1.

HISTORICAL DEVELOPMENT OF INSURANCE IN INDIA

(Life & General Insurance from British Era to 1991 NEP)

A. Early Indian Practices (Pre-British, Indigenous Forms)

Insurance as a formal industry came with the British, yet the concept of risk-sharing
existed long before.

 Ancient societies practiced community support funds, where villagers shared

losses arising from fire, theft, or cattle death.

 Merchant guilds (śreṇis) accumulated emergency funds for trade losses, functioning
similarly to mutual insurance pools.

 Arthashastra referred to maritime risk instruments like bottomry loans—

o The borrower repaid only if the ship returned safely,

o If the ship sank, repayment was waived,

o Showing resemblance to early marine insurance.

This early evolution shows that while the British introduced modern insurance law, India
already understood risk apportionment and collective security.

B. British Era (1780s–1947): Emergence of Modern Insurance

The British introduced organised insurance companies, actuarial methods, and formal
contracts.

 1818: Oriental Life Insurance Co. became India’s first life insurer, followed by
Bombay Life (1823) and Madras Equitable (1829).

 1850: Triton Insurance started the general (non-life) insurance business, primarily
for marine trade.

 The early industry su ered from severe discrimination—

o European lives were insured cheaply,

o Indian lives were heavily loaded with extra premiums.

 Several insurers collapsed due to the absence of regulation,

o Capital inadequacy,

o Mismanagement,
 o Fraudulent practices by agents and private insurers.

This phase marked India’s transition from traditional customs to organised insurance, but
the system lacked accountability and legal safeguards.

C. Regulatory Consolidation (1912–1938): Foundation of Modern Insurance Law

Between 1912 and 1938, the British government introduced legal structures as the industry
grew in size and complexity.

 1912: Indian Life Assurance Companies Act became the first law to regulate life
insurance, mandating registration and actuarial reporting.

 1928: Indian Insurance Companies Act empowered the government to collect

data from life and general insurers—

o However, it did not create strong regulatory controls.

 1938: Insurance Act became the landmark legislation that still governs the industry.

o Introduced compulsory registration and licensing.

o Regulated management, investments, solvency, and agent commissions.

o Included policyholder protection provisions such as

 Section 38 (Assignment),

 Section 39 (Nomination),

 Section 45 (Misstatement/Fraud).

Thus, the 1938 Act established a uniform, comprehensive framework that remains the
backbone of insurance regulation in India.

D. Post-Independence Reforms: Nationalisation Phase (1947–1990)

After independence, the Indian government moved to curb private malpractice and secure
public trust.

 Widespread failures of insurers resulted in policyholder exploitation, delayed

claims, and insolvency.

 1956: Life Insurance Corporation Act nationalised life insurance;

o LIC absorbed 154 Indian and 16 foreign insurers,

o Brought uniformity, increased rural penetration,

 o Mobilised public savings for national development.

 1972: General Insurance Business Nationalisation Act nationalised general

insurance;

o Created GIC as the parent company with four subsidiaries,

o Standardised survey practices and underwriting,

o Increased government control over premiums and products.

 The period witnessed growth in coverage but lacked innovation because

o Market competition was absent,

o Customer service remained weak,

o Product diversification was minimal.

This phase marks a state-controlled monopoly aimed at protecting consumers and

channeling insurance funds into planned economic development.

E. Liberalisation Phase (1991–Present): Post-NEP Reforms & IRDAI

The 1991 economic reforms transformed insurance into a modern, competitive industry.

 The Malhotra Committee (1993) recommended opening the sector due to

o Low insurance penetration,

o Ine iciency of monopolies,

o Weak customer orientation,

o Poor technological adoption.

 1999: IRDA Act created the Insurance Regulatory and Development Authority
(IRDAI),

o An independent regulator ensuring solvency, licensing, transparency, and fair

practices.

 2000 onwards, private and foreign companies entered:

o ICICI Prudential, HDFC Life, SBI Life, Max Life, Bajaj Allianz, etc.

