Principles and Practice of Insurance
Principles and Practice of Insurance
This domain tests the legal and contractual doctrines that underpin every policy and how Indian insurance practice applies them to real claims and disputes. Expect questions that ask you to identify the governing principle, apply it to a fact pattern, and distinguish closely related doctrines.
Core doctrines
The Indian syllabus rests on seven interlocking principles:
- Insurable interest: the insured must benefit from the subject matter's safety or suffer loss from its damage. In life insurance it must exist at inception; in property insurance it must exist at the time of loss.
- Utmost good faith: both parties must disclose material facts. The duty is reciprocal, not a one-way burden on the proposer.
- Indemnity: property and liability policies restore the insured to the pre-loss financial position, no better and no worse. Life and personal accident policies are benefit policies, not indemnity contracts.
- Proximate cause: the effective, dominant cause decides coverage, not the last event in the chain.
- Subrogation: after paying, the insurer steps into the insured's legal rights against a negligent third party.
- Contribution: where two or more policies cover the same interest, insurers share the loss rateably.
- Mitigation: the insured must take reasonable steps to reduce loss.
Worked example
A warehouse fire starts from an electrical short-circuit; the policy excludes spontaneous combustion but covers short-circuit. Smoke and water damage follow. Applying proximate cause, the short-circuit is the effective cause, so the fire damage and consequential smoke/water damage are covered. The insurer pays the stock value less salvage and the policy deductible, then exercises subrogation against a negligent contractor if negligence is proved. Contribution arises only if another policy covered the same stock.
Traps that cost marks
Treating life insurance as indemnity; asserting subrogation before payment; placing property insurable interest only at inception; confusing contribution with subrogation; and assuming utmost good faith binds only the proposer.