BASIC PRINCIPLES OF MOTOR INSURANCE :

Motor insurance being a contract like any other contract has to fulfill the requirements of a valid contract as laid down in the Indian Contract Act 1872.

In addition it has certain special features common to other insurance contracts.

They are:

• Utmost good faith

• Insurable interest

• Indemnity

• Subrogation and contribution

• Proximate cause

All of these principles have already been discussed in detail in earlier chapters. But for the student’s convenience, we will be discussing these here again:

Utmost good faith 

The principle of Utmost good faith casts an obligation on the insured to disclose all the material tracts. These material facts must be disclosed to the insurer at the time of entering into the contract. All the information given in the proposal form should be true and complete. E.g. the driving history, physical health of the driver, type of vehicle etc. If any of the mentioned material facts declared by the insured in the proposal form are found inappropriate by the insurer at the time of claim it may result in the claim being repudiated.

Insurable Interest

In a valid insurance contract it is necessary on the part of the insured to have an insurable interest in the subject matter of insurance. The presence of insurable interest in the subject matter of insurance gives the person the right to insure. The interest should be pecuniary and must be present at inception and throughout the term of the policy. Thus the insured must be either benefited by the safety of the property or must suffer a loss on account of damage to it.

Indemnity

Insurance contracts are contracts of indemnity. Indemnity means making good of the loss by reimbursing the exact monetary loss. It aims at keeping the insured in the same position he was before the loss occurred and thus prevent him from making profit from insurance policy.

Subrogation and Contribution

Subrogation refers to transfer of insured’s right of action against a third party who caused the loss to the insurer. Thus, the insurer who pays the loss can take up the assureds’ place and sue the party that caused the loss in order to minimise his loss for which he has already indemnified the assured.

Subrogation comes in the picture only in case of damage or loss due to a third party. The insurer derives this right only after the payment of damages to the insured. Contribution ensures that the indemnity provided is proportionately borne by other insurers in case of double insurance.