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 PREFACE
The main reasons for the present attempt are two.
Firstly, the subject of insurance is assuming an all-
round importance in the modern world. It is prescrib-
ed for study in almost all the Indian Universities in
under-graduate as well as post-graduate courses. A
lew attempts have been made by the Indian authors,
still there is a great need for a comprehensive work on
the subject. Secondly, the author had the opportu-
nity of coming in contact with many managers, offi-
cers, agents and other persons engaged in insurance
business and was greatly surprised to find the amount
of ignorance which prevails even at high ranks. ‘Be-
lieve it or not’, there were managers of insurance
companies who did not even understand the meaning
of the conditions of the policies which they had
been issuing for the last few decades! Again
the selling personnel of Indian insurers is notorious-
ly inefficient. The fieldman is unequipped with
the knowledge of scientific foundations of insurance,
the practical use of the security he offers, the plans
and policies of his company, etc. The present work
l
is, therefore, intended to foster an understanding and
helpfulness not only in students but in all others who
are interested in insurance in some capacity.
The edition is an attempt to explain the principles
and practice of Insurance in non-technical language
so that the material might be available to all those
who require a general knowledge of the subject. It
is divided in six parts. Part I deals with the general
principles of Insurance and the next three parts are
devoted to the study of the main branches of insurance,
viz., life, marine and fire. Throughout the book an
attempt has been made to refer to the practice of
Insurance in India for such branches in which the
business has sufficiently developed. In India, the
public, whatever the reasons be, is not insurance-
minded. Further there is no statute law gov-
erning the insurance contracts. Due to these
reasons, except in case of life assurance where the
study mainly relates to practice in India, the reference
has been made to the British practice. It is because
of the fact that our law is mainly derived from and
mostly based on British Law. Part Vdeals with all
sorts of miscellaneous types of insurance some -’of
which are very important, e.g., Motor Insurance,
Workmen’s Compensation Insurance and Accident
Insurance. The first two have been treated with the
background of Indian practice. This part includes
the other types also, which though minor in view of
their volume of business, are fantastically becoming
-

popular in the West and specially in the New World.

The last part relates to the history of insurance busi-
ness in India, the position at present and the insur-
ance legislation in India.
The author does not make any claim for origina-
lity of the entire material.
In the preparation of this
work, he has freely drawn upon various books, jour-
nals, newspapers and the material received from the
various insurance companies. If he has made any
contribution, it is to be found in the treatment of the
material in a form suitable to the students’ require-
ments. He wishes to avail himself of this opportunity
of expressing his gratitude to the authors and writers
of these books, etc., a list of which will be found in
the Bibliography given at the end of the book. He
takes this opportunity to thank his learned Principal,
S. V. Desai, who was an unfailing source of help and
inspiration to the author. His special thanks are due
to his irfany friends and students who helped him in
the preparation of this work in various directions.
The author is fully aware of the possible scope
for the further improvements in the work. He will
be much pleased to receive any criticisms and sugges-
tions from the readers, and will try to incorporate
them in the next edition. He sincerely hopes that the
book will prove to be of good help and value to the
readers and he will feel greatly recompensed for his
labour if he finds a favourable reception of his work
by those interested in it.
June. 1949.
'Mandal, . R. S. SHARMA.
 CONTB'N TS
PART I

INTRODUCTORY
Page
CHAPTER —Preliminaries
I.
Basis of insurance — origin of insurance —the insurance organi-
sation—terminology —types of insurance organisation* 11

CHAPTER II. — Main Forms of Insurance And Insurance

Contract.
—
Essential requirements for insui'ance the contract of insur-
—
ance classficatiori of insurance contracts fundamental —
principles of insurance —
double insurance re-insurance —
insurance not a wagering contract . . . . . . . . 19

PART II
LIFE ASSURANCE
CHAPTER III.— Tlte Life Contract.
Life assurance contract— fundamentals of a life contract
—
good faith insurable interest —
life assurance not a wager-
—
ing contract difference between life and other forms of
insurance . . . . . . . . . . . . . . 81

CHAPTER IV. —Varieties of Life Assurance and Annuity

Contracts
Special feature of assurance —whole
life and endowment life
assurance— policies according to the method of premium
payments —policies according to the methed of payment of
the assured sum policies on more than one —‘with pro-
—profit’ policies — OTHER CLASSES life
fit’ and ‘without OF
INSURANEC —pure endowment assurance— double endow-
ment assurance —temporary assurance— convertible term
—
assurance renewable term assurance— decreasing term assu-.
ranee— contingent assurance- -family7 protection assurance-
annuity contracts—immediatel ife annuity deferred annuity —
— refund and cash refund annuities survivorship annuity —
— —
retirement annuities annuities involving more than one
life — —
selecting a plan importance of life assurance . . 37

CHAPTER V. — Premium Computation.

—
Assessment plan natural premium plan level premium —
—
plan requirements of premium computation mortality —
tables —
construction of mortality tables—different types of
—
mortality7 tables interest expenses — . . , . . . 50

CHAPTER VI. —The Reserve

How does it arise ? —valuation —investment of fund . . . . 71
- 4
 Page
CHAPTER VII. —Surplus And Its Distribution
Surplus—sources of the surplus—bonus systems—reversionary
bonus—cash bonus —uniform and contributory bonus — :

reduction of premium bonus —discounted bonus —deferred

bonus —interim bonus ....
. . . . , . . . 78

CHAPTER "V III. — Selection and Retention

—
Proposal for assurance -medical examination reason for —
— —
selection hazards of residence hazards of occupation
— —
naval and military service war risks aviation insur- — —
—
ance of women finances of the applicant past history and —
—
moral hazard retention of risk .. .. .. 85

CHAPTER IX.— Substandard Risks

Insurance of substandard lives —fixing premium on sub-
standard lives increese 'in age — flat extrapremium line. 01

CHAPTER —
X. Policy Conditions •<

Acceptance Letter—-the policy proof of age—payment of

_

——
'

—
premiums days of grace commencement of risk ante-
'
—
— — —
dating initial expenses hazardous occupation residence
and travel —alteration in policy—additional assurance— •

suicide— lost policies— assignment—nomination—incontest-

able clause—settlement of claim— optional modes of settle-
ment .. .. .. .. -.. .. ,. . . -
OS

CHAPTER XI.— Policy Conditions {Could. 1

Lapsing of a policy —revival of lapsed policies —reinstatement
— —
by redating surrender value extended term assurance
—
automatic, non-forfeiture reduced paid up insurance
policy loans V. .. ... ... 107

APPENDICES .v .. .. .. 113

PART III
MARINE INSURANCE
CHAPTER XII.—Historical
—Lombards—Lloyd’s
Origin 137

CHAPTER XIII. — The Contract of Marine Insurance

Parties to the contract— effecting marine insurance— the con-
tract—fundamental principles good faith— insurable in-
terest —indemnity
—implied warranties . . . . . . 139

CHAPTER XIV.—Types of Marine Insurance Policies

Time policies—vovage policies— floating policies— blanket
policies— named policies— single vessel and fleet policies—
—
valued policies unvalued policies —block policies —cur-
—
rency policies wagering policies
1 j0
-
 Page
CHAPTER XV.—The Policy and Its Phraseology
— —
The policy form of policy Lloyd’s form of policy opening —
—
words of the policy name of the assured— assignment
—
clause lost or not lost .. ... .. .. . • • 155

CHAPTER xvi,—The Policy and Its Phraseology ( Contd.)

The Voyage
At and from —termination of risk—warehouse to, warehouse
clause —change of voyage— delay—deviation —touch and 161
stay ..

CHAPTER XVII. — The Policy and Its Phraseology (Contd.)

Name —
of vessel name of the master the subject-matter —
—
insured and the valuation the perils insured against sue — •

—
and labour clause waiver clause—premium clause-
—
memorandum clause attached clauses—Hague,Rules •,. j
169

CHAPTER XV III. —Marine Losses

—
Doctrine of Causa Proxima types of marine losses A: TOTAL
: t
— —
—
LOSS i actual total loss (ii) constructive total loss
notice of abandonment— difference between actual and
—
constructive total loss salvage loss making a claim for —
—
total loss B. PARTIAL LOSS —
1. Particular Average
—
loss—valuation by series making a claim Janson clause— —
2. particular Charges— 3. General Average loss types of —
—
general average loss the general average contribution
—
general average adjustment York-Antwerp rules— general
—
average loss on sale substituted expenses general average
—
and insurance—4. salvage charges successive. losses —
.. . 183

CHAPTER XIX. —Return of Premium and Sundry Matters

—
Rate of premium return of premium —under-insurance
bottomry and respondentia bonds 207

PART IV
TIRE INSURANCE
CHAPTER XX.— Origin and Nature of Fire Insurance
—
Fire waste causes of fire— fire' insurance functions cf fire —
— —
insurance origin of fire insurance fundamental principles
—
of fire insurance fire insurance and life insurance fiire —
insurance and marine insurance ;
213

CHAPTER XXI. —The Fire Insurance Contract

Definition of the-

—commencement of risk—cover note—

acceptance
— policy —
contract—definition of fire proposal

term of policies —renewal of policies— cancellation of

fire
—more than one —more than one policy— assign-
policies fire
- ment of policy— kinds of
fire policies fife 225
G
 —
——
Page
CHAPTER XXII. —Types of Fire Policies
Valued policy — —
specific policy— floating
policy average
—declaration policy— adjustable policy
policy—excess policy
—maximum value with discount policy—reinstatement
policy—comprehensive policy— sprinkler leakage policy
blanket policy—consequential policy loss .. , . 234

CHAPTER XXIir. — The Policy and Its Conditions

—
Standard form of policy wordings of the policy —perils
— —
insured policy conditions Condition, 1. Misdescription
Condition 2. Alterations— Condition 3. Exclusions Condi- —
tion 4., Claims —
Condition 5. Fraud Condition 6. Reinstate- —
—
ment Condition 7.' Insurer’s rights after a fire Condition —
8. Contribution and Average —
Condition 9. Subrogation
Condition 10. Warranties— Condition 11. Arbitration
,
—
purchaser’s interest clause loss procedure ex gratia pay-
ments
— '

. . . . ;
’
; ; , . 244

CHAPTER XXIV.—Rating and Average

Classification— discrimination —rating—combined risks
underinsurance and its effect on rating— average —special •

condition of average —co-insurance clause . .

'
. . . . 265

CHAPTER XXV. —-Retention and Re-Insurance

Retention —re-insurance—facultative re-insurance —treaty re-
insurance . . . . ..... . . . . . . 271

APPENDICES , ... .. 277

PART V
... MISCELLANEOUS
CHAPTER XXVI.^-Motor Insurance
Motor risks —motor —
insurance classification of vehicles
—
insured tariff and non-tariff offices—types of coverages—
—
extra benefits in policies on private cars proposal rating —
—
issue of policy term of insurance— additions of benefits
during the currency of policy—change cf vehicle— furlough
—
concessions -settlement of claims negligence of parties
-

totaland partial losses in ‘own damage’ —knock for knock

—
agreement the policy and its contents — or damage
loss
liability to third parties —medical
general ex- expenses —
— —
ceptions -conditions no-claim bonus transfer of interest —
—
the schedule policies on commercial vehicles—policies
on motor cycles

APPENDICES
CHAPTER XXVII.—-Workmen’s Compensation Insurance
— Workmen’s Compensa-
Principle of workmen’s compensation
 —
Page
—workmen's compensation insurance — scope of the
tion Act
Workmen’s Compensation Act—the compensation payable
— of earning capacity permanent partial disablement
loss in
—rating
—occupational diseases —the effecting of insurancepolicy
—forms of insurance—term of insurance—the
policy conditions —settlements of claims . . . . • • 320

APPENDICES . . . /
’

. .
'

. . . . . . . . 329

CHAPTER XXVIII.— Personal Insurance

Personal insurance—PERSONAL ACCIDENT INSUR-
ANCE—origin of accident insurance—personal accident in-
—
surance defined types of the insurance policies essentials —
—
of a valid contract classification of risks benefits— age —
limits — —
ex- elusions renewal of insurance policy condi —
—
tions- settle- ment of claims —
permanent sickness insurance 339

CHAPTER XXIX.—Miscellaneous
War —third party insurance—guarantee
risk insurance insur-
.

ance —burglary insurance — consequential insurance loss

—plate glass insurance—crop insurance—livestockkinds
insur-
ance— rain insurance— baggage insurance— other of
insurance— insurance
social c ; . : , ... ... . • • 346

r
PART VI '

INSURANCE IN INDIA
CHAPTER XXX.—Insurance in' India
History of life insurance business— insurance legislation in
—
India salient features of the Act-present position . . — 365

APPENDIX—some of the important Sectibn -of the

Insurance Act. . . .. .. .. V. . .. ... 379

BIBLIOGRAPHY . / .. .. .
'.. .. .. .. 365

rNDEX .... .
.." .. ’.. •.. -... .. .. 396
 PART ONE
INTRODUCTORY
 CHAPTER I

PRELIMINARIES
In day to day life the man is confronted with
various risks. However great a genius he may be, it is
not possible for him to foresee all the calamities that
are in store for him and to provide for them in advance.
Many happy lives are ruined either by the untimely
death of the earning member of the family or by other
disastrous calamities such as floods, fire, earthquake,
war, accident, etc. which may take a heavy toll of
human life and property. These risks are such which
cannot be known in advance as to when they will
happen and it is physically impossible for an indi-
vidual to make provision against them by himself.
Insurance is a device not to avert these risks but to
mitigate their rigours on individuals.
Basis of Insurance
Every risk involves the loss of one or the other
kind. The function of insurance is to spread this loss
over a large number of persons through the mecha-
nism of co-operation. The persons who are exposed
to a particular risk cooperate to share the loss caused
by that risk whenever it takes place. Thus the risk is
not averted but the loss on its occurrence is shared
by the members.
The significance of this fact will be clear by the
following illustration. In a college, let us suppose
that 400 students come to the college on cycles. By
past experience it is found that every year, say, two
cycles are lost. Thus it can be said, that out of 400
students any two will suffer the loss of their cycles,
but who those two students will be is not known.
Hence with this element of uncertainty each one of
losing his
the 400 students is exposed to the risk of
which may be Rs. 150. The total
cycle, the cost of
11
12 INSURANCE

loss of the two cycles will be Rs. 300. To safeguard

against this loss, all the 400 students may contribute
equally to a fund of Rs. 300 by paying annas twelve
each and whenever the cycles are lost, the sufferers
will be paid Rs. 150 each out of the common fund.
Every student undertakes to bear a definite monthly
loss of one anna in exchange for a probable loss of
Rs. 150 a year. Thus insurance makes it possible for
a student to bargain an annual loss of Rs. 150, which
though uncertain, is very probable, in exchange for
a definite monthly loss of one anna. Twelve annas
—
to compensate a loss of Rs. 150 what an ingenious
device it is! Prima facie it seems almost a miracle
but to the students of insurance it will be an unadul-
terated fact.
Thus insurance is a co-operative device to spread
the loss caused by a particular risk over a number
of persons who are exposed to it and who agree to
insure theinselves against that risk. The result is
that each member substitutes the certainty of a small
loss for the possibility of a large one.

Origin of Insurance
The origin of insurance is lost in antiquity but
the insurance in its modern form appeared first in
marine and land fields. Marine insurance was first
introduced in Barcelona in the 13th century A.D.
In early times, travellers by sea and land were
very much exposed to the risk of losing their vessels
and merchandise because the piracy on the open seas
and highway robbery of caravans were very
.

common. Besides there were risks of nature as

well. Many times it happened that a ship leaving
.

a certain port was never heard of, it might have been

captured by the king’s enemies or robbed by -pirates
or got sunk in the deep waters. Naturally the risks
to owners of such ships were enormous and, therefore,
to safeguard them the marine traders devised a
method of spreading over them the financial loss which
 PRELIMINARIES 13

could not be conveniently borne by the unfortunate

individual victims. This cooperative device was quite
voluntary in beginning, but now in modern times it
has been substituted by a more scientific method ac-
cording to which the specialists equipped with upto-
date knowledge of various sea routes undertake to
issue marine insurance policies by charging a cer-
tain price for them. In- this manner, marine insur-
ance was born, to be followed, at a much later date,
by life assurance, and, later still, by a whole host of
various forms of assurance created by the complexity
of modern business and social life.

The Insurance Organisation

As seen above, the insurance in the beginning
emerged as a cooperative measure. All the mem-
bers who wanted protection against a particular
risk to which they were exposed, combined to-
gether and formed a voluntary group. Whenever
the risk took place, the loss was made good by
raising contributions from all the members of the
group and was paid to those who suffered from the
risk. But there were many defects in this coopera-
tive plan. Firstly, the contribution of each party was
not in proportion to his risk; secondly, the contribu-
tion could not be known in advance; and lastly, the
number of contributions during the year were as
many as the number of times the risk took place.
With the introduction of specialisation in all
branches of commence, insurance also passed into the
hands of experts and now it has become a highly spe-
cialised business. Many insurance companies have
sprung up which undertake to provide for the loss of
human life and property caused by a particular risk-
in exchange for a price fixed in advance. Thus
an
important intermedia!"} be-
insurance company is an
tween persons who are liable to be affected by a also
us.-*

but will not be affected and the persons who are

affected by it, thougn
liable to the risk and who will be
u INSURANCE

they are not known personally in advance. It spreads

the risk of the latter small class of people over the
whole group and hence the impact of loss is very
insignificant on each individual. The aim of all in-
surance is to provide against the dangers which beset
human life and property. Those who seek it endea-

vour to avert disaster from themselves by shifting

the possible losses on to the shoulders, who are will-
ing, for pecuniary consideration, to undertake the risk
thereof. Thus cooperation is replaced by the contract.
In its modern form, the insurance may be defined as a
contract between two parties whereby one party
undertakes, in exchange for a fixed sum, to pay the
other party a fixed amount of money on the happen-
ing of a certain event (death or attaining a certain age
in case of human life), or to pay the amount of actual
loss when it takes place through the risk insured (in
case of property).

Terminology
The party who seeks protection against a parti-
cular risk is called the insured, while the party under-
taking to protect the former is called the insurer.
Mostly the insurers are Insurance Companies these
days. The amount for which the risk is insured
is called the insured amount or policy money
or is also known as the face value of the policy.
The amount which is paid by the insured to the insurer
as a consideration of the insurance contract is called
the premium, this is the price of the insurance. The
document which contains the terms and conditions
of the insurance contract is termed the insurance
policy.
Insurance and Assurance. In theory various wri-
ters on insurance have tried to distinguish between
these two words. Some hold that insurance can be
used only where the risk, though probable, is uncer-
tain i.e. it may or may not happen at all. The con-
 PRELIMINARIES 15

tracts of indemnity are of this type e.g. fire and marine

insurance. The building may or may not catch fire
at all, the ship may meet a disaster or may reach the
port of destination safely. In such cases the policy
is not sure to become a claim, while assurance should
be applied to such contracts where the policy is bound
to become a claim i.e. where the risk insured against
must happen sooner or later. This is so in life con-
tracts. The man must die or must attain a particular
age. The risk is certain. According to this view, the
term assurance should be used for life contracts and
insurance for indemnity contracts.
The other distinction attempted is that insurance
comes from the insured while the assurance from the
insurer. In other words, the insurer assures the in-
sured of his life or property while the insured insures
•

himself against his life or property.

