Insurance - Definition - Law Dictionary Home Dictionary Definition insurance

Definition :

Insurance, see, Income-tax Act, 1961 (43 of 1961), s. 80C, Expl. 1.

Insurance, the act of providing against a possible loss, by entering into a contract with one who is willing to give assurance, that is, to bind himself to make good such loss should it occur. In this contract, the chances of benefit are equal to the insured and the insurer. The first actually pays a certain sum, and the latter undertakes to pay a larger, if an accident should happen. The one renders his property secure; the other receives money with the probability that it is clear gain. The instrument by which the contract is made is called a policy; the stipulated consideration, a premium. As to what is known as a coupon policy, i.e., a coupon cut out of a diary, etc., see General Accident, etc., Assce. Corpn. v. Robertson, 1909 AC 404.

Insurable Interest must be possessed by the person taking out a policy; he must be so circumstanced as to have benefit from the existence of the person or thing insured, and some prejudice from its destruction, Lucena v. Crauford (1806), 3 Bos & P 75; 2 Bos & PNR 269; a mere hope of profit is not insurable (ibid.). see also the (English) Assurance Companies (Gambling Policies) Act, 1909, as to marine policies. The interest of the insured must exist (a) marine insurance, at the time of loss; (b) life, at time of effecting the insurance; (c) fire, through-out the period insured.

Insurance generally provide either against risks at sea, or losses by fire, death, or accident; but losses by burglary or by default of clerks, and, in fact, almost all kinds of risk, chance and liability, are now commonly insured against.

Insurances are effected sometimes by companies or societies, and sometimes by individuals, the risk being in either case diffused amongst a number of persons. Companies formed for carrying on this business have generally a large subscribed but uncalled capital, so as to enable them to raise large sums to make good extraordinary losses.

Marine Insurance.--The practice of marine insurance is older than insurance against fire and upon lives, and the whole of the law is now codified in the (English) Marine Insurance Act, 1906 (6 Edw. 7, c. 41). The Act renders void any policy of marine insurance in which the insured has not an 'insurable interest,' or expectation of such interest, as being in the nature of gaming or wagering. (English) The Marine Insurance Act, 1745, which it repeals, made provision much to the same effect, and the (English) Life Assurance Act, 1774 (14 Geo. 3, c. 48), has similar enactments as to assurances on lives 'or on any other event or events whatsoever'; see these statutes and the cases on them in Chitty's Statutes, tits. 'Insurance (Life and Accident)' and 'Insurance (Sea).' An attempt is also made still further to restrain gambling by the (English) Marine Insurance (Gambling Policies) Act, 1908 (9 Edw. 7, c. 12), under which 'p.p.i.' (policy proof of interest) policies are prohibited. There is an ad valorem duty on policies of sea insurance.

While all fire and life insurances are made at the risk of companies, which include within themselves the requisites of security, wealth, and numbers, a large proportion of marine insurances is made at the risk of individuals called underwriters.

The underwriters meet in a subscription room at Lloyd's, at the back of the Royal Exchange. The joint affairs of the subscribers to these rooms are managed by a committee chosen by the sub-scribers. Agents (who are commonly styled Lloyd's agents) are appointed in all the principal ports of the world, who forward regularly to Lloyd's accounts of the departures of ships from, and arrivals at, such ports, as well as of losses and other casualties; and, in general, all such information as may be supposed of importance towards guiding the judgments of the underwriters. These accounts are regularly filed, and are accessible to all the subscribers. The principal arrivals and losses are besides posted in two books, placed in two conspicuous parts of the room; and also in another book, which is placed in an adjoining room, for the use of the public at large.

The rooms are open from10 a.m. till 5 p.m.; but the most considerable part of the business is transacted between one and four.

Merchants and ship-owners who manage their own insurance business procure blank policies, which they fill up to meet the case, and submit them to underwriters, by whom they are subscribed or rejected. Each policy is handed about in this way until the amount required is complete. Merchants and ship-owners also give orders to insurance brokers, who undertake and are responsible for the business of insuring; and to them likewise are transmitted the orders for insurance from the out-puts and manufacturing towns.

