This is the financial or 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 its loss or destruction.
To ascertain whether a person has insurable interest in subject matter, courts employ the following rules: –
- There must be a direct relationship between the insured and the subject
- The insured bears any loss or liability arising
- The insured must have a legal or equitable interest /right in the subject matter
- The insured’s interest/right must be capable of financial/pecuniary estimation or qualification.
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 partly renders the contract voidable at the option of the innocent party. In London Assurance Company V. Mansel (1879) when responding to a question in the proposal form, the proposer stated that no other insurer had declined to take his risk; in fact 2 companies had previously declined to insure him.
Subsequently, the insurer sought to avoid the contract on the ground of non-disclosure of a
material fact. It was held that the contract was voidable at the option of the insurer for the concealment of material fact. A similar holding was made in Horne v.Poland (1922)
Although the contract of insurance is one of the utmost good faith certain matters need not be disclosed e.g.:
- Provisions and propositions of law
- Unknown facts as was the case in Joel Law Union and crown Insurance Company
- Facts known by other party
- Matters of public notoriety as was the case in Bates Hemitt.
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. The insurer must so far as money can do; put the insured to the position he was before the loss. Idemnity means that there should be no more or no less than restitutio in integrum.
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.
The principle of indemnity is given effect by the subordinate principles e.g: Subrogation, Salvage, re-instatement, contribution and appointment etc.
This means that after the insurer has indemnified the insured, he steps into the shoes of the insured in relation to the subject matter.
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.
SALVAGE
This is the recovery by the insurer of the remains of the subject matter after indemnity. It is part of subrogation and facilities indemnity. It is justified on the premise that the amount paid by the insurer as indemnity includes the value of the remains.
This is the repair or replacement of the subject matter in circumstances in which it may be reinstated.
Most indemnity policies confer upon the insurer an option to pay full indemnity or reinstate the subject matter. The insurer must exercise his option within a reasonable time of notification of loss and is bound by his option. If the insurer opts to re-instate, the subject matter must be re-instated to the satisfaction of the insured.
DOUBLE INSURANCE
This is a situation whereby a party takes out more than one policy on the same subject matter and risk with different insurers but where the total sum insured exceeds the value of the subject matter.
CONTRIBUTION AND APPORTIONMENT
If an insured has taken out more than one policy on the same subject matter and risk with different insurers and loss occurs, the twin principles of contribution and appointment apply: –
- If the insured claims from all the companies at the same time, they apportion the loss between themselves on the basis of the sums insured. Each insurer bears part of the loss. This is the “Principle of Apportionment”
- If one of the insurers makes good the total liability to the insured, such insurer is entitled to recover the excess payment from the other insurers. This is the “Principle of Contribution”. This principle is to the effect that an insurer who has paid more that his lawful share of the loss is entitled to receive the excess from the other
The principle of contribution is equitable. An insurer is only entitled to contribution if the following conditions exist;
- There must have been more than one policy on the same subject matter and
- The policies must have been taken out by or on behalf of the same person
- The policies must have been issued by different insurers
- The policies must have all been in force when loss occurs
- All the policies must have been legally binding agreements
- None of the policies must have exempted itself from contribution. The twin principles of contribution and apportionment facilitate
This is the surrender by the insured of the remains of the subject matter for full indemnity. It entails the giving up the res (residue) to the insurer for indemnity. This principle has its widest application in Marine Insurance but generally applies in case of: –
- Partial Loss
- Constructive total
The insured must notify the insurer of his intention to abandon the subject matter. However, it is for the insurer to determine whether or not abandonment is applicable. If the insurer opts to pay full indemnity, it signifies the sufficiency of the insured’s notice and it is an admission of liability. The insurer becomes entitled to the remains of the subject matter.
PROXIMATE CAUSE
An insurer is only liable where loss is proximately caused by an insured risk and not liable where the risk is excepted. The principle of proximate cause protects the insurer from undue liability.
Under this principle, the proximate and not the remote cause is to be looked into. (Causa proxima non remota spectatur)
The proximate cause of an event is the cause to which the event is attributable. It is the cause which is more dominant direct, operative and efficient in giving rise to the event.
Courts have not developed any technical test of ascertaining what the proximate cause of an event is. They rely on common place tests of the reasonable man and that among competing causes, one must be more dominant that the rest. The proximate cause need not be the last on the chain but must be the most operative in occasioning the loss.
