BCP Ch 4

INTRODUCTION

1. Legal Principles of Insurance

   • Insurance contracts are governed by various legal principles, primarily arising from Common Law.
   • Common Law: Known as "unwritten law"
     • Developed from precedents set by judges over centuries.
     • Can be modified by legislation or mutual agreement.

2. Six Essential Principles of Insurance

   • Insurable Interest: Right to insure based on a legal relationship to the subject matter.
   • Utmost Good Faith: Duty to disclose all material facts.
   • Indemnity: Exact amount of compensation for loss.
   • Subrogation: Rights of recovery against third parties.
   • Contribution: Sharing of claims between insurers.
   • Proximate Cause: Main cause of loss leading to a claim.

INSURABLE INTEREST

1. Concept of Insurable Interest

   • The legal right to insure based on ownership or legal relationships.
   • Example: Owning a car or house provides an insurable interest since loss would financially affect the owner.
   • Legal relationships where insurable interest exists:
     • Owners of property, bailees, tenants, etc.

2. Examples of Insurable Interest

   • Possession without ownership:
     • Warehousemen, shoe repairers, laundries, etc.
   • Life Insurance:
     • Insurable interest exists in one’s own life, spouse, and dependent children under 18.

3. Essentials of Insurable Interest

   • Property rights, relationship with the subject matter, and benefits from existence or liability from loss.

4. Existence of Insurable Interest

   • Varies across insurance classes:
     • Life Insurance: Must exist at policy effectuation.
     • Marine Insurance: Required at time of loss.
     • Non-Life Insurance: Required at both policy issuance and time of loss.

UTMOST GOOD FAITH

1. Concept

   • Both parties in insurance must deal honestly and openly.
   • Breach of this duty can void the contract.

2. Duties under Utmost Good Faith

   • Duty to disclose material facts fully and accurately.
   • Different from the doctrine of caveat emptor in sales contracts.

3. Material Facts

   • Defined as facts influencing an underwriter’s decision.
   • Not required to disclose obvious facts or facts known to the insurer.

4. Duty of Disclosure

   • Begins at negotiations and continues until the policy takes effect.
   • Revived on policy renewal for short-term policies.

5. Misrepresentation

   • False statements can void insurance contracts.
   • Distinction between fraudulent, innocent, and negligent misrepresentation.

PRINCIPLES OF INDEMNITY

1. Concept

   • Indemnity provides protection against losses, ensuring the insured is compensated to restore their position prior to the loss.
   • Prevents profit from losses.

2. Application of Indemnity

   • Commonly applies to property, liability, and marine insurance.
   • Life Insurance is not a contract of indemnity.

3. Measure of Indemnity

   • Based on actual loss and varies with insurance type:
     • Property: Value at time of loss.
     • Liability: Damages awarded by courts.

4. Factors Limiting Indemnity

   • Sum insured, other policy limits, underinsurance, excesses, and deductibles.
   • Extensions and agreements can increase indemnity (e.g., reinstatement clause).

SUBROGATION

1. Concept

   • Allows insurers to recover from a third party after indemnifying the insured.
   • Prevents the insured from profiting from a loss by claiming both from insurance and a third party.

2. Operation of Subrogation

   • Insurers may pursue recovery after indemnifying the insured.
   • Must act in the name of the insured.

CONTRIBUTION

1. Concept

   • The principle of contribution ensures that multiple insurers share a claim equitably.
   • Prevents the insured from profiting from their loss.

2. When Contribution Arises

   • Applies when multiple indemnity contracts cover the same loss, interests, and perils.

PROXIMATE CAUSE

1. Concept

   • Proximate cause is the primary cause of loss directly linked to the resulting damage.
   • Defined by case law.

2. Types of Perils

   • Insured, uninsured, and excluded perils must be evaluated against proximate cause definitions to determine policy coverage.

3. Examples

   • How proximate causes are classified and evaluated against insurance policies to determine liability and coverage.