The common form of policy is 'Lloyd's Policy,' and it has been twice scheduled to statutes, viz., to 35 Geo. 3, c. 63, and to 30 Vict. c. 23, both of them Revenue Acts. The policy was settled in its present form in 1779, but most of its provisions are of much earlier date. Many of the insurance companies have slightly altered some of its provisions, but it is recognized as the typical British policy. Every line, and almost every word of it, has been judicially construed, and has now acquired a conventional meaning--Chalmers and Owen on Marine Insurance.

The policy is very badly drawn, and has more than once been described in words of well-merited judicial abuse: Buller, J. e.g., speaking of it in Brough v. Whitmore, 1791 TR (210) 2 RR 364, as 'always described in Courts of Law as an absurd and incoherent instrument.'

'Lloyd's Policy' is set out in the schedule to the Act of 1906, which also gives Rules for its construction.

Besides individual underwriters and companies, there are associations formed by ship-owners, who agree, each entering his ships for a certain amount, to divide the losses sustained by any of them. These are institutions of long standing, but since the alteration of the law in 1824, appear to be on the decline. The formation originated in a two-fold reason: 1st, that the underwriters charged premiums more than commensurate with the risk; and, 2ndly, that they did not afford adequate protection.

The losses against which a merchant or ship-owner is not protected by insurance in this country in usual form are the following:-(1) Acts of our own Government. (2) Breaches of the Revenue laws. (3) Breaches of the law of nations. (4) Consequences of deviation. (5) All losses arising from unseaworthiness. Unseaworthiness may be caused in various ways--such as want of repair, want of stores, want of provisions, want of nautical instruments, insufficiency of hands to navigate the vessel, or incompetency of the master. (6) All loss arising from unusual protraction of the voyage. (7) All loss to which the ship-owner is liable when his vessel does damage to others. (8) Average clause.

Average is a name applied to a certain description of loss, to which the merchant and ship-owner are liable. There are two kinds of average--general and particular.

(a) General average comprehends all loss arising out of a voluntary sacrifice of a part of either vessel or cargo, made by the captain for the benefit of the whole. If a captain throw part of his cargo overboard, cut loose an anchor and cable, or cut away his masts, the loss is distributed over the value of the ship and cargo as general average.

(b) Particular average comprehends all loss occasio-ned to ship, freight, and cargo, which has not been wholly or partly sacrificed for the common safety or which does not otherwise come under the heading of general average or total loss.

Losses where the goods are saved, but in such a state as to be unfit to forward to their destination, and where the ship is rendered unfit to repair, are called 'partial or salvage loss.' The leading distinction between particular average and salvage loss is, that in the first, the property insured remains the property of the assured, the damage sustained being made good by the insurer; in the second, the property is abandoned to the insurer, and the value insured claimed from him, he retaining the property so abandoned. See CON-STRUCTIVE TOTAL LOSS.

All the elements of general average may be classed under four heads (1) Sacrifice of part of the ship and stores. (2) Sacrifice of part of the cargo and freight. (3) Remuneration of service required for general preservation to be distinguished from the sue and labour clause (q.v.) in Marine Insurance policies, which does not cover general average contributions or salvage, see (English) Marine Insurance Act, 1906, s. 78(2). (4) Expense of raising money to replace what has been sacrificed, and to remunerate services. See Arnould on Marine Insur-ance.

Fire Insurance.--Insurance against fire is a contract of indemnity (Farrell v. Tibbits, (1880) 5 QBD 560), by which the insurer, in consideration of a certain premium received by him in a gross sum or by annual payments, undertakes to indemnify the assured against all loss or damage to houses or other buildings, stock, goods, and merchandise, by fire during a specified period.