Still another distinction drawn is that assurance
denotes the principle whereas insurance denotes the
practice.
The above distinctions, though in theory correct,
do not hold good in practice. By usage both the terms
are used indiscriminately all over the world and there-
fore it is needless to be very particular about their
use. In practice the terms- have become interchange-
able.

Types of Insurance Organisations

There are various types of insurance organisations
carrying on the business of insurance. It is upto the
insured to choose any of them for the purpose of in-
suring his risk. Following are the broad classes of
these organisations.
Stock Companies. They are the joint-stock com-
panies formed to carry on the business of insurance
under the Companies Act. A Stock Company is one,
which is organised by the shareholders who subscribe
the necessary capital to start the business. It is form-
ed for the purpose of earning profits for the stock-
16 INSURANCE

holders who are the owners of the concern. The

management of the company is conducted through a
Board of Directors elected by the shareholders from
among themselves. Whatever profits are earned are
shared by the stockholders. Any person desirous of
taking an insurance can enter into a conti'act; with the
company after paying the required premium. He
simply becomes a customer of the company and has
nothing to do with either the management or the
profits of it.
But due to the keen competition among the
various companies to get more business, now it has
become almost a settled practice to offer to the policy-
holders a share in the management as well as profits
of the business, so much so that more than 90% of
the business profits are shared by the policyholders
and only the remainder is distributed among the
shareholders. Most of the insurance business is car-
ried on these days by the stock companies on the
above lines.
Mutual Companies. A mutual company is a co-
operative association formed for the purpose of effect-
ing insurance on the lives or property of its own
members. The policyholders are themselves the
stockholders of the company. Each member is thus
an insured as well as the insurer. He has the right to
participate both in the management and the profits
of the company. It may happen that the premiums
collected are in excess of the amount needed to pay
claims, in which case the excess is returned to the
policyholders in form of dividends or bonus which is
a type of saving. Thus it ultimately reduces the cost
of insurance. Again as the policyholders are them-
selves the insurers, they will always try to see that
the business is carried on sound lines and the expenses
of management are kept minimum.
Speaking from strictly theoretical point of view
the stock companies issue non-participating policies
only while mutuals issue participating policies, but
 PRELIMINARIES 17

hi practice the former also issue participating

policies
and the latter too issue non-participating policies with
the result that most of the companies are “mixed
companies” these days.
Lloyds Associations. A Lloyds Association is an
association of individual insurers known as 'under-
writers’. Any person who wants to become a mem-
ber of such an association hasto pay a certain fee as
a security for the regular payment of his liabilities.
The association before accepting any person as its
member will see that he is a man of good financial
standing and business reputation. The name of the
person so admitted is then put on the list of the
underwriters of the association. The insurance is
effected by the underwriters and not by the asso-
ciation. Anyone desirous of taking an insurance
policy with the association has to approach the indi-
vidual underwriters who will write only a part of the
policy money individually. Thus one policy is under-
written by several underwriters, each becoming res-
ponsible only, for the part of the policj' money which
he has underwritten. 'When the policy becomes a
claim, the insured realises money from all the under-
writers who had underwritten the policy according to
their respective shares. In case any underwriter fails
to meet his claim, the association will pay it out of
the security which it had taken from the underwriter
at the time of enlisting his membership.
The most prominent association of this type is
Lloyds of London, which has served as a model for
similar organisations. The Lloyds Association was
Lloyds
originally founded in London in 1692. Though
risks they are duel >
Associations insure all types of
noted for marine insurance and most of this type
of

business passes through them.

State Insurance. When the government under-
assumes
takes an insurance enterprise and thereby
losses, it is called State
Insurance.
liability to pay the
18 INSURANCE

Usually the state takes up the business of insurance

in its hands in those fields alone which are most vital
to the interests of the public. In some countries
where the state had undertaken the general insurance
business it has proved a failure; firstly because the
management through government personnel is never
efficient and secondly the volume of business could
not be secured sufficiently in. face of the competition,
from private companies. Again on the point of prin-
ciple as well, it will mean too much of interference
—
with private enterprise so far the national economic
structure isbased on capitalistic lines. Generally the
state undertakes social insurance and rest of the in-
surance business is carried on by private enterprise.
In India, the Government runs the Postal Insurance
Scheme for the benefit of the employees of Govern-
ment and has recently passed the Employees' State
Insurance Act to cover the industrial workers for ac-
cidents, sickness and maternity benefits.
Self-Insurance. When a person lays aside perio-
dically sums which may be utilised to paeet the loss
caused by the happening of any contemplated risk,
•

lie is said to have effected self-insurance. Here the

insured becomes his own insurer for the particular
risk. But such a scheme can work only when the
subject-matter of insurance is in large quantity so
that the loss may be spread over it. Here the advan-
tage to the insured is that out of the premium he has
not to pay any commission or office expenses to any
outside agency and therefore the cost of insurance
will be less. Ashipping company owning a large
number of ships can profitably employ this scheme
or a business firm instead of taking a Bad Debts
Insurance Policy to cover the losses on account of
bad debts may create a Bad Debts Reserve by allocat-
ing an annual amount towards the Bad Debts Reserve
Bhind and meet the losses of bad debts out of this
fund whenever they arise. Most of the business firms
adopt this policy.
 CHAPTER II
MAIN FORMS OF INSURANCE AND INSURANCE
CONTRACT
Essential requirements for insurance
As stated in the last chapter, an insurance is sim-
ply a device to spread the risk over a large number
of persons exposed to it. In order that such a device
may work equitably, produce the required benefits
and be a successful business proposition, the following
conditions are necessary:
1. The insured must he subject to a real risk.
Whatever the subject-matter of insurance, be it
human life or property, it must be potentially expos-
ed to the risk. It means that on the happening of the
event, against which the insured seeks protection, the
subject-matter must be adversely affected. The event
must be prima facie adverse to the interest of the
assured otherwise it will amount to betting.
2. The event should he one which involves some
amount of uncertainty. There must be either un-
certainty whether the event will ever happen or not,
or if the event is one which must happen at some
.

time there must be uncertainty as to the time at

which it will happen. The happening or not happen-
ing of the event must not lie in the hands of either
the assured or the insurer otherwise there will be a
great incentive for both the parties either to expedite
or to delay the happening of risk respectively.
3. The risk should not he a very minor one. It
must be sufficiently important to warrant the exis-
tence of an insurance agreement. If very small risks
are insured the cost may be higher than the value of
the protection given and it may still increase the cost
of insurance to those who seek
protection against
really great hazards. That is why in maiine insu-

19
20 INSURANCE

ranee the insurer is not responsible for small losses

to a certain extent.
4. The cost of insurance should not be prohibi-
tive'. For the successful operation of any scheme of
insurance the cost must be such as to be within the
reach of nearly everyone, otherwise it will be confin-
ed to a very small section of people. Again from the
business point of view also, the cost of management
decreases proportionately with an increase in the size
of the business. The low cost can be achieved when
there is a large number of risks.
5. The risk must be capable of approximate
mathematical estimation. The cost of insurance
depends on the extent of the hazard. If the incidence
of risk is small, the premium will be low. As the pre-
mium is to be fixed before the insurance is effected,
it is necessary to have a fairly accurate estimate of
the extent of risk. It is not necessary that the calcu-
lation should be absolutely accurate. This estimate
is possible on the statistical data based on past expe-
rience.

The Contract of Insurance

In India, there is no separate law governing the
insurance contracts. The Indian Contract Act governs
the insurance contracts, while the Indian Stamp Act
lays down the necessary stamp required for such con-
tracts. Hence an insurance contract to be a valid
contract must fulfil all the requirements of an ordi-
nary contract. Section 10 of the Indian Contract Act
defines a contract like this: “All agreements are con-
tracts if they are made by the free consent of the
parties, competent to contract, for a lawful considera-
tion and with a lawful object, and which are not
hereby expressly declared to be void,”
Classification of Insurance Contracts
The contract of insurance may be classified ac-
cording to various standards. The best classification
 MAIN FORMS OF INSURANCE
for a clear understanding will be according the
nature of the interest affected by the happening of‘the
event. In such a case, insurance contract!'' rhay be
divided into four classes, namely (i) Personal insu-
rance (ii) Property Insurance (iii) Liabilit^-jhsh-
rance (iv) Guarantee Insurance.
Personal Insurance. In sUch contracts, the
insurer undertakes to pay a stipulated sum to the
insured on the happening of a certain event, in ex-
change for a premium. It includes Life insurance,
Accident and Health or Sickness insurance. Here the
measure of compensation is not the actual loss but a
certain fixed amount settled by the parties in advance,
because the actual loss cannot be measured in terms
of money in such insurances as the subject-matter of
insurance is either the life or health of the insured.
Property Insurance. To this class belong all
those insurance contracts where the subject-matter of
insurance is human property. Here the insurer
undertakes to indemnify the assured against the
actual loss suffered by the latter with regard to the
subject-matter of insurance through the risk insured.
The examples of property insurance are Fire insu-
rance, Marine insurance, Burglary insurance, Live-
stock insurance, Hail insurance, Motorcar insurance,
Lightning insurance, Rain insurance, etc.
Liability Insurance. Under this type, the insurer
protects ali such persons who are liable either to
third parties or to their employees under the provi-
sions of the lav/ of the land e.g. Third Party insu-
rance and Workmen’s compensation insurance.
Guarantee Insurance. It is an agreement where-
by the insurer agrees to indemnify the insured in a
fixed amount against loss or damage arising through
dishonesty, fraud, unfaithful performance of duty or
breach of contract on the part of a third person hav-
ing a contractual relationship
with the insured.
credit insurance, etc. are guarantee
Fidelity insurance,
insurance contracts.
 —
22 INSURANCE

All contracts of insurance, except personal insu-

rances, are contracts of indemnity. Out of the above
various types of insurances, life, fire and marine con-
tracts are the most important. Again more than one
insurance may be combined in a single policy e.g.,
Motor Insurance may be combined with Accident
insurance or Third Party insurance.

Fundamental Principles of Insurance

Good Faith. In case of ordinary business contracts
the legal maxim “caveat emptor” (let the buyer,
beware) prevails. It means that at the time, of
entering into a contract, it is regarded as the duty
of the buyer to satisfy himself of the genuine-
ness of subject-matter and the seller is under
no obligation to supply information about it. But
this principle does not apply to insurance con-
tracts. An insurance contract is a contract uherrimae
fidei or a contract of absolute good faith. This fun-
damental rule applies to all kinds of insurance. It
means that the parties to the contract must make a
full disclosure of all the material facts relating to the
contract. A
material fact is one which would affect
the judgment of a rational underwriter in consider-
ing whether he would enter into a contract at all, or
enter into it at one rate or another. What is material
is a question of fact and it is for a law court to decide
.whether there has or has not been a full and frank
disclosure and whether any particular fact is mate-
rial. In the absence of good faith, the contract
becomes legally void. As a rule, the duty to disclose
the material facts lies on both the parties, the insured
as well as the insurer, but in practice the assured has
to be more particular about the observance of this
principle because he is usually in .knowledge of facts
relating to the subject-matter more than anyone else.
However, the following facts need not be dis-
closed by the insured:
(1) facts which tend to lessen the risk,
 MAIN FORMS OF -INSURANCE
23

•
(2) facts of public notoriety,
(3) facts which could have been inferred from
the information disclosed provided that was
sufficient to put the insurer on enquiry,
(4) facts waived by the insurer either expressly
or impliedly,
(5) facts which are governed by the terms of the
policy itself.
Insurable Interests. For an insurance contract to
be valid the insured must possess an insurable interest
in the subject-matter of insurance. Whoever has an in-
terest which the law will recognise in the preservation
of a thing, or the continuance of a life, may insure
that thing or that life. Such an interest is called an
insurable interest. The essentials of a valid insurable
interest, whether in property, or in a right, or jn res-
pect of a potential liability, are as follows:
1. There must be a physical object (or a chose
in action in some cases), on which the insured peril
can operate, or there must be a potential liability
which the insured peril may cause to come into force.
2. This object, or potential liability must be the
subject-matter of insurance.
3. The insured must bear some relation thereto,
recognised by law, in consequence of which he stands
to benefit by the safetj’' of the property, or the absence
of liability and to be prejudiced by the loss of the
property, or the creation of liability.*
Insurable interest is essentially a pecuniary inte-
rest i.e., the loss caused by happening of the risk in-
sured must be capable of pecuniary estimation. No
purely sentimental interest can be made the ground
for a policy. Without an insurable interest an
insu-
rance contract is rendered void and becomes a wager-
ing contract.
Whenever the insured event takes place the
the in-
actual loss is paid to the insured. Therefore,
* Batten' and Dinsdale.
24 - INSURANCE

surocl must have insurable interest in the subject-

matter of insurance at the time of happening of the
event. Tins applies to all indemnity contracts,
because if he has no interest when the loss arises, he
cannot be indemnified as he suffers no loss. This is
not so in case of life insurance, here it is sufficient if
the insured has the insurable interest when he takes
the insurance. In case of fire insurance, clue to extra
moral hazard, it is very important to observe the prin-
ciple not only when the event takes place but also
when the policy is issued.
Indemnity. Indemnity is the controlling principle
in insurance law. Except in personal insurances,
the insurer contracts to indemnify the assured for
what he actually loses by the happening of events
upon^which the insurer’s liability is to arise and in
no circumstances is the assured in theory entitled to
make a profit of his loss. The essential purpose of
insurance is to relieve the insured from a risk by
transferring it to another and, therefore, in the event
of loss its cash value only is to be paid to the insured.
If he is to be paid more than the cash value of his
loss something more has been done by the contract
than merely to transfer his risk, he is oifered not
only freedom from risk but the chance of profit. If
this is allowed the -assured will gain by destruction
of his property and he will be under constant tempta-
tion to destroy it, to commit an anti-social act. Thus
considerations of public policy also dictate that the
insurance contract must strictly be a contract of in-
demnity. Hence in all insurance contracts except in
personal insurance, the insured can realise only the
cash value of his loss and nothing more than this,
though he might have insured for a greater amount.
The indemnity principle is not applicable to per-
sonal insurances. In such cases, the assured gets the
stipulated amount on the happening of the specified
event irrespective of any pecuniary •* loss. Strictly
 MAIN FORMS OF INSURANCE 25

speaking, in life insurance the loss can seldom be

measured by pecuniary values. The obligation in a
policy of insurance on ‘life’ is not based upon any
doctrine of compensating the person for the event;
money is no compensation for death. It is an abso-
lute contract to pay, not amount of a loss or damage
arising from a death, but a specified sum of money
upon the termination of the life insured. Same is the
case in accident insurance.
In all indemnity contracts, in case of over-insu-
rance where the assured takes a policy for a
(i.e.,
sum greater than the real value of the property),
only the actual loss becomes payable and not the
assured sum. If the property is under-insurecl (i.e.,
the insured amount is less than the actual value of
the property insured) the insured is generally regard-
ed his own insurer for the amount of underinsurance
and in case of loss he shall have to bear the propor-
tionate loss himself.
Subrogation. The doctrine of subrogation is just
a corollary to the principle of indemnity. When a
person insures his property against a particular risk,
he can realise
. only, the actual value of the loss of or
damage to the property according to the principle of
indemnity and, therefore, it follows that if the damag-
ed property has any value left or the assured can re-
cover the lost property or has any right against a
third party regarding that property, these must pass
on to the insurer. If the assured is allowed to retain
them he shall have realised more than the actual loss
which is contrary to the indemnity principle. This
'

is known as the Doctrine of Subrogation.- According

to it, the insurer becomes entitled to all the rights of
the insured regarding the subject-matter of insurance.
It must be observed that the insurer is subrogated to
the rights of the assured only after he has settled the
claim.' Again the insurer should exercise these rights
in the name of the assured.
*2fi INSURANCE

Double Insurance
When a person lakes insurance on the same sub-
ject-matter with more than one insurer, it is called
Double Insurance. In case of life, one can take insu-
rance with as many insurers as one likes for any
amount and on the maturity of policies the assured
can realise the total amount from the diffei'ent
insurers. But in indemnity contracts, nothing more
can be realised than the actual loss though the insu-
rance might have been effected with more than one
insurance company. Thus from the security point of
view, a person can insure his property with two or
three companies for the total value of the property
and when the loss takes place he can realise it from
all the companies. Of course, if his total insurance
exceeds the actual value of the property it will lie a
case of over-insurance and he will not get more than
the actual loss. He can, however, realise his loss
from the companies in any order he likes and the
companies will later on adjust their contributions ac-
cording to the proportion of their insured amounts.

Re-Insurance
When an insurer transfers a part of his risk on
a particular policy by insuring it with some other
insurer, it is called Re-insurance. It is a contract
between two insurance companies and the original
insured is not affected by it. Some insurance com-
panies conduct only the business of reinsurance.

Insurance not a wagering, contract

Insurance contracts should be distinguished from
wagering or gambling contracts. According to sec-
tion 30 of the Indian Contract Act, all agreements by
way of .wager, are void. In a wagering contract, the
parties create the risk and want to make money on
the happening or otherwise' of an, event, while in in-
surance the risk, already exists and the purpose of
A
contract is simpty to transfer the. risk. contract of
 MAIN FORMS OF INSURANCE 27

insurance, unlike a wagering contract, is not an agree-

ment to pay money on the mere happening of a cer-
tain event, but to compensate the insured for any
loss suffered owing to its occurrence. Thus in a wager
neither party has any interest in the contract other
than the sum or stake he will so win or lose, there
being no other real consideration for the making of
such contract by either of the parties, but insurable
interest is the sole criterion of the validity of an in-
surance contract.
 PART SECOND
LIFE ASSURANCE
 CHAPTER III
THE LIFE CONTRACT
Though life assurance in its modern form com-
menced so late as about the sixteenth century, it
has outstripped all other forms of insurance and' to-
day commands the greatest popularity and impor-
tance in the insurance world. In every country, most
of the insurance business is conducted in the field of
life assurance. In India, too, more than 60% of the
insurance companies deal wholly or partly in life
business. Due to the disintegration of the joint-
family system, life assurance is bound to grow popular
with the Indian people.
Life Assurance Contract
It may be defined as a contract, whereby the
insurer, in consideration of a premium, paid either in
a lump sum or in periodical instalments, undertakes
to pay, an annuity or a certain sum of money, either
on the death of the insured or on the expiry of a cer-
tain number of years. In the latter case, the payment
is made to the assured himself, while in the former, it
is made to his representatives. The premium once
fixed is constant. It must be remembered that the
life contract is riot an indemnity contract and the un-
dertaking on the part of the insurer is an absolute
one to pay a definite sum on the maturity of policy,
regardless of whether the death of the insured is the
occasion of a pecuniary loss to the beneficiary. It is
based on the ground that human relationships are
not susceptible to commensuration by a monetary
yardstick. Normally, one’s own life to oneself is in-
valuable. There can be no measurement in monetary
units of the sentimental loss caused by the passing
away of near and dear relatives. The life insurance
business recognises losses of this type and permits an
31
.22 INSURANCE

arbitrary amount of insurance, even though no actual

financial loss will result from the death of the assured.

