured, the broker concerned
came to know from another source that the ship was heard of in a foreign port to be in dire
states and most prolyl lost. Did not reinsure and kept quiet. Not getting a response and being
desperate – the person concerned contacted someone else to get it reinsured and it was
reinsured. The ship was lost and reinsurer sought to avoid the liability. The question was
whether the knowledge of the first broker could be imputed to the insurer. What it is – you
have to make a distinction between a broker and an agent. The agent concerned – everything
known to the agent is deemed to be known to the principal provided that they can
communicate. [in Aslam there was delay in comm] but a broker is not an agent but an
independent contractor – a broker need not communicate to the principal everything he
knows about but only that which is material. If first broker had insured – knowledge would
have been imputed. If the first broker keeps quiet, cannot impute it. Had the person been an
agent and not a contractor – knowledge would have been imputed.

ABSENT 6 MAR 25
Has to communicate every circumstance whether he knows or is deemed to know.
Constructive knowledge – knowledge which can be imputed to the accused – should have
been communicated by the assured to the insurer.

Blackburn v Vigors Assured is not deemed to know something which is known by an

independent contractor if that IC has not assisted him in taking that particular insurance.
Reason: that particular person is not supposed to reveal to the assuered every fact known to
him.
Whether a person is supposed to reveal? In PCW v PCW Reinsurers in this case – One
person is an underwriter and he has found a partnership with many prominent person who are
called names. They do not participate in the business but are part of the partnership called a
syndicate. So there were many syndicates which had entered into an reinsurance. The names
entered into insurance with PCW reinsurance – wanted to limit their liability. Names entered
into a reinsurance contract with PCW RI. Underwriters were cheating the names. They were
claiming that a substantial part received as premium was given as reinsurance premium. They
overstated the premium of reinsurance. When the reinsurance claim was made – the RI
sought to avoid the liability – did not disclose the true state of their business. This was their
duty to disclose it was the argument. The Court said – the practice was: the reinsurance when
they got the names – they never disclose to them the day to day business of the company. The
communication was to the bare minimum - This much was collected, this much profit, this
much loss. Only perfunctory details were shared. Since this was never communicated – could
not have known that they are being cheated. If this was not a case of names but simply an
insurance co – had to give full details.

Is there a duty to communicate?

In re Hampshire Land Co; Leonard Carrying Co v Asiatic Petroleum Co Ltd In Hampshire

In Hampshire – notice of the meeting did not have the agenda of taking a. 2000 GBP loan. A
proposal was okayed to take the loan and loan was taken. Company went bankrupt.
Liquidator contested the liability – notice did not state the purpose. Doctrine of IM was not
applicable in the facts of the case – Secy of Socy was Secy of Co. He must have known of
this lacuna. Court said that in this circumstance – you see whether there is a duty to
communicate or not. Whether his situation is such – whether he has a duty to communicate or
not. Just because he is on the BoD does not mean that he has a duty to communicate. Just
because he is on the board does not impute a duty to communicate. Cannot be imputed to
society.

1. There is duty to tell ^^

2. You are the directing mind of the co in Leonard

In Leonard the issue was whether the ship was in an unseaworthy condition – liability if he
knew unless he did not know. So the fact that Mr Leonard – not on the board – he was the
promoted and the controlling mind and principal shareholder. So he knowledge will be
imputed to the Co.
 1. Duty to tell/report
2. The person concerned is the controlling and directing mind of the co [may or may not
be on the board of directors] – on whose direction the company is accustomed to act.

Manifest Shipping Co v Unipolaris [Starsea Case]; London General Insurance Co v

General Marine Underwriters Assc

In London General Insurance – in Lloyd’s a detailed note used to be prepared which would
be circulated at the end of the working day [3PM] – the sailors have come and this is what
they have reported. Sheet was prepared and circulated. The insurer concerned had insured a
ship and got a copy but the copy was delivered was put in his drawer and forgot about it. So
concerned about the fact that one of the ships had not been sighted went to get it reinsured.
The question was whether it had knowledge or not. In actual fact – did not know though in
the sheet it had been written [X has been sighted as lost at sea]. The person who received it –
put it in his drawer and did not report it. The court said that – the person who went to reinsure
it must be imputed with the knowledge that the ship is lost at sea because the information was
received by his office who had a duty to communicate it onwards, regardless of exigency.
Reinsurers also ought to have known so relief not given to the reinsurer.

In Starsea the Co had 30 ships and 2 had been lost and were paid up. Second ship –
investigation done – the fire extinguisher system did not work – the dampner in the engine
room were not in a good condition. Fire occurred – fire extinguisher was ineffective. Report
was made wrt it. The solicitor of the co had a copy of the report which he had misplaced. One
of the directors of the co. knew about it and heard about it. He was not the directing and
controlling mind of the co – his sons were however. The father and son did not know of the
fact the cause of one of the fire was the dampner malfunctioning. Starsea also had fire and the
dampner was not in a working condition. The insurer sought to avoid liability – when you
took the insurance for starsea – you ought to disclose that the previous losses were due to
dampner [moral hazard]. We would have insisted that the same cause is not repeated. It was a
material circumstance not disclosed – not liable. Held: solicitor knew of the fact and had the
report. But solicitor misplaced it. Solicitor did not have a reporting duty. Director did not
report it to the controlling mind.

