Insurance law

UNIT – I
1. Discuss the history and development of life insurance in India.

Introduction
Life insurance in India has evolved over centuries, from ancient references in scriptures to
the establishment of statutory bodies and regulatory reforms. It reflects a journey from
informal social security mechanisms to a modern, regulated sector contributing
significantly to the nation's economy.

Ancient Foundations
The concept of insurance was not alien to ancient Indian society. Texts such as the
Manusmriti, Dharmashastra by Yagnavalkya, and Arthashastra by Kautilya referred to
collective pooling of resources to support those affected by calamities like fire, floods,
epidemics, and famine. These early forms resembled modern insurance in their
redistributive intent.

Colonial Era and Early Developments

• 1818: The Oriental Life Insurance Company was established in Calcutta—the first
Indian life insurance company. However, it failed by 1834.
• 1829: The Madras Equitable began operations in the Madras Presidency.
• Subsequent companies like Bombay Mutual (1871), Oriental (1874), and Empire of
India (1897) emerged, mostly in the Bombay Presidency.
• The industry was dominated by British insurers with discriminatory practices against
Indian lives.

Regulatory Milestones
• 1912: The Indian Life Assurance Companies Act became the first law to regulate life
insurance.
• 1928: The Indian Insurance Companies Act was enacted for collecting data from Indian
and foreign insurers.
• 1938: The Insurance Act, 1938 consolidated previous laws, introducing comprehensive
controls over insurer operations.
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Nationalization Phase
• 1950: The Insurance Amendment Act abolished principal agencies due to rising unfair
practices.
• 1956: The life insurance sector was nationalized via an ordinance issued on 19 January.
The Life Insurance Corporation (LIC) was established, absorbing 154 Indian, 16 foreign
insurers, and 75 Provident Societies.
• LIC held a monopoly in life insurance until the late 1990s.

Liberalization and Reforms

• 1993: The Malhotra Committee, chaired by former RBI Governor R.N. Malhotra,
recommended private and foreign participation in the insurance sector.
• 1999: The Insurance Regulatory and Development Authority (IRDA) was established
to regulate and develop the industry.
• 2000: The sector opened to private players; foreign companies were allowed to hold up to
26% stake initially.
• 2015 onwards: FDI limits were gradually increased—49% in 2015, eventually reaching
100% in Budget 2019.

Current Scenario
As of today, India has 24 life insurance companies, with LIC being the largest. The sector
is regulated by the IRDAI (formerly IRDA), which ensures consumer protection,
transparency, and financial stability. Life insurance, along with banking, contributes around
7% to India’s GDP.

The development of life insurance in India can be traced through five key phases:

1. Period of Mushroom Growth (1900–1912)

Driven by the Swadeshi Movement, several Indian life insurance companies emerged
rapidly. However, lack of regulation led to malpractices. This prompted the enactment of
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the Indian Life Assurance Companies Act, 1912, the first law to regulate life insurance.
Insurance returns were published from 1914.

2. Period of Struggle & Steady Growth (1913–1938)

During the interwar years, Indian insurers struggled due to competition from foreign firms
and economic instability. The government appointed committees, including the N.N.
Sircar Committee, leading to the Insurance Act, 1938, which provided comprehensive
regulation and forced many foreign companies to exit.

3. Period of Stability & Consolidation (1938–1950)

With foreign competition reduced, Indian insurers stabilized. The Cowasji Jehangir
Committee (1945) exposed investment issues, leading to tighter regulations. Post-
partition, the S.R. Ranganathan Committee led to the 1950 amendment of the Insurance
Act for stronger governance.

4. Period of Boom & Nationalization (1950–1991)

Economic growth and industrialization increased public trust in insurance. In 1956, the
Life Insurance Corporation (LIC) was established, nationalizing life insurance. In 1972,
the General Insurance Business (Nationalization) Act created the GIC with four
subsidiaries.

5. Era of Privatization (1991 onwards)

Post-liberalization, the Malhotra Committee (1993) recommended private participation.
The IRDA Act, 1999 created the Insurance Regulatory and Development Authority
(IRDAI). Foreign Direct Investment (FDI) limits were increased, reaching 100% by 2019,
leading to rapid industry expansion.
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Conclusion
From religious doctrines to a structured, tech-driven sector, life insurance in India has come
a long way. The journey reflects the broader economic and policy shifts in the country,
from colonial control to nationalization, and finally, liberalization. Today, it stands as a
pillar of financial security and economic growth.
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2. Explain the composition and functions of Insurance regulatory and development

authority.

Introduction
After 1991 due to liberalization in the economic policy, many private players started their
business in India which has brought with it their own evil of unhealthy competition. Hence
a Malhotra committee was formed to effectively regulate insurance companies. Following
the recommendations of the Malhotra Committee, in 1999 the Insurance Regulatory and
Development Authority (IRDA) was constituted to regulate and develop the insurance
industry and was incorporated in April 2000.

Objectives of the IRDA include promoting competition, to enhance customer satisfaction

with increased consumer choice and lower premiums while ensuring the financial security
of the insurance market.

Composition of IDAI

Section 4 of the IRDAI Act 1999 specifies the authority's composition. It is a ten-member
body consisting of a chairman, five full-time and four part-time members appointed by the
government of India.

Functions of IRDAI
The functions of the IRDAI are defined in Section 14 of the IRDAI Act, 1999 and include:

1. Issue, renew, modify, withdraw, suspend or cancel registrations of insurers.

2. Protect the interests of policyholders.

3. Specify qualifications, training, and code of conduct for intermediaries and agents.

4. Specify code of conduct for surveyors and loss assessors.

5. Promote efficiency in insurance business operations.
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6. Promote and regulate professional organisations related to insurance and reinsurance.