Fundamentals of a Life Contract

A life insurance contract must possess all the re-
quirements of an oi'dinai'y business contract e.g., exis-
tence of an agreement, free consent of parties, their
competence to enter into an agreement, lawful consi-
. deration, legal object, etc. In addition to these, the
following requirements are most essential for a life
insurance contract to be valid.

Good Faith
The contract of life insurance requires utmost
good faith on the part of both the parties so that the
person undertaking to shoulder the burden of risk
may correctly ascertain the true nature and extent of
it before fixing its price. They must make a full dis-
closure of all the facts material to the risk. The
•.words ‘material to the risk’ mean any fact concern-
ing the health, condition or physical history of the
applicant which naturally has influenced the insurer
in determining whether to issue the policy. It is im-
material whether the misrepresentation was inten-
tional or accidental. For this purpose, the insured is
to fill in a Proposal Form supplied by the Insurance
Company. This form contains many questions with
regard to the health and family history of the appli-
cant who has to give correct answers to them. He has
also to undergo a medical examination on points
regarding his health and family history. Any mis-
statement will render the policy voidable at the op-
tion of the Insurance Company. This principle works
as a great hardship to the beneficiaries when the
.

policy has been in force for a long period, premiums

paid regularly and the insurance company wants to
avoid the contract on the plea of mis-statement made
at the time of issuing the policy. In such cases, it
becomes very difficult to prove or disprove whether a
 THE LIFE CONTRACT 33

particular statement made at the time of taking policy

was true. Therefore, to obviate this hardship many
companies provide for an indisputable clause accord-
ing to which a policy becomes unquestionable after
the lapse of a certain period. In India, section 45 of
the Indian Insurance Act 1938 lays down that no
policy can be called into question after the expiry of
two 3r ears from the date on which it was effected on
the ground of any mis-statement of a fact except when
it was made wilfully fraudulent.

It must, however, be remembered that the duty

to disclose the material facts rests not only on the as-
sured but on the insurance company as well, though
by nature of the circumstances the insured is more
in knowledge of facts about the life to be insured, and
therefore, he is to be more particular about it.

Insurable Interest
The insured must have an insurable interest in
the be insured if the policy is to be valid. A
life to
person to have an insurable interest must stand in such
a relation to the event insured against that he would
suffer a pecuniary loss if that event actually happen-
ed. Any one, therefore, who has a pecuniary claim
against another or a legal right to support him, has
an insurable interest in the life of that other. It is
sufficient, however, that such interest exists when the
policy is taken.
In considering the question of insurable interest,
the policies may be divided into two classes. (1) poli-
cies on the life of the assured himself, and (2) policies
on the lives of third parties. Regarding the first type
of policies, it is recognised that an individual always
has an insurable interest in his own life and, there-
fore, can take an insurance policy on his life to any
extent. The loss to one or one’s dependants due to
one’s death cannot be measured in terms of money
and, therefore, no limit can be placed to the amount
of insurance that one may take on one’s own life.
HA INSURANCE

Thus theoretically one can take a policy to any un-

limited amount on one’s own life, but in practice no
company will issue a policy for an amount lai'ger
than seems suitable to the circumstances and means
of the applicant.
Life assurance can also be effected on the lives
of third parties provided the applicant has an insu-
rable interest in the life to be assured. Such third
parties must have some relationship with the propo-
—
ser be it family or commercial. In case of family
relationship, some of the relations are presumed to
have insurable interest e.g., a husband and v/ife have
an insurable interest in the life of each other so that
one can take an insurance policy on the life of the
other. In case of other relations, mere relationship
or ties of affection are not sufficient to warrant the
existence of insurable interest, but in addition to
this, the applicant must have a reasonable ex-
pectation of financial benefit from the continuance
of the life of the person to be insured or of
financial loss from his death. The interest- need
not be capable of exact pecuniary estimation, nor
need it amount to a legal right;, but it must be based
on value, and not on mere sentimental considerations.*
Thus a son can insure his father’s life only when he
is dependent on him. Similarly, the father can take
an insurance policy on his son’s life only when he is
dependent.
An insurable interest may arise
as a result of
commercial transactions as well. In case of blood re-
lationship, the amount of the policy is usually limited
only by the circumstances of' the applicant and the
willingness of the company to issue it; but in case
of business relations, the amount of insurance must
correspond with reasonable accuracy to the extent
of risk involved. Thus the insurable interest in these
cases, is not an absolute amount but limited by the
* "Maclean
 THE LIFE CONTRACT
cash value of the insurable interest. Hence* a .creditoi
can take an insurance on the life of hi^ dehtdr to ”fh<
amount of his debt plus some additional«?m{irges oi
account of premiums and interest. Similarly, fr'part
ner can insure the life of another partner ^tlie’ bk'
!5: l

tent of the latter’s capital so that in case of his death

his share in the business may be paid out of the policy
money without seriously upsetting the business re-
sources. Similarly, an employer has an insurable
interest in the life of his contractor, a corporation
has an insurable interest in the life of a senior officer
whose death might affect the profits of the business.
A trustee has an insurable interest in respect of the
interest of which he is a trustee. But a debtor has
no insurable interest in the life of his creditor. Any
one, who by contract is liable to pay any money in
case of the loss of anything, has an insurable interest
in that thing. Thus an insurer has an insurable in-
terest in the subject-matter of a policy which will
support a re-insurance.

Life Assurance not a wagering contract

There was a time when insurance was considered
to be immoral as “gambling in human life”. This idea
arose because cases were not wanting when policies
were taken where no insurable interest existed and
where the insurance was taken solely for speculative-
purposes. People used to bet upon the lives of kings,
national leaders or of some prisoners, particularly if
charged with an offence that would call for capital
punishment upon conviction. If a well-known person
fell seriously ill, a huge amount of insurance would
at once be written insuring his life. Thousands of
persons without any other interest in the assured’s
life would be financially interested in his
immediate
But now with the insistence on the existence
death.
remained an
of insurable interest, life insurance has
and cannot be regarded
item of economic necessity
Insurance is just the opposite of gam-
as a ‘wager’.
«'3G INSURANCE

bling. In gambling, the profit is sought to be made

through chance, while the object of life assurance
is just the opposite —
the avoidance of loss arising
through" chance. In. gambling, neither of the parties
is subject to a particular risk before entering into
contract but the risk is created through contract in
order to make a profit out of it; but in case of insur-
ance, the insured is already subject to a certain risk
prior to the contract but transfers it on the ether
party by the contract. Therefore, insurance is regard-
ed as a high social service and is encouraged by wise
public policy while, speculation being an anti-social
activity is prohibited by legislation.

Difference between life and other forms of insurance

1. The event insured against in life assurance

is a certain event, the only uncertainty being the time
when the event will occur. But in case of fire and
marine insurances, the event insured against may or
may not take place at all or may take place wholly
or partly. Thus in life assurance, every policy will
become a claim sooner or later but it is not so in other
insurances.
2. Life insurance a contract to pay an abso-
is
lute amount on the maturity of the policy and there
:is no possibility of partial loss, but the other insuran-

ces are indemnity contracts where only the actual

amount of loss will be payable irrespective of the
assured sum.
3. In life insurance, the hazard increases from
year to year. This happens in fire and marine insur-
ances also but there the subject-matter may be kept
in good condition by repair or the replacement of
worse parts; but in life assurance, the chances of
death go on increasing with increased age whatever
precautions may be taken by one about one’s health.
In spite- of the higher hazard from year to yeai’, the
same premium rate is charged in life contracts.
 THE LIFE CONTRACT 37
4. The classification
of risks is generally more
simple in insurance than in other forms of insur-
life
ance. Here all the lives are divided in three groups
— standard, sub-standard and uninsurable. But in
case of property insurances, the classification is more
complex, e.g., in marine insurance, the risks may be
divided according to the type of vessel, voyage, sea-
son, etc. Same is the case in fire and other insurances.
5. In most forms of insurance, the policy is taken
for one year or even for a shorter period but in life
contracts the insurance is taken for very long periods.
6. In life insurance, the premiums are charged
generally on level-premium plan which means that
the premiums charged in the initial years of the policy
are higher than the actual cost of insurance; but in
fire and marine insurance contracts, the premiums
.are just sufficient to cover the actual cost of insurance.
Due to this special feature of life assurance, it con-
tains both the investment and protection elements
but in the fire or marine contracts there exists the
protection element only.
7. In life assurance, the insured must have the
the insurable interest when the policy is taken; but
in marine insurance, he must have it when the loss

arises. In fire insurance, the insurable interest must

be present at both the times, when the policy is taken
and when it becomes a claim.

CHAPTER IV
VARIETIES OF LIFE ASSURANCE AND
ANNUITY
CONTRACTS
rights and liabilities for
Every contract involves
he contracting parties.
Greater fights invoke
for the partis to choose them.
reater liabilities. It is
f a person wants to
enjoy more ngh s
tnrn greater All insurance con
liabilities.
P liabilities oi various
ra cts Tarry with them rights and
88 INSURANCE

types and it is for the insured to select any out of

them. He will naturally select a contract which is
most suitable to his own circumstances. The rights
are in the form of receiving the assured sum (when,
how and how much), and the liabilities are in the
form of payment of the premium. The insurance
companies have devised various types of policies i.e.
contracts which will suit the varying requirements of
different people. No particular policy can be regard-
ed as better or cheaper than another because the insu-'
xance. companies calculate the premiums for all poli-
cies on the same mathematical principles. The pre-
mium for a policy is just the price of the rights and
privileges conferred by it. Therefore, from the point
of view of the company, all policies are alike but for
an assured, that policy alone will be best which meets
his requirements and fits his pocketbook. The vary-
ing contingencies under which the benefit is payable
and length of time and manner in which the premium
is payable are combined in various forms to make up
the contracts offered by the insurance companies.

Special Feature of Life Assurance

The function of every insurance is to provide a
coverage against a risk. The assured after paying the
premiums feels a sense of protection, that if the event
happens he shall not suffer the loss. This is called
the element of protection. All indemnity insurances
provide only the protection against risks, but a life
assurance has something in it more than the mere
element of protection. It contains the element of
investment as well. If the assured does not die
within a fixed period, he shall get the assured
sum. He is not only protected against the risk of
early death but also gets the assured sum if he sur-
.vives. Thus life assurance has a twofold func-
tion. It undertakes to replace income to the depen-
dants of a policyholder in the event of his death, and
:to replace income to the policyholder himself and his
 VARIETIES OF LIFE ASSURANCE 39

dependants in old age. To the extent that life insu-

rance is purchased for protection, it is a contract of
insurance. To the extent that it is purchased as a source
of income, it becomes an investment.
The two elements of protection and investment
exist in various degrees at differnt times in the same
policy and at the same time in different policies. A
shrewd policyholder will choose the policy best suited
to his needs in particular. There are numerous forms
of policies designed to fit specific needs. Some of the
important forms of policies are discussed below.

Whole Life and Endowment Assurance

The policies may be divided according to the time
which they have to run. If the policy is to run for
the entire term of life of the assured it is called whole
life or ordinary life policy. Under the terms of such
a policy, the assured sum becomes payable to the
beneficiary only at the death of the assured and he
has to pay the premiums regularly throughout his
life. It is most suitable to those persons who require
insurance for an indefinite period. The premium is
also low in comparison with other types of policies.
This is the best insurance available for family pro-
tection after death. The greatest disadvantage of
this policy is that the premiums are continued to be
paid even in the old age of the assured when he has
probably retired from service or business.
On the other hand, if. the policy is to run only for
a limited period or upto a particular age, it is called
and endowment life' policy. Here- the policy money
becomes payable on the expiry of a fixed term (known
as endowment term) or at death whichever is earlier.
The premium is payable till the date of maturity of the
poljcy, i.e., when the' policy sum becomes payable. In
this plan, the disadvantage of whole-life policy to pay
premiums during old age does not remain, as the pre-
miums are payable only upto a particular age. It
serves as a good provision for old age or for the family
40 INSURANCE

protection in case of early death. The premium rate

is a little higher in endowment assurance than that
in whole-life assurance. It is because of the greater
privileges conferred under it. This is the most popu-
lar form of insurance.
Policies according to the method of premium payments
The policies may be. divided according to the
method of payment of the premiums. Usually the
premium is paid regularly at fixed intervals so long
the policy remains in force. This is called a Regular
Premium Policy. The regular interval is generally
one year but can also be made half-yearly, quarterly
or even monthly. Any premium payable for a fixed
period is paid in advance at the beginning of that .

period. The rates of premium are generally quoted

on an annual basis, but they can be converted into
half-yearly rates by halving the annual rate and add-
ing to it a small amount due to loss of interest on
half of the premium' during the first six months, the
increased office expenses and the possible loss of one
half-yearly premium in the year of death. On the
same basis, an annual premium can be converted into
quarterly or monthly premiums. On account of keen
competition, the companies now-a-days offer greater 1

facilities to the policyholders for the payment of pre-

miums and, therefore, many of them charge simply
half quarter or one-twelfth of the annual premium
as the premiums are payable half-yearly, quarterly or
monthly respectively. They do not add anything
extra' on account of the above items but allow some
reductions in premiums if they are annual or half-
yearly.
In case of a regular premium policy, the pre-
miums' are paid so long the policy remains in force
arid this works as a great hardship specially in a
whole-life policy where the premiums ha\'e to be
-

paid even in old age in spite of the assured’s dwindling

earning' capacity. -
To remove this' hardship, limited
premium payment policies are issued, under which
 VARIETIES OP LIFE ASSURANCE 41

the premiums are payable only in a fixed number of

instalments or upto a certain age. In case of a whole-
life policy by limited premiums, the premiums are
payable upto a specified number of instalments (or
until prior death) and the policy money becomes pay-
able on the death of the assured. It is an ideal policy
for providing assurance protection «as a family provi-
sion. The policyholder can arrange the premiums to
cease at the age when he expects to retire from busi-
ness or service. In case of an endowment assurance
by limited premiums, the payment of premiums ceases
even earlier than the expiry of the endowment term.
The protection element in limited payment poli-
cies is less than in the ordinary life form and, there-
fore, the investment portion is greater. Whether one
policy will be cheaper than the other in an individual
case will depend on the time lapsed before death
occurs. If the assured should be so unfortunate as to
die shortly after the policy is issued, he has, of course
paid more for the protection in the limited payment
plan. On the other hand, however, if his life exceeu
s

the. usual span he has paid less in ,

this, plan: Thus
-
’
there is no presumptive financial advantage as be
ween one- form or the other. Choice depends on cir-

cumstances and personal, preference. Some persona

prefer; the limited-payment plan because
-there is a
the -termination of the premiums
definite date for
policy as it
while others prefer the ordinary life
permanent protection for a given
affords the maximum
'

Dutlay. ;
.
oi assu-
The extreme development of this class
'

policy, where
the - single 'premium
rance is found in;
only one premium at
the assured is required to pay .

contract. The premium under

the beginning of the
plan is the- highest. The P^ t
te ctl
tSis
-nv^jent °2enTTss
demen IfoS
eorr
in this plan and the
poridingly very great The ad^ntage^
^
“1—3
S
future payments o£ premiums as there
mafcUlg
remains
42 INSURANCE

no liability on his part any longer. Again if he hap-

pens to live to an advanced age, his single premium
would be less than the total he would have paid as
regular premiums. It also furnishes a good method of
making gift of lifeinsurance policy. But as the pre-
mium is so high under this plan, .few persons are
willing and able to pay it in one instalment. Further,
if the insured dies at an early age, his single premium
would be far greater than the total payments under
a regular plan. Therefore, such a policy is taken
either by rich persons or by speculators who feel very
uncertain about their future income.
For situations requiring a large amount of insu-
rance immediately at dhe lowest possible premium
cost, insurance companies have devised special cover-
ages under which premiums usually start very low
in comparison to the cost of an ordinary life policy for
the same amount. Such a form of insurance is called
early-reduced-premium -policy or modified life policy.
Under this plan, the premiums paid for the prelimi-
nary period, which is usually 3 or 5 years, remain
low either at the same figure per year or at increas-
'

ing amounts year after year and after the preliminary

period is over the premium is greater for the remainder
of the policy. The premium after the expiry of the
preliminary period is more than the level premium at
the original age of issue but less than the rate at the
attained age at the time of such expiry. The
low cost in the early years is compensated for
at a slightly higher level premium during the
remaining period of the policy. The early reduc-
ed premium policy is designed to meet the needs of
the person who has just started his career with a low
income but expects a good increase in future. This
policy enables him to insure for a sum beyond his
means under a full premium
table at a lower cost at
the time of effecting the assurance and the premium
is increased at a time when he is well able to afford
it.
 VARIETIES OF LIFE -ASSURANCE
43

Sometimes a policy is issued where the low pre-

miums are not limited to the initial period but it
becomes a regular feature of the policy so much so
that in the beginning the premiums are low but
go on
increasing year after year for the rest of the period of
policy. It is called as increasing rate policy. It is in-
tended for persons who at present cannot afford to
pay the higher rates on permanent regular plans for
an adequate amount of insurance but who hope to be
financially better off in a few years.

Policies according to the, method of payment of the

assured sum
In all the above types of policies, it is presumed
that the policy money becomes payable in one lump
sum when the policy matures. This is the most com-
mon arrangement. But to suit the varying needs of
the different policyholders more convenient methods
have been devised by the insurance companies. Ac-
cording to one arrangement, the assured sum becomes
payable on the expiry of a fixed term of years, as 10
or 20, after the date of maturity of the policy, and
during this term, known as ‘investment period’, the
insurance company pays .to the beneficiary interest
—
on the assured sum generally at 5% per annum.
Such a contract goes by the name of 5 ft Debenture
v
Policy, or 5% Guaranteed Income Policy, or 5ft Gold
Bond Policy. The advantage of this plan is that since
beneficiaries have little financial experience, they
might lose benefit of the provision by an imprudent
,

investment of the assured sum or through wasteful

expenditure. Therefore, the sum is retained with the
company for the investment period during which the
wife may get some experience and the 5% interest
of the
will be a good income during the minority
might have at ins death.
child, whom the assured left

Because of tire guarantee of a high interest rate, the

premium charged is also slightly heavier man a *

under the ordinary plan.

