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principles, which govern the operations of auto insurance processes

Insurance is largely derived from the general law of contract .because of this, insurance contracts must contain elements that are required for all legally binding contracts.in addition, there are certain special principles applicable to insurance that require detailed discussion. The principles help in the operation of the insurance processes.

Principle of insurable interest

Insurable interest it is one of the most important principles of auto insurance.it is legally binding only if the insured has an interest in the subject matter of insurance; what is insurable is this interest and not the subject matter.it can be defined as the legal right to insure, arising out of a financial relationship, recognised at law, between the insured and the subject matter of insurance.in the absence of insurable interest, a policy of insurance is void.

The essentials of insurable interest are:

  • The interest should be capable of being valued financially.
  • The insured must stand in a relationship with the subject matter of insurance whereby one benefits from its safety, well-being or freedom from liability and would be prejudiced by its damages or the existence of liability.
  • The life, right, interest, property or liability must be subject matter of insurance and they should devolve upon the insured capable of being covered.

Importance of the principle of insurable interest it ensures that the insurance contract is not used for wagering purposes and to mitigate against moral hazard.in the absence of the principle, an insurance policy might be used as a gambling contract and could be an inducement to commit crime.

Utmost good faith it is the duty of each contracting party to ensure that it makes a reasonable bargain. Each party must examine the product being sold or the service being offered and, so long as one is not misled, one cannot avoid the contract. Disclosing the information is not necessary that is not asked for.in insurance, however ,the doctrine of ‘caveat emptor’ does not apply because the insured knows or ought to know all about the risk being proposed for insurance and the insurer tellies largely on information being disclosed by the insured.

Proximate cause this is the active, efficient cause that sets in motion a chain of events which brings about a result without the intervention of any force, started and working actively from a new and independent source.

Principle of indemnity

Indemnity it can said to be placing the insured in the same financial position after a loss as one occupied immediately before the loss. This is easily applicable to a general insurance contract but not life and personal accident insurance policies

subrogation

Subrogation it is the right of one person having another under a legal obligation to do so, to stand in the place of that other person and avail oneself of all rights and remedies of the other person, whether already enforced or not.it only applies in the principle of indemnity. The principle of indemnity protects an insured person from recovering from insurers a sum greater than the actual financial loss one has sustained.

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