Principles of Insurance Law
UNIVERSITY OF THE WITWATERSRAND
SCHOOL OF ECONOMIC AND BUSINESS SCIENCES
BUSE221-INSURANCE AND RISK MANAGEMENT IIA
COURSE NOTES
GENERAL PRINCIPLES OF INSURANCE LAW
Apart from the principles governing all contracts insurance is also governed by its own unique principles.
INDEMNITY
• Is perhaps the most fundamental principle of insurance law. Object of indemnity is to place the insured after the loss in the same position he occupied immediately before the loss. He is not to be placed in a better or worse position. • Not all insurance contracts are contracts of indemnity e.g. life insurance. Indemnity is important as it deals in part with moral hazard. • Indemnity does not imply that the insured will be indemnified to the full value of his loss e.g. a person whose factory is destroyed by fire cannot recover for loss of profits or against any liability that may arise from the fire unless he has appropriate policies in place specifically designed to deal with these losses. • Indemnity can be achieved through the following methods: 1. Cash 2. Reinstatement e.g. where a building is destroyed, insurers may reinstate it. 3. Repair e.g. where a motor vehicle is partially damaged. 4. Replacement-instead of paying cash a replacement item may be tendered. 5. New for old-used for household contents. This is not a violation of the principle of indemnity as there is no principle of law that requires indemnity to be determined in terms of the market value of the asset. 6.Valued policies-in terms of which the insurer and the insured agree before hand on the value to be paid should a particular asset be destroyed or stolen. This method of indemnity is used for assets with a sentimental rather than a commercial value e.g. jewellery, works of art etc. • The principle of indemnity is supported by 2 corollaries namely-subrogation and contribution.
SUBROGATION • Literally means “to stand in
SCHOOL OF ECONOMIC AND BUSINESS SCIENCES
BUSE221-INSURANCE AND RISK MANAGEMENT IIA
COURSE NOTES
GENERAL PRINCIPLES OF INSURANCE LAW
Apart from the principles governing all contracts insurance is also governed by its own unique principles.
INDEMNITY
• Is perhaps the most fundamental principle of insurance law. Object of indemnity is to place the insured after the loss in the same position he occupied immediately before the loss. He is not to be placed in a better or worse position. • Not all insurance contracts are contracts of indemnity e.g. life insurance. Indemnity is important as it deals in part with moral hazard. • Indemnity does not imply that the insured will be indemnified to the full value of his loss e.g. a person whose factory is destroyed by fire cannot recover for loss of profits or against any liability that may arise from the fire unless he has appropriate policies in place specifically designed to deal with these losses. • Indemnity can be achieved through the following methods: 1. Cash 2. Reinstatement e.g. where a building is destroyed, insurers may reinstate it. 3. Repair e.g. where a motor vehicle is partially damaged. 4. Replacement-instead of paying cash a replacement item may be tendered. 5. New for old-used for household contents. This is not a violation of the principle of indemnity as there is no principle of law that requires indemnity to be determined in terms of the market value of the asset. 6.Valued policies-in terms of which the insurer and the insured agree before hand on the value to be paid should a particular asset be destroyed or stolen. This method of indemnity is used for assets with a sentimental rather than a commercial value e.g. jewellery, works of art etc. • The principle of indemnity is supported by 2 corollaries namely-subrogation and contribution.
SUBROGATION • Literally means “to stand in