Summarise three basic principles of insurance
Basic principles of insurance
- Insurable interest: this is the financial/monetary interest at stake or in danger if the subject matter is not insured. It is the interest a person has in the subject matter which he stands to lose in the event of it’s lose or destruction.
- Non-disclosure/utmost good faith: The duty to disclose exists throughout the negotiation period. It generally comes to an end when the proposal form is accepted. The non-disclosure of a material fact by either party renders the contract voidable at the option of the innocent party. London Assurance company V Mansel (1879)
- Indemnity: this principle means that when loss occurs it is the duty of the insurer to restore the insured to the position he was before the loss.
- Indemnity is a basic principle in property insurance, it has its justifications in equity in that in its absence the insured is likely to benefit from the contract.
- Subrogation: This means that after the insurance has indemnified the insured, he steps into the shoes of the insured in relation to the subject. OR It means that after indemnity the insurer becomes entitled to all the legal and equitable rights respect the subject matter previously exercisable by the insured. Subrogation facilitates indemnity by ensuring that the insured does not benefit from the contract.