Insurance is a contract, a risk transfer mechanism whereby one company (underwriter) agrees to compensate or indemnify another party (policy holder) by paying a reasonable premium to the insurance company to cover the insurance object. If you are well acquainted with these principles, you will be in a better position to negotiate your insurance needs.
1. Insurable interest. It is the economic or monetary interest that the owner or possessor of a property has in the subject matter of the insurance. The mere fact that it could be detrimental to him if a loss were to occur due to his financial participation in those assets gives him the ability to insure the property. Castellín Vs Preston 1886.
2. Umberima fadei. Means maximum good faith, this principle establishes that the parties to the insurance contract must accurately and fully disclose all the material facts for the proposed risk. In other words, the insured must inform the insurer of all the facts related to the risk to be insured (Looker Vs Law Union and Rock 1928). Likewise, the underwriter must highlight and explain the terms, conditions and exceptions of the insurance policy. And the policy must be free of ‘fine print’.
3. Indemnity. It stated that after a loss, the insurer must ensure that the insured is placed in the exact financial position that he enjoyed prior to the loss (Leppard Vs Excess 1930).
4. Contribution. In a situation where two or more insurers are covering a particular risk, if a loss occurs, the insurers must contribute to the settlement of the loss according to their taxable proportion.
5. Surrogacy. It has often been said that contribution and subrogation are corollaries of compensation, which means that these two principles operate so that compensation does not fail. Subrogation operates primarily in auto insurance. When an accident has occurred involving two or more vehicles, there must be damage dealers who are responsible for the accident. On this basis, the insurer covering the policyholder who was not at fault can recover its expense from the insurer of the policyholder responsible for the incident.