Second is Insurer’s Agent. Can this be imputed to the insurer. News Home Brothers v Road
Transport and General Insurance Co.; Digger v Rocklite Assurance Co; Bowden v London
Edinburough and Glasgow Life Insurance
In News Home Brothers – they ran city bus service. They had insurance. So, the agent of the
insurer came and contacted them. News home brothers was asked the question and truthfully
they were answered. As it happens – agent concerned knew of the underwriting standards of
his own co – so he misrepresented the answers. When the accident occurred – insurer tries to
avoid liability on misrep. The person had truthfully answered all questions. When the agent
wrote it – he did not have authority to write it on behalf of the insurance co – he wrote it on
the assured’s behalf. Assured is liable.

In Digger a pub owner was being pestered to take a life insurance policy. After much requests
– he gave in and took it. The insurance proposal form was filled in by the agent – met the
assured at a billiard’s table and signed it. Accident – claim. Refusal of claim was upheld –
filled in as agent of assured.

In Bowden persuaded to take a LI policy. Illiterate but knew how to sign. Lost one eye in
accident but presented as perfectly healthy with all working limbs. – implied authority to fill
the form when the assured is not in a position to fill the form himself. So here it was agent of
the insurer and can avoid

10 MAR 25
Every fact is material which will help a prudent insurer decide whether he will take the risk
or not and what premium. Section 20 represents what Lord Mansfield has said but post
Mansfield, it has become more nuanced. The test now is that if a prudent insurer would have
wanted that information on his table while deciding - he might have taken it on the same
terms and conditions and premium – he would have wanted it on his table to decide whether
to take or not to take. He would have wanted to know of the fact – the risk might remain
within a manageable threshold on the same terms.

Everything which will affect the rights of the insurer will always be material. Tate v Hyslow
the assured concerned had entered into a contract with lighterman. The assured entered into a
contract with the lighteman that they will not be liable for any damage to the cargo. This was
contrary to the trade practice that the lighterman were liable for any damage to the cargo.
Since lighterman were made not liable – the right of insurer in the event of subrogation was
affected. So this was to be dislosed to the insurer. The insurer is presumed to know general
practice. Any change in general practice ought to be disclosed to the insurer.
Anything which impels the person to take an insurance cover. You take insurance to cover a
risk – some remote future. That is different. In Buse v Turner the person took a fire insurance
policy. The reason he took a fire insurance policy was that near his warehouse a fire had
occurred and that fire had been put out. The next day he sent his employee for the purpose of
taking an insurance policy. The fire returned and burned down the person’s warehouse. At the
time the insurance was taken – purpotedly there was no threat of fire. People thought that fire
had been put out but the reason for taking the insurance was the fire. You are afraid that there
are things happening which will affect you – the person next door is storing highly
inflammable material. The fact that you took the insurance because next door fire has
occurred you ought to have told. But if it had been sometime – eight months back – then it is
not relevant. In one case Rohini Nandan Goswami v Ocean Insurance – the ground floor
had been burgled. Person took insurance after about a year. Now, it might have been in his
head if something was stolen below, I might also face it – not the same as breaching the duty
of disclosure. If the jewellery had been stolen not 8 months 9 months but a few days back
then it was a relevant factor. [even if you made your mind before that, it does not matter –
]

Anything that renders a person more loss prone – that needs to be disclosed. Equitable Life
Assurance Society v General Accident Insurance Corpn; Republic of Bolivia v Indemnity
Mutual Marine Insurance Co.

In Equitable Life the person concerned took an accident insurance policy – gave his vocation
as a gentleman. But he wanted thrills of life so he participated in motor racing. This was not
his vocation nor his livelihood but he ought to have told the fact that he participates in motor
racing. In Bolivia v Indemnity purchased arms from UK and taking them up the amazon to
use against the rebels. The Govt knew that the rebels knew about it. The rebels planned to
intercept it. This particular fact though it was confidential it ought to have been disclosed.

Facts, sometimes you might regard that, even sometimes some issues which the insurance
industry regards as increasing risk – they need to be told. Demetriades v Northern
Assurance the ship was a Greek ship and Greek shipping tycoons had acquired a reputation –
so the nationality of the ship and owner was relevant. If you are Greek the chances are you
will cheat. The nationality ought to have been revealed.

Mayne v Walters
The ship supercargo was british going to Portugal. What nationality of cargo is there is an
important fact. At the time of Napoleonic wars – napoleon had prohibited the british cargo to
be unloaded on any European port. The Napoleonic ordinance was a recent one so its
importance was not known. Had the ordinance been there for sometimes and it would have
been known about then ownership nationality would have been relevant.

Threats and Rumors

They need to be disclosed if they are credible. The rumor might later on turn out to be false.
Even then it needs to be disclosed. So, Morison v Universal Insurance Co; Leen v Hall. In
Leen the person got a threat that his property will be burned down. If it is credible – that
ought to be disclosed.

In Morison – the person heard rumors that ship was lost so he took insurance. Rumors proved
to be false but the loss did subsequently happen. So, the fact that he did not reveal the rumors
when he took the insurance policy – that was relevant.