44, .
INSURANCE..

Another variety is to make the policy money pay-

able, not in one sum but by a fixed number of equal
annual instalments (ten or twenty, in number) run-
ning from the date of' the maturity of the policy. The
premium for such a policy is less than that for an
ordinary policy of the same amount, as the assurance
company is able to earn interest on the decreasing
.

balance unpaid from year to year, to which interest

the beneficiary has no claim.’ This type is known as
instalment life assurance. It is also possible to extend
.

the plan further by guaranteeing the payment of the

sum assured by a fixed number of instalments, and
further providing that if the beneficiary survives the
instalment period, the annual payment will be conti-
nued until, the death of the beneficiary. The above
varieties are available in both the whole life as well
as endowment assurances.

Policies on more than one life

When the policy is taken on a single life, it is call-

ed a single life policy. Assurance can, however, also
be effected on a group of two or more lives. It is call-
ed joint life assurance. Under a joint life policy, the
assured sum becomes payable on the first death to
the survivor or survivors, ,i.e., the policy remains in
force so far the fives assured remain joint. The most
common form is that made on two. lives, as husband
and wife, payable to the survivor on the death of
either party. It is also utilised in case of two or more
partners who take a joint-life policy so that on the
death of a partner, his share of capital and profits in
the firm may be paid out of the policy money,
thereby keeping the capital of the firm intact. Of
course, on the death of a partner the surviving part-
ners have to take again a new joint-life policy for
themselves.
Joint-life policies may be effected on the hole-
v,
life endowment plan with or without the limited
or
payment feature. In case of joint-whole life assn-
 VARIETIES OF LIFE ASSURANCE 45

ranee, the policy money becomes payable on the hap-

pening of the first death, but in case of joint-endow-
ment life assistance, the policy money becomes payable
on the expiry of the endowment term or on happening
of the first death, whichever event takes place first. In
theory, joint-life policies may be taken on any num-
ber of lives but because of practical difficulties and
expense, few companies are willing to issue joint
policies which cover more than three or four lives.
The greater the number of lives covered, the higher
will be the rate of. premium, as the chances of death
of one person amongst many are greater than amongst
two. \

When two or more lives are assured under a single

plan but the policy money becomes payable on the
happening of the last death it is called last survivor
assurance. The policy remains in force so long a
single person from the group remains alive and the
assured sum becomes payable on the death of the last
survivor. In such a policy, the premium is lower
than that in a joint-life policy. It is suitable for those
persons who feel* certain about their income so long
,

they are alive either jointly or as survivors but want

protection for the dependants after all the insured
persons have died. This form of assurance is not
very common.

“With Profit” and “Without Profit” Policies

The can also be divided according to the
policies
right,' or otherwise, to share in the profits of the
company. If they carry this right, they are called
with-proftt or participating policies but if they do not
entitle the policyholder to share in the profits of the
company, they are called without profit or non-parti-
cipating policies. Under the participating plan, the
policyholder does .not definitely know what the pre-
mium is to be. Rather, he is offered a policy with
maximum cost of coverage and the minimum to be
determined by the success of the company. In case
46 INSURANCE

of non-participating policy ; the premium cost must

be' estimated more closely. The profit returned to
the' participating insurants is termed ‘bonus’. Under
the impact of keen competition, most of the compa-
nies now issue ‘with-profits’ policies and as high as
90 per cent of the profits is distributed to the parti-
cipating policyholders.

Other Classes of Assurance

Pure Endowment Assurance
Under this plan, the policy money becomes pay-
able only if the assured survives the endowment
term, nothing being payable if death occurs previous-
ly. The rate of premium in such a plan is lower than
that in ordinary endowment policy. It is best suited
to those persons who do not feel any need of family
provision after their death. Strictly speaking, pure
endowment is not a life assurance plan as it does not
protect the death. Sometimes pure endowments are
issued on the lives of children to provide funds for
college education. t

The above form is known as “without return”,

but there is another plan, known as a pure endow-
ment “with return”, according to which, the premiums
actually paid, or a considerable portion of them, are
returned to the beneficiary of the assured, if he dies
during the endowment term.
Double Endowment Assurance
Under the terms of this contract, the insurer
agrees to pay to the assured double the amount of the
insured sum, if the latter survives the endowment
period, but the assured dies during the endowment
if
period the actual assured sum alone is to be paid to
the beneficiary. Thus it is a combination of ordinary
endowment and pure endowment without return
plans. Here survival brings the double benefit. The
premiums under this plan possess the unusual feature
of being same for different ages at entry into assu-
 VARIETIES OF LIFE ASSURANCE
47
ranee, if the different policies are taken
for the same
term and the same sum. Of course the premium for
a double endowment assurance is higher than that
for an ordinary endowment. The scheme is more
suitable to persons who, on account of some physical
defect or hazardous employment are not granted a
whole life or endowment assurance without an extra
charge.
Temporary Assurance
It provides assurance for a limited term only,
usually ranging, from one to seven years. Under a
Temporary Assurance Policy, the assured sum becomes
,

payable if the assured dies within a certain term, but

if he survives the term nothing is payable. The
benefit accrues to him only if he dies during the term
and, therefore, it is also called term assurance. It is
just the reverse of a pure endowment assurance. The
premium .is- naturally very low in this plan. Such a
policy is certainly not suitable for either a family or
old age provision, and is, in fact, utilised in relation to
loans on personal security, to secure repayment of a
debt if the borrower dies during the period of loan,
and it suits persons going abroad on short trips. The
young professional man with high need and low pre-
sent income, but excellent prospects of better income
in the future, can use temporary insurance to advan-
'

tage.
Term policy was the first type of policy to enter
the life assurance field. It contains simply the ele-
ment of protection like other indemnity contracts. It
will be noticed that an ordinary endowment assurance
is a combination of a term assurance
and a pure
return, both running for the
endowment without
same period. 1

Convertible Term Assurance

A covertible term policy embodies a special pre-
assured the right to get his policy
vision giving the
converted into a whole life or endowment
assurcu.ee
46 INSURANCE

of non-participating policy, the premium cost

must
be estimated more closely. The profit returned to
the participating insurants is termed ‘bonus’. Under
the impact of keen competition, most of the compa-
nies now issue ‘with-profits’ policies and as high as
90 per cent of the profits is distributed to the parti-
cipating policyholders.

Other Classes of Assurance

Pure Endowment Assurance
Under this plan, the policy money becomes pay-
able only if the assured survives the endowment
term, nothing being payable if death occurs previous-
ly. The rate of premium in such a plan is lower than
that in ordinary endowment policy. It is best suited
to those persons who do not feel any need of family
provision after their death. Strictly speaking, pure
endowment is not a life assurance plan as it does not
protect the death; Sometimes pure endowments are
issued on the lives of children to provide funds for
college education. *

The above form is known as “without return”,

but there is another plan, known as a pure endow-
ment “with return”, according to which, the premiums
actually paid, or a considerable portion of them, are
returned to the beneficiary of the assured, if he dies
during the endowment term.
Double Endowment Assurance
Under the terms of this contract, the insurer
agrees to pay to the assured double the amount of the
insiured sum, if the latter survives the endowment
period, but if the assured dies during the endowment
period the actual assured sum alone is to be paid to
the beneficiary. Thus it is a combination of ordinary
endowment and pure endowment without return
plans. Here survival brings the double benefit. The
premiums under this plan possess the unusual feature
of being same for different ages at entry into assu-
 VARIETIES OP LIFE ASSURANCE 47

ranee, the different policies are taken for the same

if
term and the same sum. Of course the premium for
a double endowment assurance is higher than that
for an ordinary endowment. The scheme is more
suitable to persons who, on account of some physical
defect or hazardous employment are not granted a
whole life or endowment assurance without an extra
charge.
Temporary Assurance •

It provides assurance for a limited term only,

usually ranging, from one to seven years. Under a
Temporary Assurance Policy, the assured' sum becomes
payable if the assured dies within a certain term, but
if he survives the term nothing is payable. The
benefit accrues to him only if he dies during the term
and, therefore, it is also called term assurance. It is
just the reverse of a pure' endowment’ .assurance. The
premium .is- naturally very low in this plan. Such a
policy is certainly not suitable for either a family or
old age provision, and is, in fact, Utilised in relation to
loans on personal security, to secure repayment of a
debt if the borrower dies during the period of loan,,
and it suits persons going abroad on short trips. The-
young professional man with high need and low pre-
sent income, but excellent prospects of better income
in the future, can use temporary insurance to advan-
'

tage.
Term policy was the first type of policy to enter
the life assurance field. It contains simply the ele-
ment of protection like other indemnity contracts. It
will be noticed that an ordinary endowment assurance
is a combination of a term assurance and a
pure
endowment without return, both running for the
same period. 1

Convertible Term Assurance

pro-
A covertible term policy embodies a special
right to get his policy
vision giving the assured the
assurance
converted into a whole life or endowment
48 INSURANCE

at an increased premium corresponding to the. age at

conversion without any further medical examination.
The assured can also get his policy converted as from
its original date at the premium rate corresponding
to the age at the original date of issue, but he shall
have to pay the differences in past premiums and
interest thereon. The option of conversion must be
exercised at any time except during the last two or
three years. The advantage of this policy is that
during the term the assured might have deteriorated
in health but in spite of it he is granted whole-life or
endowment assurance. These policies are particular-
ly good for young men having yet their way to make
in the world, but whose prospects nevertheless are
promising. '

Renewable Term Assurance

A Renewable Term Policy is one that contains an
option to renew the term policy for a further term,
usually of the same length without any medical exa-
mination. Renewable term policies may also be con-
vertible to permanent plans as described above.

Decreasing Term Assurance

This type of policy is merely a term assurance
with a diminishing sum assured each year. It is com-
monly effected in connection with loans that are
repayable by instalments. A debtor who agrees to
pay to his creditor his debt by regular instalments
takes this policy with an idea to place it as a security
against his debt. The assured sum goes on decreas-
ing as the instalments are paid and with that the
premium is also reduced. In case of death of the
debtor during the term, the assured sum standing on
that day will be payable to the creditor and this will
be equal to the balance of debt.
Contingent Assurance
It is also known as contingent survivor assurance.
Under this plan, the policy money becomes payable if-
 —
VARIETIES OF' LIFE ASSURANCE 49

two or more
lives die in an assigned order of time.
Suppose A
entitled to a property only if B dies
is
before A, in such a case A
is; said to have a contin-
;

gent interest in the property. If, however,

,
dies A
before B, his interest fails. Therefore, to cover this
risk A' may
take a contingent assurance policy on his
own according to which, the assured sum will
life,
become payable, if A dies during the lifetime of B
(known as “counter life”). On the other hand, if B
dies during the lifetime of A, the contract comes to
an end and the premiums paid are forfeited to the
company. A policy can similarly be effected when
more lives are involved.
Family Protection Assurance

A
recent development of life assurance is the
issue by most companies of a type of policy combin-
ing a decreasing term assurance and a whole life or
endowment assurance. These policies have become
very popular, most of them being primarily designed
for the protection of a family or other dependants.
They are known as “Family Protection,” “Perfect
:

Protection,” “Family Safeguard,” or “Family Income”

policies. The provisions of these policies are as
follows:
(a) policy is taken for a fixed term of years,
The
usually 20 years.
-

(b) If the assured dies before the expiry of the

term,
(i) The beneficiary gets a fixed annual in-
come equal to 10 or 15 per cent of the
basic sum assured from the date of the
assured’s death for the remaining period
•
of the term; and *:

1
(ii) The full assured sum also payable at
is
(calculated either
the end of the term
from the inception of the contract or from
" originally agreed).
'
the date of death, aS
50 INSURANCE

(c) the assured survives the term, no instal-

If
ment is paid but the full assured sum is pay-
able either at death, if the contract is for the
whole life, or in cas^ of an endowment assur-
ance at maturity or on previous death.
The above arrangement is most suitable for a
young married man, who can make provision for a
guaranteed income to his wife in case of his early
death and a good sum will be available after a parti-
cular time probably when the eldest son is ready to
enter' business or for higher education.

Annuity Contracts
In addition to the life assurance, the companies
issue life annuities as well. A
life annuity may be
defined as a contract whereby the insurance company
agrees, in consideration of a certain payment or pay-
ments, to pay to the beneficiary , a fixed regular
,

income during a given status. The “status” may be

-

the duration of one or,, more than one life. The per-
son, during whose life the annuity is paid, is called
the-, annuitant or nominee. The price of the annuity
paid by the annuitant at the beginning of the contract
is called the ;
premium, consideration or purchase
money. The periodical payment to be made by the
insurance company is called the annuity. This is
usually paid annually but can also be paid half-yearly,
quarterly or monthly.
Annuity is suitable to a person who does not want
to create any family provision but wants .to enjoy the
whole of his wealth himself during the old age. Such
a person may keep the money with himself or invest
it in suitable investments and distribute it over the
.

rest of the period of his life; but this course is always

full of uncertain dangers because for an equal distri-
bution of his capital over the remaining period of life
he has to estimate its duration which may not be abso-
lutely correct in his individual case. If he under-
estimates it, he may have spent his whole capital
 ANNUITY CONTRACTS Si

within a short period' and may have to starve for the

last few years of his life; on the other hand, if he
errs on the other side in his estimate, he might leave-
quite a good amount of money unspent after his death
and which he could have best utilised through greater
enjoyment had he known it beforehand. Therefore,
to enjoy the maximum advantage of his capital, he
can safely rely on an assurance office by purchasing
an annuity which will be paid to him till his death.
A life insurance company, undertaking a multitude
of such contracts, is in a better position to estimate
the period for which an annuity taken at a particular
age has to run. For Ithe same annuity, the pre-
mium at a lower age will be higher, or to say it in
other words, the same premium will purchase a
smaller annuity at a lower age than at a higher age.
Thus a life annuity is just the reverse of a life assu-
rance. In the latter, the price is paid regularly for
the whole life (if it is a life policy) and the benefit
accrues in one lump sum on the assured’s death; but
in case of an annuity, the price is usually paid in one
lump sum and the benefit accrues in instalments until
death. Again a whole-life policy provides protection
against death and the benefit accrues to the person
other than the assured, but an annuity is exclusively
meant for provision in old age and; the benefit accrues
to the assured himself. The various types of life
annuities are discussed below.

Immediate Life Annuity

This type of annuity, also called the towipm
life annuity or straight life annuity, is the simplest
form sold by life assurance companies. It provides
an income throughout the entire life of the annuitant.
The premium is paid in one lump sum at the incep-
tion of the contract.' The annuity payments may be
yearly, semi-annually, quarterly or monthly and
the
payable immediately after one
first annuity becomes
respect-
year six months, three months or one month
imme-
ively after purchase and hence they are called
J>2
INSURANCE

diate annuities. The more frequently the instalments

are payable the greater becomes the cost of annuity,
since the loss to. the annuitant in the year of death is
diminished and also because of greater expenses and
loss of interest to the company.
Deferred Annuity
Here the annuity payments do not commence
immediately after the purchase but only after a stated
period of years. The deferred life annuity may be
purchased either by a single premium at the outset
or by periodical premiums payable during the whole
or part of the deferment period. In the simplest form
•Of deferred annuity, nothing whatever is payable by
the company if the annuitant happens to die before
the date upon which the first payment of the annuity
fallsdue.
Annuities are generally provided for old age and
during this period it is found from experience that
females have a greater vitality than the males, and,
therefore, the annuity rates are quoted at higher rates
of premium for females than for males.
Refund and Cash Refund Annuities
The above forms of regular annuities work as a
great hardship if the annuitant happens to die either
before the first annuity becomes payable or very soon
after only a few annuities have been paid because the
annuity payments cease at the death of the annuitant.
To avoid the possibility of such serious loss to the
beneficiary, many companies issue refund and cash
refund annuities. Under the refund annuity, the com-
pany undertakes in the case of an early death of the
annuitant, to continue the annuity payments until
total payments equal to the purchase price have been
made to the beneficiary named in the contract.
In the cash refund annuity, it is provided to pay
immediately in cash to the executors of the annuitant
the balance of the purchase money that has not
.already been returned- in the form of annuity pay-
ments. ' -
 ANNUITY CONTRACTS 53

The above annuities are also termed as annuities

with Guaranteed Payments, Naturally, these forms of
annuity are more expensive than the ordinary life
annuity as they carry with them additional benefits.
Survivorship Annuity
Under the terms of the survivorship or rever-
sionary annuity, one
(called insurant or nomi-
life
nator,) is insured in order to provide a life annuity
for a second life (called beneficiary, annuitant or no-
minee) . It provides that annuity .payments shall
commence only if the nominee be alive at. the death
of the nominator and then shall continue until the
death of the nominee. If the nominee dies before the
nominator, the policy terminates and all payments
, ,

paid are forfeited to the company. Premiums may be

payable "either in one lump sum at the outset or period-
ically during 'the joint lifetime of the two lives. This
form is particularly suitable to case of a husband ,

wishing to provide a fixed income for his wife after

’

his, death. y
:

Retirement Annuities . .

The, retirement annuity is a special form of de-

ferred -'annuity designed to enable .the purchaser to
provide a pension for himself Muring his old age. ,

Under r this the deferred period is fixed

plan’"; first
during which the / annuitant pays periodical pre-
!

'

miums which are accumulated with interest with the

'

company. If the annuitant dies during this period

or does not want to maintain the contract, the pay-
ment -of a guaranteed cash surrender value is made.
When the retirement age is reached, the annuitant
has the option of selecting either the total cash value
or an annuity. In the latter case, he may select one
of the several types of annuities, such as regular
life

refund or cash refund annuity, or joint and

annuity,
charac-
survivor annuity. The retirement annuity is
by a- number of clauses permitting
terized particularly
a wide range of flexibility.
5t INSURANCE

Annuities involving more than one life

When the status over which the annuities are paid
is the single life, it is called the single life annuity.
The payment ceases with the death of the annuitant.
However, policies may also be issued where the status
over which the annuity payments are made is two or
more lives. When, under a contract, it is provided that
the annuity payments shall continue to be made dur-
ing the lifetime of all the parties' in whose interest
the contract has been made and to continue in the
same amount till the death of the last survivor of the
group, it is called a joint and survival life annuity
or the last survivor annuity. This form of annuity
finds' particular- use when old couples wish to invest
their life savings and provide that the annuity pay-
ments continue after the death of one for the benefit
of the survivor during the remainder of his or her
life.
When
the contract provides for the annuity pay-
ments so far the lives are joint, it is called joint-life
annuity. Here the payments cease at the first death.

Selecting a Plan
~
r
There are different types of policies carrying with
"

them various rights; and commitments.