 FDI limits increased progressively:

o 26% → 49% → 74% (2021).

  Reforms improved the sector through:

o Innovative products (ULIPs, standalone health insurance),

o Digitisation of sales and claims,

o Professional intermediaries (brokers, TPAs),

o Better complaint-handling and ombudsman systems.

The liberalization era converted insurance into a dynamic, technology-driven financial

service, aligned with global standards.

F. Present-Day Trends (2014–2025): Digitalisation & Regulatory Evolution

Recent developments have modernised the insurance ecosystem.

 IRDAI promotes digital transformation through

o e-insurance accounts,

o online KYC,

o video proposal verification.

 Standalone health insurance has emerged as a major sector.

 Fraud detection through centralized data analytics and claim-pattern monitoring.

 Proposed platforms like Bima Sugam aim to unify sales, service, and claims on a
single national portal.

 Sandbox regulations permit insurtech innovations such as

o AI underwriting,

o wearable-based premiums,

o telematics in motor insurance.

2. LIFE & GENERAL INSURANCE

A. Concept and Scope of Life & General Insurance

Insurance in its broad sense is a mechanism of risk transfer, risk pooling, and financial
protection against uncertain events.

1. Concept of Life Insurance

Life insurance is a contract whereby the insurer agrees to pay a fixed sum to the insured or
his beneficiaries on the occurrence of specified events.

 It is not a contract of indemnity; rather it is a contingency contract, because life

cannot be measured in monetary terms.

 The insured event is either:

o Death, or

o Survival for a certain period (in endowment/annuity plans).

 It aims to provide financial security, savings, investment, and protection to

dependents.

2. Concept of General Insurance

General (non-life) insurance covers losses that can be measured financially.

 It includes fire, marine, motor, burglary, liability, health, engineering, crop, etc.

 These contracts are contracts of indemnity, meaning compensation is limited to

actual loss.

 Policies are annual; premiums depend on risk exposure.

3. Scope of Insurance Sector

The scope of insurance today extends to:

 Risk coverage for individuals, businesses, assets, liability, health, trade, industrial
operations.

 Savings, investment-based insurance (ULIPs).

 Social insurance schemes (PMJJBY, PMSBY, crop insurance).

 Digital and micro-insurance products for underserved groups.

B. Events Insured in Life Insurance

Life insurance covers specific events related to human life, either during life or on death.

1. Events insured include:

 Death (natural or accidental)

 Survival/ maturity (endowment, money-back)

 Diagnosis of illness (critical illness riders)

 Permanent disability (add-on benefits)

 Accidental death (double indemnity riders)

 Retirement payout (pension/annuity)

2. The Beresford Rule (Public Policy Rule)

This rule originates from Beresford v. Royal Insurance Co. (1938).

 If the insured deliberately causes his own death, the insurer is not liable, because

o No one should benefit from his own crime,

o Public policy prohibits rewarding wrongful acts.

 Applied in cases of

o Suicide with intent to obtain claim

o Murder by beneficiary

o Death caused while committing a serious crime

In India, this rule applies subject to Section 45 (life insurance) and policy conditions.

3. Suicide under Life Insurance

 Policies generally contain a suicide exclusion clause for the first 12 months.

 If suicide occurs after 1 year, insurer pays:

o Either full sum assured OR

o 80% of premium paid, depending on policy terms.

 Suicide during the exclusion period usually results in only premium refund.
C. Circumstances A ecting Risk in Life Insurance

Life insurance underwriting considers multiple factors that influence the probability of
early death.

1. Age

 Most important factor.

 Mortality risk increases with age → higher premiums.

 Young applicants have lower rates due to longer life expectancy.

2. Occupation

 Certain occupations involve high risk:

o Mining, firefighting, army, aviation crew, deep-sea diving.

 Such applicants face:

o Higher premiums,

o Extra loading,

o Sometimes exclusion clauses.

3. Hobbies/ Lifestyle

Risk increases if applicant engages in:

 Skydiving, mountaineering, scuba diving.