ABSENT 11 MAR 25
The duty of disclosure – one issue is – insurer concerned relies – if you have been told about
something though you might have taken a second opinion – you ought to tell about it. In
British Equitable v Great Western Railway the person concerned had swelling in his feet and
had been told that this is something very serious. Went to consult his own doctor who said not
serious. He ignored the specialist opinion. Subsequently, when he took insurance he did not
refer to the specialist opinion. He ought to have told about the specialist opinion – the person
took the insurance policy because he thought something was serious.

Insurers rely on the opinon of other insurers also. Henley v Pacific Fire Marine Insurance;
Barber v Fletcher. The person concerned in the first case (Henley) got a insurance policy on
the basis of misrepresenting facts. He committed fraud. Based on getting policy – he applied
for a second policy without misrepresenting. The insurer relied on the fact that the first
insurer mustve considered him a good risk and that is why he was given the policy. The fact
that the first insurance was given because of misrepresenting facts – that was not told. In
barber – if someone is getting a second policy on the basis of another policy then non
disclosure and misrepresentation in the first will be regarded as non disclosure and
misrepresentation in the second. Though in the second policy you have stated the truth – but
in the first policy you were parsimonious with facts. It will be regarded that you were just as
parsimonious with the facts in the second case.

London Assurance v Mansel; Scottish Provident v Bott Dam. Both involved the person
being asked if he had applied for other insurances and if he had other insurances or not. The
person concerned did not tell the full truth (these are Life Insurance Case) – they told how
many they got but not how many were rejected. In second he did not reveal rejection and
pending. These are indication that something is wrong that is why he is taking so much
insurance. Combination of it – you are trying to get yourself overinsured. It is possible that
the insurers that rejected you was because they did a medical check up. If an agent informally
tells you that you will not be covered – you can withdraw – this need not be revealed but
these are taken into account what withdrawal – you mustve known something wrong: tell
why you have withdrawn.

Moral Hazard
Facts about the assured which increase the chance of the loss. It is not just moral or scruples –
though that is also a part – something about the assured that increases the risk of loss. First is
insurance history of assured – does he become indifference with regard to loss. Container
Transport International and Reliance Group v Oceanus Mutual Underwriting Association;
Mark Rich and Co v AG Portman; Pan Atlantic v Pinetop Insurance; Locker and Woolf v
Western Australian Insurance Co. all of them are on prior experience.

In Reliance it related to the fact that it had insured its container and the loss ratio of the
containers. When it revelaed to the mutual indemnity assc the loss ratio of its containers –
that was lower that what it was experience. It concealed the real truth – it was factoring in
depreciation in the value of the container so the loss in the container was not revelaed and it
was taking partial hit itself. Since you did not tell the full loss on the container – it is
misrepresentation of thefact. Some were paid by the client themselves – you were not taking
that into acc – ought to have been revelaed. Some containers depreciated so you were not
considering – some were cheap repairs. You did not revealthe true extent of losses.

In mark Rich – it was a tanker fleet - they had to pay a demurrage (ship not emptied so ship
owner claims demurrage). They were transporters of oil and demurrage had to be paid. They
had never told the full extent [taking multiple policies and refused to extend them] – did not
tell subsequent insurer the reason of non-renewal [it was revelaed that it was not extended but
not that it was because of the loss experienced]
Pine Atlantic same- reinsurance policy – did not tell the full truth about the loss that occurred
in the prior years because of the business

In locker and Woolf – the person concerned took an insurance policy. The loss ratio was not
good so the insurer concerned refused to renew the insurance policy. They went into business
[OG partnership] as a Co. As a Co – they took a different policy from the original policy from
a different insurer. Was there a duty to tell. IF you have been refused the insurance though it
is a different insurance there is a duty to tell even if you are taking another. If an insurer has
refused you an insurance in one type you have to tell in the second policy.

Doing business in another form you have to reveal. It does not make a difference that now
legally you are a different personality. Insurer had doubt wrt your way of doing
business/ethics.

12 MAR 25
Moral Hazards

Refusal to give insurance by other insurers covered.

OverValuation
Valued policy is one where the insurer and the assured agree in advance with regard to the
valuation of the subject matter. If this thing is lost or it is damaged – this is the agreed value
of the item.

Hoff Trading Co v Union Insurance Society of Canton Ltd. The person was carrying share
certificates of railway companies in Russia and had valued it at the cost of acquisition of
those shares. The communist revolution occurred and the Railway Cos got nationalised. So
essentially the shares were valueless. As per the assured, there was a probability – attempts to
overthrow the regime. Those shares would revert to their original value. That particular value
was something that was only in the assured’s mind that they would come back to the original
value. So the shares which were stolen while he was in the rail compartment – those shares
the court held were valueless and he could not get anything.

Something which only has the value of waste – how do you say that a property has got a
particular value and if it is overvalued then insurer can avoid on the grounds of moral hazard.
Pender v Ionides the ship and the cargo was overvalued. So the assured concerned insured
the ship – insured the cargo and the freight he would get. The court found that the valuation
was 25-30% higher than what the value would have been. That was sufficient grounds to say
it was overvalued and therefore the insurer can avoid the policy – overvaluation of the subject
matter of insurance has two aspects:

1. The assured concerned might be interested in the loss if it is overvalued. There are
chances of the assured trying to cheat the insurer in the case of overvaluation. The
second reason it said was
2. The assured might become indifference to the loss. So steps which he might take to
prevent loss like hiring a competent crew and so on. Those steps he might not take. It
is not just because it is overvalued, the court would say it’s a case of moral hazard like
in the Inversioness Manna v Sphere Drake Insurance Co (the Dora Case)

A Yacht had been bought and insured at the cost of its acquisition. Every ship – their value
depreciates on paper. So he was valuing it still at the cost of its acquisition. Though it was a
few years old – still valued at cost of acquisition. Tried to claim upon on it. The court did not
hold it for the assured but it said that merely because you have valued at the cost of its
acquisition =/= moral hazard. Merely because you have bought it at a prize does not mean
that the person concerned had an intention to cheat or the person might become indifferent to
the loss. You might value – if you are able to tell that this painting is worth Rs 50 Lacs and
you can give a reason for its value – you can insure it for Rs 50 Lac though you obtained it at
Rs 10,000.