7. Levy fees and other regulatory charges.

8. Inspect and investigate insurers, intermediaries, and connected entities.

9. Regulate rates, terms, and conditions offered by insurers (not covered by the Tariff
Advisory Committee under section 64U of the Insurance Act, 1938 ).
10. Specify the manner of maintaining books of accounts.
11. Regulate investment of insurer funds.

12. Maintain solvency margins of insurers.

13. Adjudicate disputes between insurers and intermediaries.

14. Supervise the functioning of the Tariff Advisory Committee.

15. Allocate a percentage of premium income for funding professional organisations.

16. Set percentage targets for life and general insurance in the rural and social sectors.
17. Prescribe the form and manner for maintaining accounts and financial statements by
insurers and intermediaries.
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3. Define contract of insurance. Discuss the classification of contracts of insurance.

Hardy Ivamy writes in his work - “General Principles of insurance Law” that, ‘A
contract of insurance is a contract whereby one person called the ‘insurer’, undertakes in
return for the agreed consideration called the ‘premium’ to pay to another person, called
the ‘insured’ a sum of money or its equivalent on the happening of a specified event’.

Contract of insurance is described as Aleatory contract. It is speculative to such an

extent that the parties may not know whether the event insured against will occur or not,
thus involving a case of mutual risk. The insurer in turn, for a comparatively small sum in
the form of a premium undertakes to compensate against a heavy loss.

Classification of Insurance Contracts:

Insurance contracts are primarily classified into two main categories:
1. 1. Life Insurance:
This type of insurance provides financial protection in the event of death or survival of the
insured.
• Term Life Insurance: Provides coverage for a specific period, with benefits paid
only if the insured dies within that term.
• Whole Life Insurance: Provides lifelong coverage and includes a savings
component.
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• Endowment Policies: Combine life coverage with a savings plan, paying out a
lump sum upon maturity or death.
• Money-Back Policies: Offer periodic payments during the policy term and a lump
sum at maturity.
• Unit-Linked Insurance Plans (ULIPs): Combine life insurance with investment
in market-linked instruments.
• Annuity and Pension Plans: Provide regular income, typically after retirement.
2. 2. General Insurance (Non-Life Insurance):
This category covers various risks related to property, liability, and other insurable
interests.
• Fire Insurance: Covers losses due to fire and related perils.
• Marine Insurance: Covers risks associated with ships and cargo during sea
voyages.
• Motor Insurance: Covers damages to vehicles and liabilities arising from
accidents.
• Health Insurance: Covers medical expenses incurred due to illness or injury.
• Property Insurance: Covers damage to or loss of property due to various perils.
• Liability Insurance: Covers legal liabilities arising from accidents or negligence.
• Travel Insurance: Covers risks associated with traveling, such as medical
emergencies and trip cancellations.
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4. Re-Insurance

Re-Insurance is a contract between two or more insurance companies in which the original
insurer (ceding company) transfers a portion of its risk to another insurer (reinsurer). This
helps the original insurer manage large risks beyond its financial capacity.
Definitions:
• According to Riegel and Miller, “Re-Insurance is the transfer by an Insurance Company
of a portion of its risk to another Company.”
• As per the Federation of Insurance Institutes, Mumbai, re-insurance is an arrangement
where the insurer transfers a part of the accepted risk to another insurer, thus limiting their
liability in line with their financial strength.
Legal Framework:
• Re-insurance is governed by Section 101-A of the Insurance Act, 1938.
• The IRDA (General Insurance - Re-Insurance) Regulations, 2000, especially Chapter
II and Section 3, lay down the procedures for re-insurance arrangements in India.

Characteristics of Re-Insurance:
1. It is a contract between two insurance companies.

2. The original insurer transfers risk beyond its capacity to another insurer.
3. The relationship with the insured remains with the original insurer; the reinsurer has
no direct liability toward the insured.
4. Rights of the insured remain unaffected by the re-insurance contract.

5. Re-insurance cannot exceed the original insured sum.

6. It is a contract of indemnity,
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UNIT – II
5. “Utmost Good faith” is an essential element in all insurance contract. Discuss.
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Principle of Utmost Good Faith

Utmost good faith under English law

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Conclusion
The principle of utmost good faith ensures that both the insured and the insurer deal with
each other with complete honesty and openness. Since the insurer relies heavily on the
information provided by the insured, any concealment or distortion can undermine the
very purpose of insurance.
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6. Discuss the principles of contribution and subrogation.

Introduction
The principle of subrogation is a vital concept in insurance and business law. It describes
the right of an insurer to “step into the shoes” of the insured and recover losses from third
parties after settling a claim.

I. Principle of Subrogation
The principle of subrogation means that after an insurance company pays a claim for a loss,
it takes over the rights of the insured to claim recovery from the party responsible for the
loss. This legal right helps prevent the insured from claiming more than the actual loss and
ensures fair compensation.

How Principle of Subrogation Works

Subrogation works as a process following an insurance settlement. The insurer
compensates the insured for their loss and then seeks to recover money from the third party
who caused it. This process involves steps that protect both the insurer’s and the insured’s
interests.

Steps in the Subrogation Process

• The insured suffers a loss and files a claim.
• The insurer verifies and pays for the insured’s loss.
• Once paid, the insurer is “subrogated” to the insured’s rights.
• The insurer pursues the at-fault third party to recover the loss.
• If successful, the amount recovered is kept by the insurer up to the claim paid.

