Compilation Of Articles on some Important Aspects of Insurance Dear Friends, As you are aware that Insurance has became an important part of our life. An insurance policy provides us security against financial loss due to perils incorporated in the Insurance Contract or we can called it insured perils. Since India is a vary large country and having population approximately of 135 Crores even though insurance penetration is only 4.5% of total population. Insurance in our country is considered as a luxury item and general conception is that it is enjoyed by rich people. But this COVID-19 wave has changed the whole senerio and people are thinking for insurance and opting to insure themselves and their family. An Insurance is a contract of “ Good Faith” means insured and insurance company both are required to disclose each other all material facts to avoid any future dispute. There are lot of points in the insurance, which needs clarity and discussion to be used and applied. There are various principles, terms, conditions, rules and regulations which govern an insurance contract and also interpreted by various courts in India as well as abroad need to be understand. In this article we have summed and discussed some important point,which are important for insurer and the insured. An insurance contract will be drawn on the basis of these principles and concepts and insured as well as insurer are required to follow the same. The IRDAI ( the regulator) is actively monitoring  activities of insurance players through strict compliance of Guidelines, Regulations, Circulars, Notifications, etc.

Sr. No.	Particulars	Page No(s).
1	NON-DISCLOSURE OR CONCEALMENT OF MATERIAL FACTS UNDER INSURANCE.
2	STATUS OF TWO INSURANCE POLICIES ON SAME SUBJECT MATTER AND AVOIDANCE OF CLAIM BY INSURANCE COMPANIES.
3	CONCEPT OF “DAYS OF GRACE” UNDER INSURANCE POLICY.
4	CONCEPT OF CONTRIBUTION AND AVERAGE CLAUSE UNDER INSURANCE POLICY.
5	SOLVENCY RISK AND INSURANCE SECTOR.
6	DOCTRINE OF “SUBROGATION.
7	MEANING OF THE WORD” ACCIDENT” UNDER INSURANCE.
8	DOCTRINE OF REINSTATEMENT UNDER INSURANCE.
9	CONCEPT OF OWN RISK SOLVENCY ASSESSMENT (ORSA).
10	ANALYSIS OF PROVISIONS RELATED TO TRANSFER, ASSIGNMENT AND NOMINATION UNDER INSURANCE ACT, 1938.
11	ANALYSIS  OF PROVISIONS GOVERNING MISSTATEMENT/CONCEALMENT/FRAUD UNDER AN INSURANCE POLICY.
12	WARRANTY MUST BE STRICTLY COMPLIED WITH.
13	DIFFERENCE BETWEEN SUBROGATION AND ASSIGNMENT.
14	UNDERSTANDING PROCESS OF UNDERWRITING IN INSURANCE.
15	CONCEPT OF “ ACTUARY” &  “ACTUARIAL RISK”.
16	SOME FACTS RELATED TO A “COVER NOTE OR INTERIM RECEIPT” UNDER INSURANCE.
17	AGREED BANK CLAUSE IN INSURANCE POLICIES.
18	CONCEPT OF DEDUCTIBLE & CO-PAYMENT UNDER INSURANCE.
19	EFFECT OF FORFEITURE CLAUSE IN INSURANCE POLICY.
20	RULE OF “ CONTRA PROFERENTUM”-UNDER INSURANCE.
21	PORTABILITY OF INSURANCE POLICIES.
22	ALTERNATIVES TO TRADITIONAL RE-INSURANCE.
23	FEATURES OF MARINE INSURANCE.
24	ASSIGNMENT OF MARINE INSURANCE POLICIES.
25	EFFECT OF THE EXPRESSION “ AGE ADMITTED”.
26	EXCLUSIVE JURISDICTION OF MACT IN MOTOR ACCIDENT CASES.
27	IMPORTANCE OF CERTIFICATE OF INSURANCE(COI).
28	JUST COMPENSATION- UNDER MOTOR VEHICLES ACT,1988.
29	MOTOR INSURANCE FRAUDS-DETECTION AND CONTROL.
30	ORIGINAL ASSURED’S RIGHT IN REINSURANCE CONTRACT.
31	POLICY WORDINGS AND FUNNY CASE OF INSURANCE FRAUD.
32	LIFE INSURANCE AND SUICIDE: LEGAL POSITION AND JUDICIAL PRONOUNCEMENTS.
33	PERSONS ENTITLED TO PAYMENT UNDER AN INSURANCE POLICY.
34	COMPLIANCE RISK MANAGEMENT.
35	MURDER TO BE TREATED AS AN ACCIDENT- NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION.
36	WHISTLE BLOWER POLICY IN INSURANCE COMPANIES.
37	TYPES OF FRAUD IN INSURANCE AND REMEDIES.
38	TRANSFER OF ACTIONABLE CLAIMS.
39	RETURN OF PREMIUM UNDER A CONTRACT OF INSURANCE.
40	SURRENDER VALUE OF AN INSURANCE POLICY.
41	WHAT IS MICRO INSURANCE.
42	RIGHTS AND LIABILITIES OF THIRD PARTY IN MOTOR INSURANCE.

1. NON-DISCLOSURE OR CONCEALMENT OF MATERIAL FACTS UNDER INSURANCE Dear Friends, As you are aware that contract of insurance is based on the doctrine of “ Utmost Good Faith” ,which means a person applying for an insurance cover has to disclose and reveal all material information required by insurance company. Material Information means all those information on the basis of which underwriter access the risk profile of the person and decide to accept the risk and issue the insurance policy or decline the same. In health insurance, material information relates to life, medical history, age, family members, medical history of family members, the society, place where insured lives and information of his other insurance policies if any with other insurers. In case of other insurance the nature of business, financial position of company, history of loss , insurance policy with other companies , the nature of office, premises, construction of building, the Board of directors etc. An insurance company gather these information through proposal forms, financial statement of company , through prior insurance investigation, report of engineers , report of investigators etc. these information helps underwriters to access the risk and loss to be paid to the insured in case of damage or loss. It is also duty of the insurer to declare all material facts related to insurance as well as terms and conditions of insurance with the insured or prospects. DUTY TO DISCLOSE IN MEDICLAIM POLICY- a Mediclaim Policy is a non-life insurance policy meant to assure the policyholder in respect of certain expenses pertaining to injury, accidents or hospitalisation. Nonetheless , it is a contract of insurance falling in the category of contract “uberrimae fidei”, meaning a contract of “Utmost Good Faith”on the part of the assured. Thus it needs, little emphasis that when an information on a specific aspect is asked for in the proposal form , an assured is under solemn obligation to make a true and full disclosure of the information on the subject which is within his knowledge. It is not for the proposer to determine whether information sought for is material for the purpose of the policy or not. The obligation to disclose extends only to facts which are known to the applicant and not t what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion of the materiality of that knowledge is of no moment. PLEASE NOTE THAT- the admittedly in response to the letter of insurance company seeking reply insured to question that he was suffering from AIDS prior to taking policy the insured submitted his reply to the office of insurance company. The perusal of this reply show that the insured instead of specifically denying that he had not been taking treatment for AIDS prior to applying for insurance , gave a vague reply that he had told about his ailment in detail to the agent without specifying the nature of the ailment. He further stated that the record of his treatment was also not furnished to the agent. This vague reply , amounts to implied admission that before obtaining the insurance policy the insured was suffering from AIDS ,which fact admittedly has been concealed in answering the questionnaire pertaining to personal history of the insured. Therefore it can be safely concluded that the insured had obtained the insurance policy by concealment of material fact and as such the insurance contract is not a valid contract.[LIC of India Vs. Brahma Singh 2015(4) CPR 62]

THE DEFINITIONS OF MATERIAL FACTS. Material facts have been statutorily defined on two occasions: The Marine Insurance Act 1906, Section 18(2), provides: "Every circumstance is material which would influence the judgement of a prudent underwriter in fixing the premium or determining whether he will take the risk". The Road Traffic Act 1934, Section 10(5), reads: "The expression 'material' means of such a nature as to influence the judgement of a prudent insurer in determining whether he will take the risk, and, if so, at what premium and on what conditions". The similarity in the definitions can readily be seen and both can be traced to their parent, Lord Mansfield, in his judgement in Carter v. Boehm.65 The common factor is that the insurer or underwriter alone determines what is material. From an underwriting point of view, material facts might be classified as first, tangible, and secondly, intangible, i.e. that group of facts which give the background to the moral character, the reputation for integrity... etc, of an insured. Of the first group, there are innumerable cases. An omission to state that adjoining property had been damaged by fire, that the fire had been extinguished but it was feared it would break out again, should be considered as to constitute non-disclosure of a material fact.  Where a motor car is insured against fire, the structure and situation of the garage are material facts affecting the possibility of a fire breaking out and of its being extinguished. However, it may safely be said, any fact, which affects the material is considered as a material fact. But these are not the only facts which an underwriter requires to know before he can assess the risk. It has many times been stated that what is insured is not property but the interest in property. Thus, Jessel M R observed that: "The word 'property' as used in several of the conditions (in the policy) means not the actual chattel, but the interest of the assured therein". Once this is accepted, the necessary corollary is that the insurance contract is a personal contract between the insurers and the insured for the payment of a sum of money. Its purpose is not to insure the safety of any particular object, but to insure the insured against loss arising out of his relationship with the subject matter of the insurance. This issue of the personal nature of a contract brings into operation an assessment of what is known as moral hazard. Some underwriters regard moral hazard as being of greater importance than the physical hazard, and clearly there is ample scope for a wide variation of opinion. Thus, a history of previous fire or burglary losses, or a record of claims, will rightly put an underwriter on his guard. Further, the fact that a proposal for insurance was declined, or renewal refused, would be properly regarded as material. In the case of a loss of profits insurance, the fact that a proposer is trading at a loss is one which ought to be disclosed.

The Insurance Regulatory & Development Authority of India, by a Notification dated October 16, 2002 issued the Insurance Regulatory & Development Authority (Protection of Policyholders Interests) Regulations 2002. The expression Proposal Form is defined in Regulation 2(d) thus: 2 (d) Proposal Form means a Form to be filled in by the Proposer for Insurance, for furnishing all material information required by the Insurer in respect of a risk, in order to enable the Insurer to decide whether to accept or decline, to undertake the risk, and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted. Explanation: Material for the purpose of these regulations shall mean and include all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer. Regulation 4, deals with Proposals for Insurance and is in the following terms: Proposal for Insurance:

1. Except in cases of a marine insurance cover, where current market practices do not insist on a written proposal form, in all cases, a proposal for grant of a cover, either for life business or for general business, must be evidenced by a written document. It is the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form.
2. Forms and documents used in the grant of cover may, depending upon the circumstances of each case, be made available in languages recognised under the Constitution of India.
3. In filling the form of proposal, the prospect is to be guided by the provisions of Section 45 of the Act. Any proposal form seeking information for grant of life cover may prominently state therein the requirements of Section 45 of the Act.
4. Where a proposal form is not used, the insurer shall record the information obtained orally or in writing, and confirm it within a period of 15 days thereof with the proposer and incorporate the information in its cover note or policy. The onus of proof shall rest with the insurer in respect of any information not so recorded, where the insurer claims that the proposer suppressed any material information or provided misleading or false information on any matter material to the grant of a cover.