In marine insurance – there is always going to be an element of overvaluation of the ship.

You insure ship at the beginning of the year at the port of origin. During the year – the value
will depreciate but it is value at the inception of risk.

The insurer is interested only in that insurance policy. You are not supposed to tell the insurer
unless he asked for other insurances. But the insurer concerned is concnerned that you might
make a double claim and profit from it. Usually he will ask if you have another insurance
policy or not. Sometimes what happens is that policies are not valid but you would be paid as
if it is. [rejections need to be disclosed only if he asks]

Thames Mercy v Gunford Shipping

In this case – the assured concerned took an insurance policy and then he took a PPI (Policy
Proof of Interest). PPI policies are invalid but the assured concerned will be paid in the event
of a loss by a PPI giver. The assured is overindemnified – a PPI policy giver will not check if
you are indemnified. In such situations where the person has suppressed – here the insurer
can avoid the insurance policy.

Undervaluation
Might also pose a moral hazard in the sense that you might be trying cheat the insurer.
Economides v Commercial Union Assurance Co in the facts it was held that it was not a
case of nondisclosure. In consumer insurance the person is not deemed to know the fact. But
it was held that undervaluation also poses a moral hazard because you are trying to cheat the
insurer out by low premium.

Dishonest conduct
Previous dishonest conduct of the assured is a moral hazard. Insurance Co of Channel
Islands v Royal Hotel; James v CGU Insurance Co.

In the first case – fire insurance policy was taken and the insurer was supposed to pay for the
loss in earnings. He was not claiming anything excess. During investigations it was disclosed
that to get a bank loan the assured had overrepresented the turnover of the hotel so that he
could get a higher bank loan. That was regarded as dishonest- this allowed the insurer to
avoid the policy.

If you are dishonest in one instance then you might be dishonest against the insurer too. You
might overclaim or claim a loss that has not occurred. If you have been dishonest to someone
else – it is evidence that he might be dishonest to someone else as well.

In James the person had cheated the tax dept of 40,000 GBP and had taken from its
customers money for giving a warranty which money he had misappropriated. This fact that
he was dishonest in his prior conducts was a ground for the insurer to avoid the policy.

17 MAR 25
Any indication of dishonest conduct allows the insurer to avoid insurance.

Previous convictions
Ought also to be disclosed Farra v Hetherington; Roberts v Avon Insurance Co. Farra –
comprehensive motor insurance policy. He was asked whether car theft had occurred earlier
and the answer was no. Reality was that his vehicle was untraceable/lost thrice and was
returned to him by the police. Technically, he had not lost it. But the fact that three times he
had no knowledge where it was and it was recovered by the police was indicative of the fact
that there was something wrong about him. In Roberts property was recovered by the police –
so that recovery and returning was a material fact which ought to have been disclosed. This
was the information which the insurer was seeking to know.

Taylor v Eagle Star Co. the person was asked whether he had been convicted for any driving
offense or not. He replied no. But on two different occasions – one occasion he allowed his
car to be taken out without an insurance cover by someone else (this was an offense). This
ought to have been disclosed. Then, on another occasion, he had been convicted for drunken
and disorderly behaviour. It was not an offense related to driving but the fact that when
insurer asked – facts which would affect his opinion – whether this person is prone to causing
an accident. Whether he has been convicted of drunken behaviour – it is possibility that he
may drink and drive. So only offences which are relevant to that insurance need to be
disclosed.

Schulman v Hall; Roselodge Ltd v Castle – how far back is the conviction relevant? In
Schulam the person concerned had been convicted of larceny on six different occasions 14
years back. Though 14 years had lapsed – it was held that you still had to disclose it. In
Roseledge there were two simultaneously. One person concerned had been convicted of
stealing apples from an orchard at the age of 17. 50 years he led a blame free life and then
made a claim upon diamonds. Insurer claimed that the fact that 50 years back he was
convicted for stealing apples – relevant for insuring diamonds. Another instance was –
director of co concerned for 18 years he had led a blame free life. At the age of 26 he had
tried to bribe a constable (offered him a cigarette and 6 shilling) who was trying to charge
him for a parking offence. That was regarded as a relevant fact (this was also a diamond
insurance).

So nature of offense and gap between it occurring is relevant. Bribing for a petty offense.

The risk is whether you will make a false claim or not? You claim burglary – whether you
had that piece of jewellery or not – that is the question. So your ethics are relevant for
property insurance.

Sometimes someone is associated with a particular thing. The assured may not have been
involved in the crime but the person with whom he or she is associated with might have been
convicted. Woolcott v Sun Alliance and London Insurance; Lambert v Cooperative
Insurance Society.