 Alcohol or substance abuse.

 Smoking (increases mortality risk; higher rate applied).

 Obesity and sedentary lifestyle.

4. Health & Hereditary Factors

 Diabetes, hypertension, coronary diseases raise risk.

 Family history of chronic illness.

 Medical tests determine insurability.

5. Geographic/ Environmental Factors

 Living in conflict areas, extreme climates or polluted environments increases

exposure.
6. Behavioural Factors

 Reckless driving, criminal involvement, stress, mental health issues may a ect risk
classification.

D. Amounts Receivable and Persons Entitled in Life Insurance

1. Amounts Receivable

Life insurance pays:

 Sum Assured (fixed benefit at death/maturity),

 Bonus (if participating policy),

 Rider benefits (accident, disability),

 Surrender value (if policy is terminated early),

 Paid-up value (if premiums stopped after a certain period),

 Maturity amount (sum assured + bonus).

2. Persons Entitled

Payment may be made to:

 Nominee (Section 39) – receives money after death.

 Assignee (Section 38) – legal owner of policy.

 Legal heirs (if no nomination/assignment exists).

 Policyholder himself (on maturity or survival).

 Trustees (if policy under Married Women’s Property Act).

E. Settlement of Claims

Settlement of a life claim requires fulfilment of three essential requirements:

1. Existence of Insurable Interest

 Mandatory at the time of taking the policy.

 A person has insurable interest in:

o His own life, spouse, children, business partner, creditor-debtor.

 If insurable interest didn’t exist at inception → contract void.

2. Occurrence of the Insured Risk

 Death claim requires:

o Death certificate, medical report, police report (if accidental).

 Maturity claim requires:

o Policy document + discharge form.

 Claims may be repudiated for:

o Fraud, non-disclosure, breach of policy terms.

3. Premium Payment Condition

 Premium must be paid on time.

 Grace period allowed (usually 30 days).

 If policy lapses for non-payment, claim is often denied unless revived.

F. Types of Life Insurance

1. Term Insurance

o Pure risk cover; cheapest; death-only benefit.

2. Whole Life Insurance

o Lifetime cover; premium fixed; savings + risk.

3. Endowment Policy

o Pays at death OR on survival; combines savings + protection.

4. Money-Back Policy

o Periodic survival benefits + final maturity.

5. Unit Linked Insurance Plans (ULIPs)

o Investment + insurance; NAV-based returns.

6. Pension/Annuity Plans

o Provide income after retirement.

7. Children’s Plans

o Education & future expenses of child.

 8. Micro Insurance

o Low premium plans for rural/low-income groups.

G. Nomination & Assignment Rights

1. Nomination (Section 39)

Nomination is the appointment of a person to receive the policy money after death.

 Nominee has right to receive, not ownership.

 Revocable anytime by policyholder.

 Types:

o Simple nomination,

o Successive nomination,

o Conditional nomination.

 In absence of nominee → legal heirs inherit.

2. Assignment (Section 38)

Assignment legally transfers ownership rights in the policy.

 Mainly used for loans (assigning to banks).

 Types:

o Absolute Assignment (full transfer)

o Conditional Assignment (upon event like repayment)

 Assignment overrides nomination.

H. LIC of India: History, Nature, Characteristics & Objectives

1. History

 Formed under Life Insurance Corporation Act, 1956.

 Took over 245 private insurers and provident societies.

2. Nature & Characteristics

 Statutory corporation with public ownership.

 Monopoly in life insurance till 2000.

  Large pool of long-term funds.

 Socially oriented, with rural coverage.

3. Objectives

 Spread life insurance widely.

 Mobilise savings for national development.

 Protect policyholders against mismanagement.

 Provide e icient customer service.

LIC remains India’s largest life insurer, even after liberalisation.

I. Introduction to General Insurance

General insurance covers risks related to property, liability, health, and commercial
activities.

 It is governed by the principle of indemnity,

 Policies are short-term, usually one year.

