Insurance Law — Complete Exam Notes Part A • B • C
Structured, SEO-friendly notes for law students and practitioners: short answers, essays, principles and solved problem questions.
Part A — Short Answers
Brief definitions and examples to memorise for fast recall.
- Revival of Policy
- The process of reactivating a lapsed life insurance policy by paying all outstanding premiums, often within a set period and subject to proof of insurability.
- Insurable Interest
- The requirement that the policyholder has a financial or legally recognized interest in the subject matter at the time of contracting. Prevents wagering on unrelated lives or property.
- Conventional Plans Model
- Traditional, non-market linked insurance plans (e.g., endowment, money-back) combining protection and savings; returns determined by insurer bonuses, not markets.
- General Insurance
- Covers non-life risks: property, motor, health, liability, marine and others.
- Burglary
- Theft involving forcible and violent entry or exit; standard theft without force is usually excluded from a burglary cover.
- Perils of Sea
- Accidental maritime perils (collision, sinking, stranding) unique to marine voyages; excludes ordinary wear-and-tear.
- ULIP
- Unit Linked Insurance Plan — hybrid product: life cover plus investment in market-linked units.
- Double Insurance
- When the same risk is insured with multiple insurers. Principle of contribution applies on claim settlement.
- Nomination
- Appointment of a nominee to receive policy proceeds on the insured's death to simplify claims.
- Contribution
- Where multiple policies exist for the same interest and risk, each insurer pays a proportionate share of the loss.
Part B — Descriptive Answers
History of Insurance in India
Insurance in India evolved from traditional mutual aid to modern regulated markets:
- British era: Modern insurance introduced; Oriental Life Insurance Co. (Calcutta, 1818) and later Bombay Mutual (1870).
- Nationalisation: LIC formed in 1956 (life insurance); General insurance nationalised and GIC formed in 1972.
- Liberalisation: IRDAI established in 1999 — private and foreign players allowed, modern regulatory framework introduced.
Formation of Contract of Insurance & Parties
An insurance contract is a consensual agreement where the insurer promises to compensate the insured for specified losses in exchange for a premium. Essential elements: offer & acceptance, consideration, legality of object, competent parties and free consent. Special principles (insurable interest, utmost good faith) also apply.
General Principles & Uberrimae Fidei
Key principles include:
- Utmost Good Faith: Material facts must be disclosed by proposer; insurer may avoid contract for non-disclosure.
- Insurable Interest, Indemnity, Proximate Cause, Subrogation, Contribution: Core doctrines ensuring fairness and preventing profit from loss.
Contracts of Guarantee vs Insurance
Unlike guarantee (three parties, secondary liability), insurance is a two-party contract providing primary indemnity for future uncertain events. Example: fidelity policies blend both concepts.
Nature, Scope and Types of Insurance
Insurance is a risk-pooling mechanism with broad scope: life insurance (term, endowment, ULIP) and general insurance (fire, marine, motor, health, liability).
Role of IRDAI
IRDAI regulates and supervises the insurance industry — registration, solvency oversight, policyholder protection, licensing intermediaries, product approvals and market development.
Employer's Liability
Employer's liability insurance covers legal liability arising from employee injury or illness at work (distinct from statutory workers' compensation).
Part C — Problem Questions (Solved)
VI (a) — How much is the insurer liable to pay?
Rule: Fire insurance is a contract of indemnity. The insurer pays the actual loss, not the full sum insured if the loss is less. Answer: The insurer pays ₹30,000 (actual loss), not ₹50,000 (sum insured).
VI (b) — Can the underwriter avoid liability?
Yes. Non-disclosure of a prior accident is a material concealment breaching utmost good faith, allowing the insurer to avoid the policy.
VI (c) — Can his heirs recover on the policy?
Generally yes. Suicide while insane is not a voluntary act in the legal sense; heirs can recover unless the policy explicitly excludes such cases.
VI (d) — Can she recover under the fire policy?
No. Damage caused by a friendly fire (contained fire used for its intended purpose) is not a peril covered by standard fire policies which insure against hostile fire.
FAQs — Quick Revision
- What is the difference between indemnity and assurance?
- Indemnity (general insurance) compensates actual loss. Assurance (life insurance) pays on a certain event (death or survival) regardless of loss amount.
- When does insurable interest need to exist?
- For life insurance, insurable interest must exist at the time of contract formation; for most property policies, it must exist at the time of loss.
- What happens in double insurance?
- Insured can claim from any insurer; insurers share the loss by proportion (principle of contribution).
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