Types of Subrogation
There are three main types of subrogation recognized in insurance and contract law.
Understanding these types is important for exams and business practice.
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Principle of Subrogation under Indian Law

In India, the principle of subrogation is recognized under Section 79 of the Indian
Contract Act, 1872. It is widely applied in general insurance but usually not in life
insurance. The Supreme Court has clarified rules in cases such as Economic Transport
Organization v. Charan Spinning Mills (2010). Subrogation is essential for preventing
unjust enrichment and double recovery.

II. Principle of Contribution

Principle of Contribution in Insurance is one of the fundamental principles in Insurance.

Principle of Contribution comes into play when there are multiple insurance policies which
are insuring the same asset.

As per the Principle of Contribution, if multiple Insurance Policies insure the same subject
matter, the Insured cannot recover his loss from all the Insurance Companies. The Insured
is not allowed to make profit out of his Insurance Policy . So, in case multiple Insurance
Policies are covering the same subject matter, in such a case, the insurance companies will
only pay the proportionate portion of the loss.

Principle of Contribution in Insurance ensures 2 things:

1. The Insured does not profit by making separate claims from different insurance companies
for the same loss.
2. Each Insurance Company only pays its proportionate share of loss.
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Conditions necessary for Principle of Contribution

The following conditions must be satisfied in order for the Principle of Contribution to come
into play:

• There must be more than one Insurance Policy which is in force at the time of the loss. If
only 1 Insurance Policy is in force at the time of the loss, then that Insurance Policy will
bear the whole loss.

• The Insurance Policies must insure the same subject matter. Principle of Contribution is
not applicable if the Subject Matter Insured under the Insurance Policies is different even
though the Policyholder is the same.

• The Insurance Policies must insure the Subject Matter for the same perils. If the Insurance
Policy is covering different perils, then Principle of Contribution will not be applicable.

• All the Insurance Policies must cover the same interest of the same insured. If the Insurance
Policies are insuring the same interest but of different insured, then again, the Principle of
Contribution will not be applicable. Consider an example where Mr XYZ has purchased a
vehicle with a loan from Bank ABC by keeping the vehicle as collateral. Here, both Mr
XYZ and Bank ABC have Insurable Interest in the vehicle and can make an Insurance
Claim in either of their Insurance Policies.

If the above 4 conditions are satisfied, then the Principle of Contribution is applicable.

Claim Amount Payable by the Insurance Companies calculated under the Principle of
Contribution

Once it is determined that the Principle of Contribution is applicable, the next step is to
calculate the pro-rata portion of claim payable under each of the multiple insurance policies.

The formula to calculate the pro-rata portion of claim payable is

(Sum Insured under each Policy/Total Sum Insured under all Policies) x Loss Amount.

In the above example where Mr XYZ had suffered a loss of Rs1 Crore which was insured
under two insurance policies with a Sum Insured of Rs1 Crore (Policy 1) and Rs1.5 Crore
(Policy 2), the loss is calculated as follows:
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Loss payable under Policy 1 = (Sum Insured under Policy 1/Total Sum Insured under all
Policies)*Loss Amount

Loss payable under Policy 1 = (Rs1 Crore/Rs2.5 Crore)*Rs1 Crore = Rs40 Lakhs

Loss payable under Policy 2 = (Sum Insured under Policy 2/Total Sum Insured under all
Policies)*Loss Amount

Loss payable under Policy 2 = (Rs1.5 Crore/Rs2.5 Crore)*Rs1 Crore = Rs60 Lakhs

Conclusion:

The doctrine of subrogation ensures that the insurer, after indemnifying the insured, steps into
the shoes of the insured to recover the loss from a third party. It prevents the insured from
making double recovery for the same loss. This principle upholds fairness and reinforces the
indemnity nature of insurance.

The doctrine of contribution applies when multiple policies cover the same risk, ensuring
equitable distribution of liability among insurers. It prevents the insured from profiting by
claiming the full amount from more than one insurer. This promotes balance and fairness in
the insurance system.
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7. What is assignment of an insurance policy? State the rules relating to assignment of

policies in contract of insurance.

INTRODUCTION
In life insurance plans, Nomination and Assignment are the two important terms that
are frequently used. Acknowledging these terms helps the policyholder to extract the
benefits available under the life insurance policy without making a hole in his/her pocket.
Policyholders should know the exact difference between the two before making any
decision to purchase the policy.

Assignment of the policy refers to the transfer of rights, title, and policy ownership
from the policyholder to another person or entity. The person involved in
assigning/transferring the policy is called assignor, and the person/institution to which
it is assigned is called the assignee. The assignment is regulated under Section 38
of the Insurance Act, 1938.

ASSIGNMENT OF AN INSURANCE POLICY

Assignment means a complete transfer of the ownership of the policy to some other
person. Usually assignment is done for the purpose of raising a loan from a bank or a
financial institution. Assignment is governed by Section 38 of the Insurance Act 1938 in
India. Assignment can also be done in favour of a close relative when the policyholder
wishes to give a gift to that relative. Such an assignment is done for “natural love
and affection”.