 Premium depends on exposure to risk.

J. Focus on Fire Insurance

1. Nature of Fire Insurance

A fire insurance policy compensates for damage to property caused by fire or allied perils.

 It is a contract of indemnity.

 “Fire” must be accidental and unintended.

2. Essentials of Fire Insurance

 Insurable interest must exist both at inception and at the time of loss.

 Property must be damaged due to fire or related causes.

 Policyholder must take reasonable care.

3. Types of Fire Policies

 Standard Fire and Special Perils (SFSP) Policy

 Valued Policy
  Floating Policy

 Consequential Loss (loss of profits)

4. Exclusions

 Arson (deliberate fire),

 War, nuclear risks,

 Electrical breakdown,

 Spontaneous combustion (unless covered).

Below are detailed para-cum-bullet notes on Marine Insurance, ideal for exam-oriented
answers while still being crisp, structured, and scoring.

3. MARINE INSURANCE

1. Concept of Marine Insurance

Marine insurance is a contract whereby the insurer undertakes to indemnify the insured
against maritime losses—loss or damage to ship, cargo, freight or other interests exposed
to the perils of the sea.

 Defined under the Marine Insurance Act, 1963 (based on Marine Insurance Act,
1906 – UK).

 It covers marine adventures, including transit by sea, inland waterways, and

sometimes air/land transit connected with sea voyages.

 Objective: to distribute maritime risks, ensure smooth international trade, and

protect both shipowners and merchants.

Essential elements

 Marine adventure → Any exposure to maritime perils.

 Insurable interest → Must exist at the time of loss (not necessarily at inception,
except for strict cases).

 Indemnity contract → Except in case of valued policies.

 Utmost good faith → Stricter than general contract law.

2. Principles of Marine Insurance

(a) Utmost Good Faith (Uberrimae Fidei)

 Parties must disclose all material facts that a ect risk.

 Includes → nature of cargo, condition of ship, previous losses, dangerous goods,

route changes etc.

 Non-disclosure may render the policy void.

(b) Insurable Interest

 Interest must exist at the time of loss, but not necessarily at the time of policy.

 Examples:

o Seller who ships goods FOB.

o Buyer under CIF contract.

o Shipowner, charterer, mortgagee.

(c) Indemnity

 Insured cannot profit from loss.

 Indemnity based on actual loss except valued policies.

(d) Proximate Cause

 Insurer liable only when the nearest and direct cause is a peril insured against.

 Example: if sea water enters due to a storm → covered.

If entering due to negligence in leaving hatches open → not covered.

(e) Subrogation

 After payment, insurer steps into insured’s shoes to claim recovery from third
parties.

(f) Contribution

 Multiple insurers → each contributes proportionately.

3. Classification of Marine Insurance

A. According to Subject Matter

 Hull Insurance → Ship, machinery, equipment.

 Cargo Insurance → Goods carried by sea.

 Freight Insurance → Covers loss of freight to shipowner/charterer.

 Liability Insurance → Covers third-party liabilities, e.g., collision, pollution.

B. According to Scope

 Voyage Policy → From one port to another.

 Time Policy → For a specified period (e.g., 12 months).

 Mixed/Voyage & Time → Combined.

 Valued Policy → Value agreed at inception.

 Unvalued Policy → Value assessed at time of loss.

 Floating Policy → For frequent shipments; declarations made later.

 Blanket Policy → Automatic coverage for all shipments.

4. Assignment of Marine Insurance Policy

Marine insurance policies are freely assignable unless otherwise stated.

Key Points

 Assignment can be before or after loss.

 Assignment after loss = transfer of rights of indemnity.

 No requirement of insurable interest for the assignee at the time of assignment, only
at the time of loss.

 CIF contracts → bill of lading + insurance policy usually assigned to buyer.

Legal requirements

 Must be in writing.

 Endorsement on the policy or separate instrument.

5. The Voyage

A voyage is the journey from the starting point (port of departure) to the destination port.

