Kapil purchased an automobile service station from Vimal. The purchase price included the costs of building, equipment and other assets. The business was financed by a loan taken by Kapil from a scheduled bank, which als

CS Professional · Insurance - Law and Practice · PYQS · December 2015
Kapil purchased an automobile service station from Vimal. The purchase price included the costs of building, equipment and other assets. The business was financed by a loan taken by Kapil from a scheduled bank, which also held a mortgage of the building. Kapil, after purchase, converted one of the car-repair bays into a quick-service restaurant. Kapil had secured an insurance cover on the property but did not disclose to the insurer about the conversion. Six months after the commencement of the business, a car undergoing servicing at the station caught fire and damaged the roof over a bay in the service station area. From the above information, answer the following questions with reasons in brief: Did Kapil show utmost good faith when he applied for property insurance ?

Answer & Explanation:

Mr. Kapil has breached the principle of utmost good faith, by not revealing material fact of converting part of the car bay into a restaurant. In this situation, Mr. Kapil is bound to intimate any alteration to the property to the insurer if he intends to extend the coverage of the same, which can be done through an endorsement. In the present case, Mr. Kapil has not informed the company about the conversion, which is a material fact as it increases the degree of risk of the insured property.

Topics: Property Insurance

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