.
One has to
,

select a" type best suited to one’s particular circum-

stances. In planning the selection of a particular
policy, an individual, however, has to consider the fol-
lowing points: ,
 ANNUITY CONTRACTS 55

and also to make a fair estimate of the likely

change in it in the future. Of course there
. should be no over-estimate of the future .in-
come, otherwise the present sacrifice will be
too great and. the whole insurance may have
to be allowed to lapse.
(iii) Nature of his ,
financial obligations and the
financial capacity of hisdependants. These
will determine the amount of assured sum
and the manner in which it should be paid.
An individual may need provision for the edu-
cation of his child after ten years, in this case
he would do better by taking a ten-year en-
dowment policy where the assured sum may
be .payable in instalments; but if he wants to
make provision for the marriage of his daugh-
ter, the payment of policy money in form of
'

a lump sum will be more proper.

(iv) Temperament. If a person by force of his
habit cannot save anything, it would be bet-
ter, for to go for a policy of maximum
him
amount
as will mean a compulsory saving
it .

for him, but. if he is of regular habits and can

follow a laid out plan he can take a policy of
\ moderate figure and. invest the rest of his sav-
ings to earn a higher interest.

Importance of Life Assurance

;
Life assurance helps to correct or prevent many
situations of social and economic maladjustment.
Judged from all its aspects, the. value of life assurance
cannot easily be overestimated. in one Mr. S. Bryan
of his addresses said: “Insurance..... is the
greatest blessing that modern times have bestowed
upon mankind. It enables man to overlap the barrier
of death; to overcome the grim fear that his loved ones
inay some day become dependants upon the charity
of others; it enables him to project himself into the
future and in a real sense, even if he dies, to live
50 INSURANCE

again.The immortality that comes to a man who

has insured his life for the protection of his
widow and children is certain evidence of a mental
and spiritual development that ought to make man
rank high in the future world.
institutions furnishing this great social ser-
The
vice to the masses of the people are encouraging thrift,
removing anxiety, destroying fear of the future, crea-
ting self-respect, and bringing about cooperation for
social uplift that has never seen its precedent in any
time in the .history of the world”
immature death.
Protection' against The value
of life assurancevery great to an individual. Every
is
man of family, rich or poor, wishes his wife and child-
ren to be happy. He plans elaborately for them with
respect to their education, marriage and general wel-
fare but if he is snatched away before the expected
time his dependants are compelled to put up with un-
thinkable hardships. But if he has taken a whole-
life or family protection policy,- there will be a consi-
derable, relief to the dependants. Thus life assurance
is a good measure of protection against an' early death.
Provision for old age. Life assurance, also makes
a good provision for old age. Many persons might
.

be earning quite good an1 income during their youth

,

and enjoying a high standard of living but' with the

coming of old age the earning capacity dwindles and
they find it too difficult to maintain the same stand-
ard. An endowment assurance affords, ^comfortable
support in old age and dhe money is available just
when it is most urgently required;' The assured can
provide for the higher education of 'children, marriage
.of daughters, .pilgrimage in retired life,' etc., by 'this
.policy, at the same time ‘providing for full protection
•against early- death. " .•

-Promotes thrift. Life assurance is one of the most

;

important agencies dor the promotion of savings. It

'

is commonplace that good resolutions are honoured :

more in breach than in observance. An individual

 —
ANNUITY CONTRACTS 57

planning for regular voluntary savings will discover

that either he fails to hold himself rigidly to the plan
or in the times of slight financial stringency he con-
sumes the entire savings. Life assurance fosters com-
pulsory savings as the premiums assume the charac-
teristic of a debt or an obligation to be met.
.
If any
premium is not paid on the due date, the policy may
lapse and this fear makes the assured pay the pre-
miums regularly.
Social value. Apart from the value of life assur-
ance to individuals, its social value reflects in a bene-
fit to the community at large. The dawn of industrial
era with its backbone of money economy has created
a large number of wage-earning labourers cut off from
the old corporate family life and drifted to adopt
strictly an individualistic mode of living. These labour-
ers in their old age being unable to earn and having
lacked the foresight to make adequate provision for
old age become destitute or at least practically de-
pendant. They become a social problem and no amount
of security measures by state or private charities can
prevent their malady. If they are induced to purchase
life assurance according to their means, it will not
only relieve society of a great problem but create
self-reliant and economically independent civilians
which is very important for a progressive nation.
Life assurence companies are interested in the
longevity of their customers and to attain it, many
of them educate their policyholders in the subjects
of personal hygiene, sanitation, and disease preven-
tion by means of issuing health bulletins, popular
lectures, etc. Thus life assurance contributes to conser-
vation of health.
The life assurance companies accumulate vast
sums in form of premiums. This fund has been rightly
called “a vast economic reservoir” which furnishes
a good means of investment for the economic deve-
lopment of the country. Mr. Lloyd George once re-
marked that the success of Britain in the great war
i i.
58 INSURANCE

was not a little due to thd financial help received

from the Insurance Companies.
Commercial Value. The use of life assurance in
the field of business and commerce has very greatly
increased in recent years. It serves as a basis of cre-
dit. When a life policy after remaining in force for
a good time acquires a cash value, it can be furnished
.as a collateral security to acquire a ready loan in
times of stringency. Again a creditor can take a
•policy on his debtor’s life for the purpose of safe-
guarding a loan specially where the loan is advanced
•on personal security only, so that if the debtor dies
'.before the repayment of debt the creditor can realise
It from the insurance company. Further, in a part-
nership there may be two or more partners carrying
on a business very successfully but when a partner
•dies, his share of capital is to be paid in cash to his
dependants, and such a large amount of cash cannot
be available from the working capital of the business
without seriously dislocating the financial set up of
the firm. A joint-life policy is the safest course under
such circumstances. On the death of a partner, the
money realised from the insurance company can be
paid to his dependants without the slightest shock to
the regular business. Similarly, the business can
also provide for the payment of inheritance taxes on
death by life assurance. In addition, big firms pro-
vide against the loss caused by the untimely demise
of a valuable officer or employee by taking a policy
on his life. The reason for this insurance is that the
officer might be of extraordinary business ability and
administrative capacity and his early death might
seriously affect the profits of the firm.
 CHAPTER V
PREMIUM COMPUTATION
Assessment Plan
The growth of the insurance idea to an institution
of the size and importance of the life insurance busi-
ness today is the result of a long period of evolution.
In its early stages, it was a rough and unscientific
method of provision against an early death. The
members of a group would contribute to a fund which
could be utilised in rendering assistance at the time
of death to the surviving dependants of the deceased
member of the group. In the beginning, the contri-
butions were voluntary and the death benefits varied
with the requirements for payments to the beneficia-
ries. Later on the benefit to be paid was definitely
fixed and the contributions, later termed as assess-
ments, were varied in accordance with the needs of
the organisation. This plan was called the “assess-
ment’' assurance.
The assessment plan in the beginning provided
that whenever any member died, equal assessments
were collected from the remaining members of the
group and the total was paid to the beneficiary. The
defect of this plan was, that firstly the members could
not know as to how many assessments were payable
during the year as their number depended on the
number of deaths, and, secondly the same assessments
were collected from all members without any refer-
ence to age. Thus it was an inequitable plan. Later
on, to overcome the inequities growing out of age
differentials, some incorrect rules were adopted,
whereby the assessments were graded according to
age on joining the group. However, it still remained
unscientific.
Natural Premium Plan
Both the defects of assessmentism are removed
by this plan.Here the premium to be paid during
.
59 .
GO INSURANCE

the year isfixed in advance and is charged at the

commencement of the year, secondly the premium
is graded according to the age at entry, so that dif-
ferent persons of different ages have to pay different
premiums. A
man of 20 will pay less premium than
the man of 40 because his chances of death are com-
paratively remote. This calculation of premiums in
advance and linking it to the age is made possible
by the help of mortality tables (discussed below in
detail). In these tables is recorded the experience
of past as to how many persons die out of a particular
group at a particular age in a year and it is expected
that this experience will repeat in future. Thus,
suppose 100 persons of the same age want to take
insurance for Rs. 100 each for one year and it is found
from the mortality table that seven persons will die
out of them during the first year, it can be calculated
that Rs. 700 will be required to pay the claims. This
amount can be divided among 100 persons and the
premium per head is Rs. 7. Of course the premium for
the same amount of insurance at higher age will be
higher as the mortality rate then is higher. As the
man advances in age, his chances of death increase
and with that, the premium also increases. The in-
crease as between one age and the next is at first very
small but accelerates with advancing age. There-
fore, the defect of this system is that premium
in old age will be so high as to be prohibitive.
Again if the assured knows himself to be in
poor health, he will make every effort to keep
insurance in force. On the other hand,, others in good
health may not be willing to pay increasing costs
and drop their insurance. Thus, it will develop in
a preponderance of impaired risks with resulting in-
creased mortality costs and possible insolvency to the
company. As the premiums under this plan are
directly based .on the mortality rate, it is called ‘Na-
tural Premium’ Plan. The premiums increase, year
after year with the increase in mortality rate and so
it is also called ‘yearly-renewable-term’ plan. How-
 PREMIUM COMPUTATION 61

ever, on account of the above

objections it is not
popular except for a limited period.

Level-Premium Plan
The above defect of increasing premiums at higher
ages is removed by the Level-Premium Plan. Here
the premiums to be paid are levelled up so that usual-
ly the same premium is paid every year. The pre-
miums in the earlier years are greater than the ac-
tual cost (represented by Natural Premium Plan)
—
and in the later years they are less with the result
that excess payments of premiums in the earlier years
are accumulated in a reserve which makes up" any
deficiency arising out of lower premiums in the later
years. This reserve, however, remains with the com-
pany and is invested by it to earn compound interest.
The principles of investment of this fund will be dis-
cussed in the next chapter. Most of the companies
follow this method of premium computation.
Requirements of Premium Computation
Now when the insurance business is carried on
most competitive lines by the experts, the computa-
tion of premium is based on very scientific principles.
Premium is the price of the protection sought for and
unlike assessment, it should be fixed in advance and
be most equitable. The insurance companies accumu-
late the premiums from different policyholders, invest
these premiums to earn interest and pay the claims
out of them whenever they arise. Thus to a company
—
there are two sources of income one being the pre-
on it.
mium itself and the other, the interest earned claims
Similarly, its payments will be in the form of
and to this will be added the expenses of manage-
interest
ment. Thus if the premiums received plus
plus the expense^
earned on them exceed the claims
the company.
paid, the excess will be the profit of
competition the profit is reduced
Due to keen
has to make
the minimum and, therefore, the company
CO lirmUNCT
the yar i: fixed in < d van re ^nd charge-; .»? ‘he
mmmenccirun 1

! 'h<- y»-.-,r. .* r rr. r\ ‘

v * ;;r- rm utf.
jif r

i grabfd arem'din;! r *.b*'

•:
*
> a ;'f t-v.'ry, j.-> *ha*. d f * 5

fcrcnt pcn-om- r.J d:fbroil ap'x- h-i

premiums. A r.w« <4 ?/* premium than

will pay sc.;..
-
.

the man nf became h;';. chance; of a re n::;*

pnrntively remote. This: ralcwlalmn of prmr.r; in
advance and linking *o the age
s'. xr- made hie ?'•

by the help of mortality table,-; fdir.eurvd be; ow in

detail). In these table:; in recorded the exp' ru- are
of past, .as to how many person?: die out of n particular
pro up at a particular ape in si year and it ir> expected
that this experience will repeat in future. Thus,
suppose 100 persons of the same ape want to take
insurance for Rs. 100 each for one year and if is found
from the mortality table that seven persons will die
out of them during the first year, it can be calculated
that Rs. 700 will be required to pay the claims. This
amount can be divided among 100 persons and the
premium per head is Rs. 7. Of course the premium for
the same amount of insurance at higher age will be
higher as the mortality rate then is higher. As the
man advances in age, his chances of death increase
and with that, the premium also increases. The in-
crease as between one age and the next is at first very
small but accelerates with advancing age. There-
fore, the defect of this system is that premium
in old age will be so high as to be prohibitive.
Again if the assured knows himself to be in
poor health, he will make every effort to keep
insurance in force. On the other hand, others in good
health may not be willing to pay increasing costs
and drop their insurance. Thus, it will develop in
a preponderance of impaired risks with resulting in-
creased mortality costs and possible insolvency to the
company. As the premiums under this plan are
directly based on the mortality rate, it is called ‘Na-
tural Premium’ Plan. The premiums increase year
after year with the increase in mortality rate and so
it is also called ‘yearly-renewable-term’ plan. How-
 PREMIUM COMPUTATION 61

evei', on account of the above objections, it is not

popular except for a limited period.

Level-Premium Plan
The above defect of increasing premiums at higher
ages is removed by the Level-Premium Plan. Here
the premiums to be paid are levelled up so that usual-
ly the same premium is paid every year. The pre-
miums in the earlier years are greater than the ac-
tual cost (represented by Natural Premium Plan)
—
and in the later years they are less with the result
that excess payments of premiums in the earlier years
are accumulated in a reserve which makes up any
deficiency arising out of lower premiums in the later
years. This reserve, however, remains with the com-
pany and is invested by it to earn compound interest.
The principles of investment of this fund will be dis-
cussed in the next chapter. Most of the companies
follow this method of premium computation.
Requirements of Premium Computation
Now when the insurance business is carried on
most competitive lines by the experts, the computa-
tion of premium is based on very scientific principles.
Premium is the price of the protection sought for and
unlike assessment, it should be fixed in advance and
be most equitable. The insurance companies accumu-
late the premiums from different policyholders, invest
these premiums to earn interest and pay the claims
out of them whenever they arise. Thus to a company
—
there are two sources of income one being the pre-
mium itself and the other, the interest earned on it.
Similarly, its payments will be in the form of claims
and to this will be added the expenses of manage-
ment. Thus if the premiums received plus interest
earned on them exceed the claims plus the expenses
paid, the excess will be the profit of the company.
Due to keen competition the profit is reduced to
the minimum and, therefore, the company has to make
 inst/RAKCF,

nf;accurate an estimate of premiums as por..-.?blc which

in turn depends upon the remaining three items,
vir.,

claims, interest and expenses. Out of these

future
three, the latter two are not so difficult to compute
as
one. The claims can he calculated with the
the first
help of mortality tables.
Mortality Tables

Suppose a person approaches an insurance com-

pany to take a term assurance policy for one year the
company has to quote the premium. Now if the com-
pany can know in advance that this person will die
during the year, it can fix the premium somewhere
near the assured sum after making adjustments for
interest, expenses and profits and when the person
dies, the sum will be paid to his successor. On the
other hand, if the company can know that this person
will not die during the year, it may fix a nominal
amount as premium. It is commonplace that such
predictions are never possible. But suppose if 1,000
persons of the same age and health approach the in-
surance company each asking for a term insurance
of one year for an assured sum of Rs. 1,000, the com-
pany on the basis of past experience can make a fairly
accurate estimate as to how many persons will die
during the year and suppose its estimate about the
deaths comes to 8, it will have to pay Rs. 8,000 as
claims. This sum is to be realised from the 1,000 per-
sons and the premium from each person will be Rs.
8 per year (leaving aside the adjustment of interest,
expenses, etc., for the present). Of course, if the esti-
mate about deaths is an under-estimate, the company
shall have to pay the balance from its own funds; on
the other hand, an overestimate the excess will
if it is
be its Such predictions
profits. are possible on the
basis of past experience which isrecorded by the ex-
perts on most scientific lines. These records are
available in form of a mortality table which can be
defined as an instrument to measure the probability
 S

PREMIUM COMPUTATION 63

of living, or of dying. The whole theory of life in-

surance has its basis on the mortality tables. They
show the past experience of deaths and it is assumed
for computation of premiums that it will be repeated
in future. This assumption need not necessarily be
realised cent per cent correct. All that is necessary is
that mortality rates used for computing premiums be
safe and this turns out to be so because the death-
rates when applied to very large numbers do not
show a sudden change and remain fairly stable.
Construction of Mortality Tables
A Mortality Table starts with the lowest age at
which insurance is granted and might go upto the
highest probable age say 90 or 100. The American
Experience Table of Mortality is given below:
1 2 3 4
Age Number ;a thseach Death rate
living year per 1,000
10 1,00,000 749 7-49
11 99.251 746 7-52
12 98,505 743 7-54
13 97,762 740 7-57
14 97,022 737 7-60
15 96,285 735 7-63
16 95,550 732 7-66
17 94,818 729 7-69
94,089 727 7-73
18
19 93,362 725 7-7G
92,637 723 7-80
20
91,914 722 7-85
21
91,192 721 7-91
22
90.471 720 7-96
23
719 8-01
24 S9.751
89,032 7] 8 S-0G
25
71S 8-13
26 SS,S14
71 S' 20
27 87,596
86.87S 71 S-2G
28
719 S- 34
29 S6.160
720 8-43
30 S5,441
<54 INSURANCE
1 o
3 4
Age Number Deaths each Death rate
living year per 1,000
31 84,721 721 8-51
32 S4,000 723 S- 61
33 83.277 720
9-
8-72
34 82.551 729 8- S3
35 81.822 732 -
8 ‘05
30 81,090 737 0-00
37 80,353 742 0-23
38 79,011 749 0*41
39 78,802 756 10-
40 11- 59
78,100 705 0-79
11-
41 77.341 774 10-01
42 76,567 785 12-
10-25
13-
43 75,782 797 10-52
44 74.985 812
45 S3
74,173 828
46 10
73,345 84S
47 50
72,497 870
48 12
19- 00
71,627 890
49 21- 51
70,731 927 22- 11
50 69,804 962 13-78
51 68,842 20-
1,001 14 54•
52 67,84] 1,044 15-39
53 06,797 1,091 10-33
54 65,706 1,143 17-40
55 64,563 1,199 1S-57
56 03,364 1,260 8S
57 62,104
do 1,325 33
58 60,779 1,394 94
59 59,385 1,468 24-72
00 57,917 1,546 09
01 56,371 1,628 28 -SS
02 54,743 1,713 31-29
03 53,030 1,800 33-94
04 51,230 1,889 30-87
05 49,341 1,980 40-13
06 47,361
/fry 2,070 43-71
O/ 45,291 2,158 47-65
68 43,133 2,243 52-00 '
 premium COMPUTATION"
1
2
Age 3
Number Deaths each
4
living Death rate
year per 1,000
69
40,890 2,321
76 38,569 56-76
71 2,391
36,178 61-99
72 2,448
33,730 67-66
73 2,487 73-73
31,243 2 505
74 80-18
28,738 2,501
75 87-03
26,237 2,476
76 94-37
23,761 2,431
77 21,330 102-31
78 2,369 111-06
18,961 2,291
79 16,670 120-83
80 2,196 131-73
14,474 2,091
81 144-47
12,383 1,964
82 158-60
10,419 1,816
83 174-30
8,603 1,648
84 191 ‘56
6,955 1,470
85 211-36
5,485 1,292
86 235-55
4,193 1,114
87 265-68
3,079 933
88 303-02
2,146 744
89 346-69
1,402 555
90 395-86
847 385
91
462 454 54 •

92 246 532-47
216 137
93 634-26
79 58
94 21 734-18
95 18 857-14
3 3
96 0 1000-00

1
which^theTnsurance
shows the number of
£ 16 sec °nd
age a,
column
persons "liJF
the next column are
recorded
dying during that year. tE? a V pers °ns hat a ^e In -

of persons at risk
They reweS^^
he number
during the^eaf Th* f f T

is arrived S’ by
by the
Zidt^thfleX'’
00 INSURANCE

that year and then multiplying the result by 1 000 The

, .

mortality rate is generally expressed as per 1,000,

though it can be expressed in terms of other numbers
as well, such as per hundred. It will be observed
that the mortality rate goes on increasing year after
year first with a slow speed but with the approach
of old age the speed is accelerated.
The mortality tables can be prepared from the
census records or from the experience of assured lives
of one or more companies. In case they are prepared
from census records the mortality rates will be higher
than those in a table based on the experience of an
insurance company, because the assured persons in
a company are medically selected and, therefore,
possess a better health than the general population
which includes many persons in bad health, engaged
in dangerous and unhealthy occupations, etc.
A
mortality table can also be prepared from the
experience of a single company but the results will
not be very reliable in such a case owing to its re-
stricted field. On the other hand, if the mortality table
is based on the experience of many companies gather-
ed over a large number of years, the results will be
fairly accurate as the experience of many companies
based on very large number of assured lives coming
from different localities will give a good chance to
the Law of Averages to work. Such a table is called
a Standard Mortality Table.

