Basic principles of insurance

UTMOST GOOD FAITH – This is a duty upon the proposer to reveal all material facts about the proposed risk. A material fact is one which would influence the mind of a prudent underwriter in deciding whether to accept a risk or not and on what terms. Examples are the value of the subject matter, its usage and location. This principle also requires insurers to disclose all the major terms and conditions of the contract to the insured.

INSURABLE INTEREST - The insured must stand in some legally recognized relationship to the subject matter of insurance whereby he benefits from its safekeeping or is prejudiced by its loss.

SUBROGATION – If an insured recovers under his policy then the insurers assume legal rights and remedies against third parties. This prevents an insured from making a recovery from both his insurers and a third party. Subrogation therefore means that the insurers can pursue or seek recovery from the third party who caused the loss to the insured.

CONTRIBUTION – An insured cannot make profit from a loss by recovering from more than one insurer. Contribution therefore means that all insurers will contribute to pay the actual loss so that the insured does not benefit. This happens when the same loss or damage by the same insured peril, occurs on the same subject matter and on the same interest.

PRIXIMATE CAUSE – Since insurance policies are designed to pay for losses arising from specified perils, any claim payable must be as a direct result of the insured peril happening.

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