Insurances against fire are hardly ever made by individuals, but almost always by corporations or joint-stock companies, of which there are several in all the considerable towns throughout the Empire.

The conditions on which the different offices insure are contained in the proposals printed on the back of the policies, and it is in most instances expressly conditioned that they undertake to pay the loss, not exceeding the sum insured, 'according to the exact tenor of their printed proposals.'

Sometimes no one office will insure to the amount required; and in such a case it is done by different offices. To prevent frauds by insuring the full value in various offices, there is, in the proposals issued, an article requiring notice of any other insurance upon the same houses or goods, that the same may be specified and allowed by indorsement, so that each office may bear its proportion of loss; and unless such notice is given, the insurance is void.

The risk commences in general from the signing of the policy, unless there be some other time specified. Policies of insurance may be annual, or for a term of years at an annual premium; and it is usual for the office, by way of indulgence, to allow a period of fifteen days or longer after the expiration of each year for the payment of the premium for the next year; and provided the premium be paid within that time, the insured is considered as within the protection of the office. As to the rights as between vendor and purchaser of land to the benefit of a policy effected by the vendor before alienation, see (English) Law of Property Act, 1925, s. 47, & c. See DAYS OF GRACE.

Insurances are generally divided into common, hazardous, and doubly hazardous.

(a) Common insurances.--(1) Buildings covered with slates, etc., and built with brick or stone, etc., and wherein no hazardous trade or manufacture is carried on, or hazardous goods deposited. (2) Goods in buildings as above described--such as household goods, plate, etc. The premium upon these, with certain exceptions, is usually 1s. 6d. per cent. per annum.

(b) Hazardous insurances.--(1) Buildings of timber or plaster, or not wholly separated by partition-walls of brick or stone, or not covered with slates, etc., and thatched barns having no chimney, but in which hazardous goods are deposited, etc. (2) Ships and craft, with their contents (lime-barges, with their contents, alone excepted).

(c) Doubly Hazardous insurances.--(1) Thatched buildings having chimneys, etc., and hazardous buildings in which hazardous goods are deposited, etc. (2) All hazardous goods deposited in hazardous buildings and in thatched buildings having no chimney nor adjoining to any building having a chimney.

The stamp-duty of 1s. 6d. formerly payable in respect of insurances against fire has been abolished by 32 & 33 Vict. c. 121, s. 12.

As to relief against forfeiture for not insuring against fire according to covenants in a lease, see (English) Law of Property Act, 1925, s. 146, and FORFEITURE. For insurances under mortgages, see that Act, ss. 101, 108.

Life Insurance. A risk in respect of the life of a human being is very ordinarily called Life Assurance in distinction to other kinds of insurance; but the distinction has no legal significance, and is by no means strictly adhered to. As to the necessity for an 'insurable interest,' see the Life Assurance Act, 1774, mentioned above. There are three classes of life insurance companies. The first class consists of corporations or joint-stock companies, who under-take to pay fixed sums upon the death of indi-viduals insuring with them; the profits made by such companies being wholly divided among the proprietors. The second class are also corporations, or joint-stock companies, with proprietary bodies; but instead of undertaking to pay specified sums upon the death of the assured, they allow the latter to participate to a certain extent in the profits of the business. The mode is not the same in all; in some the principle on which the allotment is made is not disclosed. the third species of company is that which is formed on the basis of mutual insurance. In this there is no proprietary body distinct from the assured; the latter share among themselves the whole profits of the concern, after deducting the expenses of management.

Accident Insurance.--This is a contract under which the insurer in consideration of an annual premium undertakes to pay the assured a certain sum per week during such time as he is in capacited by an accident, or a capital sum in the event of the accident proving fatal, the terms depending on

the wording of the particular policy. As to the meaning of 'accident,' see Re Scarr, (1905) 1 KB 387; Macgillivray on Insurance Law.