Different Types of Mortality Tables

The mortality tables are of three types, viz., Gene-
ral, Select and Ultimate. A Mortality Table con-
structed from the experience of assured lives, with-
out any regard to the duration of assurance is term-
ed a General Table. The tables constructed are
usually of this type. Here the mortality rate is cal-
culated on the basis of deaths during one year on the
total number of lives at risk at the commencement
at a particular age. Similarly, in the next year on
 PREMIUM COMPUTATION 67

the basis of the survivors from the last year plus the
new entrants of similar ages (total of both will make
the ‘number of lives at risk’) and the deaths out of
this total, will be calculated the mortality rate. Thus
here the ‘lives at risk’ are composed of old lives as
well as new entrants and hence this table is also called
‘Mixed’ or ‘Aggregate’ Table.
Experience shows that the mortality rate among
the persons of the same age is not always the
same. The late Dr. T. B. Sprague proved that the
death rate among persons of same age varies accord-
ing to the duration of assurance. At a particular age,
a group of persons assured, let us say, ten years back
must have a higher mortality rate than the other
group of persons assured two years back at the same
age because the persons of the former group were
medically examined ten years back and might have
contracted some disease by now but the persons of
the later group are medically examined only two
years back and so have less chances of having con-
tracted a disease. The later group is under the effect
of selection which remains for nearly five years. The
table based on this fact of selection is called a ‘Select
Mortality Table’ which shows the rate of mortality
not only by age but by ‘duration of insurance’ as well
i.e. the time since selection. A select mortality table
thus avoids the intermixture of rates of mortality
associated with different ages at entry and durations
of assurance, and which from the outset segregates
the specific mortality of the entrants at each separate
age. A separate table of experience is constructed
at each age at entry. Select tables, accordingly, in-
clude detailed cognisance, in respect of each age at
entry, of the diminished mortality during each of the
years over which the benefit of selection appreciably
operates and then merge the final ratio of the term
of 5 years after which the selective advantage be-
comes virtually extinct. The result of step is
this
that the probability of death occurring in a year re-
GS INSURANCE

garding the new entrants is less in Select Table than

in the Mixed Table, because in the latter, the chance
of death is increased by the inclusion of lives with
diminished prospects of longevity, -who entered at
prior ages, and from whom
to a large extent, on the
whole, the effect of selection has disappeared. The
effect of this on the premiums will be that they ore
lower when computed according to Select Table, spe-
cially at an advanced age.
The effect of selection on the mortality rate, as
stated above, ‘wears off’ in about 5 years and all the
lives of the same age show the same mortality rate,
which is called the ultimate mortality rate and the
table showing this rate is termed as the Ultimate Mor-
tality Table.* Though premium rates according to
select tables are more accurate, it is customary to
use ultimate tables due to their simplicity. The Ame-
rican Experience Table of Mortality given in this
chapter is an ultimate table. In India, many of the
companies have adopted the mortality tables of for-
eign companies, the only company which has prepar-
ed a mortality table based on the experience of Indian
lives being the Oriental Company. The table is called
the Oriental Mortality Table.
Interest
Asstated above, the second factor for the com-
putation of premium is the interest rate. The com-
pany can calculate the amount of claims to be paid
in different years but it cannot charge the same
amount for premium as it will receive the compound
interest on those premiums until the policies mature
and so to the extent of the amount of possible interest
on the premiums the reduction should be made. This
is achieved as under: The company knows the rate
of interest which expects to realise on the pre-
it
miums and by applying this rate to the tables of in-
terest, which show the present value of Re. 1 accord-
* An Ultimate Mortality Table is identical with what is termed
as Truncated Table,
 PREMIUM COMPUTATION 69

ing to different .years at compound rates, it can cal-

culate the present worth of these claims.
The two elements, the rate of mortality and the
rate of interest, determine the amount of net premium '

(also called pure premium or cost price premium).

The higher the rate of interest assumed, the lower
.

will be the amount of net premium. Following table

shows the present values at different interest rates of
He. 1 due at the end of different periods:

Let us suppose that we want to calculate

s t,

assurance of Hs.
iet prmium for an endowment
,

in a life aged 40, payable at the end of

five Y
“sum »
previous death. The rate of interest
.t

t 3 per cent. Having recourse to ““^ty taM_

tab
'page 59) and the above interest ,

ion will assume the following form.—

assured for Rs. 1,000
Out of 78,106 lives
effected at age 40
Amount Present
value Product
Payable Rs.
Rs. of Re. 1
"
7.42^815
1st year . .
7,65,000 7,20,882
2nd year . .
7,74,000 7,18.275
3rd year . .
7,85,000 7.07,736
4th year . .
7,97,000 7,00.75G
5th year . .
8 12,000
, Rs.
At the end of •863 0,40.11,299
5th year .. 7,41,73,00 6?76T0?7C3
Total Present value
68 INSURANCE

garding the new entrants is less in Select Table than

in the Mixed Table, because in the latter, the chance
of death is increased by the inclusion of lives with
diminished prospects of longevity, Iwho entered at
prior ages, and from whom to a large extent, on the
whole, the effect of selection has disappeared. The
effect of this on the premiums will be that they are
lower when computed according to Select Table, spe-
cially at an advanced age.
The effect of selection on the mortality rate, as
stated above, ‘wears off’ in about 5 years and all the
lives of the same age show the same mortality rate,
which is called the ultimate mortality rate and the
table showing this rate is termed as the Ultimate Mor-
tality Though premium rates according to
Table.*
select tables are more accurate, it is customary to
use ultimate tables due to their simplicity. The Ame-
rican Experience Table of Mortality given in this
chapter is an ultimate table. In India, many of the
companies have adopted the mortality tables of for-
eign companies, the only company which has prepar-
ed a mortality table based on the experience of Indian
lives being the Oriental Company. The table is called
the Oriental Mortality Table.
Interest
As
stated above, the second factor for the com-
putation of premium is the interest rate. The com-
pany can calculate the amount of claims to be paid
in different years but it cannot charge the same
amount for premium as it will receive the compound
interest on those premiums until the policies mature
and so to the extent of the amount of possible interest
on the premiums the reduction should be made. This
is achieved as under: The company knows the rate
of interest which it expects to realise on the pre-
miums and by applying this rate to the tables of in-
terest, which show the present value of Re. 1 accord-
* An i Mortality Table i> identical with what is termed
as. Truncated Ti.Me.
 PREMIUM COMPUTATION 69

ing to different years at compound rates, it can cal-

culate the present worth of these claims.
The two elements, the rate of mortality and the
rate of interest, determine the amount of net premium
'

(also called pure premium or cost price premium).

The higher the rate of interest assumed, the lower
will be the amount of net premium. Following table
shows the present values at different interest rates of
He. 1 due at the end of different periods:

single
Let us suppose that we want to calculate
net prmium for an endowment assurance of
• >

years or
on a life aged 40, payable at the end of five assumed
at previous death. The rate of interest is

at 3 per cent. Having recourse to

table,
(page 59) and the above interest
tion will assume the following form:—
Rs. 1,000 each.
Out of 78,106 lives assured for
effected at age 40
Amount Present
value
Product
Payable Rs.
Rs. of Re. 1
7^815
1st year . .
7,65,000 7,29,S82
2nd year . .
7 74,000
, 7,18,275
3rd year . .
7,85,000 7,07,736
4th year . .
7,97,000 7.00,750
5tli year . .
8 12,000
, Rs-
At the end of •S03
0,40.11,299
5th year . .
7,41,73,000 0?70d0JC3
Total Present value
68 INSURANCE

garding the new entrants is less in Select Table than

in the Mixed Table, because in the latter, the chance
of death is increased by the inclusion of lives with
diminished prospects of longevity, /who entered at
prior ages, and from whom to a large extent, on the
whole, the effect of selection has disappeared. The
effect of this on the premiums will be that they are
lower when computed according to Select Table, spe-
cially at an advanced age.
The effect of selection, on the mortality rate, as
stated above, ‘wears off’ in about 5 years and all the
lives of the same age show the same mortality rate,
Which is called the ultimate mortality rate and the
table showing this rate is termed as the Ultimate Mor-
tality Table * Though premium rates according to
select tables are more accurate, it is customary to
use ultimate tables due to their simplicity. The Ame-
rican Experience Table of Mortality given in this
chapter is an ultimate table. In India, many of the
companies have adopted the mortality tables of for-
eign companies, the only company which has prepar-
ed a mortality table based on the experience of Indian
lives being the Oriental Company. The table is called
the Oriental Mortality Table.
Interest
As
stated above, the second factor for the com-
putation of premium is the interest rate. The com-
pany can calculate the amount of claims to be paid
in different years but it cannot charge the same
amount for premium as it will receive the compound
interest on those premiums until the policies mature
and so to the extent of the amount of possible interest
on the. premiums the reduction should be made. This
is achieved as under: The company knows the rate
of. interest which it expects to realise on the pre-
miums and. by applying this rate to the tables of in-
terest, which show the pre sent value of Re. 1 accord-
* An Ultimate Mortality Table is identical with what is termed
as Truncated Table.
 —
PREMIUM COMPUTATION 69

ing to different years at compound rates, it can cal-

culate the present worth of these claims.
The two elements, the rate of mortality and the
rate of interest, determine the amount of net premium
(also called pure premium or cost price premium).
The higher the rate of interest assumed, the lower
will be the amount of net premium. Following table
shows the present values at different interest rates of
Re. 1 due at the end of different periods:

Years 3% 4% 5%
•971 •962 •952
1
•943 •924 •907
2
•889 •804
3 •915
•855 •823
4 •888
•822 •784
5 •863
•790 •746
6 •837
-760 •710
7 •813 .

calculate
Let us suppose that we want to
of
aet prmium for an endowment assurance
• >

payable the end of five years or

~ a life aged 40, at
jssum
t previous death The rate of interest is
Having recourse to morteJitv^e
t 3 per cent.
the
page 59) and the above interest table,
ion will assume the following form.

Out of 78,106 lives assured for Rs. 1,0

ffected at age 40 — -

Amount Present
value
Product
Payable Rs.
Rs. of Re. 1 ’

7^813
7,29,882
7,18,275
7,07,736
7.00, 75C
Rs.
0,40.11,200
gjoTioTtcs
(58 INSURANCE

garding the new entrants is less in Select Table than

in the Mixed Table, because in the latter, the chance
of death is increased by the inclusion of lives with
diminished prospects of longevity, hvho entered at
prior ages, and from whom to a large extent, on the
whole, the effect of selection has disappeared. The
effect of this on the premiums will be that they are
lower when computed according to Select Table, spe-
cially at an advanced age.
The effect of selection on the mortality rate, as
stated above, ‘wears off’ in about 5 years and all the
lives of the same age show the same mortality rate,
which is called the ultimate mortality rate and the
table showing this rate is termed as the Ultimate Mor-
tality Table. Though premium rates according to
!l!

select tables are more accurate, it is customary to

use ultimate tables due to their simplicity. The Ame-
rican Experience Table of Mortality given in this
chapter is an ultimate table. In India, many of the
companies have adopted the mortality tables of for-
eign companies, the only company which has prepar-
ed a mortality table based on the experience of Indian
lives being the Oriental Company. The table is called
the Oriental Mortality Table.
Interest
Asstated above, the second factor for the com-
putation of premium is the interest rate. The com-
pany can calculate the amount of claims to be paid
in different years but it cannot charge the same
amount for premium as it will receive the compound
interest on those premiums until the policies mature
and so to the extent of the amount of possible interest
on the premiums the reduction should be made. This
is achieved as under: The company knows the rate
of interest which it expects to realise on the pre-
miums and by applying this rate to the tables of in-
terest, which show the present value of Re. 1 accord-
* An Ultimate Mortality Table is identical with 'what is termed
as Truncated Table.
 PREMIUM COMPUTATION 69

ing to different years at compound rates, it can cal-

culate the present worth of these claims.
The two elements, the rate of mortality and the
rate of interest, determine the amount of net premium
'

(also called pure premium or cost price premium).

,

The higher the rate of interest assumed, the lower

will be the amount of net premium. Following table
shows the present values at different interest rates of
He. 1 due at the end of different periods:

Years 3% 4% 5%
•962 •952
1 •971
•943 •924 •907
2
•889 •864
3 •915
•855 •823
4 •888
•822 •784
5 •863
•790 •746
6 •837
760 •710
7 •813 •

Let us suppose that we want to

of
net prmium for an endowment assurance
• »

on a life aged 40,

at previous death.
payable at the
The rate of
end of five yea

miortal
inter
table tyt^
^
at 3 per cent.. Having recourse to
table, the
(page 59) and the above interest
tion will assume the following form.
for Rs. 1,
Out of 78,106 lives assured
effected at age 40 _ .

Amount Present
Product
Payable value
Rs.
Rs. of Re. 1
7,42,815
•971
1st year . . 7 65,000
,
7,29.8S2
•943
2nd year . .
7 74,000
, 7’lS,275
•915
3rd year . .
7,85,000 7,07,736
•SSS
4tli year . .
7,97,000 7.00.75G
•S63
5th year . . 8 12,000
, Rs.
At the end of • 863
6,40.11,299
5th year .
7,41,73,00
. 6,76,10,763
Total Present value
68 INSURANCE

garding the new entrants is less in Select Table than

in the Mixed Table, because in the latter, the chance
of death is increased by the inclusion of lives with
diminished prospects of longevity, Iwho entered at
prior ages, and from whom
to a large extent, on the
whole, the effect of selection has disappeared. The
effect of this on the premiums will be that they are
lower when computed according to Select Table, spe-
cially at an advanced age.
The effect of selection on the mortality rate, as
stated above, ‘wears off’ in about 5 years and all the
lives of the same age show the same mortality rate,
which is called the ultimate mortality rate and the
table showing this rate is termed as the Ultimate Mor-
tality Table* Though premium rates according to
select tables are more accurate, it is customary to
use ultimate tables due to their simplicity. The Ame-
rican Experience Table of Mortality given in this
chapter is an ultimate table. In India, many of the
companies have adopted the mortality tables of for-
eign companies, the only company which has prepar-
ed a mortality table based on the experience of Indian
lives being the Oriental Company. The table is called
the Oriental Mortality Table.
Interest
As
stated above, the second factor for the com-
putation of premium is the interest rate. The com-
pany can calculate the amount of claims to be paid
in different years but it cannot charge the same
amount for premium as it will receive the compound
interest on those premiums until the policies mature
and so to the extent of the amount of possible interest
on the premiums the reduction should be made. This
is achieved as under: The company knows the rate
of interest which it expects to realise on the pre-
miums and by applying this rate to the tables of in-
terest, which show t he present value of Re. 1 accord-
* An Ultimate Mortality Table is identical with what is termed
as Truncated Table.
 . ,

PREMIUM COMPUTATION 69

ing to different years at compound rates, it can cal-

culate the present worth of these claims.
The two elements, the rate of mortality and the
cate of interest, determine the amount of net premium
(also called pure premium or cost price premium).
,

The higher the. rate of interest assumed, the lower

will be the amount of net premium. Following table
shows the present values at different interest rates of
Ete. 1 due at the end of different periods:

single
Let us suppose that we want to calculate
net prmium for an endowment assurance of Rs.
on a life aged 40, payable at the end of five y ,

at previous death. The rate of interest is

t b
at 3 per cent. Having recourse to nwrtaMy ,
calcula
table, the
(page 59) and the above interest
tion will assume the following form.
1,000 e
Out of 78,106 lives assured for Rs. .

effected at age 40
Amount Present
value Product
Payable Rs.
Rs. of Re. 1
’
7.42.S13
1st year T! 7,65,doo" 7.20,882
2nd year 7.74.000 7,18,275
3rd year 7.85.000 7.07,730
4th year 7.97.000 7,00,750
5tli year 8 12.000
. Rs.
At the end:nd of 0,40.11,299
5th year
ar ..
.
7,41,73,000 gTtotoucs
Total Present value
68 INSURANCE

garding the new entrants is less in Select Table than

in the Mixed Table, because in the latter, the chance
of death is increased by the inclusion of lives with
diminished prospects of longevity, /who entered at
prior ages, and from whom to a large extent, on the
whole, the effect of selection has disappeared. The
effect of this on the premiums will be that they are
lower when computed according to Select Table, spe-
cially at an advanced age.
The effect of selection on the mortality rate, as
stated above, ‘wears off’ in about 5 years and all the
lives of the same age show the same mortality rate,
Which is called the ultimate mortality rate and the
table showing this rate is termed as the Ultimate Mor-
tality Table * Though premium rates according to
select tables are more accurate, it is customary to
use ultimate tables due to their simplicity. The Ame-
rican Experience Table of Mortality given in this
chapter is an ultimate table. In India, many of the
companies have adopted the mortality tables of for-
eign companies, the only company which has prepar-
ed a mortality table based on the experience of Indian
lives being the Oriental Company. The table is called
the Oriental Mortality Table.
Interest
Asstated above, the second factor for the com-
putation of premium is the interest rate. The com-
pany can calculate the amount of claims to be paid
in different years but it cannot charge the same
amount for premium as it will receive the compound
interest on those premiums until the policies mature
and so to the extent of the amount of possible interest
on the premiums the reduction should be made. This
is achieved as under: The company knows the rate
of interest which it expects to realise on the pre-
miums and by applying this rate to the tables of in-
terest, which show the present value of Re. 1 accord-
* An Ultimate Mortality Table is identical with what is termed
as Truncated Table.
 —
PREMIUM COMPUTATION 69

ing to different (years at compound rates, it can cal-

culate the present worth of these claims.
The two elements, the rate of mortality, and the
rate of interest, determine the amount of net premium, 1

(also called pure premium or cost price premium).