The person concerned had been convicted of a violent crime in woolcott – took a house in
mortgage and in favour of the building society he took a fire insurance and assigned that
particular insurance policy (they were joint assured). The conviction for a violent crime was a
relevant fact. In the second case – wife took insurance on jewellery owned by her and her
husband (joint ownership). The fact that the husband on two prior occasions – recently being
convicted – one of which was to attempt to bribe a public servant – is a fact that ought to
have been disclosed.

The building society was a beneficiary of that particular loan. The question was whether the
building society could claim upon it. Anything that increases risk of loss.

Charged with an Offense

There are different opinions with regard to. March Cabaret Club Case – if you are charged
with an offense of serious nature related to the insurance – ought to disclose the fact to the
insurer but the decision did not revolve around it.

What is their effect – on the questions on the proposal form

Questions in proposal form might be an indication of what the insurer is interested in. So he
is also indicating that there are some facts I am not interested in.

E.g., Have you been hospitalised in the last 3 years. This is an indication that the insurer is
not interested in hospitalisation prior to 3 years.

But the mere fact that it has not asked a question is no indication that it is not interested in
knowning a fact. You have to make reasonable judgment whether it is limited to it or not.
Taylor v Eagle Star convicted of driving offenses or not. Generally you can say that the
insurer is not interested in any other conviction. But offences which might have a relationship
with being convicted with driving offense – those offenses you ought to disclose. You ought
to be able tell the insurer – you have to make a reasonable interpretation. Third, if it does not
leave any space for you to elaborate on any other relevant fact then there is no need for you to
tell. It should give you space to disclose addl facts.

SC had the opportunity to look at the effect of questions on duty of disclosure in Manmohan
Nanda v United India Assurance – Manmohan Nanda had taken an oversea assurance policy
was going to san Francisco to attend a relative’s daughter’s wedding. He was examined by
the doctor of united india assurance. Diagnosed with type II diabetes. His ECG was normal
and the question – whether he would be treated for ailment in US for the time – the answer
was negative. When they landed in SF – at the hospital he started sweating (perspiring) – got
him admitted where he was then given three stints. The procedure was gone through and the
bill came to him after 2 months – to pay 2 lakhs 10 thousand dollars. United India Assurance
– he had not disclosed the fact that he was taking Staten for lipid profile, cholesterol control,
suffering hyperlipidemia and so on. On that basis United India Assurance rejected the claim –
he filed a case in the consumer forum which ruled in favour of UIA and then he appealed to
SCt.

The insurer refused to pay – was being asked to pay – assured was suffering already. He had a
cardiac condition and was on staten which was not disclosed. Third, suffering septic ulcer.
National Commn accepted the insurer.

Supreme Court went into the question:

1. All material facts need to be disclosed (reg 2(d)) on what facts are material. Protection
of policy insurers regulation 2002. All essential facts need to be disclosed.
a. Materiality is nature of police
b. Risk covered
c. Questions Asked.
2. The proposer cannot be expected to answer what he is not expected to know in the
circumstances.
3. Something which a reasonable man – not material to a reasonable man – though it
might be material – cannot expect assured to expose.

A reasonable man must say this is material. There is that – it is a reasonable man – who it is
depends on circumstances – consumer v businessman. If you ocassionally insure – else; if in
risk management you deal with it – it will be different.

Must be apparent to reasonable man. [check from other notes]

There is a fact, you know of it, but you do not thinkg that is material. Then you are
excused for telling it. In Economides
ABSENT – NITAI REC 18 MAR 25
 There should be a fair, reasonable construction of questions and answers - the answers
should be accurate in the matters of substance but misstatements or omissions in
trifling matters can be ignored [carelessness in giving answers is not excused unless
it is a case where no one would be misled]
 A literally accurate answer does not suffice if it does not state the full facts - where
the person was asked if he was made a prior claim he cited an instance where he made
a prior claim but did not disclose 4 other such instances
 If a space is left blank - one has to ensure whether there was nothing of substance to
answer - otherwise its an instance of non-disclosure – [though you have left it blank
but from the rest of it you have the answer]
o Canara Bank v. United insurance - the cold storage owner had taken an
insurance of 35 cr - 5 cr was the cold storage proper - 30 cr was wrt goods
stored in the cold storage - the cold storage had left a clause blank which
asked whether there were any other beneficiaries/assureds - here the court
pointed out that its in the very nature of the cold storage business that the cold
storage owner rarely owns the property, it is usually leased – the one who took
the lease paid the premium. The terms said that the responsibility of the bank
on who gets the leftover after paying of the loan. There is cold storsage –
usually couse of instance – one mustve known this were the cicumstanes. - if
the clause is left blank then you must have known such circumstances - it is
non disclosure. Put on notice
 If the answer is unsatisfactory and the insurer is put on notice, he ought to have asked
for a clarification – if not asked then cannot avoid the policy
o Cohen v. Marine Insurance Co - a ship was being tugged - the assured took the
insurance on the ship and disclosed that it was tugged - when the claim was
made - the insurer resisted the claim on the ground that it he did not know the
fact that the ship did not have its own motive power - if he had known he
would not have insured it
 The fact that the ship was being tugged was itself an indication that it
did not have motive power - here the insurer was put on notice and
should have asked.
 The proposer may bracket 2 or more questions and give one composite answer -
because some questions may be repeated
 Contra preferentum rule - if someone had the opportunity to draft a document - then if
there is a reasonable ambiguity - the interpretation would be taken in favour of the
person who had no role in drafting the document
o Tax statutes, penal statutes etc follow this rule where you owe a duty to the
state - it is held in favour of the accused etc
o In case of standard contracts the holding will be in favour of the person who
did not draft (assured) - and against the insurer
o For instance - place of residence - the assured may have different perceptions
about what residence means
o Similarly, when the assured gives an answer - if there is an ambiguity in the
answer - it will be read in favour of the insurer - rare instances
o Hari Om Aggrawal v. Oriental Insurance - a CA was persuaded by the agents
of the Oriental Insurance to take a medical policy - after 5-6 years he made a
claim - pre-existing diseases were to be covered after a certain number of
 years (had not set in) - the insurer sought to avoid liability on the grounds that
the hospitalisation was because of a pre-existing condition that was not
covered
 Court held that suffering from diabetes/hypertension etc is different
from getting a heart condition due to diabetes/hypertension. Heart
disease is not the pre-existing dissease.
 Here the assured had disclosed the diabetes type II and the doctor had
said that he had low chances of any serious condition. He disclosed
diabetes
 He was on statins - but the court found that this was often a
precautionary measure for diabetics.
 They applied the contra-preferentum rule - the clause was read ot not
include diseases/conditions caused by diabetes