An example, a policyholder may assign his policy to his sister who is handicapped.
Assignment of a life insurance policy means transfer of rights from one person to another.
You can transfer the rights on your insurance policy to another person / entity for various
reasons. This process is referred to as Assignment‟.
The person who assigns the insurance policy is called the Assignor (policyholder)
and the one to whom the policy has been assigned, i.e. the person to whom the policy
rights have been transferred is called the Assignee.
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Once the rights have been transferred from the Assignor to the Assignee, the rights
of the policyholder stands cancelled and the assignee becomes the owner of the
insurance policy. Assigning one‟s life insurance policy to a bank is fairly common. In this
case, the bank becomes the policy owner whereas the original policyholder continues
to be the life assured on whose death the bank or the policy owner is entitled to receive the
insurance money.

The assignment is categorized under two different types, i.e. Absolute Assignment and
Conditional Assignment.

1. Absolute Assignment

Under the absolute assignment, all rights, title and interest are transferred by the
assignor to an assignee without reversion to the assignor (in case of any event). It
shifts the ownership of the insurance policy to other parties without any terms and
conditions.
This assignment is usually done for money consideration such as raising a loan, out
of love or affection towards family members. This assignment is generally made for
valuable consideration. It has the effect of passing the title in the policy absolutely to the
assignee and the policyholder in no way retains any interest in the policy. The absolute
assignee can deal with the policy in any manner he likes and may assign or transfer
his interest to another person.

As an example, Mr. Rajiv Tripathi owns a Rs 1 Crore life insurance policy. Mr.
Tripathi wants to gift his wife this policy. Specifically, he wants to make “absolute
assignment” of the policy in his wife's name, so that the death benefit (or maturity
proceeds) can be paid directly to her. After the absolute assignment has been made,
Mrs. Tripathi will own this policy, and she will be able to transfer it to someone
else again.
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2. Conditional Assignment

It means that the transfer of rights will happen from the Assignor to the Assignee subject
to certain terms and conditions. If the conditions are fulfilled, only then the policy will
be transferred.

For instance, a term insurance policy of Rs 50 Lakh is owned by Mr. Dinesh Pujari. Mr.
Pujari is applying for a home loan of Rs 50 Lakh. For the loan, the banker asked him
to assign the term policy in their name. To acquire a home loan, Mr. Pujari can
assign the insurance policy to the home loan company.

In the event of Mr. Pujari‟s death (during the loan tenure), the bank can collect the
death benefit and get their money back from the insurance company. Mr. Pujari can
get back his term insurance policy if he repays the entire amount of his home loan.
As soon as the loan is repaid, the policy will be transferred to Mr. Pujari.

In the event that the insurer receives a death benefit that exceeds the outstanding loan
balance, the bank will be paid from the difference between the death benefit and the
loan and the balance will be paid directly to the nominee. In the above example, the
remaining amount (if any) will be paid to Mr. Pujari‟s beneficiaries (legal
heirs/nominee).

Rules
Section 38 – Assignment and Transfer of Insurance Policies:

(1) Assignment or transfer must be made through an endorsement on the policy or a

separate instrument, signed and attested, stating reasons and terms.
(2) Insurer can reject an assignment if it's not bona fide or against public/policyholder
interest or done for trading purposes.
(3) Insurer must record reasons for refusal in writing and inform the policyholder within
30 days of notice.
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(4) Aggrieved parties can appeal the insurer's refusal to the IRDAI within 30 days of
communication.
(5) Assignment becomes effective upon execution and delivery of the instrument and notice
to the insurer, except where it’s in favour of the insurer.
(6) Priority of claims is based on the date of notice delivery to the insurer; disputes go to
the IRDAI.
(7) Insurer must record assignment details and issue a written acknowledgment upon
request, which serves as conclusive proof.
(8) Upon valid notice, the assignee gains full rights and liabilities under the policy and can
act independently of the assignor.
(Explanation) Unless stated as conditional, every assignment is treated as absolute.
(9) Assignments made before the 2015 Amendment Act remain unaffected by this section.
(10) Conditional assignments (e.g., if assignee dies before insured or insured survives the
policy term) are valid but limit the assignee's rights.
(11) In partial assignments, the insurer’s liability is restricted to the assigned amount; the
remaining benefit cannot be reassigned.
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8. Principles of insurance.
Insurance is a written agreement between two parties: the policyholder (the person
applying for the insurance) and the insurer (the company providing the insurance).

Each company has different criteria for granting insurance based on the business’s risk.
For example, if a person has a history of road accidents due to reckless driving, he might
have to pay more premium to get higher insurance.

Insurance can be primarily of two types: general insurance and life insurance.

General insurance includes insurance on all items such as home, car, health and travel.

On the other hand, life insurance helps to meet the financial needs of the family after the
demise of the policyholder.

Principles of Insurance

There are seven fundamental principles that every insurance company and their
policyholders should obey:

1) Principle of utmost good faith

According to this principle, both the insurer and the policyholder (insured) should have
good faith in each other. They are obliged to provide accurate information while making
an insurance policy. This is a basic principle, and its violation can cause serious trouble.
As the insurance company provides security to the insured’s goods and life, they hold the
right to know about their history, which can be concerning for the policy. If you provide
false information to the insurance company, then they have the right to cancel your policy.
Similarly, if the insurance company has granted you some false information, they will be
liable for the loss caused to you due to their misrepresentation.

2) Principle of insurable interest

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The principle of insurable interest states that the person should have interest in something
whose damage, loss or theft can cause them financial loss. In other words, the item to be
insured should have some financial profit from its existence.

3) Principle of contribution

As per this principle, if you took insurance for the same item from two insurance
companies, then both companies will share the loss to compensate you in a specific
proportion based on the agreement. Moreover, if one company has granted you the full
compensation, then the company will have the right to address the other company for their
proportionate contribution. For example, if you have insurance for your car from two
different companies and the car meets an accident, both companies will share the loss
proportionately incurred by the car.