The (English) Assurance Companies Act,1908 (9 Edw. 7, c. 49), repeals earlier Acts and consolidates and amends the law as to all persons or bodies who carry on business of all or any of the following classes:-

(a) Life assurance business; that is to say, the issue of, or the undertaking of liability under, policies of assurance upon human life, or the granting of annuities upon human life;

(b) Fire insurance business; that is to say, the issue of, or the undertaking of liability under, policies of insurance upon the happening of personal accidents, whether fatal or not, disease, or sickness, or any class of personal accidents, disease, or sickness;

(c) Accident insurance business; that is to say, the issue of, or the undertaking of liability under, policies of insurance upon the happening of personal accidents, whether fatal or not, disease, or sickness, or any class of personal accidents, disease, or sickness;

(d) Employers' liability insurance business; that is to say, the issue of, or the undertaking of liability under, policeinsuring employers against liability to pay compensation or damages to workmen in their employment;

(e) Bond investment business; that is to say, the business of issuing bonds or endowment cer-tificates by which the company, in return for subscriptions payable at periodical intervals of two months or less, contract to pay the bond-holder a sum at a future date, and not being life assurance business as hereinbefore defined.

And under the (English) Road Traffic Act,1930 (20 & 21 Geo. 5, c. 43), s. 42:-

(f) Motor vehicle insurance business, that is to say, the business of effecting contracts of insurance against loss of, or damage to, or arising on and of or in connection with the use of motor vehicles, including third party risks (as amended as to third party risks by the (English) R.T. Act, 1934 (24 & 25 Geo. 5, c. 50), ss. 10'17.

The most important provision perhaps is (s. 2) the requirement of a deposit of 20,000l. in respect of each class of business, and see the Road Traffic Act, 1930, ss. 42 and 43, as to third party and motor vehicles insurance with a deposit of 15,000l. This deposit [under the (English) Assurance Companies Act, 1909, as amended by the (English) Road Traffic Act,1930, s. 42] is, upon a winding-up, not earmarked for risks but available for the general creditors of the company (South-East Lancashire Insurance Co., 1935, Ch 225). Other provisions require the separation (s. 3) of funds, and regulate the keeping of accounts and preparing of balance sheets (s. 4) as well as the audit of such accounts (s. 9).

Schedules to the Act give the forms applicable to the various classes of businesses. The (English) Indus-trial Assurance Act, 1923, as amended by the (Eng-lish) Industrial Assurance Acts, 1926 and 1929 (14 & 15 Geo. 5, c. 11 and 19 & 20 Geo. 5, c. 28), applies the Act of 1909 to Industrial Assurance Companies with certain modifications. The Acts of 1926 and 1929 consolidate and amend the law relating to industrial assurance. See that title and the Acts.

Compulsory Insurance.--Motor vehicles must be in-sured against third party risks: see (English) Road Traffic Act, 1930 (20 & 21 Geo. 5, c. 43), s. 35. See Monk v. Courbey, (1935) 1 KB 75 (owner permitting passenger to drive so that car was uninsured, liable in damages for breach of statutory duty).

The (English) Third Parties (Rights against Insurers) Act, 1930 (20 & 21Geo. 5, c. 25), gives third parties right to direct recourse against the insurers where the insured has insured against liabilities to third parties and the insured has become bankrupt or, if a company, is being wound up, or in the hands of a receiver or debenture holders.

By the (English) Married Women's Property Act, 1882, s. 11, where a married man or woman insures his or her life expressly for the benefit of his or her wife, husband, or children, the policy moneys are not subject to his or her debts, unless an intent to defraud creditors be proved. A husband has an insurable interest in the life in his wife, Griffiths v. Flemming, (1909) 1 KB 805. Money paid as premiums and obtained by misrepresentation of a company's agents can be recovered, Refuge Assurance Co. v. Kettlewell, 1909 AC 243. Consult Porter, Bunyon or Macgillivray on Insurance. And see NATIONAL INSURANCE.

Insurance, See Income Tax Act, 1961 (43 of 1961), s. 80C, Expl. 1.