PLEASE NOTE THAT

1. Regulation 2 (d) specifically defines the expression Proposal Form as a Form which is filled by a Proposer for Insurance to furnish all material information required by the Insurer in respect of a risk. The purpose of the disclosure is to enable the Insurer to decide whether to accept or decline to undertake a risk. The disclosures are also intended to enable the Insurer, in the event that the risk is accepted, to determine the rates, terms and conditions on which a cover is to be granted.
2. The explanation defines the expression material to mean and include all important essential and relevant information for underwriting the risk to be covered by the Insurer. Regulation 4 (3) stipulates that while filling up the proposal, the Proposer is to be guided by the provisions of Section 45.
3. Where a Proposal Form is not used, the Insurer under Regulation 4 (4) is to record the information, confirming it within a stipulated period with the Proposer and ought to incorporate the information in the Cover Note or Policy.
4. In respect of information which is not so recorded, the onus of proof lies on the Insurer who claims that there was a suppression of material information or that the Insured provided misleading or false information on any matter that was material to the grant of the cover.

Branch Manager, Bajaj Allianz Insurance Company Ltd. & Ors. Vs Dalbir Kour, decided on October 09, 2020 observed that a Proposer who seeks to obtain a Policy of Life Insurance is duty bound to disclose all material facts having bearing upon the issue as to: Whether the Insurer would consider it appropriate to assume the risk which is proposed? FACTS OF CASE: 1.    Facts leading to filing of Consumer Claim On 05 August, 2014 a proposal for obtaining a Policy of Insurance was submitted to the appellants by Kulwant Singh. The Proposal Form indicated the name of the mother of the Proposer, who is the respondent to these proceedings as the nominee. The Proposal Form contained questions pertaining to the health and medical history of the Proposer and required a specific disclosure on Whether any ailment, hospitalization or treatment had been undergone by the Proposer? 2.    Column 22 required a declaration of good health. i) The proposer answered the queries in the negative, indicating thereby that he had not undergone any medical treatment or hospitalization and was not suffering from any ailment or disease. ii) The declaration under Item 22 (c) of the Proposal Form was in regard to: Whether any diseases or disorders of the respiratory system such as but not limited to blood in sputum, tuberculosis, asthma, infected respiratory disease or any respiratory system disease including frequent nose bleeding, fever and dyspnoea were involved?-   This query was also responded to in the negative. 3. Acting on the basis of the proposal submitted by the proposer, a Policy of Insurance was issued by the appellants on August 12, 2014. Under the Policy, the life of the proposer was insured for a sum of Rs. 8. 50 lakhs payable on maturity with the death benefit of Rs. 17 lakhs. 4. On September 12, 2014, Kulwant Singh died, following which a Claim was lodged on the Insurer. The death occurred within a period of one month and seven days from the issuance of the Policy. 5. The Claim was the subject matter of an independent investigation, during the course of which, the hospital treatment records and medical certificate issued by Baba Budha Ji Charitable Hospital, Bir Sahib, Village Thatha (Tarntaran) were obtained. 6. The records revealed, according to the Insurer, that the deceased has been suffering from Hepatitis C. 7. The investigation reports indicate that proximate to the death, the deceased had been suffering from a stomach ailment and from vomiting of blood, as a result of which he had been availing of the treatment at the above hospital. 8. The Claim was repudiated on May 12, 2015 on account of the non- disclosure of material facts. 9.    The Respondent instituted a Consumer Complaint before the District Consumer Disputes Redressal Forum, which allowed the Complaint and directed the appellants to pay the full death claim together with interest. 10. The first appeal was rejected by the State Consumer Disputes Redressal Commission and the revision before the National Consumer Disputes Redressal Commission has also been dismissed. 11.The NCDRC relied on the decision of Supreme Court in Sulbha Prakash Motegaonkar & Ors Vs Life Insurance Corporation of lndia (Civil Appeal No 8245/2015 decided on 5.10.2015). According to the NCDRC, a disease has to be distinguished from a mere illness. It held that the death had occurred due to natural causes and there was no reasonable nexus between the cause of death and non-disclosure of disease. Consequently, while affirming the Judgment of the SCDRC, the NCDRC imposed costs of Rs. 2 lakhs on the appellants, of which, an amount of Rs. 1 lakh was to be paid to the Complainant and Rs. 1 lakh was to be deposited with the Consumer Legal Aid Account of the District Forum. 12. SUPREME COURT in the ultimate analysis held as under: The medical records which have been obtained during the course of the investigation clearly indicate that the deceased was suffering from a serious pre-existing medical condition which was not disclosed to the insurer. In fact, the deceased was hospitalized to undergo treatment for such condition in proximity to the date of his death, which was also not disclosed in spite of the specific queries relating to any ailment, hospitalization or treatment undergone by the proposer in Column 22 of the policy proposal form. We are, therefore, of the view that the judgment of the NCDRC in the present case does not lay down the correct principle of law and would have to be set aside. We order accordingly.

In [United India Insurance Co. Ltd. Vs. M. K. J. Corporation, (1996) 6 SCC 428], Supreme Court of India held as under; It is a fundamental principle of Insurance Law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, similarly, it is the duty of the insurers and their agents to disclose all material facts within their Knowledge, since obligation of good faith applies to them equally with the assured. The principles for repudiation of insurance claim were formulated by Supreme Court in [Life Insurance Corporation of India & Ors. Vs Asha Goel & Anr., (2001) 2 SCC 160]; it held as under; “12 The contracts of Insurance including the contract of life assurance are contracts uberrima fides and every fact of material (sic material fact) must be disclosed, otherwise, there is good ground for rescission of the contract. The duty to disclose material facts continues right up to the conclusion of the contract and also implies any material alteration in the character of risk which may take place between the proposal and its acceptance. If there is any misstatements or suppression of material facts, the Policy can be called into question. For determination of the question whether there has been suppression of any material facts it may be necessary to also examine whether the suppression relates to a fact which is in the exclusive knowledge of the person intending to take the Policy and it could not be ascertained by reasonable enquiry by a prudent person.

The principal laid down in Asha Goel has been reiterated in the Judgments in [P. C. Chacko Vs Chairman, Life Insurance Corporation of India, (2008) 1 SCC 321] and [Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316]. In [Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316], at the time of obtaining the Mediclaim Policy, the insured suffered from chronic diabetes and renal failure, but failed to disclose the details of these illnesses in the Policy Proposal Form. Upholding the repudiation of liability by the Insurance Company, Supreme Court held: “25. The upshot of the entire discussion is that in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a material fact.” If the proposer has knowledge of such fact, he is obliged to disclose it particularly while answering questions in the proposal form. Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance.

Recently Supreme Court in Reliance Life Insurance Company Limited Vs Rekhaben Nareshbai Rathod, (2019) 6 SCC 175] set aside the Judgement of the NCDRC, whereby the NCDRC had held that: “30. It is standard practice for the insurer to set out in the application a series of specific questions regarding the applicant's health history and other matters relevant to insurability. The object of the proposal form is to gather information about a potential client, allowing the insurer to get all information which is material to the insurer to know in order to assess the risk and fix the premium for each potential client. Proposal forms are a significant part of the disclosure procedure and warrant accuracy of statements. Utmost care must be exercised in filling the proposal form. In a proposal form the applicant declares that she/he warrants truth. The contractual duty so imposed is such that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith and will render the policy voidable by the insurer. The system of adequate disclosure helps buyers and sellers of insurance policies to meet at a common point and narrow down the gap of information asymmetries. This allows the parties to serve their interests better and understand the true extent of the contractual agreement. 31. The finding of a material misrepresentation or concealment in Insurance has a significant effect upon both the Insured and the Insurer in the event of a dispute. The fact it would influence the decision of a prudent Insurer in deciding as to 'Whether or not to accept a risk is a material fact?'.

As Supreme Court held in Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316- there is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance. Each representation or statement may be material to the risk. The insurance company may still offer insurance protection on altered terms. CONCEALMENT -in law of insurance is the suppression of a material fact, within the knowledge of one of the parties, which the other party has not means of knowing, or is not presumed to know. It means concealment is an act designed intentionally by one party of a contract from the other party to take undue advantage from the other party. An act of concealment is also defines as non disclosure of material facts by one party form other parties in a contract knowing that if material facts are known to all parties it may contract may affect the contract. Concealment is define as-“ where one party refuses or neglects to communicate to the other a material fact which if communicated would tend directly to prevent the other from entering into the contract or to induce or is presumed to be so to the party not disclosing, and is not known or presumed to be so to the others. Concealment – has a reference to intention, that is , to knowledge or belief that the fact is material and should be disclosed and the terms is frequently confused with innocent non-disclosure. A failure on the part of the assured to state all the facts commonly called concealment [London Assurance Vs. Mansel(1879)11 Ch D 363]. In the strict sense of word , it implies the keeping back or suppression of something which it is duty of the assured to bring to the notice of the insurers. Concealment is not merely an inadvertent omission to disclose it . Hence, where the failure to disclose is not due to design and the assured has jot intention to deal otherwise than frankly and fairly with the insurers, the term non-disclosure is more appropriate. There is not much difference between the concealment and non-disclosure for the purpose of avoiding a contract as regards matter which the insured is duty bound to disclose, but this difference gathers some importance when we have to consider the question of the retrun of premium. DISCLOSURE- means to make known, but when there is actual knowledge , such knowledge is equivalent to disclosure and in such a case the presumption would not operate. Disclosure is the complete and full revealing of information relevant to a particular issue. In the context of insurance, it refers to each party's duty to accurately reveal pertinent information in an insurance contract. In other words, it means that neither the insurer nor the party seeking insurance should withhold critical information while making an insurance contract. Key Points to Remember with the Duty of Disclosure

1. It is essential when applying for insurance that the information you are providing is accurate, as failure to comply could result in cancellation of the cover or no claims payments being made;
2. You are legally required to make a fair representation by disclosing all information and circumstances relevant to the risk you want coveringIt is important to read through documents provided at both renewal and when you are a new customer, thoroughly, to ensure that the information you have provided is accurate;
3. When renewing a policy, you will once again have to declare any changes to the risk or new material facts (your duty of disclosure) that have come about over the policy period. Again, failure to comply could result in cancellation of the cover or no claims payments being made, should something be uncovered that has not been declared.