4) Principle of subrogation

According to the principle of subrogation, the right of the property substitutes from the
policyholder to the insurer after compensation. The insurer does this to take action against
the third party that caused the loss. Let’s understand the concept using an example. If your
insured car meets an accident due to reckless driving of a third party, then the company
will compensate you and take the ownership for taking legal actions against that third party.
Moreover, if they end up getting more money than the compensation amount, the company
will give you the extra money.

5) Principle of indemnity

The principle of Indemnity is one of the most important principles of any insurance policy.
According to this principle, the policyholder is guaranteed indemnity to compensate for
their loss after subtracting the deductibles. The compensation will depend upon the amount
mentioned in the contract. Moreover, each company has set some policy limits and will not
compensate above it. The compensation amount will depend upon the loss and claim by
the policyholder.
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However, the company will not pay compensation if the incident didn’t happen during the
allotted time or under the specific conditions of the agreement. This is because these
policies only provide protection against unexpected financial losses and do not help you to
make a profit from the incurred loss.

6) Principle of proximate cause

An insurance policy will only compensate for losses incurred due to some specific causes
mentioned in the agreement. Therefore, it is necessary to evaluate the nearest cause that
can compensate you. The insurance company can use this to protect themselves; thus,
involving a lawyer in such a case can become necessary.

7) Principle of loss minimisation

Having insurance doesn’t mean you can leave your stuff carelessly without worrying about
theft. An insurance policy compensates you for your unexpected losses and reduces
financial risks. However, the policyholder holds certain responsibilities to be careful and
minimise the loss to the insured items.
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UNIT – III
9. Define Life Insurance. Explain various kinds of life insurance policies.

Life Insurance

It is defined as a ‘Contract in which the insurer, in consideration of a certain premium,

either in a lump sum or in any other periodical payments, in return agrees to pay to the
assured, or to the person for whose benefit the policy is taken, a stated sum of money on
the happening of a particular event contingent on duration of human life’

In Dalby v. The Indian & London Assurance Co., the court explained that life insurance
is a contract about a person’s life. It promises to pay a fixed amount either when the person
dies or after a certain period, even if the contract doesn't clearly say so.

Types of Life Insurance

Broadly, life insurance plans can be classified into five main types:

I. Term Insurance

This is the simplest form of life insurance. It offers only life cover without any savings or
investment component. The insurer pays the sum assured only if the insured dies during
the policy term. Because of its limited scope, it has the lowest premiums.

II. Endowment Plan

Unlike term insurance, endowment plans provide a maturity benefit. The sum assured is
paid either on the death of the insured or if the insured survives the policy term. It also
includes a savings component, making it a combination of protection and investment.

III. Unit Linked Insurance Plan (ULIP)

ULIPs combine life insurance with investment. A portion of the premium is used for life
cover, and the rest is invested in stock markets. On death or maturity, the insured receives
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either the sum assured or the value of the investment portfolio—whichever is higher. It is
suitable for those willing to take market-related risks.

IV. Whole Life Policy

This type of insurance covers the individual for their entire lifetime (usually up to age 99
or 100). There is no fixed term, and the sum assured is paid upon the death of the
policyholder, whenever that occurs. It offers long-term financial security.

V. Money Back Policy

This is a type of endowment plan that provides periodic payments during the policy term.
A portion of the sum assured is paid at regular intervals, and the remaining amount is paid
at maturity, if the policyholder survives. In case of death, the full sum assured is paid
regardless of earlier payouts.

Conclusion

Life insurance policies cater to different needs, ranging from pure protection to long-
term investment and savings. While term insurance focuses on low-cost life cover,
endowment and money-back plans offer savings. ULIPs target market-savvy investors,
and whole life policies provide lifetime security. Choosing the right life insurance policy
depends on an individual’s financial goals, risk appetite, and family responsibilities.
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10. Discuss the composition, powers and functions of Life Insurance Corporation of
India.

Introduction
The Life Insurance Corporation of India (LIC) was established under the Life
Insurance Corporation Act, 1956, following the nationalization of the life insurance
business in India. It came into effect on 1st September 1956, with the primary aim of
spreading life insurance more widely and serving as a key financial institution for public
welfare.

Composition of LIC
As per Section 4 of the LIC Act, 1956, the composition of the Corporation is as follows:
• The LIC shall consist of a Chairman and not more than 16 other members, appointed
by the Central Government.
• The members may include full-time and part-time members, and the government
determines their terms of office, conditions of service, and remuneration.
• The Chairman serves as the Chief Executive Officer of the Corporation and is responsible
for the general supervision, direction, and control of the affairs of LIC.
• A Zonal structure exists to manage regional operations efficiently, with zonal offices,
divisional offices, and branches.

Powers of LIC
The powers of the LIC, as conferred by the LIC Act, 1956, include:
1. To carry on life insurance business in all its forms including group insurance, annuities,
and pensions.
2. To invest surplus funds in government securities, approved investments, or real estate for
returns.
3. To acquire, hold, and dispose of property, both movable and immovable.
4. To enter into contracts, sue and be sued in its own name.
5. To take over existing life insurance businesses from private companies (post-
nationalization).
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6. To act as an agent or insurer for foreign insurance companies as permitted by the Central
Government.
7. To provide loans or advances secured by mortgage or insurance policies.

