Mr Ajay a Company Secretary is also a fellow member of The Insurance Institute of India. He joined ABC Limited as a Manager in 2006 and got promoted as a Senior Manager in October, 2011. His promotion entitled him to buy

CS Professional · Insurance - Law and Practice · PYQS · December 2017
Mr Ajay a Company Secretary is also a fellow member of The Insurance Institute of India. He joined ABC Limited as a Manager in 2006 and got promoted as a Senior Manager in October, 2011. His promotion entitled him to buy a car. He bought a Hyundai EON car. He took lessons from a driving class and got a Learner's Driving licence. The car purchased and registered in October 2011 was insured with FG Insurance comprehensively. During December, 2011 while reversing his new car (EON) parked on a gradient facing west east inside the company's car shed lost control over the vehicle and dashed the rear of an Esteem Vehicle (parked East West). Due to the impact ESTEEM vehicle had also touched another car Santro nearby. Esteem car was insured by the owner comprehensively with TAIG Insurance. Mr Ajay immediately informed the security of the company ABC Limited as the parking shed belonged to ABC Limited and the executives and managers were authorised to park their vehicles in the big parking shed partly open and partly covered with asbestos sheets. Mr Ajay the insured had only a LLR (Leaner's Licence) and yet to get a permanent driving licence. However at the time of accident he was accompanied by Mr. Sanjay who was having a permanent driving licence and sitting adjacent to Mr Ajay while he was driving. Mr Sanjay drove the vehicle after the accident to the dealer cum repairing centre and left the vehicle at dealer's garage to have the vehicle repaired. As there was no injury to any person and the accident happened inside the parking shed owned by ABC Limited, it never occurred to Mr Ajay that he should lodge a FIR/Panchnama. Mr Ajay took moral responsibility in taking the lead and reported the claim to TAIG Insurance (Insurer of ESTEEM) after ascertaining the name of the insurer and the insured from the records available with ABC Limited. As the ESTEEM vehicle was very old vehicle, total repair expenses exceeded the assessment of the surveyor and Mr Ajay had to reimburse ₹10000/- to the extent repair expenses exceeded the claim assessment of the surveyor and reimbursed by the insurer to the owner of ESTEEM vehicle. The owner of Santro Vehicle did not prefer a claim with his insurers but claimed the repair expenses from Mr Ajay, the owner of EON vehicle. Mr Ajay reimbursed ₹5000/- to the owner of the Santro vehicle. Mr Ajay got the repair expenses of EON from FG insurance. Repair expenses to the ESTEEM vehicle were reimbursed partially by TAIG Insurance to the extent assessed by the surveyor and repair expenses over and above the surveyor's assessment was borne by Mr Ajay (₹10000/-) and similarly he had also paid ₹5000/- to the owner of Santro vehicle as stated above. Mr Ajay got his EON car repaired and wanted FG insurance. (i) To reimburse ₹10000/- the excess of repairers'bill over and above what had been admitted by TAIG Insurance. (ii) To reimburse ₹5000/- the amount of repair expenses paid to the santro owner. The policy issued by FG Insurance for EON car was comprehensive and showed TPPD of ₹750000/- and obtained premium for the same in addition to collecting OD premium for the car. Mr Ajay contended that it was not any compromise to the third party(ies) (owners of ESTEEM and Santro vehicles) but had reimbursed the excess of the repairer's bill over and above allowed by TAIG Insurance for ESTEEM and since Santro owner did not prefer a claim with the insurers. Please answer the following: Explain the principles of insurance with reference to Motor underwriting in detail explaining the different types of cover. Comprehensive, ACT only.

Answer & Explanation:

Motor Insurance being a contract like any other contract has to fulfill the requirement 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 as under: Principle of Utmost Good Faith: The principle of utmost good faith casts an obligation on the insured to disclose all the material facts. 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 the vehicle etc. If any of the material facts declared by the insured in the proposal form are incorrect or inappropriate by the insurer at the time of the claim it may result in the claim being repudiated. Principle of 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 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 benefitted by the safety of the property or must suffer a loss on account of damage to it. Principle of 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 as he was before the loss occurred and thus prevent him from making any profit from the insurance policy. Principle of Subrogation and Contribution: Subrogation refers to transfer of insured's right of action against a third party who caused the loss. Thus the insurer who pays the loss can take up the insured's place and sue the party that caused the loss in order to minimize his loss for which he has already indemnified the insured. Subrogation comes in the picture only in case of the 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 all the insurers in case of double insurance. Principle of Proximate Cause: The legal doctrine of proximate cause is based on the principle of cause and effect. To be proximate the cause must be immediate effect but not a remote or distant one. Different Types of Cover The All India Motor Tariff governs motor insurance business in India. According to the Tariff all Classes of vehicles can use two types of Policy forms. They are: Form A which is known as ACT Policy is a compulsory requirement of the Motor Vehicle Act. Use of vehicles without such insurance is a penal offence. Form B which is also known as Comprehensive cover is an optional cover. Liability only Policy: This covers third party liability and/or death and property damage. Compulsory personal accident covers for the owner in respect of owner driven vehicle is also included. Package Policy: This covers loss or damage to the vehicle insured in addition to 1 above. Comprehensive Policy: Apart from the above mentioned coverage it is permissible to cover private cars against the risk of fire and/or theft and their party/theft risks. Every owner of motor vehicles has to take out a policy covering third party risks but insurance against other two risks is optional. When insurance policy covers third party risks, third party who has suffered any damages, can sue the insurance company even though it is not a party to the contract of insurance. Insurance policies for the vehicles subject to the purchase agreements, lease agreements and Hypothecation are to be issued in the joint names of the hirer and the owner, lessee and the lessor, owner and the pledgee respectively. In case of policy renewal a notice of one month in advance is issued by the insurer. The notice gives the details of premium payable for renewal.

Topics: Motor Insurance

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