In 1879, Jessel M R said that: "The first question to be decided is, what is the principle on which the court acts in setting aside contracts of assurance? As regards the general principal I am not prepared to lay down the law as making any difference is a substance between one contract of assurance and another. Whether it is life, or fire or marine insurance, I take it good faith is required in all cases, and though there may be certain circumstances from the peculiar nature of marine insurance which requires to be disclosed and which do not apply to other contracts of insurance, that is rather, in my opinion, an illustration of the application of the principle than a distinction in principles". Also in 1928, Scrutton L J observed that: "It has been for centuries in England the law in connection with insurance of all sorts, marine, fire, life, guarantee and every kind of policy, that as the underwriter knows nothing and the man comes to him to ask him to insure knows everything it is the duty of the assured, the man who desires to have a policy, to make a full disclosure to the underwriter without being asked of all the material circumstances, because the underwriter knows nothing and the assured knows everything. That is expressed by saying that it is a contract of the utmost good faith - uberrina fides". As far as marine insurance is concerned, the Marine Insurance Act 1906, Section 17, provides that: "A contract of marine insurance is a contract based upon the utmost good faith and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party". It is the duty of parties to help each other to come to a right conclusion and not to hold each other at arms length in defence of their conflicting interests.It is the duty of the assured not only to be honest and straightforward but also to make a full disclosure of all material facts. A failure to disclose, however, innocently, entitles the insurer to avoid this contract ab initio and, upon avoidance, it is deemed never to have existed. CONCLUSION: from above discussion it is clear that a contract of insurance is based on doctrine of “ Utmost Good Faith” it means all material facts are required to be disclosed by the insured as well as the insurance company. The forms used for gathering primary and material information from the proposer if “ Proposal Form” as specified in PPHI Guidelines. Declarations made in the Proposal form will be incorporated in the policy document or contract of insurance. Non-disclosure or concealment of material facts from the insurance company may lead to repudiation of contract and claims. An insurer on the basis of disclosures and information in the proposal form access the risk and decide the premium or decide to issu the policy or not to the proposer. 2. STATUS OF TWO INSURANCE POLICIES ON SAME SUBJECT MATTER AND AVOIDANCE OF CLAIM BY INSURANCE COMPANIES. Dear friends, There may be certain circumstances wherein a person may come across few instances wherein he may find that he had taken overlapping insurance covers over the same subject matter. So does these overlapping insurance cover denotes that he has acquired extra protection over the subject matter? Or is it merely wastage of money? These questions bring to us the most confusing area of insurance law, i.e. the Law of Double Insurance. The purpose of this article is to provide its readers few insights into the concept of Double Insurance and to make them understand the different clauses in an insurance policy by use of which an insurer can avoid his liability in case of Double Insurance. INTRODUCTION Double Insurance or multiple insurances is the method of getting the same risk or the same subject matter insured with more than one insurance company or with the same insurance company but by two different policies. No provision under the Insurance Act, 1938, or under any other law for the time being, prohibits double insurance, rather the Act facilitates the concept of double insurance. The statutory definition of Double Insurance is provided under Section 34 of the Marine Insurance Act, 1963. So accordingly, every person is at liberty to take as many insurance policies on the same subject matter, as he wishes. The concept of Double Insurance is possible in all types of insurances, may it be a life or general. In few instances, people deliberately get their property insured with multiple policies, but there are certain circumstances wherein a person may inadvertently fall into the pitfall of Double Insurance. For instance, when I drive your car with your permission, in this case, I have the third party insurance cover under my own insurance policy and I also have the protection under your Motor Vehicle Insurance Policy. So, in such an instance the trouble arises when both of these insurance policies have an ‘escape clause’, by which both is these insurers may avoid their liability. So it becomes very important for the general public to understand these clauses.

FEATURES OF DOUBLE INSURANCE

Following are the features of Double Insurance:

1. More than one Policy: A particular subject matter needs to be insured with more than one insurer or with the same insurer but by two different policies.
2. Same Insured: The insured person must always be the same in double insurances, if the same person is not entitled to the benefits of all the policies it cannot be termed as Double Insurance.
3. Same Subject: All the policies need to be related to the same risk or the same subject matter; if it is not the same then it cannot be called double insurance.
4. Same Interest: The interest needs to be the same in all the concerned insurance policies.
5. Same Duration: at last the duration for which the insurance policy running must be the same.

SUM RECOVERABLE UNDER DOUBLE INSURANCE

In the case of Multiple Insurances, the sum recoverable differs in Life Insurance and General Insurances.

1. Since life insurance contracts are not the contract of indemnity and are contingent in nature, the full amount can be claimed from all the insurance policies.
2. But this situation differs in the case of general insurances, as we know that general insurance contracts are contracts of Indemnity, so nothing above the actual loss can be recovered.

In such scenarios, the Principle of contribution (discussed below) will be applied and each insurer will pay their respective share accordingly. An insured is not entitled to recover in full from all the insurance companies, if such recovery is allowed then it will be against the public policy. It must further be noted that if the loss suffered is more than the actual value of the policies, then full amount can be claimed from all the insurers.  PLEASE NOTE THAT : from a sums recoverability point of view, Life Insurance Policies may prove to be benefiting. On the other hand, it may prove to be detrimental to the interest of an insured.

THE PRINCIPLE OF CONTRIBUTION

The principle of contribution focuses on equitable distribution of losses between different insurers. As we know that in case of double insurances a claimant is not entitled to recover more than the actual loss, so this principle helps us in the determination of the proportionate amount of each insurers who are liable to reimburse the loss.  CONDITIONS FOR CONTRIBUTION:

1. The matter must be related to General Insurance Policies, as in case of Life Insurances full amount is recoverable.
2. There must be double insurance.
3. All the insurance must relate to the same risk / subject matter.
4. All the policies must be active at the time of claiming the amount.
5. Insurer must have an Insurable Interest in the subject matter and must suffer some actual loss.
6. The policy concerned must cover the event that caused the loss.
7. The total loss shall be proportionately divided.
8. If in any case, one insurer has reimbursed the claimant in full, he is entitled to get his proportionate share from the other insurance companies.

FORMULA FOR CALCULATION OF CONTRIBUTION (Sum assured with one particular insurance company / Total sum assured) x The Actual Loss ILLUSTRATION ‘A’ a businessman gets his office insured against fire with two different insurance companies named as XYZ Co. and PQR Co. with an amount of Rs. 50,000 and Rs, 30,000 respectively. Now, on a certain day (when his policy was active) fire takes place at his office and due to that fire a loss of Rs. 40,000 was caused to ‘A’.  So in this case, since ‘A’ has taken double insurance on his property, he is entitled to claim the amount from both the insurers. And to calculate the proportionate amount of each insurer the principle of contribution will be applied, so that ‘A’ may not claim anything more than his actual loss. So from the illustration above, we have the following details:

• Total Sum Assured: Rs. 80,000
• Actual Loss Suffered: Rs. 40,000
• Sum assured with XYZ Co.: Rs.50,000
• Sum assured with PQR Co.: Rs. 30,000

So, by applying this information in the formula mentioned above, we get:

• XYZ & Co.’s Contribution = Rs. 25,000
• PQR & Co.’s Contribution = Rs. 15,000

DIFFERENT CLAUSES THAT THE INSURER’S USES TO AVOID THEIR LIABILITY IN CASE OF A DOUBLE INSURANCE

In general, most of the Insurance Companies inserts an ‘Other Insurances’ clause in all the policies, so as to avoid their liability in case of double insurance. As a general rule all the insurance holders are entitled to claim the loss suffered to them from which-ever insurance company he/she wishes, but to limit the application of the concept of Double Insurance and the doctrine of contribution the insurers uses such clauses.  Typically the insurance company uses the following clauses to avoid their liability in case of Double Insurance. They can use any one or the combination from the following:  a) LIABILITY EXEMPTION CLAUSE: As per this clause, the insurer accepts his liability upon a condition that, if the same risk is insured somewhere else also, then in such a case his liability will not arise. Such clauses saves the insurers from two types of liability:

1. Exemption from the liability to indemnify the insured in case of any loss.
2. If the insurer gets the claim from any one insurance policy, then the former insurer will be exempted to that extent.

These clauses may also be called as the escape clauses. Typically such clauses are inserted by the words: If the liability covered under this insurance is insured with any other insurance policy, either wholly or in part, we will not be liable to pay any loss, damages, etc.  This clause is discussed by the court in a number of cases, few noteworthy cases on this point are: Gale vs. Motor Union Insurance Company (1928) IKB 359, National Employer Mutual vs. Heden (1980) 2 Lloyds Report P. 149. b) NOTIFICATION CLAUSE: As per this clause the insured person is required to give a written notice to the insurance company if he gets the same risk insured with some other insurance company, if the insured fails to supply such notice the liability of the former insurance company will be avoided. It is pertinent to note here that the insured person has to give a notice in writing only, oral notification will not work. Typically such clauses are inserted by the words: No claim shall be entertained if the insured fails to give notice of any subsequent or previous insurance taken on the same subject matter.  This clause is discussed by the court in a number of cases, few noteworthy cases on this point are: Australian Agricultural Co. vs. Sandhers (1875) LR, 10 CP 668, Stradfast Insurance Co vs. F & B Trading Co. (1972) 46 AJ LR 14.

• RATEABLE PROPORTION CLAUSE: By insertion of such clauses the insurance companies can avoid partial liability. As per this clause one insurance company shall only cover a portion of loss, is some other policy also responds on the same risk.
• EXCESS CLAUSE: As per this clause the liability of one insurer will arise only in case when the loss suffered crosses the limit of the other insurance. One of the notable case on this point is: Austin v Zurich General Accident & Liability Insurance Co Ltd (1944) 77 Ll L Rep 409.

CONUNDRUM BETWEEN THE PRINCIPLE OF CONTRIBUTION AND THE EXEMPTION CLAUSES

So now we have understood the exemptions clauses used by the insurance companies to avoid their liability. Now, imagine a situation wherein both of the insurance policies have such exemptions clauses. So, what would it mean than, would that means that the insured is not entitled to claim his loss from any of them? If such a thing is allowed it will be against the public policy, and it will decrease the faith of people from insurance policies. So, few principles have been established in relation to these exemption clauses. All of these principles are in favor of the insured. The principles established to clarify this confusion are as follows:

1. SITUATION WHEREIN THERE ARE TWO ESCAPE CLAUSES: So in the situation wherein both the insurance policies have escape clauses, relieving both the insurer’s from their liability; the loss suffered shall be distributed among all the insurer’s in equal proportion.
2. SITUATION WHEREIN THERE ARE TWO EXCESS CLAUSES: The rule in this regards is same as stated above. If both the insurance policies have an excess clause, which relieves them from their liability, the loss in such a case shall be distributed equally amongst all the insurance companies.
3. SITUATION WHEREIN THERE ARE TWO NOTIFICATION CLAUSES:If both the insurance policies have a notification clause, which requires a written notice to be given to the insurance company for any prior or subsequent insurance policy taken on the same risk; in such a case failure to give notice to the second insurance company will remove him from the liability, but will make the first insurance company liable, as there will be no other valid insurance at that time.
4. SITUATION WHEREIN THERE ARE TWO RATEABLE PROPORTION CLAUSES:The rule in this case is same as that of two excess clauses or two escape clauses i.e. the loss shall be distributed in equal proportion amongst the insurers. 

PRACTICABLE SUGGESTIONS

Except in case of Life Insurance Policies, double insurance policies do not increase the value of insurance cover. Thus paying more insurance premiums may not be viable economically. Few points that make double insurance policies un-sense-able or practically un-viable are listed below: 

1. Double insurance policies may cause delay in the payment of claims due as it may lead to development of a dispute between the insurer and the insured.
2. Whether you take one insurance policy or two or may be more than that, still nothing more that the loss can be claimed, so the value of insurance cover won’t increase.
3. Multiple Insurances ultimately results in paying too much of premium then you were actually required to.
4. The litigation costs: dispute when taken to the courts leads to prolonged trials and therefore increased litigation cost. Further when the matured policies are placed in conflict, the insurance company would, as per the provision of Section 47make the payment in the court, which may further prolong the process of claiming the insurance cover.
5. Lack of businessman’s trust on multiple policies.
6. If there will be no multiple policy, things would be a bit more smooth and will consume a bit less time.