Characteristics

 Policy must clearly define the voyage.

 Deviation: any voluntary departure from the agreed route.

o E ect: Insurer discharged from liability unless deviation is excused.

 Change of Voyage: destination voluntarily altered before commencement.

o Policy becomes void immediately.

Stages of the Voyage

 Commencement → when ship starts from moorings for the voyage.

 Termination → actual completion at destination or discharge of cargo.

6. Perils of the Sea

“Perils of the Sea” = accidental, extraordinary events peculiar to the sea.

Includes

 Storms, tempests

 Waves, high seas

 Stranding, sinking

 Collisions

 Jettison

 Piracy (sometimes included)

 Barratry (fraud by master or crew)

Excludes

 Ordinary wear and tear

 Inherent vice (natural deterioration)

 Delay

 Leakage or evaporation unless caused by an insured peril

7. Loss and Abandonment

A. Types of Loss

1. Actual Total Loss (ATL)

 Subject matter destroyed.

 Ship irrecoverably sunk.

 Cargo destroyed by fire.

 Goods cannot be identified.

2. Constructive Total Loss (CTL)

 When cost of repairs > value after repairs.

 When cargo/ship cannot be reached without unreasonable expense.

 Insured may abandon the subject matter to insurer and claim full loss.

3. Partial Loss

 Particular Average Loss → partial loss borne by owner of goods.

 General Average Loss → sacrifice made voluntarily for common safety.

o All parties share loss proportionately.

o Example: jettison of cargo to save the ship.

8. Abandonment

When an insured elects to treat a partial loss as CTL.

Conditions

 Must give notice of abandonment to insurer.

 Notice must be unconditional.

 Once accepted → insurer becomes owner of the subject matter.

 If insurer rejects → still liable for CTL if proved.

9. Measure of Indemnity

Determines how much the insurer must pay.

A. For Cargo

 Di erence between value at arrival and value if arrived safely.

 If total loss: sum insured or agreed value.

B. For Ship (Hull)

 Cost of repairs, replacement of parts.

 In CTL → value stated in policy (valued policy).

C. For Freight

 Loss of anticipated freight due to noncompletion of voyage.

D. For General Average

 Insurer pays proportionate contribution.

Valued vs. Unvalued

 Valued Policy → settlement based on agreed amount.

 Unvalued Policy → assessed at time of loss.

4. MOTOR VEHICLE INSURANCE

1. Nature and Concept of Motor Vehicle Insurance

Motor vehicle insurance is a contract of indemnity where the insurer undertakes to

compensate the insured against loss or damage arising out of the use of motor vehicles.
It is governed by the Motor Vehicles Act, 1988 (as amended) and is compulsory for all
vehicles operating in India.

Key Features

 Covers liability towards third parties (mandatory).

 Covers own damage (optional, but widely purchased).

 Indemnity-based contract — compensates only actual losses.

  Requires utmost good faith: disclosure of vehicle condition, previous accidents,
claim history.

 Premium depends on:

o Age of vehicle, make and model

o IDV (Insured Declared Value)

o Geographical zone

o Driver’s profile

2. Objectives of Motor Vehicle Insurance

The primary purpose is public welfare, ensuring financial protection to road accident
victims.

Main Objectives

 Protection of Third Parties

o Mandatory third-party liability insurance ensures compensation to victims of

accidents caused by insured vehicles.

 Protection of Vehicle Owners

o Covers damage to the insured vehicle due to accident, theft, fire, natural
calamities.

 Risk Distribution

o Spreads risk of road accidents across a large pool of policyholders.

 Legal Compliance

o Ensures adherence to statutory requirements under Motor Vehicles Act.

 Promoting Road Safety

o Insurance companies often incentivize safe driving through lower premiums

(No Claim Bonus).
3. Claims Process in Motor Vehicle Insurance

The claim system ensures timely assistance to victims and compensation for losses.

