The Principles includes:-
1. Insurable Interest
2. Utmost good faith (Non-disclosure)
3. Indemnity
4. Subrogation
5. Salvage
6. Re-instatement
7. Contribution and Apportionment
8. Proximate Cause
9. Abandonment
10. Average Clause
11. 3rd Party Insurance
1. INSURABLE INTEREST
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.
Insurable interest is a basic requirement of any contract of insurance unless it can be and is lawfully waived. At a general level this means that the party to the insurance contract who is the insured or policy holder must have a particular relationship with the subject matter with the insurance whether that be, “a life or property or a liability to which he might be exposed”
Every of insurance contract requires an insurable interest to support it, otherwise it is invalid. This was held in Anctil Vs Manufacture Life Insurance Co. [1899]
Insurable interest is essentially the pecuniary or proprietary interest which is at stake or in danger should the insured opt not to take out an insurance policy on the subject matter. It is the interest which the insured stands to lose if the risk attaches.
The classical definition of insurable interest was given by Lawrence J in Lucena v. Crawford[1806] “A man is interested in a thing to which an advantage may arise or prejudice happen from the circumstances which may attend it… and whom it imported that its condition as to safety or other quality should continue, interest does not necessarily imply a right to the whole or a part of a thing, nor necessarily and exclusively that which may be subject of privation, but the having some relation to, or concern in the subject of the insurance, which relation or concern by the happening of the perils insured against may be so affected as to produce a damage, detriment or prejudice to the person insuring, and where a man is so circumstanced with respect to matters exposed to certain risks or damages, or to have a moral certainty of advantage or benefit but those risks or dangers, he may be said to be interested in the safety of the thing”.
In Lucena v. Crawford (1806) it was observed that a person has an insurable interest in a subject matter if he stands to gain by its continued existence and stands to lose in the event of its destruction.
To ascertain whether a person has insurable interest in subject matter, courts employ the following rules: –
1. There must be a direct relationship between the insured and the subject matter.
2. The insured bears any loss or liability arising
3. The insured must have a legal or equitable interest /right in the subject matter
4. The insured’s interest/right must be capable of financial/pecuniary estimation or qualification.
Who has an Insurable Interest?
Every person who has a legal or equivalent interest/right in a subject matter has an insurable interest therein. Every person has an insurable interest in his life.
Under Section 94 (2) of the Insurance Act1, the following people have insurable interest in the lives of the other:
1. A wife in the life or the husband
2. A husband in the life of his wife. In Grifith Vs Fleming [1909] it was held that a husband has an insurable interest in the life of his wife and vice versa.
3. A parent or a guardian of a child below 18 years in its life to the extent of the funeral expenses
4. An employer in the life of the employee to the extent of the services rendered. In Hebdonv. West (1863), it was held that an employer has an insurance interest in his employees to the extent of the services rendered and an employee has an insurable interest in the life of an employer to the extent of their relationship.
5. A creditor in the life of the debtor to the extent of the debt. In Thomas v. Continental Creditors (1976), it was held inter alia that a creditor has an insurance interest in the lifeof the debtor to the extent of the debt.
6. A dependant for maintenance or education in the life of the provider
Time of Insurable Interest
1. In Indemnity contracts e.g. fire, marine, burglary etc. it must exist at the time of loss.
2. In life Insurance, it must exist when the contract is entered into.
Insurable interest creates a direct relationship between the insured ad the subject matter. It gives insured the necessary locus standi to enforce the contract. However it has also been used by insurers to escape liability.
2. 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. It was so held in Lishman V. Northern Marine Insurance Co.
Effect of Non-Disclosure
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.:
a) Provisions and propositions of law
b) Unknown facts as was the case in Joel v. Law Union and crown Insurance Company
c) Facts known by other party
d) Matters of public notoriety as was the case in Bates V.Hemitt.
3. 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. 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.
In the words of Brett L.J in Castellain v. Preston,
“The insured is to be fully indemnified but is never to be more than fully identified”.
The principle of indemnity ensures that it is the duty of the insurer to ascertain whether there are circumstances which reduce, diminish or extinguish the loss as they have a similar effect on the amount payable by the insurer for the loss. E.g. if the tortfeasor makes good the loss, the insurer is not liable to indemnify the insured as was the case in Darell v. Tibbitts, where a house was destroyed by fire through tenants negligence but the tenant made good the loss. It was held that the insurer was not liable under the policy.
The principle of indemnity is given effect by the subordinate principles e.g: Subrogation, Salvage, re-instatement, contribution and appointment etc.
4. SUBROGATION
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.
It is an inherent and latent characteristic of the contract of indemnity that becomes operative after full indemnity.
The insurer cannot under subrogate rights recover more than the amount payable as indemnity as was the case in Yorkshire Insurance company Ltd. v. Nisbett Shipping Co.
5. 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.
6. RE-INSTATEMENT
This is the repair or replacement of the subject matter in circumstances in which it may be re-instated. Most indemnity policies confer upon the insurer an option to pay full indemnity or re-instate 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.
Any loss or liability arising in the course of re-instatement is borne by the insurer. The economic effect of re-instatement is to benefit the insurer by ensuring that he only pays full indemnity where the re-instatement is not possible.
7. 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.
8. CONTRIBUTION AND APPORTIONMENT
If an insured has taken out more that one policy on the same subject matter and risk with different insurers and loss occurs, the twin principles of contribution and appointment apply: –
a) 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”
b) 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 insurer.
The principle of contribution is equitable. An insurer is only entitled to contribution if the following conditions exist;
1. There must have been more than one policy on the same subject matter and risk.
2. The policies must have been taken out by or on behalf of the same person
3. The policies must have been issued by different insurers
4. The policies must have all been in force when loss occurs
5. All the policies must have been legally binding agreements
6. None of the policies must have exempted itself from contribution.
The twin principles of contribution and apportionment facilitate indemnity.
9. ABANDONMENT
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: –
1. Partial Loss
2. Constructive total loss.
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.
10. 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 proximanon 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 must operative in occasioning the loss.
11. AVERAGE CLAUSE
This is a clause in an insurance policy to the effect that if the subject matter is under insured and partial less occurs, the insurer is only liable for a proportion of the loss and where loss is minimal the insurer liability is extinguished. This clause ensures that subject matter is insured at its correct value.
12. THIRD PARTY INSURANCE
A person can insure himself against the risks of incurring liabilities to third parties. Under the Insurance (Motor Vehicles Third Party Risks) Act, every driver of a motor vehicle is required to be insured against liability in respect of death or bodily harm to a person caused by the use of the vehicle on the road. Under the Act, it is an offence to use a motor vehicle on the road without having in force an insurance policy in respect of injuries to third parties. The policy is only considered valid when a certificate of insurance has been issued.
This is Insurance against risks to people other than those that are parties to the policy. It is illegal to use, or allow anyone else to use, a motor vehicle on a road unless there is a valid insurance policy covering death, physical injury, or damage caused by the use of the vehicle. It also covers any liability resulting from the use of a vehicle (or a trailer) that is compulsorily insurable.
A judgement against the insured in respect of any liability arising for causing death or bodily harm can be enforced against the insurer. The insurance companies are not allowed to insert conditions that would terminate third party insurance on the happening of a given event because if it is allowed, the victims of road accidents will suffer tremedous hardships.