CONCLUSION ; Now  we can conclude that Double Insurances are the one wherein the same risk or same Subject matter is insured with more than one insurance company or with the same insurer but with different policies. The method of double insurance can also be called as Multiple Insurances. And the sums recoverable in these cases of Double Insurances can never exceed the total amount of loss (except in Life insurance Contracts). And the principle of Contribution is the key, in case of Double Insurance, to decide the proportion of amount each insurance company is liable for. Further, we have seen different types of clauses which the insurance company uses so as to avoid their liability in case double insurances. And we also looked as to what happen in the scenarios in which both the insurance companies inserts such exemption clauses in their policies.  At last, it can be concluded, taking double insurance does nothing else than increasing trouble for you. It doesn’t increases the sums recoverable, rather it delays the amount payable and increases trouble for us.  3. CONCEPT OF “DAYS OF GRACE” UNDER INSURANCE POLICY Dear Friends, As you  know that insurance has become one of the essential needs of people during their trying times. Insurance provides us financial safety against insured perils or risks. The risks may be man made or natural. We are facing today one of the greatest and dangerous pandemic COVID-19. This is man made and emerges from CHINA. This pandemic has derailed economy of all over world and claimed lives of millions of people. In India we are still facing the worse faze of this pandemic. Every day’s thousands of people are dying and lakhs are becoming affected by this COVID-19.  The cost of hospitalisation has increased may folds and this is due to inhuman behaviour of some business men and hospitals. They are amassing crores of rupees by exploiting poor people of this country. Insurance against these types of risks /perils is only a hope for general public to cope with medical bills and for safety of their beloved. We know that contract of life insurance is a continuous contract, which goes year to year and on the other hand contract of health/general insurance i.e., insurance against fire, flood, health etc. are yearly contract. These contracts are required to be renewed every year by paying premium of time and before the time allowed by the insurance companies. It important and necessary to pay premium in case of all insurance polices before date appointed for payment to enjoy benefits. An insurance policy may be lapsed for non-payment of premium at time and benefit available will be lapsed. In case of policies other than life insurance these contracts are contracts for year only, and the insurance automatically comes to an end after the expiry the year, but can be continued for a further period if before expiry of the year the insured expresses his intention to continue it and pays the premium. DAYS OF GRACE Generally, all insurance companies allowed some days even after expiry of the stipulated period of insurance, during which assured /insured can pay the premium in order to continue or renew the policy of insurance. The extra days provided by insurance companies for payment of premium in case of renewal of insurance policies is called “Days of Grace”. As name suggests these days are allowed by insurance companies by way of courtesy, more or less, and they are not bound to extend the time of payment under law, customs or terms of the contract. PLEASE NOTE THAT: if the continuance of the risk under a policy were conditional on the payment of a premium on the certain specified days in each year or quarter and no provisions were made for the over-due premiums , the policy would immediately lapse if the premium was even one day in arrear and in consequence the assured could be placed in the position of having to apply for a new contract of insurance , which in the case of life he could not obtain the same terms as in the earlier insurance policy, and the insurers if they have accepted the application they  have to prepare a new policy and pay stamp duty. The insurance companies to mitigate above hardship for issuing new insurance policies and for giving comfort to the insured generally allowed payment of premium beyond some days even after stipulated days mentioned in the insurance policy. This period beyond stipulated date in which an assured/insured can pay overdue premium is called “Days of Grace” and it depends upon nature insurance and particular conditions as to renewal inserted in the insurance policy. DAYS OF GRACE IN CASE OF YEALRY INSURANCE CONTRACT; If contract of insurance is for a year only, the days of grace are meant in order to afford the insured and additional opportunity of renewing the contract and not of continuing it. Now suppose if an insured has not given consent for renewal of contract and loss incurred during period of Grace, then insurance company will not be liable for payment of claim. NOTE:

1. In contract of insurance where the insurers reserve the opinion to renew the risk, the assured is not covered during days of grace if renewal premium remain unpaid, is that, before it tendered and accepted.
2. If before expiration of the year the company give notice to the insured that unless an increased premium is paid the insurance would not be renewed and the assured refuses to accede to this demand, the company was not held liable for any claim after expiration of period of one year but within days of grace.

Simpson Vs. Accidental Death Insurance Co.it was held that in the case of an accident policy which is a contract renewal yearly, the company are not bound to accept the premium tendered during the days of grace, the company have the option to renew or not to renew the contract at its pleasure. DAYS OF GRACE IN CASE OF LIFE INSURANCE CONTRACT; in case of life insurance policies the insurer generally not decline to renew the insurance policy and fundamental nature of the provisions in the contract of insurance for renewal are to be looked into, and it depends very much on the construction of the policies. If risk expires on the day when the premium is due and the days of grace are merely given as an opportunity for renewal. The insurance protection will not be available during the period of grace in this case, the death before payment of premium is not covered. Since life insurance policy is a continuing risk carrying the insurance beyond the day on which the premium is payable and subject to lapse or forfeiture on that day or within the days of grace, and therefore, death before the payment of premium is covered, because until days have expired there cannot be any forfeiture. The Rule in Stuart Vs. Freeman in this case plaintiff was the assignee of a policy of insurance on the life of another. The policy was for a year and premium to be paid quarterly, first quarterly payment being made at the date of policy. One of the conditions of the policy was that it should be of no effect if at the time of death of the assured any quarterly premium should be more than 30days in arrears. The assured died during the year after one of the dates fixed for payment of quarterly premium but within the days of grace. In an action to recover the amount it was held that the policy being a year subject to defeasance on ono-payment of quarterly premium no question arose as to revival of the policy but payment during the days of grace was prevented from lapsing the policy and plaintiff was entitled for payment of claim. Lord Justice Mathew said that “in my opinion the correct view as to the days of grace allowed by the terms of this policy is that if payment is made within the time mentioned in it, it is to be taken to have been made on the day appointed for payment, and is to have the, same effect as if it had been made on that day.” THERE ARE TWO VIEWS WHILE CONSIDERING DAYS OF GRACE; Where contract of insurance is one of annual risks merely. a contract of fire, burglary, or accidental insurance , the contract automatically comes to an end after expiry of the specified year and both the parties have an option of renewing it or refusing to renew it after a year. The days of grace in such contracts would not afford any relief to the insured if the loss occurs during these days of grace, unless he has expressed his willingness, expressly or tacitly to renew the risk. In case of contract of life assurance, the policy creates a continuing risk, the insurance companies have no option but to continue it on the payment of the premium each year. On the non-payment of the premium the policy merely lapses. If therefore, the death occurs during the days of grace without payment of premium, the money due under the policy become payable. THE PERIOD OF INSURANCE MAY BE EXTENDED BY THE DAYS OF GRACE; there may be conditions in the policy itself by which the insurers may be liable for any loss happening during the days of grace notwithstanding the non-payment of the premium before loss, as for instance when the original period of insurance is extended by the days of grace. The policy remains in force during the period of days of grace whether renewed or not. There is no question of renewal because the loss if covered in the original policy, which is effective during the days of grace. It is abundantly clear that if payment of premium due has been made within a grace period of one month, the policy would be treated as valid and the assured would be paid the amount to which he was entitled after deducting the premium amount due at the time of loss under said insurance policy. But it is clear that if premium is not paid before expiry of days of grace, then the policy lapse. NOTE:  such provisions in the insurance policy does not preclude the insurer from giving notice that they would charge an increased rate of premium.   if terms of policy require payment should be from the insured, then payment received from his legal representatives does not renew the policy. PAYMENT BY THE REPRESENTATIVE AFTER DEATH OF ASSURED; where insurance is upon life of the assured and is expressed to be conditional upon the payment of premiums by him, the inference may be that payment after his death by his executors does not satisfy the condition. This would not be so if the risk be construed as a continuing risk subject to forfeiture because insurers are liable until forfeiture and no subsequent tender or payment of premium is necessary, as it would be if it was a question of renewal. The rights of parties become fixed at death and insurers are liable for the insurance money less the premium which has become due. RELIEF AGAINST FORFEITURE; Forfeiture of a policy results in the insurer not being liable under the policy. The premiums already paid also need not be refunded. When premiums were not paid, the policy lapsed and the amount already deposited by the insured can be forfeited by the insurance company ad per terms and conditions of insurance policy. Reserve Bank of India Vs. Peerless General Finance and Investment Co.  the apex court held that what is important is that if the policy holder commits default and does not pay any one of the first three premiums, the premiums already paid automatically stands forfeited to the LIC entitling the policy holders to no benefits. The forfeiture clause in practice operates harshly, especially against the poor class, the very class which requires greater security and protection. The court added that it cannot help feeling distressed that despite Articles 38, 39, 41 and 43 of the Constitution, the LIC of India, an instrumentality of the state which has the monopoly of life insurance business has not taken any steps to offer proper security and protection to the needy poor people. The court further observed that if the LIC is really interested in treating the poorer policy holders less harshly and move liberally LIC should revise its terms and conditions in the direction of deleting the forfeiture clause altogether as has been done by the Peerless CO. or to delete if at lease for policies for small amount. NOTE: A notice of options available in the event of a policy lapsing is required to be given by the insurer in terms of Section 50 of the Insurance Act, 1938 within three months if they are not already set forth in the insurance policy. Where options have been already incorporated in the policy no notice is required. The renewal notices of policies contain a condition to enable the assured to renew the policy after due date of payment of premium during further period known as Grace Period. Where premium is not paid within the grace period the policy lapses. CONCLUSION:  Insurance has become necessity of every person. It keeps us indemnified from various types of risks or perils. But it is our duty to pay the insurance premium on time and on the date fixed for payment. There are two insurance contracts available one is on year-to-year basis and other is continuing for more than one year. In case of an insurance contract for year to year the insurance cover is not available if before specified date we are not able to renew or pay renewal premium. The insurance companies generally provide some more days for payment of premium after specified date and if an insured/assured is not paid the premium during that extended premium, then his policy will lapse. The extended period given by insurance companies are called Days of Grace. The insurance cover generally continues during the days of grace and it also depends on the terms and conditions of insurance policy. 4. CONCEPT OF CONTRIBUTION AND AVERAGE CLAUSE UNDER INSURANCE POLICY Dear friends, we know that a man, who ensures his interest in property against loss by any risk, whether that interest be that of a proprietor or creditor, cannot recover from the insurance companies, a greater amount than he lost by the contingency insured against. So, in case of double insurance of the same interest with the different insurance companies, the assured will not be entitled to recover more than the full amount of the loss which he has suffered. This is called the Principal of Contribution. Contribution may be referred as payment by each party interested of his share in any common liability. An action for contribution is a suit by one of such parties who has discharged the liability common to them all to compel others to make good their share. Contribution is between persons equally bound to honour a common liability. NATURE OF THE RIGHT OF CONTRIBUTION “Contribution exists where the thing is done by the same person, against the same loss and to prevent a man first of all from recovering more than the whole loss, or, if he recovers the whole loss from one which he could have recovered from the other, then to make the parties contribute rate ably. But that only applies where there is the same person insuring the same interest with more than one office.” CONTRIBUTION CLAUSE IN INSURANCE POLICY There is nothing in law to prevent a person from effecting two or more insurance in respect of the same subject matter, but the principal of indemnity will come into operation to prevent his recovering more than the actual loss even if total amount of insurance far exceeds the loss. The principal of contribution is resorted to for the purpose of apportioning the amount recoverable, amongst the different sets of insurers in order to prevent the loss being borne in an undue proportion by any one of them. NOTE:

