IC-78 - Foundations of the Insurance Contract and Its Core Doctrines
Scope of this section
III's published domain breakdown for subject IC-78 was not retrievable for verification, so this section teaches the contract-law spine that every III professional paper assumes and tests, and flags the framing as provisional for review against the current III syllabus.
The doctrines examiners keep returning to
- Utmost good faith (uberrima fides): the proposer must disclose every material fact a prudent underwriter would treat as affecting acceptance, terms or premium. Non-disclosure and misrepresentation are grounds for avoidance from inception.
- Insurable interest: in life and personal-accident business it is presumed for self and immediate family and need exist only at inception; in property and liability business it must exist at both inception and the time of loss.
- Indemnity: applies to property, marine, liability and most miscellaneous covers; life, personal accident and hospital cash plans are benefit policies paying the sum insured irrespective of actual loss.
- Proximate cause: the dominant, effective cause of loss, not the last event in the chain, determines whether the peril is covered.
- Subrogation: after settling, the insurer acquires the insured's right of recovery against the negligent third party; it cannot apply to life policies because there is no indemnity to recover.
- Contribution: applies where two or more policies cover the same subject matter, interest and peril; each insurer then pays rateably or on independent liability.
Worked example
A factory worth ₹20 lakh is insured for ₹10 lakh each under Policy A and Policy B, both covering fire. Fire destroys property worth ₹8 lakh. Neither policy is under-insured overall (aggregate ₹20 lakh equals value), so average does not reduce the claim. Rateable proportion: ₹8 lakh × (₹10 lakh ÷ ₹20 lakh) = ₹4 lakh from each insurer. Had only Policy A existed, average would have limited recovery to ₹8 lakh × (10 ÷ 20) = ₹4 lakh.
Traps that cost marks
- Treating subrogation and contribution as interchangeable; subrogation runs against a third party, contribution against a co-insurer.
- Applying the average clause to a benefit policy.
- Stating that insurable interest in property need exist only at inception.
- Confusing proximate cause with the final event causing damage.
Verification note: confirm the official IC-78 domain names and weightings with III before relying on this section's title (needs_review).