19 MAR 25
What the assured need not disclose.

Carter v Bohem the insurer – lord Mansfield held that the insurer was still liable – he could
not plead non-disclosure because he was supposed to know the facts. Need not disclose-
Knows, ought to know, or takes upon himself the knowledge of, what he waives information
of, that which reduces risk, general topics of speculation which are covered by express terms,
matters of opinion.

Section 20 (Marine Insurance Act) has laid down that which need not be disclosed:

 Common Notoreity
 Knowledge
 Which the insurer ought to know in ordinary course of business
 That which reduces risk
 That to which he waves information
 Covered by express warranty

Pim v Lewis – came to investigate the assured and found that for the heating purposes – it
was using rice chaff. Agent knew, had seen it. There was a duty to communicate it – in this
circumstance the insurer is presumed to have known for the fact that more inflammable
substance was used for the purpose of heating.

Knowledge of the agent given to the insurer if it is within the authority of the agent.
Constructive Knowledge of the Insurer: Foley v Tabor it was specified that ship would
transport iron rails – both ship and cargo was insured. When the claim was made – the
quantity of iron rails was not specified. You should have asked for it when you knew about
the cargo.

Canara Bank v United Assurance you knew the BG – left blank and not asked and the
insurer was asked to pay

If the Insurer is Charging a High Premium – insurer knew that it was subject to some extra
risk and normal premium is an indication that the insurer was unaware of the risk.

Lean v Hall; Bates Hewitt

In lean there was insurance for a castle in Northern Ireland. The castle was burnt down.
There were threats – the assured ought to have told about the threats which were reasonable
and known to him. Another aspect was – what the insurer claimed was – the dungeon of the
castle was used for torturing the terrorists of Sinfield – the armed wing of the IRA. The fact
that dungeon was used for the purpose of torturing the members of Sinfield – that was not
revealed to it. Everyone knew of the fact that the dungeon was used for this – so cannot feign
ignorance. Similarly when a locality concerned is prone to burglary – this is often common
knowledge and the insurer is supposed to know about it

In Hewitt, Georgia (ship) was a battleship but was refurbished. Insurer tried to avoid policy –
did not know that it was a confederate battleship – affects risks if it was in battle. This was
resisted on the ground that though it was a confederate battleship – it was well known. The
exploits of Georgia was discussed in Newspapers and everyone knew about this battleship.
Once you know it is Georgia. – you ought to have known. Court: after a few years, people
forget. You cannot expect that that particular memory about the battleship – that would be
retained after a period of 3-4 years.

Business Practices and Customs.

The insurer cocncerned need not disclose to reinsurer if the terms of the policy are the
standard terms. If someone is taking a fire insurance cover – depends upon it – many times
you do not have to disclose it. He manufactures X product. This is something the insurer is
supposed to know about. If you are taking a method which is different. In Britain the fact that
you have a fireplace and chimney – you need not disclose. But in India – you will have to
disclose. In India you need to disclose log houses. Ordinary attributes – need not disclose. In
a marine insurance – the assured concerned – if he is taking the normal route for a voyage
that he need not disclose. Insurer is supposed to be aware of the shortest, fastest, and safest
route which the assured is assumed to take.

If you are taking another route – then it needs to be disclosed.

Assured’s own opinion/Matters of Assured’s Opinion

Aiken v Sterwarts-Wrightson the assured had prepared a table wrt what was the losses it had
incurred in the previous years. Then, it made predictions about losses it might have in the
future. It told the re-insurer was the history of losses but in the future – the losses it might
sustain. That was not something which it told and the reinsurer sought. Reinsrurer said this
ought to be told. Court – this was a matter of opinion – was not a fact. There was no
requirement to tell it. That which is covered by an express warranty.

If something is covered by express warranty – the assured need not disclose it

When policy is being reinstated – the assured warrants that he is in good health – when he
warrants then there is no necessity that he should tell the insurer that he was suffering from a
disease/ admitted to hospital because he has warranted it.