1. There is generally a contribution clause in the policies which provides that if, at the time of loss, or damage, there are other insurances in existence covering the same subject matter of insurance, with the other insurers and the liability of the insurers upon the policy in question is limited to their rate able proportion of loss or damage. The insured, under such a policy cannot demand payment in full from the insurers in question, but only the proportion for which they are liable after all the policies subsisting at the time of loss have been taken into consideration.
2. If policy does not contain contribution clause the assured is entitled to recover the full amount from any set of insurers, and he cannot be referred to other insurance companies for relief.
3. After payment in full the insurer can call upon the other offices, insuring risk to contribute their share of loss.
4. The right of insurer in this case is not contractual but it is based on the principles of natural justice.
5. The contribution clause in an insurance policy limits the liability of the insurers, usually runs as follows;” if at time of any loss or damage happening to any property hereby insured, there be any other subsisting insurance, whether effected by the insured or by any other person, covering the same property, this company shall not be liable to pay or contribute more than its rate able proportion of such loss or damage.”
6. Contribution Clause is an effective method of preventing any single policy from bearing more than its proper share of loss or damage. The liabilities of the insurers to contribute inter se, being not contractual the rights and liabilities of the respective insures inter se are not varied or effected by the language of Contribution Clause.

APPLICATION OF DOCTRINE OF CONTRIBUTION; Please check below mentioned factors in the Insurance Policy of insurers for effecting Doctrine of Contribution;

• The subject-matter of insurance must be the same. It is not necessary that the amount of insurance with each insurer should be the same;
• The event insured against must be the same;
• The insured must be the same person in all insurance policies;
• The right of contribution exists only in respect of insurance which have attached and which are on the face of the policies subsisting insurance.

CONTRIBUTION Vs. SUBROGATION Contribution differs Subrogation in several respects. It implies more than one contract of insurance, each of which undertakes a similar, if not identical liability, in respect of the same subject-matter and same interest therein. Further the amount of insurance must exceed the value of property insured, all the damages done to it. When above circumstances exist, the insurers by Contribution Clause distribute the actual loss in such a way that each bears his proper share. No one insurer is more liable than any other, no more than the whole loss can be recovered. The aim of Contribution is to distribute the loss among the different persons liable so as to give each and all of them a diminution of their individual loss. SUBROGATION it will arise when the assured must have concurrent remedies against the person causing the loss or damage and against the insurer. All that is necessary is that there should be besides the insurer, another person liable to the insured or some other means of indemnity open to the assured other than and besides recourse to the insurer. This an assured has a claim against bailee of his goods by law, custom or contract, and also a claim against his insurers, but the insurer can in satisfaction of loss claim against the bailee who is primarily liable and stands in a position analogous to that of a principal debtor whose debt is guaranteed. In above cases Principle of Subrogation will apply. In subrogation the aim is to shift the loss on those which would have been liable if there had been no insurance. The one thing which contribution has in common with subrogation is to reduce the indemnification of the assured within the bounds of real indemnity. AVERAGE CLAUSE IN INSURANCE POLICY; In absence of a contract to the contrary, an assured is entitled to have the full amount of loss made good at the hands of the insurers. But now days in many insurance policies of different insurers contains a condition called the average clause by which the assured is called upon to bear a portion of the loss himself. One of such conditions is that if the property covered by the policy is, at the time of the fire, of greater value than the amount of insurance specified in the policy, the insured must be considered to be his own insurer for the different and bear a rate able proportion of loss. This condition is called the pro-rata condition of average. The portion of the loss is ascertained by a rule-of-three sums as follows;

• Value of property covered;
• Insured amount; and
• Damages payable.

LET’S US CONSIDER AN EXAMPLE: Mr. A has insured his house property values at Rs. 5.00 Lakhs and he has taken an insurance policy of sum assured Rs. 4.00 Lakhs and the damage done to his house due to fire is Rs. 1.00 Lakhs. Now in this case the insurance company will pay him Rs. 0.80 Lakh as insurance claim and he has to bear Rs. 0.20 Lakh as his own. NOTE:

1. This condition only comes into operation if the assured is under-insured and in the case of partial loss, he would be paid in the ratio above mentioned. In case of total loss Mr. A is entitled to be paid total sum insured i.e., Rs. 4.00 Lakhs.
2. The policies which are not subject to Average Clause are called Specific Policies. It means that the amount insured is payable irrespective of the value of the property within the risk at the time.
3. The Average Clause policies are generally used in Commercial or mercantile transactions.
4. The Specified Policies generally cover personal property.

CONCLUSION:  We know that insurance indemnifies us in case of risk or perils. An insurance policy financially helps us facing adverse effects of peril insured. We cannot make profit from insurance policies and we cannot claim more than damages incurred to us against risk/perils insured. Many persons are accustomed to take various insurance policies for same subject manner and same type of peril. In this case if loss or damage occurred then assured/insured cannot claim compensation from each insurer more than amount of loss or damage. Now Doctrine of Contribution provides that in this case where there are more than one insurer insuring same subject matter against same interest then the contribution will be distributed amongst then on the basis if rate able proportion. 5. SOLVENCY RISK AND INSURANCE SECTOR Dear Friends, As you are aware that, Insurance Companies are considered in the category of Financial Companies in India. Insurance industry involves public participation at large. General Public become policyholders /stakeholders in insurance companies. They are putting their hard-earned monies to secure their future against various types of risks. Insurance Development Regulatory Authority of India, established in the year 1999, is the regulator of Insurance industry. IDRAI has been established to protect interest of general public and to develop insurance industry on the basis of free competition and free marketability of insurance products. IRDAI has taken various steps through its Regulations, Guidelines and Circulars to regulate insurance industry. Till date only 3.4% of population in India are covered by insurance companies. Since there is a huge and large market for insurance is available in India and to keep trust of general public on insurance industry, IDRAI has taking strict decisions and not shying to punish companies, which have violated provisions of the Insurance Act, 1938 and other rules and regulations promulgated by IRDAI. There are some most important Sections in the Insurance Act, 1938, which have to strictly followed by all insurance companies. The violation of any provisions of theses sections, may lead to cancel of registration or license. SOLVENCY MARGIN/RATIO; Let’s discuss its definition; Cambridge Dictionary defines it as; the amount of capital that an insurance company has in relation to probable claims. The solvency margin is a minimum excess on an insurer's assets over its liabilities set by regulators. It can be regarded as similar to capital adequacy requirements for banks.  The solvency ratio of an insurance company is the size of its capital relative to all risks it has taken. The solvency ratio is most often defined as: The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb. The solvency ratio of an organization gives an insight into the ability of an organization to meet its financial obligations. SOME BELIEVE THAT; solvency margin defined as the difference between assets and the expected value of liabilities would not be a reliable measure of the financial state of an insurance company, if either of these or maybe both are not evaluated in a reliable way. The fixing of solvency margins is not an isolated problem, on the contrary it is only part of the security measures which must all be managed at the same time. The ultimate purpose of the security system prescribed by legislation must be to safeguard policyholders and claimants against losses. Solvency Ratio is an indicator of financial health of an Insurance Company. The Solvency Ratio is the ratio of Available Solvency Margin (ASM) to Required Solvency Margin (RSM) and the Solvency Ratio should at least be 1.50 at all times (or as may be determined by IRDAI). Lower Solvency Ratio indicates poor health of insurer and IRDAI in this case instruct insurer and provide it a period of six months to come out with a plan of restructuring to bring Solvency Ration as required. If Solvency Ration is very high its also indicates poor Capital Gearing Ratio. While calculating ASM, the value of Assets and Liabilities are estimated through the process of valuation. If value of assets or liabilities are over valued or under valued, both will affect in calculation of solvency of insurers. We know that undervaluation of Assets will lead to infusion of more capital in the company to maintain required Solvency Margin on other hand if Assets have been over valued then there is problem of liquidity. Same in case of liabilities will affect IBNR and IBNER. Improper estimates of such liabilities or inadequate provision of IBNR and IBNER would affect Solvency Margin significantly. The Solvency of insurer would be greatly influenced by various factors like poor Capital Gearing Ratio, keeping higher level of Solvency than required, similarly maintaining just the minimum required solvency may also be very risky. Suppose any catastrophe strike in a year, then Solvency of an insurer would be in trouble, poor quality of underwriting, having higher level of exposure limit, high concentration of risk in certain areas which are CAT prone, inadequate reserving, etc. would affect the Solvency to greeter extent.  LET’S DISCUSS MAIN FACTORS AFFECTING SOLVENCY MARGIN/RATIO

• POOR CAPITAL GEARING RATIO; it indicates that how efficiently the capital is used in converting into optimum turnover or superior business performance. If Capital is not used effectively for business expansion or does not result into expected return, the promoters would take back their capitals and same would result into insolvency or poor solvency for the insurer. Thus, it is important that the Capital of stakeholders will be used effectively and in such manner that the value of business would increase. Proper utilization of Capital is the most important.
• HIGHER SOLVENCY; it indicates the ability of an insurer to mitigate or handle or write bigger risks and ensure further development of business. But keeping higher Solvency Margin, will be questioned by Investors and the Promoters of the Company, because their capital is not utilized for better returns. If insurer maintain LOWER SOLVENCY as required in this case also the regulator (IRDAI) will impose restrictions and continuously follow with insurer to bring Solvency Margin to the extent as may be prescribed. Lower Solvency would also result into undercutting of premium rates as to compete in the market and it may slow down its business growth due to slow rate of business expansion.
• ALM(Assets-Liability) MISMATCH; it made compulsory for every life insurer to maintain every year matching each of their asset classes with their liabilities of similar duration. If there is mismatch of their assets and liabilities, it would result into severe liquidity risks and reinvestment risk. Wrong matching would also result into lower investment yield for the insurer resulting poor performance and operational results, which may hinder their business growth in the future. The mismatch between Assets and Liabilities may badly effects on Solvency Ratio/Margin of insurer.
• UNDERWRITING /PRICING RISK; it also affects Solvency of an insurer to a great extent in long run. If an insurer does not have good underwriting standard, would end up in writing mostly bad risks resulting into underwriting loss and poor business performance. If premium is inadequate to cover the claims cost and increasing administrative and marketing expenses, then it may affect the Investment Fund and would result into liquidity risk to the insurer and same will affect future business growth insurer. If the overall Operational Results become negative because of higher underwriting loss and inadequate premium then, continuous poor results would eat away the financial net worth or capital of the company in long run.
• CAT & EXPOSURE LIMIT; due to global warming, catastrophic perils like, flood, earthquake, cyclones etc., are raising all over world. If insurer does not have adequate capital fund and reinsurance protection for such catastrophic events, it would impact Solvency of the insurer significantly. Since occurrence of catastrophic event does not only produce huge volume of accumulation of losses to the insurer but also impacts the severity of losses. The risk exposure limit will significantly be increased in case of any Catastrophic event to the insurer. If these events do not cover with sound capital arrangements by the insurer, then it will definitely affect Solvency Ratio/Margin.