A. For Third-Party Claims

1. Accident occurs

2. FIR lodged

3. Application before Motor Accident Claims Tribunal (MACT)

4. Insurer notified

5. Evidence submitted (medical reports, repair bills, witness statements)

6. Tribunal determines liability and compensation

7. Insurer pays award (within statutory timeline)

B. For Own-Damage Claims

1. Intimate insurer immediately

2. Submit documents

o RC, policy copy, DL, claim form

3. Surveyor appointed

4. Inspection of vehicle and loss assessment

5. Approval based on survey report

6. Repairs in authorized workshop

7. Final settlement after submission of bills

C. For Theft Claims

 FIR, non-traceable report, RC, keys, claim form.

 Insurer pays IDV (after police close investigation).

4. No-Fault Liability (Section 140 & 163A)

“No-fault liability” means compensation is payable without proving negligence.

A. Under Section 140 (Interim Compensation)

 ₹50,000 for death

  ₹25,000 for permanent disability

 Claim is interim and does not bar further compensation.

B. Under Section 163A (Structured Formula)

 Final compensation based on pre-set formula.

 No need to establish wrongful act or negligence.

 Designed to give speedy financial relief.

C. Rationale

 Victims shouldn't su er due to lengthy litigation.

 Minimizes disputes on fault and causation.

5. Ombudsman in Motor Insurance

The Insurance Ombudsman provides a quick, cost-free grievance redressal mechanism

for disputes between policyholders and insurers.

Jurisdiction

 Disputes relating to:

o Delay in claims settlement

o Partial or wrong settlement

o Premium issues

o Policy interpretation issues

Characteristics

 No fees required.

 Proceedings are informal and public-friendly.

 Award is binding on the insurer.

 Cannot entertain claims exceeding ₹30 lakhs (limit subject to IRDAI updates).

Process

1. Complaint filed within 1 year of insurer's rejection.

2. Ombudsman hears both parties.

 3. Award issued (usually within 3 months).

6. Motor Vehicle Claims Tribunal (MACT)

MACT is a special judicial body constituted under the Motor Vehicles Act to adjudicate
motor accident claims.

Purpose

 To provide speedy and inexpensive justice to victims of motor accidents.

Powers & Functions

 Determine compensation for:

o Death

o Bodily injury

o Damage to property

 Apply principles of both:

o Fault liability (Sec. 166)

o No-fault liability (Secs. 140, 163A)

 Summon witnesses, call for records, examine documents.

Procedure

 Application filed by victim/legal heirs.

 Insurer and driver/owner made parties.

 Tribunal conducts inquiry (summary manner).

 Award includes:

o Compensation

o Interest

o Directions for disbursement

Appeals

 Appeal lies to High Court under Section 173.

Advantages of MACT

 Specialized tribunal → quicker disposal.

 Simplified procedure.

 Compensation formulas well-defined.

FIRE INSURANCE
Meaning of Fire Insurance

 Fire insurance developed after marine insurance.

 It is useful for businesses and individuals whose property may be damaged by fire.

 A fire insurance contract is an agreement between the insurer and the insured,
where:

o The insured pays premium.

o The insurer promises to indemnify (compensate) the actual financial loss

caused by fire or other specified perils.

Conditions for “Fire” under a fire policy:

1. Actual ignition must occur.

2. The fire must be accidental, not intentional.

Damage only by heat/smoke without ignition is not covered.

Procedure for Obtaining Fire Insurance

1. Proposal Form

o Applicant fills a form with details of property, location, construction etc.

o The insured must give accurate and truthful information (good faith).

2. Underwriting

o Underwriter examines the risk.

o Sometimes a surveyor is appointed to inspect the property.

 3. Acceptance of Proposal

o Upon acceptance, the contract begins.

o A cover note may be issued initially.

o Risk starts only after payment of premium.

4. Issuance of Policy

o Policy normally issued for 1 year.

o Renewal notice is sent two weeks before expiry.

o A grace period of two weeks is available for renewal.

