IC-104 Legal Aspects of Insurance: Contract, Disclosure, and Claims
IC-104 examines the legal framework that determines whether an insurance contract is valid, how it is interpreted, and when a claim must be paid. Questions typically test contract essentials, disclosure, insurable interest, policy conditions, and the regulatory and consumer-protection environment. Answers score when they name the principle and apply it to the facts.
Contract foundations
- The Indian Contract Act, 1872 supplies the general requirements: offer and acceptance, consideration (premium), capacity, free consent, lawful object, and certainty.
- Insurance adds the duty of utmost good faith. A proposer must disclose material facts, not merely avoid false answers; materiality is judged by what a prudent underwriter would consider relevant to the risk.
- Insurable interest must exist at inception for life insurance and at inception and at loss for indemnity insurance. Life and personal accident policies are not contracts of indemnity; property and liability covers are.
- Indemnity, subrogation, contribution, and proximate cause determine the amount and source of recovery. Policy warranties and conditions must be complied with; a material breach may allow the insurer to avoid liability.
Regulation and claim conduct
The Insurance Act, 1938, the IRDA Act, 1999, and IRDAI regulations govern licensing, solvency, conduct, and policyholder protection. Section 45 of the Insurance Act restricts repudiation of a life policy after three years, subject to fraud and material misstatement. The Consumer Protection Act, 2019 and the Insurance Ombudsman provide remedies for deficiency in service.
Worked example
A life proposer denies prior cardiac treatment. The medical examiner records normal findings, and the policy is issued. The insured dies 18 months later; hospital records reveal pre-proposal treatment. The insurer may repudiate: the fact was material, the answer was false, and it induced acceptance. The examiner's missed diagnosis does not cure the proposer's breach. If the claim arose after three years, Section 45 would narrow the insurer's right to repudiate, but fraud remains relevant.
Traps
Do not treat a warranty as a mere representation; do not assume an agent's knowledge always binds the insurer; do not apply indemnity to life policies; and do not ignore proximate cause or claim conditions.