CONCLUSION:  an insurance company is considered to be custodian of public money. Being a Financial Sector company, its continuity is affected by various types of risks. It is important and necessary for an insurance company to access its risks and take all necessary steps to mitigate the same. An insurance company cannot deliver or serve its stakeholders, if it does not implement proper system of Enterprise Risk Management System. A company cannot serve its policyholders/stakeholders well if it is not able to protect interest of policyholders and provide assets appreciation for its stakeholders. It is very important to utilize capital introduced by the investor/promoters of the company to provide them adequate results. 6. DOCTRINE OF “SUBROGATION” Meaning of Subrogation: “SUBROGATION” means substitution of a person or group by another in respect of a debt in insurance claim, accompanies by the transfer of any associated rights and duties. Investopedia: “Subrogation is a term describing a legal right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss.”   The term ‘Subrogation’ in the context of Insurance, has been defined in Black’s Law Dictionary as: “The Principal under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy”. “Subrogation” also defined in Dan B. Dobb’s Law of Contract, which reads as follows; “Subrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person’s rights against the defendant. Factually, the case arises because for some justifiable reason, the subrogation plaintiff has paid a debt owned by the defendant.” “Subrogation” also defined in Laurence P. Simpson’s Handbook of Law of Suretyship, which reads as follows; “Subrogation is equitable to assignment. The right comes into existence when surety becomes obligated, and this is important as affecting priorities, but such right of subrogation dose not become a cause of action until debt is duly paid. Subrogation entitles the surety to use any remedy against the principal which the creditor could have used , and in general to enjoy the benefit of any advantage that the creditor had, such as a mortgage , lien, power to confess judgement , to follow trust funds, to proceed against third person, who has promised either the principal or the creditor to pay the debts.” Concept of Subrogation:  it was explained by Chancellor Boyd in National Fire Insurance Co. Vs. McLaren; “The doctrine of subrogation is a creature of equity not founded on contract, but arising out of relations of the parties. In cases of insurance ,where third party is liable to make good the loss, the right of subrogation depends upon and is regulated by the broad underlying principal of securing full indemnity to the insured, on the one hand ,and on the other of holding him accountable as trustees for any advantage he may obtain over and above compensation for his loss. Being equitable rights, it partakes of all the ordinary incidents of such rights, one of which is that in administering relief the Court will regard not so much the form as the substance of transaction. The primary consideration is to see that the insured gets full compensation for the property destroyed and the expenses incurred in making good his loss. The next thing is to see that he holds any surplus for the benefit of the insurance company.” PRINCIPAL OF INDEMNITY: as we know that the Contract of Fire Insurance is like a Contract of Indemnity. It means that the insured, in case of loss covered by the Insurance Policy, shall be fully indemnified but shall never be more than fully indemnified. The insured shall never be more than fully indemnified, that gives rise to “Doctrine of Subrogation”. The right of subrogation is a necessary corollary of the Principal of Indemnity and it is necessary for its preservation. Thus, the insurer is, therefore, entitled to exercise whatever rights the assured possesses to recover to that extent compensation for the loss, but it must do, so in the name of assured. Categories of Subrogation; we may classify it as follows;

• Subrogation by Equitable Assignment;
• Subrogation by Contract;
• Subrogation-cum-assignment.

Let’s discuss; 1. Subrogation by Equitable Assignment; This type of subrogation is not evidence by document, but is based on insurer policy and receipt issued by the assured acknowledging full settlement of claim relating to loss. Where the insurer has paid full loss incurred by the assured, it can sue in the name of the assured for the amount paid to the assured. Let’s consider an example, Mr. A has lodged a claim on insurance company X Ltd, against his fire insurance policy of Rs. 10.00 Lakhs. In real case the fire broke due to mistake or negligence of Mr. B, neighbour of Mr. A. The insurance company X Ltd., has paid Rs. 10.00 Lakhs to Mr. A and acquired right to sue Mr. B on behalf of Mr. A for his negligence. If any amount received from Mr. B to Mr. A, Mr. A should return it to the X Ltd. In another case if X Ltd, has paid only Rs. 5.00 Lakhs and Mr. A received from Mr. B Rs.6.00 Lakhs then he has to return X Ltd., Rs. 1.00 Lakh. 2. Subrogation by Contract; In this category, Subrogation is evidenced by an Instrument. To avoid any dispute about right to claim reimbursement , or to settle the priority of inter-se claims or confirm the quantum of reimbursement in pursuant of subrogation , and to ensure cooperation of assured in suing the wrongdoer , the insurer usually obtains a Letter of Subrogation  in writing , specifying its rights vis-vis the assured. Letter of Subrogation is a contractual arrangement, which specifies the rights of insurer and the assured. Through this insurer get the rights to sue the wrongdoers on behalf of assured and recovered the amount paid by it the assured under insurance policy to the extent excess of the loss incurred by the assured. 3. Subrogation -cum-assignment; In this case assured executes a Letter of Subrogation-cum-assignment enabling the insurer retain entire amount recovered (even if it is more than, what was paid by insurer to the assured) and giving an option to sue in the name of assured or to sue on its own name. In all above three cases an insurer asks assured to sue the third party(wrongdoer) and can join as co-plaintiff or an insurer may obtain a Special Power of Attorney from the assured and sue the wrongdoer as attorney of the assured. PRINCIPALS OF SUBROGATION;

1. Equitable right of subrogation arises when insurer settles the claim of the assured, for the entire loss. When there is equitable subrogation in favour of the insurer, then the insurer entitles to stand in shoes of the assured and sue the wrongdoer;
2. Subrogation not terminate the rights of assured to sue the wrongdoer and recover loss. The Subrogation only gives rights to the insurer to sue the wrongdoer on behalf of assured;
3. Where assured has issued a Letter of Subrogation, reducing the terms of subrogation, the rights of insurer vis-vis the assured will be governed by the terms of Letter of Subrogation;
4. Any plaint, complaint, or petition for recovery of compensation can be filed in the name of the assured, or by the assured represented by the insurer as Subrogee-cum-attorney, or by the assured and insurer as co-plaintiff or co-complainants.
5. Where assured has issued a Letter of Subrogation-cum-assignment in favour of insurer, the assured has left no right or interest. The assured in this case no longer entitle to sue wrongdoer, on its own account and for its own benefit. In this case the insure become entitle to the whole amount recovered from the third party or wrongdoer, even though it has paid less amount than the amount recovered to the assured to settle the claim.

CONCLUSION; The rights of subrogation only arise when the policy is a valid contract of insurance. In order to bring into existence, the insurer’s rights of subrogation, it is necessary that the claim of the insured under the policy actually to him, and it arises upon payment of partial as well as full claim of loss. The rights of insurer to subrogation must be understood with this limitation, which is the right must be incidental or attached to the ownership of the thing, insured. The insurer is entitled to every benefit to which the assured is entitled in respect of the thing to which the contract of insurance relates, but to nothing more. 7. MEANING OF THE WORD” ACCIDENT” UNDER INSURANCE Dear Friends, you all know that our world is full of uncertainties and risks. Some of these are man made and some made by All Mighty. In the meantime, whole world is facing unprecedented risk of life due to man made COVID-19 pandemic. This virus has changed our lives and forced us to stay in our homes. This a product of greed and inhuman activities by Chinese Government. We have lost more than 5.00 Lakhs people in whole world and still counting. To mitigate and reduce impact of these uncertainties, we have various insurance products by insurance companies. These insurance products help us financially and mitigate our risk on happening an event insured. Thus, insurance is important for every person now days. We should protect ourselves with adequate insurance cover, which covers our health and life. We can define insurance is a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium or we can say that insurance a thing providing protection against a possible eventuality. Investopedia: defines an Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. We can also say that insurance refers to a contractual arrangement in which one party, i.e. insurance company or the insurer, agrees to compensate the loss or damage sustained to another party, i.e. the insured, by paying a definite amount, in exchange for an adequate consideration called as premium[Business Jargon]. Insurance has the twin objects of providing short term or long-term relief to the insured. The short term ensure protection of insured from loss of property and life. The long term protects industrial growth of the country etc. When we purchase an insurance policy, we enter into a “Contract of Insurance” with the insurer or insurance company. “A Contract of Insurance”, is a contract by which one party (i.e. insurer or insurance company) in consideration of price paid ( i.e. premium) to him adequate to risk , becomes security to the other (i.e. insured or prospect) , that he shall not suffer loss, damage ,or prejudice by happening of perils specified to the certain things which may be exposed to them.” Insurance is a covenant of good faith, where both parties are covenanted to abide by the terms and conditions of the policy. An insurance policy contains all terms and conditions agreed between insured and insurer or insurance company. It contains various definition of risks, events, inclusions or exclusions and procedures to be complied by an insured. The insured have to declare truly all details required by insurance company. It is a contract of good faith on both ends. LETS’US CONSIDER WHAT IS ACCIDENT Dictionary meaning: an unfortunate incident that happens unexpectedly and unintentionally, typically resulting in damage or injury or an event that happens by chance or that is without apparent or deliberate cause. Marrian-Webester defines: an unexpected usually sudden event that occurs without intent or volition although sometimes through carelessness, unawareness, ignorance, or a combination of causes and that produces an unfortunate result (as an injury) for which the affected party may be entitled to relief under the law or to compensation under an insurance policy Dictionary.com defines: an undesirable or unfortunate happening that occurs unintentionally and usually results in harm, injury, damage, or loss; casualty; mishap: automobile accidents. Safeopedia: An accident is an unplanned, unforeseen, and unexpected event that has a negative effect on all activities of the individual who is involved in the accident. An accident can result in death, injury, disease or infection, loss of property, damage to environment, or a combination thereof. But is difficult to define term “accident” as used in insurance policies. There is difference in term “accident” and “injury”. In an “accident” some violence, casualty or vis major is necessarily involved. Accident involves the idea of something unexpected as opposed to something proceeding from natural causes. Note: a disease produced by action of some known cause cannot be considered as an accident.  Thus, disease or death engendered by exposure to heat, cold damp, the viscitudes of climate or atmospheric influence cannot properly be said to be accidental at all events, unless exposure is itself brought about the circumstances which may give it the character of accident. LETS’CONSIDER EXAMPLE 1:  Suppose Mr. X is a mariner and due to effects of ordinary exposure to the elements such as common in the course of navigation, he caught by cold or die, such death of Mr. X would not be an accidental death. But if there was a shipwreak or other disaster as define in the insurance policy, Mr. X quits ship and take sea in open boat, he remained exposed to wet and cold for sometime and died due to that. His death might be considered due to an accident. We also define an accident as “an unlocked for mishap or an untoward event which is not expected or designed.” Any injury is said to be accidental where it is a natural consequence of an unexpected cause, or the unexpected consequences of a natural cause. EXAMPLE 2: Suppose a train runover Mr. X then it is an accidental event. In other scenario suppose he is lifting a heavy weight and his spine injured, then this is not called an accidental injury. EXAMPLE 3: If Mr. Y is running to catch a train and he injures himself in this case also, it is not an accidental injury. Suppose if same Mr. Y stumbles and sprains his ankle, he meets with an accident because he did not intend to stumble. SOME IMPORTANT POINTS:

1. shock due to fright may constitute an accident;
2. if the cause and death result are both natural, injury cannot be called accident;
3. Death by drowning is death by accident within the meaning of a Policy of Accident Insurance;
4. If at the time of the accident , the assured is occupied or engaged in any occupation, trade or business, involving more danger to his safety or life, the company would not liable;
5. If at the time of accident any assured is under influence of liquer so much as to upset the normal working of his intellectual faculties, the insurer will not be liable;
6. The insurers are only liable for the death or disablement ,caused by accidents and not by disease , or physical disablement.

