Insurance Principles

Main principles of Insurance:

• Good faith
• Indemnity
• Subrogation
• Contribution
• Insurable Interest
• Proximate Cause

Good faith

As the insured is your duty to disclose all material facts to the risk being covered.

A material fact is any information which would influence the insurer in deciding whether to accept a risk for insurance and on what terms (premiums or deductibles) or conditions (the extent to which cover is provided). The duty to disclose exists at the time of inception (including when completing proposals or providing information to your broker), at renewal and at any point mid term.

Indemnity

The purpose of Insurance is to place the Insured back in the same monetary position that he/she enjoyed immediately before the happening of an Insured event.  In the event of a claim the insured must:

    * Prove that the event occurred (and that the event is insured in terms of the policy);
    * Prove that a monetary loss has occurred as well as the extent of the loss;
    * After being Indemnified, to transfer any rights which he / she may have for recovery from another source to the Insurer.

Subrogation

The right of an insurer which has paid a claim under a policy to step into the shoes of the insured and exercise in the insured’s name all rights he / she might have against any responsible parties.

Subrogation is a feature of the principle of indemnity and therefore only applies to contracts of indemnity and so does not apply to life assurance or personal accident policies. It is intended to prevent an insured recovering more than the indemnity he receives under his insurance (the full amount of his loss) and enables the insurer to recover or reduce its loss.

Contribution

The right of an insurer to call on any other insurers who insured the same risk, but not necessarily for an equal value, to share the loss of an indemnity payment. The insured has the option which insurer they wish to claim from and that insurer then has the right to call on any other insurers liable for the loss to share in the claim payment.

Insurable Interest

Any party wishing to claim under an insurance policy needs to prove that they have an insurable Interest in the subject of the claim; that is that they stand to benefit from its preservation and will suffer from its loss.

In non-marine insurances, the insured must have insurable interest when the policy is taken out and also at the date of loss giving rise to a claim under the policy. In marine insurance, insurance interest is required at the time of loss.

Proximate Cause

An insurer will only be liable to pay a claim under an insurance contract if the loss that gives rise to the claim was proximately caused by an insured peril. This means that the loss must be directly attributed to an insured peril without any break in the chain of causation.