The higher the. rate of interest assumed, the lower
will be the amount of net premium. Following table
shows the present values at different interest rates of
Re. 1 due at the end of different periods:
QO/
Years d /o 4% 5%
1 •971 •962 •952
2 •943 •924 •907
3 •915 •889 •864
4 •888 •855 •823
5 •863 822 784
6 •837 •790 •746
7 •813 •760 •710

Let us suppose that we want to calculate single

net prmium for an endowment assurance of Rs. 1,000
on a life aged 40, payable at the end of five years or
at previous death. The rate of interest is assumed
at 3 per cent. Having recourse to mortality table
.

(page 59) and the above interest table, the calcula-

tion will assume the following form:
Out of 78,106 lives assured for Rs. 1,000 each,
effected at age 40
Amount Present
Payable value Product
Rs. of Re. 1 Rs.

1st year 7,65,000 •971 7,42,815

2nd year 7,74,000 •943 7,29,882
3rd year 7,85,000 •915 7,18,275
4th year 7,97,000 •888 7,07,736
5th year 8,12,000 •863 7,00,756
At the end of Rs.
7,41,73,000 •863 6,40,11,299
5th year . .

6,76,10,763
Total Present value
70 INSURANCE

dividing the total present value by the num-

By
ber of assurances 78,106, we find that the single pre-
mium required for each assured is Rs. 6,76,10,763-r-
78,106=Rs. 865 annas 10 pies .6.
Similarly, the premium can be calculated on any
plan but the procedure involves much of calculation
work and it is the task of actuaries who are experts
in the line. They prepare the premium tables based
on different mortality and interest rates and the in-
surance companies utilise them for their purpose.
Expenses
The above two factors determine the net pre-
miums which will be just sufficient to pay the claims
•ifthey arise as contemplated by mortality tables and
if the interest earned is same as assumed. In addi-
tion to the pure claims, the company’s disbursements
also take place in connection with certain expenses
of management. The amount of money necessary to
meet expenses of carrying on the business cannot be
definitely determined but is estimated on the basis of
experience. This amount is added to the net premium
and is known as loading. The net premium plus the
loading is the gross premium or office premium and
it is this premium which is charged of the policy-
holders.
Aside from providing for the cost of carrying on
business, the loading also undertakes to provide funds
to meet contingencies unforeseen in the calculations.
Part of the loading, therefore, is designed to absorb
losses if the assumptions as to mortality and interest
turn out to be underestimates. Thus, loading is re-
quired to provide for expenses of operation and for
contingencies. For the purpose of fixing loading, the
expenses of a life office are divided into two parts:
(i) those which vary with the amount of the premium,
and (ii) those which to a substantial degree, remain
constant. The chief items in the former type are com-
missions to agents and taxes which represent a per-
 THE RESERVE 71

centage of premiums. These expenses can be provided

for by adding a certain percentage to premiums. To
the second category belong the expenses of medical
examination, of keeping the policy records, general
administrative expenses of office,, etc. These expenses
have no relationship with the premium rate or insured
amount and are the same for every policyholder. This
constant loading is arrived at generally as a fixed
amount per Rs. 1,000 insurance. Thus the total load-
ing is a percentage of the premium plus a constant
"amount per Rs. 1,000. The percentage and the con-
stant need not be the same for all types of policies.
In case of participating policies, the loading is still
greater.

CHAPTER VI
THE RESERVE
How does it arise ?
As explained in the last chapter, the regular
premiums charged according to level-premium plan
are greater than the actual cost of insurance during
the early policy years. The excess payment involved
in this is reserved for use in meeting mortality costs
in the later policy years when the premiums are in-
sufficient for the purpose. This excess amount accu-
mulates in a fund and is called “Life Fund”, “Reserve”,
“Net Premium Reserve”, or “Reserve for Reinsu-
rance.” It is this feature of the level premium plan
which introduces the element of investment in life
policies. When a policy becomes a claim, the reserve
makes up part of the policy amount. It is thus clear
that level premium plan is really not pure insurance
but rather a combination of a decreasing insurance
with an increasing investment. ,

The actual ‘risk’ or ‘insurance’ goes on decreas-

ing year after year in the level-premium plan. The
72 INSURANCE
excess
reserve which is paid by the policyholders in
and
of the actual cost is the liability of the company
is held by it in the nature of a trust to meet
the claims
of policyholders. The ability of the company to meet
all claims as they mature, depends upon the adequacy
of this reserve. It should never be regarded as an
extra fund to meet contingencies or a profit above
mortality experience. On the contrary, on the basis
of the calculated experience the mortality costs will
ultimately consume the entire reserve. It represents
the premium received but unearned. This reserve
must earn the interest assumed in the calculation of
premium to be sufficient to meet all future claims.
The fund relating to an individual policy goes on
increasing year after year. At the commencement
of the policy, the fund is almost non-existing as the
first year’s premium is generally spent up in medical
examination, procuration commission, etc., while it
becomes equal to the insured amount at the time of
the maturity of a policy. The actual rate at which
the fund increases varies according to the type of
policy.

Valuation
The process of computing the reserve is term-
ed “valuation.” Of course, the other purposes of
valuation are the comparison of actual results of
mortality experienced, interest earned and expenses
incurred with those assumed in the premium table
and the determination of any surplus available for
distribution as profits. The task of valuation is a
complicated one and involves much energy and time,
and, therefore, it is made once in three or five years.
It is a sort of stock-taking common to all business
enterprises. There are two important methods of
making valuation.
The liability of an insurance company is to pay
claims in future. It will also receive income in form
of future premiums, but as seen above the future pre-
 THE RESERVE 73

miums in level premium plan are less than the actual

cost and to make up the deficiency it has received
higher premiums in earlier years of the policy. There-
fore, the present value of all future claims and the
present value of all future premiums are first calcu-
lated and the difference between the two indicates
the “Net Liability” of the company. The reserve
must be equal to this net liability if the company is
to maintain its financial position. This method of
valuation by looking forward is called the prospec-
tive method.
The valuation may also be made by looking back-
ward over the results of the past. According to this
method, first the premiums received in past together
with interest earned on them are calculated and
then the amount of total death claims paid is ascer-
tained. The excess of the former over the latter will
represent the reserve. This method is known as the
retrospective method. So long as the same bases of
mortality and interest are used as were assumed in
fixing the net premium, the result is identical which-
ever method is followed. However, since actual ex-
perience rarely conforms exactly to the assumptions
as to mortality and interest made in fixing premiums,
the prospective method is more logical to use in try-
ing to understand the nature of these reserves.
Investment of Fund
said above, the ‘fund’ or ‘reserve’ is the liabi-
As
lity of the company towards the policyholders and
the company invests it to earn the assumed interest.
Great care has to be taken in selecting suitable chan-
insu-
nels of investment and supervising them. Life
rance companies keep organized departmen
s o
business occasion-
handle the tremendous volume of
Experts are
ed by the investment of reserve funds
constantly scrutinizing the market outlet _
m * .* r

of economic and fina c a

and, through an analysis
investment trena .

conditions, are able to forecast

1 .— 5 .
74< INSURANCE

However, the life insurance company officers must

observe complete good faith and should formulate an
investment plan in conformity with the following
canons of investment.
Safety. The investment should comprise the
permanent integrity of the capital so as to avoid the
violent and frequent fluctuations in the value of
securities. The reserve represents the company’s lia-
bility towards its policyholders and, therefore, the
securities in which it may be invested should never
at any time fall in their face value, otherwise the lia-
bility will be more than its corresponding asset and
this will bring a ruin to thousands of policyholders.
The primary purpose of investment of the fund is not
to earn profits as in the other business concerns
but to maintain complete security. Due to this
reason, speculative investments which involve possi-
bilities of either large profits or large losses are not
suitable for life insurance funds. The insurance com-
pany, like other business concerns, is not expected to
make huge profits for its policyholders but to work
as a trustee for their funds and on account of this
status of trusteeship it should invest the funds only
in sound channels. Security of principal is by far the
most important consideration and all other considera-
tions should be subordinated to this.
In order to preserve the interests of policyholders,
the Governments of almost all the countries have im-
posed restrictions on the investment of life funds.
According to these restrictions, the funds cannot be
invested in any other securities except in the speci-
fied ones. In India, too, the Insurance Act 1938 lays
down that fifty-five per cent of the policy liabilities
should be invested in Government or approved secu-
rities. The object of such state regulation is to safe-
guard the capital and to ensure that the control of
the funds does not pass into the hands of undesirable
individuals or combines who might divert them to
their own ends. However, this restriction has been
 THE RESERVE 75

much criticised in the business circle where it is felt

that the' restriction is too harsh and tends to cripple
the interest yielding capacity of the companies.
Yield. When premiums are calculated, a certain
rate of interest is assumed. In order to be able to
meet its claims when they arise, an insurance com-
pany must realise at least this interest rate. If the
company earns a higher interest rate, the excess will
be its profits, and, if a lower interest is realised, the
deficit will represent loss. In order to avoid the latter
eventuality, the companies assume a conservative rate,
usually 3% or 2£-%. But it does not mean chat they
should be satisfied with earning this interest only and
not try to get higher rate. As a matter of fact, the in-
vestment’ should be made in such securities which
yield the highest remunerative return consistent with
the principle of safety. By earning an interest higher
than what is assumed in premium computations, the
company can reduce its future premium rates and
thus attract more custom. Due to competition,
the aim of a life office is always to' offer its policy-
holders the cheapest insurance.
It will be seen that the two principles are opposite
in nature. If safety is the aim, the yield will be low; if
yield is high, the safety will be least. The investment
officer has to strike a happy media between the two
and secure the highest yield consistent with maximum
safety. Due to the peculiar nature of life business,
the investment can be made in long-term securities
and in this field the best classes of securities are
obtainable which will satisfy both the principles. It
can be achieved by investing a very large portion of
funds in completely safe securities which might yield
the assumed rate of interest and the remaining small
proportion may be invested in speculative, securities
with high yield. In addition, an investment fluctua-
tion fund may also be created to meet any possible
io.sses on account of speculative investments.
76 INSURANCE

Diversification, The consistency of maximum

security with high yield can best be achieved by dis-
tributing investments both geographically and among
different classes of securities. “Do not have all eggs
in one basket” should be the guiding principle both
in the private and public choice of investments. The
,

total fund should not be invested either in one class

of securities or in the securities of same industrial
character or .in the securities of one locality or sec-
tion of the country. The diversification offers an
opportunity for the wider spreading of risks and the
law of- average by its action will reduce the losses on
account of fluctuations in value of investments to the
minimum. If the stock exchange securities fall in
their value, the well-secured mortgages are' bound to
appreciate. Similarly, the prosperity of various indus-
tries does not rise or fall in unison. At times the poli-
tical upheavals also affect the investments of a
ji
country.- Therefore, if the investments are dis-
tributed in a judicious apportionment, the loss
arising out of. any financial disturbance in one
set (class, " industry or location) will be neutra-
lized by an appreciation in other classes of invest-
ments and the equilibrium will be restored. To
achieve this object, many life offices maintain an ex-
pert investment staff which keeps uptodate lists of
investments classified according to class, industry and
location and the invsetment is made after due con-
sideration.
Liquidity. The funds should be invested in such
a way that they may be readily convertible when-
ever claims are payable. In a commercial bank this
principle is of paramount importance and the sole
criterion of its soundness is to pay deposits on de-
mand, and, therefore, its funds cannot be locked in
long-term securities. The case of a life office is, how-
ever, different where there can "be no such sudden
demand for withdrawals as all "persons ‘cannot die or
'

attain a particular age at once. The disbursements

 THE RESERVE 77

of a life insurance company are usually in the form

of claims, surrender values, policy loans and regular
expenses. Arough estimate can be made of these pay-
ments either on the basis of mortality rates (for
claims) or on the basis of past experience. But it is
not necessary to keep the funds to the tune of these
payments in liquid form as there is a vast flow of new
cash daily in the form of premium income combined
with the flow of new money. To ensure the proper
degree of liquidity, investments are so made that the
maturities will occur at intervals adjusted to meet the
needs of maturing obligations. As a provision against
sudden demand for surrender values or policy loans,
many companies in foreign countries insert a provi-
sion in their policies reserving to them the right to
delay these payments for a specified period. Finally,
the companies may keep some cash also as the last
line of defence.
The investment should as far as possible aid the life
business so that a possible two-fold profit may be
realized— a higher interest rate and more business.
If the investments are made in well-secured mort-
gages, the interets rate will be high and in addition
a sinking fund policy or endowment assurance may
be effected and included in the security to repay the
advance' at the end of a specified period. Again if
the life funds are utilised to finance the schemes of
colonisation, town extensions and proper housing, it
will go a great way to lower the mortality rates. The
insurance companies may demand that their com-
pulsory investments in government securities should
be employed in health promoting projects. However,
the principle should not be pushed too far.
 CHAPTER VII

SURPLUS AND ITS DISTRIBUTION.

Surplus

The object of the periodical valuation of a life

insurance company is to find out its financial position.
As previously stated, the excess of present value of
future claims over the present value of future pre-
miums represents the “net liability” of the company.
For the company’s soundness, the reserve should' at
least be equal to this ‘net liability.- If the reserve
exceeds the amount of net liability, the excess will
.represent the ‘gross surplus’, and if it is less than the
‘net liability’, the difference is known as the ‘deficit.’
The first charge over the ‘gross surplus’ is the provi-
sion to meet unusual contingencies and fluctuations
and for this purpose, part of the gross surplus is
transferred to ‘contingency reserve.’
The balance remaining after the above named
provision is called the ‘net surplus’ or profit and is
available for distribution. If the company is a mu-
tual company, the whole of the profits are distributed
among the policyholders; but, if the company is a
stock company, the stockholders will get the whole
of profits. These days most of the companies are
mixed companies and as high as 90 per cent, of the
profits are distributed among the participating policy-
holders. The profit allotted to shareholders is called
‘dividend’ and that given to policyholders is named
‘bonus.’ It is a misnomer to call bonus as dividend
because dividend represents the usual profits of a
firm in its ordinary course of business, but the bonus
represents the return to the policyholders of the ex-
cess premiums charged on account of their over-
estimate.

78
 SURPLUS AND ITS DISTRIBUTION
79

Sources of the surplus

The following are the sources of the surplus of
a life assurance company:
(1) Mortality Savings. The premium charged
is computed upon the assumption that deaths
that occur each year will equal the number shown
in the mortality table used as a base; but in actual
practice, the mortality rate experienced is lower
than the assumed one on account of medical selec-
tion and the general trend towards lower morta-
lity rate and as a natural consequence of this, the
reserves are held longer, and earn interest fur
period longer than anticipated and due to the
shifting of mortality to older age more premiums
are collected. This is known as a saving or a
gain from favourable mortality rate.
(2) Interest. In the computation of premiums
a certain interest rate, generally 3 per cent, is as-
sumed but the interests earned on the invest-
ments are much higher than this rate and this
excess accumulated at a compound rate becomes
one of the most important sources of surplus. In
India, the insurance companies have recently
shown great anxiety owing to the cheap money
policy followed by the Government and the
interest earnings have considerably fallen. In
order to make up this deficiency, almost all the
companies have revised their premium rates to a
higher' scale.
(3) Loading. Loading is designed to
provide
primarily for the expenses of carrying on the
business. As the business increases, the pro-
portionate expenses decrease owing to a
more efficient operation. Life insurance com-
panies are constantly striving towards
this
expense ratio to
end and try to keep their
remains very
the minimum so much so that it

much lower than the expenses assumed in pre-

80 INSURANCE

mium calculations and thus the resulting saving

becomes a part of the surplus.
(4) Lapse and Surrender. When an insured,
owing to adverse financial circumstances, is un-
able to continue the premium payments in the
early years of his policy, all the premiums paid
are forfeited to the company and the policy lapses.
Thus the whole of reserve accumulated on such
policies is a distinct gain to the company. Per
chance if a policy has remained in force for a
long time, generally a surrender value is paid to
the assured on the cessation of premium payments
but the value is always less than the accumulated
reserve and the difference accrues to the company
as a profit. Because of the liberal terms upon
which life insurance policies are written today,
profits from this source are not as important as
they were in former years.
(5) Bonus Loading. In case of participating
policies, the premium rates are higher than those
for the non-participating policies. and this excess
of premium on account of the right to share in
the profits of the company is called the bonus
loading. Of course, the participating policyhold-
ers get not only this excess back in form of bonus
but also receive the part of surplus arising on ac-
count of -the above sources. Further, the surplus
arising from the various sources on the policies
of non-participating policyholders also goes to the
participating policyholders, as the former have no
right to get the surplus back.

(6) Disability Premiums. Sometimes policies

are also issued to cover the permanent disability
of the assured before the age of 60, and the pre-
miums are waived after the disability takes place.
In- such policies, the premium rate ia higher for
the additional benefits. The extra premium
charged on such policies is a source of surplus to
the company as the cost of claims arising out of
 SURPLUS AND ITS DISTRIBUTION 81

the disabilities is always lower than what is as-

sumed in premium calculations.
In addition to the above possible sources of sur-
plus, the savings may also accrue on account
of the
appreciation in the value of securities and from the
annuity business. However, the first three items re-
main the most important sources of surplus.
Bonus Systems
When the actual profit available for distribution
has been ascertained, it will be apportioned among
the participating policyholders. The distribution of
surplus among the policyholders can be on an annual
basis but usually it is made at intervals of 3 or 5
years. The bonus is generally expressed as percent-
age of the assured sum or so many rupees on the as-
sured sum of Rs. 1,000. The determination of the
shares of individual policies in the divisible surplus
is a complex matter and the apportionment, if it is
to be equitable, cannot be made by rule of thumb.
Various schemes have been tried from time to time
with this object in view, some being cumbrous and
leading to very complicated calculations, others being
relatively simple to apply. A brief description of the
important schemes of allotting bonuses is given be-
low.

Reversionary Bonus
According to this system, the. bonus declared; as a
percentage of the sum assured for each year of the
valuation period is added to the assured sum and be-
comes payable only on the maturity of the policy.
The assured has no option to withdraw it in cash
If at
before the assured sum itself becomes payable.
the percentage of bonus is calculated
each valuation
simple rever-
on the original assured sum, it is called com
Most of the Indian insurance
sionary bonus.
panies adopt this system.
82 INSURANCE

On the other hand, if the bonus is declared as

the percentage of the total amount payable at matu-
rity, it is called compound reversionary bonus. Here-
the bonus is calculated on the original assured sum
plus all the bonus allotments attached so far to it.