“Gujarat High Court once held that sine the death was caused by a dog bite which resulted in rabies as has been amply establish before the trial court which fact is not disputed before this court by the LIC , it was considered a death resulting from an accident and since it was within the stipulated period, the assured was entitled to an additional sum equal to the sum assured under the policy as per accident benefit clause.”    EXAMPLE 4:  The insured, while at a railway station, was seized with a fit and fell forward off the platform across the railway, when an engine ran over his body and killed him. It was held that the death of the assured was caused due to accident. Accident due to negligence of third person: accidents may also happen by acts of third persons. It is immaterial whether the acts of third person are negligent or even criminal, even if the act is intentional and the third person may except or intend to cause injury to the assured, the injury, so far as the assured is concerned is accidental.   In case of Surgical Operations:  Policies of accident insurance usually contain express condition as to surgical operations. In this case circumstances which render the operation should be considered. The immediate cause of death may be operation, but the real and efficient cause is to be determined by reference to the circumstances which lead to operation. If, however, the operation is performed with a view to cure a disease, death by such operation in not death by an accident. But if on negligence of the surgeon intervenes and death is attributable to such negligence, death may be said to have been caused by accident. But, on the other hand, if operation is rendered necessary by the consequences of the accident itself, death by such operation would be death aby accident. An accident policy expected liability in the case of death, or disablement by accident, caused inter alia by medical or surgical treatment or fighting, ballooning or racing, self-injury,sucide or anything swallowed or administered or inhaled. There are various court decisions in which accident has been defined and the IRDAI has also promulgated strict regulations to protect interest of policyholders. CONCLUSION: While taking any insurance policy, it is suggested that every person should reveals true information and read the policy documents. It is better to take advise of an insurance advisor or investment advisor. You can get more details on some insurance sites and compare products of various companies suitable for you. 8. DOCTRINE OF REINSTATEMENT & INSURANCE Dear Friends, Reinstatement of any property generally means replacement of what is lost or repairing the damaged property by bringing it to its original value and usefulness. In case of total destruction of an asset, the company generally replace the same with new assets or if possible, repair the old one to bring it at the same conditions or positions that it never damaged. In case when assets under damage have been covered with an insurance policy then insurer try to repair damaged assets to bring them in their condition before the peril or risk. The term “reinstate”, in a Fire Insurance Policy refers to buildings and the terms “replace”, refers to goods which have been completely destroyed. But we generally use term “restoration “which has combined effect of “reinstatement “as well as “replacement”. Normally insurer indemnify the insured of the loss suffered by him, but the insurer with the consent of the insured can take recourse to reinstatement. LEPPARD VS. EXPRESS INSURANCE CO.  it was held that the assured has not right to compel the insurer to reinstate nor does the insurer has a right to compel insured to apply the amount of indemnification flowing from the insurance policy to reinstatement. Generally, an insurer discharges its liability as;

1. Compensate the insured by payment of damages for his loss;
2. Restore the subject matter of insurance to its earlier conditions.

In both way an insurer will discharge its liabilities and in case of fire policy there is a condition on due to which an insurer has right to repair the subject matter and brought the property to its conditions before fire. ANDERSON VS. COMMERCIAL UNION ASSURANCE COMPANY  the reinstatement has been defined as “the restoring of the property insured to the conditions in which it was immediately before the fire , in case of total loss by rebuilding the premises or replacing the goods by an equivalent , as the case may be , and in the case of partial loss by executing the necessary repair.” NOTE:  if it is specifically mentioned in the insurance policy then only an insured can demand reinstatement or otherwise the insurer is only liable ton indemnify in money only. In case of insurer also, it cannot force for reinstatement, if the terms of insurance policy provide other method of indemnification. Once the insurance money has been paid to the insured, he cannot be compelled to spend the some received on reinstatement of property damaged or subject matter of insurance, except as required under section 76(f) of the Transfer of Property Act, 1882. Section 76 of Transfer of Property Act, 1882 provides that; Liabilities of mortgagee in possession. —When, during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property, — (f) where he has insured the whole or any part of the property against loss or damage by fire, he must, in case of such loss or damage, apply any money which he actually receives under the policy or so much thereof as may be necessary, in reinstating the property, or, if the mortgagor so directs, in reduction or discharge of the mortgage-money; The insurer can insist on the right of reinstatement only under any of the below mentioned conditions;

1. Where the reinstatement is one of the conditions of the policy;
2. Where it is suspected that the loss is caused by the wilful or fraudulent acts of the assured;
3. Where they are bound to reinstate as a request from any person other than assured, who is interested in the subject matter of the insurance.

The policy of insurance generally gives the insurers an option of reinstating the property damaged or destroyed instead of making a payment in money. This clause enables the right of an insurer to reinstate the property in lieu of payment of money. But there are some cases in which the cost of reinstatement may increase sum insured. The main purpose of a fire policy is indemnification of insured against loss suffered in the peril and payment of money. The reinstatement clause in the fire policies are included for the benefit of insurance companies and this clause does not change the nature of fire policy. When an insurer elects to reinstate, they in fact, substitute one ode of discharging their obligation for another and thus they put themselves in the same position as if they have originally contracted to do so. If one of the parties to a contract stipulated for the option of performing his part in one of the two lawful ways, he is, after having once made his election bound by such election and if the performance be impossible and not illegal, he is liable for the damages for not being able to perform it. Lets’ suppose a building is completely destroyed by fire, it is not expected of the insurer that their duty of reinstatement should be literally fulfilled and that the minutest details of the building should be restored. They are only bound to put the house substantially in the same state as before the firs. If the insurer does not reinstate properly the assured is not bound to accept the building. They cannot put what they like in lieu of the building destroyed, but must put it up as it was before. Suppose an insurer elect’s mode of reinstatement of a destroyed or damaged building and local authority has raised objection and stopped construction or reinstatement of that building. In this case the insurer will become liable to pay damages to the insured. NOTE: if an insurer does elect to reinstate and a fire occurs during reinstatement, it would seem that the company are their own insurers till the reinstatement is complete and must commence reinstating de-novo and cannot charge the assured with the cost of second fire. CONCLUSION: from above we find out that in case of a fire insurance they are two options with an insurance company, i.e. payment of amount of claim in money or reinstate the property destroyed. The insurance companies for their benefit put reinstatement clause in policy document, but true nature of fire policy is to indemnify the insured by way of money against damage or loss of subject matter of insurance. In many cases the reinstatement value increases the sum insured and insurers are liable to pay damages. Thus is in the betterment of insurance companies to determined best options for themselves ,while choosing right mote of discharging their liability. 9. CONCEPT OF OWN RISK SOLVENCY ASSESSMENT (ORSA) Dear Friends, The insurance companies being a financial institution prone to various types of risks. They treated as custodian to the funds of general public and hence to serve its policyholders properly they have to manage and mitigate various types of risk. These companies are taking risks of general public in lieu of payment of small amount of premium. Unless insurance companies manage their risks, they will not be in a position to effectively deliver their values to the customer and stay afloat in the business to achieve their goals. SOLVENCY MARGIN/RATIO; Let’s discuss its definition; Cambridge Dictionary defines it as; the amount of capital that an insurance company has in relation to probable claims. The solvency margin is a minimum excess on an insurer's assets over its liabilities set by regulators. It can be regarded as similar to capital adequacy requirements for banks.  The solvency ratio of an insurance company is the size of its capital relative to all risks it has taken. The solvency ratio is most often defined as: The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb. The solvency ratio of an organization gives an insight into the ability of an organization to meet its financial obligations. SOME BELIEVE THAT; solvency margin defined as the difference between assets and the expected value of liabilities would not be a reliable measure of the financial state of an insurance company, if either of these or maybe both are not evaluated in a reliable way. The fixing of solvency margins is not an isolated problem, on the contrary it is only part of the security measures which must all be managed at the same time. The ultimate purpose of the security system prescribed by legislation must be to safeguard policyholders and claimants against losses. From above we understand that Solvency refers to a company’s ability to meet its long-term obligations through its operations. Generally, it is confused with liquidity, which refers to a firm’s ability to meet its financial obligations with cash and short-term assets it currently holds. Solvency Margin is an important financial indicator. It measures insurance company’s ability to pay out claims when unforeseen events occur. SOLVENCY MARGIN TOTAL= ABILITY TO PAY/THE TOTAL FOR QUANTIFIED RISKS. ENTERPRISE RISK MANAGEMENT; denotes the methods and processes used by an organization to manage risks and seize opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization’s objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy and monitoring progress. A business organization by identifying and proactively addressing risks and opportunities, creates value for their stakeholders, including owners, employees, customers regulators and society overall. ORSA: OWN RISK AND SOLVENCY ASSESSEMENT is one of the methods to assess risks and manage it appropriately. As we know that Solvency Margin is a measure of stability of an insurer. The Regulator, IRDAI has fixed Solvency Margin for each type of Insurance Companies. Every insurer should under its Own Risk and Solvency Assessment (ORSA) and document the rationale, calculations and action plans arising from this assessment. The ability of an insurer to reflect risks in a robust manner in its own assessment of risk and solvency is supported by an effective overall ERM (Enterprise Risk Management) and by embedding its risk management policy in its operations. It is recognized that the nature of the assessment undertaken by a particular insurer should be appropriate to the nature, scale and complexity of its risks. The prime purpose of ORSA is to assess whether its risk management and solvency position is currently and likely to remain so in future. The responsibility for the ORSA rests at the top level of insurer’s organization, the insurer’s Board and the senior management. The effectiveness of ORSA should be reviewed by Chief Risk Officer of the insurer, who is directly reporting to the Senior Management or Board. The Solvency II Directive; is a new regulatory framework for insurance industry that adopts a more dynamic-based approach to assess risks. The main pillars are as follows; Pillar I: covers all quantitative requirements. This pillar aims to ensure firms are adequately capitalized with risk-based capital. All valuation in this pillar are to be done in a prudent and market-consistent manner. Pillar II: imposes higher standards of risk management and governance within a firm’s organization. This pillar also gives supervisors greater power to challenge their firms on risk management issues. It includes the Own Risk and Solvency Assessment (ORSA), which requires a firm to undertake its own forward-looking, self-assessment of its risks, corresponding capital requirements, and adequacy of firm’s organization. Pillar III: aims for greater levels of transparency for supervisors and the public. ORSA, is an important component of Enterprise Risk Management framework, is a confidential internal assessment appropriate to the nature, scale and complexity of an insurer conducted by that insurer of the material and relevant risks identified by its management. MAIN FEATURES OF ORSA;

1. The ORSA requires insurance undertaking to determine their overall solvency needs, beyond the Capital Adequacy requirements defined in Pillar I.
2. The ORSA process should take into account the effects of all the material risks such as underwriting, ORSA, and strategic risks.
3. It should also consider planned management activity and external factors such as economic outlook.
4. It should include a 3-5 years’ time horizon for the firm’s activities and risk outlook.