Insurer Waives Information.

Cohen v Std Marine Insurace – Ship was being tugged and insurance was taken over it. The
tug left the ship and the ship went into dykes of Netherlands – it could not be disturbed (it
was lost). The insurer sought to avoid the policy – the fact that the ship did not have its own
motive power was not revelaed to it. Court: you waived that information: First, within your
constructive knowledge. Second, if you are so interested in it, you mustve asked for it. The
ship was being tugged – you have been put on notice – you should have asked for it.

20 MAR 25
20/03/2025

Insurer’s duty to disclose-

The insurer’s duty of disclosure was referred to by Lord Mansfield in Carter v. Bohem as a
part of duty of good faith which both the insurer and the assured hold towards each other. He
cited a case where a person concerned sought insurance for his ship when the insurer knew
that it had already arrived at port safely. Hence, the lost or not lost policy was not needed.
Other than this no known cases of enforcement of duty of good faith of the insurer.
In Banque Financiere de Lasita v. Westgate Insurance/Banque Kaiser Pullman v. Skantia
-, the banks sought to do an insurance on diamonds which were given to them as security. The
person who was gave the security was the spiritual brother of Mehul Choksi and Nirav Modi.
The broker of the insurers knew of the fact that this guy was a cheat. Insurer suspected it but
nothing was told to the banks. The banks took that insurance policy, later on, when the
security was sought to be enforced, it was found that diamonds were fake. hence, security
was of no value. The diamonds were insured for their potential of being lost but the diamonds
turned out to be fake. Insurer was not liable for it but banks sought that the insurer should
compensate them because they were in breach of their duty of disclosure. Something which
they suspected, it should have been told to them by the insurer. The court accepted the claim
of the banks that insurers had a duty of disclosure to the banks just like insured has a duty of
disclosure. The effect of this is that it makes a voidable contract. Once it is voidable, in the
case of the insurer, he will return the premium and not pay you. When assured says it is
voidable, the effect would be that the insurer has to return the premium to the assured. The
premium is a very small part of the loss incurred.

The consequence of default in duty of disclosure is that the contract is voidable at the option
of the other party - assured or insurer depending on the fault. The insurance contract usually
has a clause that the premium paid will be forfeited if there is duty of disclosure due to fraud,
deliberate misrepresentation etc i.e. knowingly not telling material fact. In such cases,
premium will be forfeited. Non disclosure would be discovered in one in five cases. There is
a cost which is incurred even in voidable contracts and chances of discovery of non
disclosure are low. Hence, premium is usually forfeited because it acts as a disincentive for
the insured.

The duty of disclosure gets tagged with an express warranty. When it is voidable, what has to
be disclosed, has to be material. It is only in material aspects that the insurer concerned is
incentivised to give that particular insurance. In express warranty, when you warrant the facts
stated by you and those facts are made the basis of contract, then even if those particular facts
might be not material or have no relationship with risk or are increasing your risk, but
nevertheless the insurer can avoid the policy. The legal effect is not voidability of the policy
in actuality, rather the policy does not come into effect in the first place because wrong facts
form the basis of a contract. The contract is void ab initio. It applies only when there is
express warranty.
The insurer might waive the default in duty of disclosure. In Insurance Corp of Channel
Islands v. Royal Hotel Corp., the court laid down the tests for waiver-

1. The insurer should be aware of the fact that there was non disclosure and its ability to
avoid the policy
2. After this awareness, the insurer can keep the policy alive (needs to be some positive
act on part of the insurer - .
3. Merely keeping quiet doesn't mean that he has decided to waive non disclosure. There
has to be some positive act on the part of the insurer. E.g. asking for additional
information after becoming aware of non disclosure. Section 35 TPA (principle of
election)- there needs to be something done by the insurer that he has elected to keep
the policy alive. Positive act can be asking for premium or even accepting the
premium or renewing the policy after knowing about non disclosure or the person
makes the claim and you pay it or you contest his claim on grounds other than on the
grounds of non disclosure.
4. Under normal circumstances, the insurer is under no duty to communicate that it
wants to avoid the policy. But after it has become aware of this fact that there is non
disclosure and he does not communicate and the assured is under the impression that
the policy is alive and changes his position, then promissory estoppel comes into
effect. The assured concerned does not take another policy because you have not
communicated non disclosure to the assured. Now, the insurer cannot avoid the
policy. [applies to express warranty as well – does not depend on void/voidable
but cannot be against public policy]

In the case of life insurance, a special problem was there. The person who takes the life
insurance, he might not have disclosed all the facts. Whether it is non disclosure or not, it is
only he or she who can controvert. The person who took the life insurance is not around to
contest the insurer’s claim that there was non disclosure. In the USA, a law was passed that
so many years after the life insurance contract had been entered into, the policy cannot be
avoided by the insurer on the grounds of non disclosure. This was something which was
incorporated by insurers into life insurance policies. The legislature in India followed the
USA and enacted Section 45 of the Indian Insurance Act 1938. Section 45 provided that
two years after the commencement of the policy, the insurer cannot contest the policy on
grounds of non disclosure unless the assured concerned stated something false or did not
disclose-
 a. fact which was material; or
b. something which he knew to be material; and
c. he did it deliberately i.e. fraudulently

24 MAR 25
Section 45 of the Insurance Act. Taking into account the circumstances of the life insurance –
the American legislature (states) intervened provided that a few years after the insurance
coming into effect – the insurance shall not be called into question or can be questioned only
on limited grounds as the assured who did not disclose was dead and the beneficiaries were
not in a good position.