Functions of LIC
The functions of the LIC can be divided into statutory, social, and financial functions:
A. Statutory Functions
• As per Section 6 of the LIC Act, 1956, the primary duty of LIC is to carry on and develop
life insurance business.
• Collecting premiums and paying out benefits to policyholders or their nominees.
• Managing funds prudently to ensure the financial stability and solvency of the
Corporation.
B. Social Functions
• Promoting life insurance to rural and socially backward classes.
• Contributing to national development by mobilizing public savings and investing them in
government infrastructure projects.
• Ensuring affordable insurance coverage to people across all economic sections.
C. Financial Functions
• Investment of surplus funds in productive avenues for maximum return.
• Promoting savings among the public through various life insurance schemes.
• Acting as a financial intermediary, thereby contributing to the economic development of
the country.

Conclusion
The Life Insurance Corporation of India is not just an insurance provider but also a
pillar of India’s financial system, playing a significant role in national economic
development. Its vast network, trust-based approach, and regulatory backing have made
LIC a dominant force in the Indian insurance sector. With its powers and functions well-
defined under the LIC Act, it continues to fulfill its goal of insuring lives and securing
the nation.
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11. “No fault liability” under Motor Vehicles Act.

Section 140 – No-Fault Liability

Sub-section (1): Joint and Several Liability

• If death or permanent disablement results from an accident caused by the use of a motor
vehicle, the owner(s) of the vehicle involved are jointly and severally liable to pay
compensation.
• This means the injured party or their legal representative can recover the entire amount
from any one or all of the vehicle owners.

Sub-section (2): Fixed Compensation

• Compensation under this section is pre-determined and fixed:
o ₹50,000 for death of a person.
o ₹25,000 for permanent disablement.
• No detailed inquiry into the financial loss or earning capacity is required.

Sub-section (3): No Requirement to Prove Fault

• The claimant is not required to plead or prove that the accident happened due to any:
o Wrongful act
o Negligence
o Default of the owner, driver, or any other party.
• This makes the process of obtaining compensation quicker and victim-friendly.

Sub-section (4): No Defence Based on Victim’s Fault

• Even if the injured/deceased person was partially responsible for the accident, it will not
affect:
o The right to claim compensation, or
o The quantum of compensation under this section.
• This ensures unconditional relief to victims.
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Sub-section (5): Additional Remedies Preserved

• The compensation under Section 140 is in addition to any other compensation available
under other laws, e.g., under tort law or Section 166.
• However, if compensation is granted under such other laws, the amount paid under Section
140 will be deducted from that amount to avoid double compensation.

Conclusion:
Section 140 is a special provision that enables quick, non-contentious relief to accident
victims and their families. It reflects the social welfare objective of the Motor Vehicles
Act by ensuring financial support without litigation delays or proving negligence.
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12. 'A’ takes out a policy on the life of ‘B’, whom he proposes to marry. Is it valid?

No, it is generally not valid in most legal systems for someone to take out an insurance
policy on the life of a person they intend to marry, unless they are already legally
married. The key issue is insurable interest, which is required for a valid insurance
policy. This typically means the policyholder must have a financial or close personal
relationship with the insured person where they would suffer a loss if that person were to
die. While an engagement creates an expectation of marriage, it doesn't create the necessary
legal or financial relationship for an insurable interest.
Elaboration:
• Insurable Interest:
Insurance contracts require the policyholder to have an "insurable interest" in the life of
the insured. This means the policyholder would suffer a direct financial or personal loss if
the insured were to die.

• Engagement vs. Marriage:

An engagement is a promise to marry, but it doesn't create the same legal or financial
obligations as a marriage. Therefore, an engaged person taking out a life insurance policy
on their intended spouse generally lacks the required insurable interest.

• Potential Legal Issues:

If the engagement is broken off, the policy may be deemed invalid, and the insurer may not
be obligated to pay out the policy.

• Married Women's Property Act (MWP Act):

While the MWP Act in India allows a married man to take out a policy for the benefit of
his wife and children, it does not apply to an engagement.
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13. Rishi takes out a policy on the life of his wife and subsequently divorces her. Does
policy continue to be valid?

Yes, the life insurance policy will likely still be valid after the divorce, but it's crucial to
review and update the policy details, particularly the beneficiary, to reflect the changed
circumstances. The policy itself is not automatically cancelled due to the divorce, but the
ex-spouse's status as a beneficiary might need to be addressed.
Explanation:
• Policy Validity:
A life insurance policy, especially a term plan, is generally not affected by a divorce.

• Beneficiary Designation:
The key issue is the beneficiary. If the ex-wife is still listed as the beneficiary, she would
be entitled to the policy's benefits upon the policyholder's death, even after the divorce.

• Updating Beneficiaries:
It's highly recommended that the policyholder (Rishi in this case) update the beneficiary to
someone else (like children or other family members) after the divorce to ensure the
intended recipient receives the benefits.

• Financial Planning:
Divorce necessitates a review of financial arrangements, including life insurance. It's wise
to seek professional financial advice to ensure proper planning and adjustments to
insurance policies.

Conclusion
In essence, while the policy continues to exist, the beneficiary designation needs to be
addressed to align with the changed relationship status and ensure the policy proceeds are
directed as intended.
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14. Mr. Tarun has taken a medical policy with National Assurance Company. He made a
litigation with the company for the claim. Subsequently, he applied for renewal of his
policy, but the company refused to renew the policy On the ground that he made a
litigation against the company. Can company refused to renew the policy?

No, the insurance company cannot refuse to renew the policy solely on the ground that
Mr. Tarun initiated litigation for a claim.