OBJECTIVE OF ORSA; has two primary goals;

1. To foster an effective level ERM at all insurers, through which each insurer identifies, assesses, monitors, prioritizes and reports on its material and relevant risks identified by the insurer, using techniques that are appropriate to the nature, scale and complexity of the insurer’s risks, in a manner that is adequate to support risk and capital decisions; and
2. To provide a group-level perspective on risk and capital, as a supplement to the existing legal entity view.

EXPECTATAION FROM INSURER UNDER ORSA; An insurer that is subject to the ORSA requirements will be expected to;

1. Regularly, no less than annually, conduct an ORSA to assess the adequacy of its Risk Management Framework and current and estimated projected future Solvency Position;
2. Internally document the process and results of the assessment.

The insurer should perform its own assessment of the quality and adequacy of capital resources both in the context of determining its economic capital and in demonstrating that regulatory capital requirements are met having regard to the quality criteria established by the supervisor and other factors which the insure consider relevant. CONCLUSION:   An insurance company being custodian to the money of policyholders is prone to various types of risks. They have to manage its risks so that they shall effectively deliver their values to the customers/policyholders. they have to develop a well establish Enterprise Risk Management System, which involves various methods and processes to manage risks and seize opportunities to achieve their objectives. An insurance company has to create value for their stakeholders, including owners, employees, customers, regulator and the society and for this they have to afloat and maintain its sustainability by effective Risk Management System. 10. ANALYSIS OF PROVISIONS RELATED TO TRANSFER, ASSIGNMENT AND NOMINATION UNDER INSURANCE ACT, 1938. Dear Friends, we purchase insurance policies for our safety and investment. The insurance policies are of various types and provided by various types of insurance companies. There are life insurance, general insurance and health insurance companies with their products in market. Through Insurance, we reduce our risk or transfer our risk to insurers by paying a small amount of premium. The insurance keeps us viable in against insured risk. Some insurance policies only provide risk cover and some are used to provide risk cover as well as investment options. The life insurance policies generally provide insurance as well as investment options, on the other hand general insurance products provides only safety against risk. The insurance provides us short range as well as long range relief. The short-term relief is aimed at protecting the assured from loss of property and life. The long-term object being industrial and economical growth of country and the society. The term “Transfer”, is a transaction through which we pass real rights in property from one person to another person. The transfer or assignment of policies of insurance are governed by the provisions of the Transfer of Property Act, 1882 (as amended from time to time). Provisions of Section 38, of the Insurance Act, 1938 applied only to life insurance policies. The provisions of   the Transfer of Property Act, 1882 apply to all types of insurance policies. Section 3 of the Transfer of Property Act, 1882 ,defines “ Actional Claim” as : “ Actionable Claim”, means a claim to any debt ,other than a debt, secured by mortgage of immovable property or by hypothecation or pledge of immovable property, or  to any beneficial interest in movable property not in possession either actual or constructive of the claimants ,which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent ,accruing, conditional or continent.” The claim under an insurance policy is considered as property and is treated as an actionable claim under the Transfer of Property Act, 1882 and rules related to transfer of actionable claim apply to assignment of insurance policy also. SECTIONS DEALING WITH ASSIGNMENT, TRANSFER AND NOMINATION OF THE INSURANCE ACT, 1938: SECTION 38: The assignment or transfer of an insurance policy should be in accordance of the provisions of Section 38 of the Insurance Act, 1938 as amended from time to time. The extant provisions in this regard are as follows:

1. This Policy may be transferred/assigned, wholly or in part, with or without consideration.
2. An Assignment may be affected in a Policy by an endorsement upon the Policy itself or by a separate instrument under notice to the Insurer.
3. The instrument of assignment should indicate the fact of transfer or assignment and the reasons for the assignment or transfer, antecedents of the assignee and terms on which assignment is made.
4. The assignment must be signed by the transferor or assignor or duly authorized agent and attested by at least one witness.
5. The transfer of assignment shall not be operative as against an insurer until a notice in writing of the transfer or assignment and either the said endorsement or instrument itself or copy there of certified to be correct by both transferor and transferee or their duly authorized agents have been delivered to the insurer.
6. Fee to be paid for assignment or transfer can be specified by the Authority through Regulations.
7. On receipt of notice with fee, the insurer should Grant a written acknowledgement of receipt of notice. Such notice shall be conclusive evidence against the insurer of duly receiving the notice.
8. If the insurer maintains one or more places of business, such notices shall be delivered only at the place where the Policy is being serviced.
9. The insurer may accept or decline to act upon any transfer or assignment or endorsement, if it has sufficient reasons to believe that it is a. not bonafide or b. not in the interest of the Policyholder or c. not in public interest or d. is for the purpose of trading of the insurance Policy.
10. Before refusing to act upon endorsement, the Insurer should record the reasons in writing and communicate the same in writing to Policyholder within 30 days from the date of Policyholder giving a notice of transfer or assignment.
11. In case of refusal to act upon the endorsement by the Insurer, any person aggrieved by the refusal may prefer a claim to IRDAI within 30 days of receipt of the refusal letter from the Insurer.
12. The priority of claims of persons interested in an insurance Policy would depend on the date on which the notices of assignment or transfer is delivered to the insurer; where there are more than one instruments of transfer or assignment, the priority will depend on dates of delivery of such notices. Any dispute in this regard as to priority should be referred to Authority.
13. Every assignment or transfer shall be deemed to be absolute assignment or transfer and the assignee or transferee shall be deemed to be absolute assignee or transferee, except a. where assignment or transfer is subject to terms and conditions of transfer or assignment OR b. where the transfer or assignment is made upon condition that
    1. the proceeds under the Policy shall become payable to Policyholder or nominee(s) in the event of assignee or transferee dying before the insured OR
    2. the insured surviving the term of the Policy Such conditional assignee will not be entitled to obtain a loan on Policy or surrender the Policy. This provision will prevail notwithstanding any law or custom having force of law which is contrary to the above position.
14. In other cases, the insurer shall, subject to terms and conditions of assignment, recognize the transferee or assignee named in the notice as the absolute transferee or assignee and such person
    1. shall be subject to all liabilities and equities to which the transferor or assignor was subject to at the date of transfer or assignment and
    2. may institute any proceedings in relation to the Policy
    3. obtain loan under the Policy or surrender the Policy without obtaining the consent of the transferor or assignor or making him a party to the proceedings.
15. Any rights and remedies of an assignee or transferee of a life insurance Policy under an assignment or transfer effected before commencement of the Insurance Laws (Amendment), 2014 shall not be affected by this section.

SECTION 39 - NOMINATION BY POLICYHOLDER;  Nomination of a life insurance Policy is as below in accordance with Section 39 of the Insurance Act, 1938 as amended from time to time. The extant provisions in this regard are as follows:

1. The Policyholder of a life insurance on his own life may nominate a person or persons to whom money secured by the Policy shall be paid in the event of his death.
2. Where the nominee is a minor, the Policyholder may appoint any person to receive the money secured by the Policy in the event of Policyholder’s death during the minority of the nominee. The manner of appointment to be laid down by the insurer.
3. Nomination can be made at any time before the maturity of the Policy.
4. Nomination may be incorporated in the text of the Policy itself or may be endorsed on the Policy communicated to the insurer and can be registered by the insurer in the records relating to the Policy.
5. Nomination can be cancelled or changed at any time before Policy matures, by an endorsement or a further endorsement or a will as the case may be.
6. A notice in writing of Change or Cancellation of nomination must be delivered to the insurer for the insurer to be liable to such nominee. Otherwise, insurer will not be liable if a bonafide payment is made to the person named in the text of the Policy or in the registered records of the insurer.
7. Fee to be paid to the insurer for registering change or cancellation of a nomination can be specified by the Authority through Regulations.
8. On receipt of notice with fee, the insurer should grant a written acknowledgement to the Policyholder of having registered a nomination or cancellation or change thereof.
9. A transfer or assignment made in accordance with Section 38 shall automatically cancel the nomination except in case of assignment to the insurer or other transferee or assignee for purpose of loan or against security or its reassignment after repayment. In such case, the nomination will not get cancelled to the extent of insurer’s or transferee’s or assignee’s interest in the Policy. The nomination will get revived on repayment of the loan.
10. The right of any creditor to be paid out of the proceeds of any Policy of life insurance shall not be affected by the nomination.
11. In case of nomination by Policyholder whose life is insured, if the nominees die before the Policyholder, the proceeds are payable to Policyholder or his heirs or legal representatives or holder of succession certificate.
12. In case nominee(s) survive the person whose life is insured; the amount secured by the Policy shall be paid to such survivor(s).
13. Where the Policyholder whose life is insured nominates his
    1. parents or
    2. spouse or
    3. children or
    4. spouse and children
    5. or any of them the nominees are beneficially entitled to the amount payable by the insurer to the Policyholder unless it is proved that Policyholder could not have conferred such beneficial title on the nominee having regard to the nature of his title.
14. If nominee(s) die after the Policyholder but before his share of the amount secured under the Policy is paid, the share of the expired nominee(s) shall be payable to the heirs or legal representative of the nominee or holder of succession certificate of such nominee(s).
15. The provisions of sub-section 7 and 8 (13 and 14 above) shall apply to all life insurance policies maturing for payment after the commencement of Insurance Laws (Amendment), 2014 (i.e. 26.12.2014).
16. If Policyholder dies after maturity but the proceeds and benefit of the Policy has not been paid to him because of his death, his nominee(s) shall be entitled to the proceeds and benefit of the Policy.
17. The provisions of Section 39 are not applicable to any life insurance Policy to which Section 6 of Married Women’s Property Act, 1874 applies or has at any time applied except where before or after Insurance Laws (Amendment) 2014, a nomination is made in favor of spouse or children or spouse and children whether or not on the face of the Policy it is mentioned that it is made under Section 39. Where nomination is intended to be made to spouse or children or spouse and children under Section 6 of MWP Act, it should be specifically mentioned on the Policy. In such a case only, the provisions of Section 39 will not apply.

SECTION 41 OF THE INSURANCE ACT, 1938, (as amended from time to time): provides that:

1. 1. “No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the Policy, nor shall any person taking out or renewing or continuing a Policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectus or tables of the insurer: Provided that acceptance by an insurance agent of commission in connection with a Policy of life insurance taken out by himself on his own life shall not be deemed to be acceptance of a rebate of premium within the meaning of this sub-section if at the time of such acceptance the insurance agent satisfies the prescribed conditions establishing that he is a bona fide insurance agent employed by the insurer.
   2. Any person making default in complying with the provisions of this section shall be liable for a penalty which may extend to ten lakh rupees.”

Click here to read the full Article