Some LI companies followed the American model and inc similar clauses. 1938 – legislated –
no LI policy shall be called into question psot 2 years on any grounds until and unless non
disclosure was on a material matter [see exact language]

1. material fact
2. made fraudulently
3. assured knew that it was a material fact

Might lie innocently – took sick leaves and did not report it.

What is meant by policy coming into effect?

Mithulal Nayak v LIC the assured suffered from an illness – took an insurance policy. Tried
to take an insurance policy – not given. Persuaded to try another and filled the form. He made
a proposal for another policy then he was again examined – the doctor cleared him – assured
stopped paying premium – policy was revived – and then the assured concerned (Mithulal
Nayak is the doctor to whom the policy is assigned) the assured concerned died. One question
was – from when the date should be calculated? The insurance co said – from the date of
revival whereas the assured’s plea was it should be from the date from when the policy was
issued ? The court said that the two years – irrespective of the fact whether the policy was
revived or not revived – the two years shall be calculated from the date of coming into effect.

Not just at the time of revival he had made a misrepresentation but even at the time of
issuance of policy there was a fraudulent misrepresentation: he had taken admission to a
hospital to take treatment for anaemia and he was spending substantial sums of money for
that particular treatment. The case pointed out that first of all there can be a misrepresentation
not just at the time of issuance of policy but also at a subsequent date.

The date of coming into effect – LI policies can be back dated. That is one issue with regard
to insurance policy. So the date of commencement of policy might be prior. Second, at the
time of revival – a person might make a wrong statement. Third, there were new policies with
rider clauses – in certain circumstances people can opt for an increase in an insurance cover.
At the time when he is exercising rider – he will again be making a disclosure. The restraint
in section 45 – restraint for 2 years – the rider might be exercised 5 years later where there
are fresh disclosure. There would be problem in such circumstance. Insurance industry
wanted an amendment – from 2 years to 5 years. The comm recommended 5 years. When the
bill came in 2015 – it was 5 years. A lot change in s 45. After 3 years of commencement of
risk: issuance of policy, exercise of rider, revival/reinstatement of policy – whichever is latter
in time – the insurer’s policy cannot be called into question on any ground whatsoever.

So after 2 years it can be questioned on ltd ground was removed – and this was substituted.

Prior to 3 years you have 2 kinds of situation:

1. non disclosure/misrepresentation nwhich is fraudulent

2. Not fraudulent

The insurance co needs to give an op to the assured or those claiming under the policy that it
is not fraudulent – non disclosure is not fraudulent. If it is satisfied that it is fraudulent then
the premium and benefits are forfeited. In case it is not fraudulent – the policy is still voided
but the policy money has to be returned.

IRDAI has issued certain clarifications on s 45. One clarification it has issued is – (1) even if
the claim is made after three years but the assured died within three years the insurance co
cannot avoid the policy. [//There are misaligned incentives here]

If it is not fraudulent and there was an opportunity of hearing and there is non-disclosure of
material fact- benefits are forfeited but premium is also returned. IDRAI clarified – many
times the policy is continuing for five years and you have accumulated benefits and then the
policy is stopped and then it is revived or he exercises the rider – what about a prior non-
disclosure. Or for subsequent non-disclsosure – what about money already paid as premium.
Are they ffd? The forfeiture clause applied only after the exercise of revival or rider – money
accumulated prior to it has to be returned – that is not forfeited. FF will occur only after
revival or exercise of rider.
Third aspect – there is a misstatement in exercise of rider/revival. Not fraudulent. Then –
insurance co needs to return the premium for the particular period and not the value of
themoney. You exercise rider after 5 years and put in money – now what happens is that these
ULIPs will accumulate value

Exercise of rider – my policy is 50 lac rupees – I exercise rider and inc the cover to 1 cr.
When I exercised the rider I make a fraudulent statement. What is ffd is the benefit of
increased cover of 50 lacs. The original cover stays.

The insurance co can at any particular point of time get an examination done of the age of the
assured without any restraint but this cannot be a ground to avoid the policy. It will adjust the
premium accordingly. If you take a policy of 4 lac rupees and your age is found to be higher
then the premium will be adjusted and the policy amount will be reduced accordingly.

Insurance amendment in 2015. In 2015 UK – there was an insurance act: where the law
regarding non disclosure and warranties was amended. UK Law: The assured has to make
fair representation and substantial disclosure of what he knows and what he ought to know of
every material fact. Then the insurer concerned in the event of ND (i) where fraudulent or
reckless, i.e., without regard to the truth, then in that event the policy and premium is ffd if
(ii) it was not reckless or knowingly done then the insurer will decide would it have issued
the policy or issued it on different terms. If it would not have issued then the policy is voided
but premium is returned. If it would have issued the policy on different terms then it would
have been treated as if the policy was issued on those terms.

E.g., it has issued a policy of Rs 1 Lacs and premium is Rs 1,000. If there was disclosure – it
would have charged a premium of 1250 then the policy will be reduced to 80K
proportionately. It would have provided certain exceptions then those will be read into the
policy.