Legal Reasoning:
1. Unfair Trade Practice:
o Refusing renewal merely because a policyholder exercised his legal right to
dispute a claim amounts to an unfair trade practice under consumer protection
law.
2. Violation of Principle of Good Faith:
o Insurance contracts are based on the principle of utmost good faith from both
parties.
o Mr. Tarun's decision to litigate a denied claim does not indicate bad faith—it is his
legal right if he believes the insurer acted wrongly.
3. Supreme Court Judgment – Biman Krishna Bose v. United India Insurance Co. Ltd.,
(2001) 6 SCC 477:
o The Supreme Court held that arbitrary refusal to renew a mediclaim policy
violates the right of the insured and is considered unreasonable.
o Renewal cannot be refused only because the insured previously made a claim or
litigated.
4. IRDAI Guidelines:
o The Insurance Regulatory and Development Authority of India (IRDAI)
mandates that all insurers follow non-discriminatory and fair practices in policy
renewals.
o Denial must be based on valid grounds like fraud, misrepresentation, or major
health risk—not past litigation.
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Conclusion:
The insurance company’s refusal to renew Mr. Tarun’s policy only because he initiated
litigation is unjustified, arbitrary, and legally unsustainable. He may lodge a complaint
with the IRDAI or Consumer Forum for redressal.
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UNIT – V
15. What is warranty? What are the different kinds of warranties in Marine insurance
contract?

In marine insurance, a warranty is a promise or assurance made by the policyholder (the

insured) to the insurance company (the insurer) regarding specific conditions or facts
related to the insured subject matter (like a ship or cargo). Breaching a warranty, even a
minor one, can void the insurance coverage. Marine insurance contracts feature two main
types of warranties: express warranties (explicitly stated in the policy) and implied
warranties (assumed to be part of the agreement).

Here's a more detailed breakdown:

1. What is a Warranty?
• A warranty in marine insurance is a contractual obligation. It's a promise by the insured to
the insurer that certain conditions are true or will be met.
• It's a guarantee that influences the insurer's liability and the insured's ability to claim for
losses.
• Essentially, it's a statement of facts or an undertaking regarding the insured property or
voyage.
• Breaching a warranty (even unintentionally) can lead to the insurer denying a claim, as it's
considered a fundamental breach of the contract.
2. Types of Warranties in Marine Insurance:
• Express Warranties: These are clearly stated and written in the insurance policy
document.
o Examples include:
▪ The ship's suitability for the intended voyage.
▪ The insured party's adherence to safety and operational standards.
▪ Accurate disclosure of all relevant information.
▪ The legality of the ship and voyage.
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• Express warranties are specific to the policy and must be strictly adhered to. Implied
Warranties: These are not explicitly stated in the policy but are assumed to be part of the
agreement.
o Examples include:
▪ Seaworthiness: The ship must be fit for the intended voyage at the start of
the journey.
▪ Legality: The voyage and the use of the ship must be lawful.
o Disclosure: The insured must disclose all material facts that could influence the
insurer's decision to offer coverage. Implied warranties are based on customs, legal
expectations, and industry standards.
o Key Differences:
• Express warranties: are written and specific to the policy.
• Implied warranties: are not written but are assumed to be part of the agreement.
• Both types are crucial for the validity of the marine insurance contract.
• A breach of either can lead to the insurer refusing to pay a claim.
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16. What is marine insurance? Explain the kinds of marine policies.

Marine insurance

Marine insurance is a type of insurance that covers loss or damage to ships, cargo,
terminals, and other marine-related property during transit, whether by sea, air, or land. It
protects against various risks like damage, theft, or loss during the journey from the origin
to the final destination.

Types of Marine Insurance Policy in India

There are four main kinds of marine insurance policies. They are:
1. Freight Insurance
This type of marine insurance deals with the loss of freight or cargo due to perils of the sea
or other causes during transit. Freight insurance can be taken by the shipowner, the
consignor, or the consignee, depending on who bears the risk of cargo loss. This insurance
can be either specific or open, depending on whether it covers a single shipment or multiple
shipments under a single policy.
2. Liability Insurance
This type of marine insurance policy deals with the insured's legal liability from bodily
injury or asset damage to third parties due to the insured's or their agents' negligence or
fault during maritime operations. Liability insurance can be taken by shipowners,
charterers, operators, managers, or other parties involved in maritime activities. Some of
the common types of liability insurance are:
Protection and Indemnity (P&I) Insurance
This is a type of liability insurance that covers the shipowner's legal liability for personal
injury, death, illness, or loss of or damage to property of third parties, as well as pollution,
collision, towage, salvage, and other maritime risks.
Suppose a shipowner's vessel causes oil spillage in the sea, damaging the marine
environment and other vessels. In that case, the shipowner can claim P&I insurance to
cover the clean-up costs and compensation.
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Charterers' Liability Insurance

