INDEMNITY(5)

BY
DR. Y. PAPA RAO
COURSE TEACHER
 INTRODUCTION TO INDEMNITY
• A contract of insurance is a contract either to indemnify a person against a loss which
may arise on the happening of an event or to pay a sum of money for an agreed
consideration.
• Indemnity means make good the loss or compensate the loss. It is a promise to save
another person from harm or from the loss caused as a result of a transaction. Here we
need to study section 124 and section 31 of Contract Act.
• According to Porter: Indemnity is the controlling principle of insurance law and it is by
reference to this principle that all problems in insurance can be solved.
• All contracts of insurance cannot be strictly called contracts of indemnity.
• The principle of indemnity is an important element in non-life insurance policies.
• It is well settle that contracts of fire and marine insurances are contracts of indemnity.
(Castellain v Preston (1883) 11 QBD 380.
 MEANING AND DEFINITION
• According to Porter :
• Indemnity is the controlling principle of insurance law
• Indemnity means a promise to save another person from harm or from
the loss caused as a result of a transaction entered into at the instance
of the promisor.
• See section 124 of Indian Contract Act (Human intervention only).
Hence section 31 of ICA, 1872 brought hrer.
• English Law of Indemnity is the promise to save a person from the
consequences of an act (Not only the human intervention but also act
of God will be covered).
 APPLICABILITY OF INDEMNITY
• In case of Fire, Marine and Life
• Some writers and judges even classify the contracts of insurance as
indemnity contracts and non-indemnity contracts.
• Case: Balby v. India and London Assurance Co (1854) that the policies
of insurance against fire and marine risks, are contracts of indemnity
and the insurer agrees to compensate the sustained by the insured.
• Case: Castellain v. Preston (1883): Bret t LJ observed that the contract
of insurance contained in a marine or fire policy is a contract of
indemnity and of indemnity only.
 LIMITATIONS
• The insured will not be permitted to make a profit in the transaction.
• For instance: if he recovers anything by selling the damaged goods,
he has to account for it to the insurance company.
• In Fire and Marine insurance, the insurer will pay only compensation,
that is the actual loss or damage.
• In National Insurance Co v. Sushila Devi Mantoo, AIR 2005 J&K 42.It
was held that, having accepted the premium for the whole building,
the insurer was liable to pay the loss for the whole building.
 THE PRINCIPLE OF SUBROGATION IS
APPLICABLE
• This principle is applicable where the loss is cause by third party.
• Subrogation means step into the sues of the insured and avail himself
of all the rights and remedies of the insured.
• In Yorkshire Insurance Co v. Nisbet Shipping Co (1962) 2 QB 330.
• It is based on principle of equity compelling an assured to allow his
name to be used by the insurer for the purpose of enforcing the
assured’s remedies against third parties in respect of the subject-matter
of the loss.
• The right of subrogation is exercisable after the amount to the insured
has been fully paid.
 PRINCIPLE OF CONTRIBUTION
• It will be applicable to Marine and Fire insurance contracts:
• the principle holding that two or more insurers each liable for a covered loss
should participate in the payment of that loss subject to the principle of
Indemnity.
• The contribution principle of insurance states that if a risk is insured by multiple
insurers, and one insurer has paid out a claim, that the insurer who paid the
entire amount may ask for contribution from other insurers.
• In North British and Mercantile v. Liverpool and London Globe (1877) 3 Ch D
569. The contribution exists where the thing is done by the same person against
the same loss with two or more insurers. It is also called “double insurance."
 REINSTATEMENT
• Reinstatement means replacement of what is lost or repairing
the damaged property and bringing it to its original value and
utility.
• In Anderson v. Commercial Assurance Co.(1855) 55 DJQB 146
(CA). The reinstatement will be applied if the property is wholly
destroyed. The Insurance company may choose, instead of
paying the money replace the things which are equivalent.
• This right of the insurer to reinstate the property, either from a
contract or under statute.
 THIS PRINCIPLE IS NOT APPLICABLE
• In case the Policy holder (Insured) intentional act.
• Where the Insured intentionally responsible for the loss then in those
cases the principle of indemnity is not applicable.
• Where the risk is not insured against.
• In case the policy does not cover the rise, even then the risk takes
place, in those cases this principle of Indemnity will not be applicable.
• The Insurance Company shall not be made liable in the above
circumstances.
 CONCLUSION
• In conclusion, it may be said that though there is a doubt :
• Whether the contract of life insurance is a contract of indemnity or not:
• It is well settled and without doubt it is said that:
• The Contracts of Fine and Marine insurance are cent percent of contracts
of Indemnity.
• Divergent opinions are expressed on the applicability of the principle of
indemnity to contracts of life insurance.
• Lord Mansfield observed that a life insurance contract is a contract of
indemnity. This principle was recognized in Godsall v. Baldero, (1807) 9
East 72.