5. Insurable Interest Requirement

o Insurable interest must exist:

 at the time of taking the policy, and

 at the time of loss.

o If interest is transferred, the policy lapses unless insurer agrees otherwise.

GENERAL PRINCIPLES OF FIRE INSURANCE

(6 core principles applied in all fire policies)

1. Insurable Interest

 Without insurable interest, the contract becomes void and becomes like gambling.

 Insurable interest means:

o The insured must benefit from the property’s safety.

o The insured must su er financial loss if it is damaged by fire.

Must exist at:

 Time of contract creation,

 Throughout the policy period,

 Time of loss.
Examples of persons having insurable interest:

 Owner (legal/equitable), joint or partial owner

 Agent for principal

 Partners in firm property

 Creditor (to extent of debt)

 Mortgagor & Mortgagee

 Bailee

 Trustee

 Insurer (for reinsurance)

2. Principle of Utmost Good Faith (Uberrimae Fidei)

Two aspects:

(A) Full Disclosure of Material Facts

 Insured must truthfully disclose:

o Construction of building

o Past fire incidents

o Storage of hazardous materials

o Any fact a ecting risk

 Failure → insurer can avoid the contract.

(B) Preservation of Property

 After policy starts, insured must:

o Take reasonable care to prevent fire.

o Act as if uninsured during fire.

o Inform insurer if there is any material change in risk.

3. Principle of Indemnity

 Aim: to place insured in same financial position as before the loss.

 Insured cannot profit from the event.

 Indemnity is given by:

o Cash payment

o Repair

o Replacement

o Reinstatement

 Sum insured acts as the upper limit, not the claim amount.

Valued vs Unvalued

 In a valued policy, agreed value is paid, even if market value di ers.

 In a valuable (unvalued) policy, market value at time of loss is paid.

Consequential Loss

 Modern fire insurance also covers loss of profits, rent, standing charges, etc.

4. Doctrine of Proximate Cause

 Only the nearest, direct, and e icient cause of loss is considered.

 If damage occurs by an excepted peril that is the proximate cause, the insurer is
not liable.

 If insured peril is proximate cause, insurer must pay.

5. Doctrine of Subrogation

 After insurer pays claim, he gets the legal rights of the insured against any third
party responsible for the loss.

 Prevents the insured from being double compensated.

Example:
If insurer pays for a burnt property, any salvage or recovery from third party goes first to the
insurer.
6. Warranties in Fire Insurance

 Express warranties → written in policy.

 Implied warranties → not written but automatically applicable.

Implied Warranties include:

 Property must be of sound construction (not highly inflammable like thatched

roof).

 Fire extinguishing appliances must exist and be maintained.

 No unauthorized new construction (silent hazard).

 Property must be identifiable by address, number, boundaries.

 Warranties must be strictly complied with.

 Breach → claim becomes void during the period of breach.

Renewal removes previous breaches unless they continue.

TYPES OF FIRE INSURANCE POLICIES

1. Valued Policy

 Value of property agreed at inception.

 Paid without checking market value.

 Useful for rare items, art, jewelry.

 Departure from indemnity principle.

2. Valuable (Unvalued) Policy

 Value assessed at time and place of loss.

 True indemnity policy.

3. Specific Policy

 Specific sum for specific property.

 Actual loss paid up to insured amount only.

4. Floating Policy

 One policy for goods lying at di erent locations.

 One sum insured + one premium.

 Useful for traders with fluctuating stock.

5. Comprehensive Policy

 Provides widest coverage:

o Fire

o Theft

o Explosion

o Riots, strikes

o Allied perils

6. Consequential Loss (Fire) Policy

 Covers loss of profit, standing charges, wages, etc., due to fire.

7. Sprinkler Leakage Policy

 Covers damage caused by accidental leakage of sprinkler systems.

8. Add-On Covers

 Covers additional risks like:

o Earthquake

o Terrorism

o Deterioration

o Debris removal

o Architect fees

9. Escalation Policy

 Allows increase in sum insured during policy year by fixed percentage (say 5–25%).