This type of liability insurance covers the charterer's legal liability for loss of or damage to
the chartered vessel, cargo, or third parties arising from the charterer's negligence or breach
of contract.
For example, suppose a charterer hires a vessel and causes damage to it by loading
improper cargo or providing an unsafe berth. In that case, the charterer can claim the
charterers' liability insurance to cover the costs of repair and indemnity.
Ship Repairers' Liability Insurance
This type of liability insurance covers the ship repairer's lawful liability for loss of or
deterioration to the vessel or its equipment under the repairer's care, custody, or control.
For example, suppose a ship repairer damages a vessel's engine or hull while performing
repairs or maintenance. In that case, they can claim ship repairers' liability insurance to
cover the costs of restoration and compensation.
3. Hull Insurance
This marine insurance policy covers the loss or deterioration of a vessel's hull and
machinery due to the sea's perils or other causes. Hull insurance can be taken by
shipowners, mortgagees, or other parties with an insurable interest in the vessel.
This kind of plan can be either total loss only (TLO) or all risks, depending on whether it
covers only the total loss of the vessel or partial loss or damage.
4. Marine Cargo Insurance
Marine cargo insurance, as the name implies, covers the loss or damage to goods or
merchandise being transported by sea due to perils of the sea or other causes. This plan is
ideal for exporters, importers, buyers, sellers, or other parties with an insurable interest in
the cargo.
Marine cargo insurance can be either specific or open, depending on whether it covers a
single shipment or multiple shipments under a single policy.
Other Types of Marine Insurance Policies
Apart from the main types of marine insurance policies discussed above, some other types
cater to specific needs and situations. Some of these are:
Floating Policy
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A floating marine insurance policy is a type of marine cargo insurance policy that covers
multiple shipments under a single policy without specifying the details of each shipment
at the time of taking the insurance.
You must declare the details of each shipment as and when they occur during the policy
period. This marine insurance suits frequent shippers who do not want to take a separate
policy for each shipment.
Voyage Policy
This plan covers a specific voyage from one port to another. The policy terminates when
the voyage ends. A voyage policy can cover either hull, cargo, or both. This type of
insurance requires extra effort in buying cover every time a new consignment is dispatched.
In contrast, purchasing an open policy will automatically cover the shipment.
Time Policy
This policy covers a specific time, usually one year. The policy covers any voyage
undertaken by the insured vessel during the policy period. A time policy can cover either
hull, cargo, or both.
Suppose your order is out for shipment, but your policy is due to expire before the
consignment reaches its destination. Then, based on your insurer policy, you may extend
the coverage tenure.
Mixed Policy
A mixed policy combines both voyage and time policies. The policy covers a specific
voyage for a specific time. A mixed policy can cover either hull, cargo or both.
Named Policy
A named policy covers only those perils that are specifically named in the policy document.
The policy does not cover any other perils that are not named. This plan can cover either
hull or cargo or both.
Port Risk Policy
A port risk policy is a type of marine insurance policy that covers the risks of a vessel while
it is in port or at anchor. However, it does not cover the risks of the vessel while it is at sea.
A port risk policy can cover either hull, cargo, or both.
Fleet Policy
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A fleet policy is a type of marine insurance policy that covers a group of vessels owned by
the same insured under a single policy. The policy covers all the vessels in the fleet for the
same perils and conditions. A fleet policy can cover either hull, cargo, or both.
Single Vessel Policy
It covers only one vessel owned by the insured under a single policy. The policy covers the
vessel for the perils and conditions specified in the policy document. Again, this plan
covers either hull or cargo or both.
Blanket Policy
It covers all your shipments under a single policy without specifying the details of each
shipment. Here, you pay a fixed premium based on the estimated value of all the shipments
during the policy period. A blanket policy is suitable for shippers with a large and variable
volume of shipments.
Wager Policy
There are no fixed clauses regarding reimbursements in this plan. Following the loss
assessment, if the insurer considers the claim to require compensation, only they pay for it;
otherwise, they do not. This type of plan is extremely rare on the market. Since it is not a
written plan, it is also void in a court of law.
Conclusion
Marine insurance is vital to maritime trade and transportation, providing financial security
and peace of mind to the parties involved. Various types of marine insurance policies are
available in the market, each with its features and benefits.
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17. Perils of the sea.

Introduction:
In marine insurance, the phrase "perils of the sea" refers to the unexpected and
extraordinary dangers that ships and cargo may encounter during sea voyages. These risks
are beyond human control and are often violent, unforeseen, and capable of causing serious
damage to vessels, cargo, or both.

Meaning and Legal Basis:

The concept is legally recognized under the Marine Insurance Act, 1963, particularly
Section 3, which mandates indemnification by the insurer against marine losses as agreed
in the policy. One significant clause relating to this is the Inchmaree Clause, which
expands the scope of coverage to include not only natural perils but also machinery
breakdown and crew negligence.

Nature of Perils of the Sea:

• These perils are not ordinary events such as routine waves or minor weather disturbances.
• They include accidental, extraordinary, and unforeseen events that occur during the
navigation or operation of a vessel at sea.
• The core purpose of insuring against these perils is to ensure financial protection and risk
mitigation for shipowners and cargo holders.

Common Examples of Perils of the Sea:

1. Storms & Hurricanes – Cause structural damage, cargo loss, or even sinking.
2. Lightning Strikes – May cause fires or equipment failure.
3. Tsunamis & Floods – Lead to stranding or destruction of vessels.
4. Sinking & Capsizing – Often due to adverse weather or cargo imbalance.
5. Collisions – With other vessels or hidden underwater objects.
6. Stranding – Getting stuck in shallow or uncharted waters.
7. Piracy & Armed Robbery – Particularly in high-risk sea zones.
8. Loss of Anchors or Equipment – Can result in uncontrolled drifting or grounding.
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9. Sudden Changes in Water Depth – A cause of grounding and hull damage.

10. General Average – In emergency jettison situations, all parties contribute proportionately
to the loss.

Conclusion:
The term "perils of the sea" forms the backbone of marine insurance policies. It covers a
range of unexpected maritime dangers and ensures that shipowners, cargo owners, and
insurers share a common understanding of risk and compensation. By defining these perils
clearly, marine insurance becomes a vital tool in managing the unpredictable nature of
sea travel and fostering global trade security.