Cash Bonus
Under this plan, the bonus when declared is
paid to the assured in cash and the original as-
sured sum alone is payable on maturity of the-
policy. Here- the assured gets a regular income in
cash by way of bonus. Usually the cash bonus carries
an option of either being converted into reversionary
bonus or being applied in reduction of future pre-
miums.

Uniform and Contributory Bonus

When the reversionary bonus is declared as a
percentage of the sum assured (whether as a simple
or compound reversionary bonus) irrespective of the
rate of premium payable or the duration of the policy,
it is called uniform reversionary bonus. The bonus
rate is uniform on policies of all ages and all dura-
tions. This system due to its simplicity has the ad-
vantage of being easily understood by the public. It
is the most common form of bonus with the English
offices.

However, on theoretical grounds the above sys-

tem can be proved inequitable as it does not take
into consideration the contribution of individual poli-
cies towards the surplus. The contributory system
removes this defect. According to it, the total amount
of divisible surplus is divided into parts according to
the sources from which it has arisen and then it is
distributed among different classes of policies in pro-
portion to their contribution. Here the participation
in the surplus is limited to policyholders who create
it and all others are excluded. The bonus will, there-
 SURPLUS AND ITS DISTRIBUTION 83

fore, depend on the plan of insurance, age at issue

and duration of policy. Usually the three principal
sources, viz., mortality, interest and loading are taken
into account in determining their contribution to the
surplus, and, therefore, this plan is called three-factor
contribution system. The contribution on account of
other sources is considered to be negligible and hence
is not accounted for. The plan introduces great re-
finements and has the merit of being more equitable.
In spite of being very cumbersome, the contribution
plan is followed by practically all the American com-
panies.

Reduction of Premium Bonus

When the bonus is not added to the assured sum
but for a permanent reduction in the future
is utilised
premiums payable, it is called Reduction of Premium
Bonus. As soon as the future premiums have been
extinguished by this bonus, the further bonuses are
converted into Reversionary Bonuses by way of addi-
tions to the sum assured. It will be noticed that if a
policy has remained in force for a very long time and
the event of its maturity is not very far, the reduc-
tion in premium will be much larger than in the case
of a comparatively new policy because the same
amount of bonus will result in a larger reduction
when spread over a few premiums than in case of a
very large number of premiums.

Discounted Bonus
The companies which have been regularly de-
claring bonus in past years sometimes offer parti-
cipating policies on discounted bonus plan. They
anticipate a particular bonus rate and on that basis
reduce the premiums at the very outset. Thus the
policyholder gets the advantage of bonus from the
very beginning of the contract in form of reduced
premiums. However, if the actual bonus rate hap-
84 INSURANCE

pens to be higher than the anticipated one, the differ-

ence is added to the assured sum or paid in cash; but,
on the other hand, if the anticipated bonus is not real-
ised, either the assured sum is reduced or the pre-
miums are increased by the amount necessary to make
up the deficiency.

Deferred Bonus .

Under this plan, though the bonus is declared

periodically it does not attach to the policy so far the
stipulated condition is not fulfilled. The condition
may be either the lapse of a fixed number of years
or the accumulation of premiums with a high inter-
est rate equal to the assured sum. Thus the vesting
of bonus is deferred to a future date. The declared
bonus remains a contingent charge so far the condi-
tion is not fulfilled and it is only after the fulfilment
of this condition that it becomes a liability. If the
assured happens to die before the fulfilment of the
condition, simply the assured sum becomes payable
and the deferred bonus is forfeited to the company.
The premiums under this plan are very low in compa-
rison to those charged from the ordinary participating-
policyholders.

Interim Bonus
When a claim arises between two valuations, the
bonus paid for the period between the last valuation
and the maturity date is called the interim bonus or
post mortem bonus. Usually, the rate of this bonus is
announced at a valuation date and it applies to claims
arising before the next valuation. The rate of interim
bonus may be the same as the rate declared for the
last valuation period just completed or slightly less.
 . CHAPTER VIII
SELECTION AND RETENTION
Proposal for Assurance
Any
person desirous of taking an assurance has
to apply to the insurance company or approach its
agent who will supply a Proposal Form free of
charge. This form contains a set of questions regard-
ing the applicant’s age, occupation, diseases from
which he suffered in past, ages of his father, mother,
brothers and sisters, diseases from which they suf-
fered or died, etc. The answers to all these questions
will help the insurance company to assess the degree
of risk involved. The Proposal Form is a very im-
portant document and forms the basis of the contract
and, therefore, the applicant should be very careful in
answering the questions. Any concealment or inac-
curate statement would vitiate the contract. The
applicant has also to mention the name and address
of a friend who best knows his health and habits and
who is not a relative or employee of the applicant.
This is required for the purpose of further enquiries
which the insurance company may make in future.
Some companies require this friend to give a
.

report about the applicant’s habits to the in-

surance company. Usually, the form of report is
supplied by the company and the friend after filling
in the answers to all the questions has to send it to
the insurance company. The specimen of the propo-
2
sal Form 1 and the Private Friend’s Report are given
at the end of this part..
Medical Examination
When the completed proposal form is received in
the company’s office, it will be carefully scrutinised
there. If, on the face of it, there
appears to be no
1 Appendix A
2 Appendix C
So
86 INSURANCE

objection to the case, the company will ask its medical

doctor to examine the applicant. The proposer has
not to pay the doctor’s fees. Generally, the insurance
companies have printed forms 1 of medical report and
the doctor will examine the proposer in light of the
information required therein. Usually the informa-
tion relates to height, weight, lungs, heart, chest,
abdomen and other physical pecularities of the appli-
cant. The doctor also puts questions to the proposer
regarding his family history and the diseases from
which he suffered. The answers to all these questions
should be correctly answered. In India, however, the
medical examination is simply a farce in many cases
and this leads to the inclusion of unhealthy lives and
consequently the increased mortality reflects in higher
premiums for all.

Reason for selection

The computation of premium, as explained pre-
viously, is based upon the mortality experience of
healthy male lives and, therefore, all the different
premium tables apply to such applicants only. Due
to this, the proposer should not only be fit medically
but also be a normal life for the purposes of insurance.
The abnormality may arise on account of his occupa-
tion, residence, personal habits, etc., which may in-
crease the risk. Therefore, the company has to make
selection so as to build up a homogeneous group that
may be insured on a basis that experience indicates
to be safe.
Applications for life assurance may fall into one
of the three groups: (i) standard lives, (ii) sub-standard
lives, and (iii) uninsurable lives. The first two types
—
of lives are insurable lives the former being insured
at normal rates and the latter at enhanced rates. The
problem of selection relates to the first group of lives.
The selection is done after receiving the proposal form
and medical report in light of the information con-
1 Appendix B
 SELECTION AND RETENTION 87

Gained therein. The medical doctor, after examining

the applicant, will put him in any one of the above
three categories. Even if the applicant is put in the
.group of standard lives the company will make a
.selection on the basis of residence, occupation, etc.

Hazards of Residence
If the applicant happens to live in an unhealthy
part of the country or the world, he cannot be re-
garded as a standard life because of the higher mor-
tality. The companies generally refuse to grant as-
surance to those -applicants who live or contemplate
living in the tropics. Residence in tropics makes a
risk sub-standard on account of the unhealthy con-
ditions there and the difficulties to secure the services
of a satisfactory medical examiner. Many parts are
favourable to the development of malaria, tubercu-
losis and the other diseases. In some areas, there is
an earthquake hazard.
The companies, therefore, regard such lives as
.

sub-standard and charge extra premium on account

of the extra hazard. If an assured has already taken
1

a policy living in healthy part but later on proceeds

to unhealthy regions, he has to inform the company
about this and he may be charged an extra premium
so fair he remains there.
However, now-a-days the practice has grown to
issue policies without any restrictions as to residence
and the assured can proceed to any part of the world
in peace times. Such policies are called ‘world
wide policies.’ The Indian companies allow a rebate
in premium to the policyholders if they proceed to
Europe, America or Japan north of 33° North Lati-
tude. The rebate is allowed for the period of resi-
dence in these parts as they are regarded conducive
to good health.
Hazards of Occupation
The may be medically fit but on account
applicant
of being engaged in a hazardous occupation, he may
88 INSURANCE

be a substandard life. Many occupations are regard-

ed as hazardous either because they involve risks of
accident or due to their being conducive to degene-
,

rative diseases. These hazardous occupations result

in. higher mortality of the persons employed in them
and hence insurance cannot be granted to them on
normal premium rates. The workers in poisonous
metals, such as lead and radium, are susceptible to
tuberculosis. Such persons may be either refused,
insurance or accepted at enhanced premium rate on
a substandard basis. The following occupations are
some of the hazardous occupations: Naval, military,
marine, aviation and employment in ammunition fac-
tories, underground work in collieries, electricity,
fire brigade, etc.

Naval and Military Service

The persons engaged in these services are divided
into two classes, viz., combatants and non-combatants.
A. non-combatant is granted assurance at usual rates
but whenever he proceeds on active military service
(but not for actual fighting) he has to intimate to the
company which may levy an extra charge. If he is
to participate in actual fighting and dies on account
of this, the company will pay the surrender value only
and not the full assured sum.
The policies are also issued on the lives of com-
batants in naval and military services subject to the
condition that in the event of death of the assured
arising directly or indirectly from any war, the
-

amount payable under the policy will be limited to

a sum of total premiums paid or the surrender value
whichever is greater but not in any case exceeding
the assured sum.

War Risks
The _
policies which are issued in peace times;
usually include warrisks and no extra premium is
•

charged for this. If subsequently the war breaks out,

 SELECTION AND RETENTION 89

the assured remains covered under the existing policy.

But during war times, the new applicants are not
granted the coverage of war risk at normal rates.
The companies cover the hazard either by charging
extra premium or limiting the claim to surrender
value if death results on account of war.
Aviation
There are two types of persons engaged in aviation,
viz., passengers and pilots. A passenger who travels
by a recognised airliner over a scheduled route is
covered for aviation risk without any extra charge.
If he dies during the journey, the full assured sum
will be payable to his represntatives. As regards
the persons engaged in aviation as pilots, an extra
charge for aviation risk has to be imposed. If an as-
sured wants to change for a regular service in aviation,
he has to inform the company and pay the necessary
extra charge, otherwise only the surrender value will
be paid if he happens to die on account of his new job.
Insurance of women
The women earning their own living have their
dependants and so need insurance. Previously because
of the belief that women were not as strong as men,
insurance policies were issued on their lives at higher
premium rates. Experience has shown that the risk,
in case of women, is on the other hand lower. The
average length of life of women is somewhat greater
than that of men because of a smaller proportion of
bad habits. The married women are either not
granted insurance at all or granted for smaller amount
because they have the additional hazard of child-
birth and are also dependant upon their husbands for
support and the need for insurance is much less.
In India, the insurance companies are generally
prepared to entertain the proposals for assurance on
the h'ves of healthy widows and single women who
maintain themselves and their dependants by them
own earnings, e.g., teachers, nurses or women engaged
in commercial pursuits or having an
independent

I.— 6.
90 INSURANCE

income. However, the insurance is not granted to

illiterate women or to those being in Purdah or of
less than 25 or 20 years in age. A married woman
can also take a policy provided her husband is already
insured and if not, takes a policy on his life at least
for a similar amount. An extra premium over tabular
rates is charged on all standard female lives generally
until the attainment of the age of 50. The companies
also stipulate that if the woman dies within one year
of taking assurance on account of pregnancy the pre-
mium alone will be refunded.
Finances of the Applicant
When the company receives the proposal form it
will try to find out whether the applicant’s finances
are sufficient to warrant the amount of insurance
applied for. The question is of still greater signtfica-
cance in case of insurance for very large amounts.
The company should always be on its guard to pre-
vent the issue of more insurance than is justified by
the circumstances of an individual case. Insurance
granted for a very large amount in proportion to the
assured’s income involves moral hazard and is a case
akin to over-insurance. Of course, it is not an easy
task to estimate as to what constitutes a proper insu-
rance in an individual case but the company should at.
least try to know the general financial position of the
applicant for the purpose. If the insurance appears
to be in excess of an amount the proposer’s finances
would seem to warrant, the company may offer a
policy for a reduced sum or offer a plan different
from that applied for.
Past History and Moral Hazard
The company should get the information whether
the applicant is married or single. Again one of the
usual questions in the proposal form is regarding the
amount of insurance carried by the applicant with
other companies and whether or not an application
had ever been rejected by any other company or
issued- at premium higher than the standard rates.
 SUBSTANDARD RISKS 91

The company should ascertain the causes of such

eventualities, if any. Similarly, a scrutiny of family
history will bring to light the latent physical or.
marital defects.
The use of drugs or alcoholic beverages has a
bearing upon the hazard and frequently furnish cause
for declination. The knowledge of all the above
points will go a great way in the proper assessment
of the risk and enable the company finally to select
or reject the risk.

Retention of Risk
After selecting a risk, the insurance company
need not retain the whole of it and at times it is not
desirable as well to do so. Each company must fix a
maximum limit of insurance on a single life in view
of the total amount of insurance in force with the
company, and the amount of surplus funds. Of course,
the limit of retention in an individual case is a mat-
ter largely of opinion and financial judgment but the
company should see that the claims in a single year
do not exceed the expected amount. The amount of
insurance beyond the limit of retained risk should
be reinsured with other companies. Of course, this
arrangement does not affect the assured in any case.

CHAPTER IX
SUBSTANDARD RISKS
As stated above, the lives can be classified in
three categories, viz., standard, sub-standard and im-
insurable. To the first category belong those lives
which are selected according to the principles enun-
ciated above and about whom it is expected that the
considered in pre-
mortality rate will conform to that
They are also called normal or
mium calculations.
The lives belonging to the thud group
average lives.
92 INSURANCE

are such that mortality rate amongst them will be

so high as to make the premium for the assured
completely prohibitive or to make the insurer feel
that the risk is almost a certainty rather than a pro-
bability in that individual case. Such cases are out-
right rejected by the company. In between these two
possibilities lies a group of persons who are not so
bad as those in the third group but nevertheless
whose mortality rate will be higher than that assum-
ed in calculation of premiums. Such lives are known
as Sub-standard, Impaired or Underaverage risks. They
have an extra hazard which might be on account of
occupation, residence, personal history of disease,
physical condition, habits, lack of vitality, etc.
Extra hazard on account of occupation may be
due to greater probability of accidental death, as in
building industry; or because of the chances of occu-
pational disease, as phosphorus poisoning in match
industry. Residence in unhealthy climatic regions
also involves extra hazard. Persons suffering from
certain diseases in past are substandard on account
of personal history. A record of tuberculosis or in-
sanity in the family will render a life substandard
due to family history. Excessive use of liquor or
drugs makes a case of extra hazard on account of
habits. Lack of vitality resulting in a heart murmur
or an abnormal blood pressure is also a case of extra
hazard.
Insurance of substandard lives
The substandard lives involve an extra hazard
and if the mortality rate on account of it can be fairly
accurately estimated, the insurance can be granted
to such lives provided they are sufficiently large in
number. The mortality rate of substandard group
will decidedly be higher than that in a normal group
but it does not mean that every member of the group
will die earlier than all the members of normal
group. Some members of the impaired group might
live longer than a few individuals of the normal
 SUBSTANDARD RISKS 93

group, but on an average it is certain that the average

duration of life of all members in substandard group
will decidedly be shorter' than' that in the normal
group. In order to provide for the higher mortality
rates, the company must impose special terms on all
who are exposed to extra hazard.
For fixing the premium on substandard lives, it is
not sufficient simply to know the extra mortality
but it is also necessary to find out as to how it is dis-
tributed over the span of life, because the incidence
of extra hazard in many cases changes with age.
From this point of view, the substandard risks 1 can
be broadly classified in three categories, (a) hazards
which may decrease with increase in age, (b) hazards
which may decrease with increase in age, and (c)
hazards which may remain unchanged at all ages.
Most of the occupational diseases belong to the first
class. The effect of overweight on mortality is also
similar. On the other hand, impairments arising on
account of .past history or residence are of the second
category, e.g., the mortality rate on account of tuber-
culosis decreases in advanced age. The extra hazards
due to physical defects tend to remain constant.
Fixing Premium on substandard Lives
On the basis of the above classification of extra
hazards, the insurance companies have found out
some broad rules for fixing premiums on sub-standard
lives in such a way that the extra premium charged is
just sufficient to cover the extra hazard involved. It
does not mean that the treatment is absolutely scien-
tific but for practical purposes it is quite equitable.
The following methods of treating the underaverage
lives for the purposes of insurance are more
common.
only to
1 Strictly speaking the term ‘substandard risk’ relates
history. The
physical impairment or impairment on account of family substandard
extra hazards of occupation or residence do not render a
life

Etta Actual practice they are also grouped with medical impa.rments
for reasons of convenience and
expediency.
94 INSURANCE

Increase in age
One method to charge extra premium on a sub-
standard life is to fix the premium applicable at
higher age. How many years should be added to the
present age of the applicant will depend on the type
of hazard and its extent. This is called rating up of
the applicant to a higher age. An examination of
this system will reveal that the extra mortality for
which provision is made is very small in beginning
but increases at a rapid speed with the duration of
the policy, because the increase in mortality rate from
year to year is greater in old ages than in younger
ages. This plan of rating up the age is suitable to
such sub-standard lives whose extra hazard goes on
increasing indefinitely with the increase in age.

Flat extra premium

According to this plan, a flat extra premium is
added to the premium applicable for standard risks.
It is fixed as a certain rate per Rs. 1,000 of insured
amount. It is generally used in such cases where the
extra hazard results in a constant addition to the
mortality rate at each age. Really speaking, this will
involve a greater charge than necessary as the extra
premium, to be more equitable should not be based on
. the face amount of the policy but on the actual
amount at risk. However, this point is not accounted
for in actual practice, as it will involve very great
labour and expense. Some companies vary the extra
charge according to the plan of insurance.

Liens
Here the policy is issued to a sub-standard life
-for the same premium as applicable to a normal life
but a lien for a particular sum is created against the
policy in the beginning few years. If the assured
happens to die within this limited period, the amount
of lien is deducted from the assured sum and the
balance is paid as a claim. However, if the assured
 POLICY CONDITIONS 95

survives the term of lien, the whole assured sum

becomes payable. The amount and the term of lien
will depend upon the extent of impairment. This
method is suitable in cases where the extra hazard is
heavy in the early years of the policy but it goes on
decreasing with increase in age. The amount of lien
may either be constant or decreasing every year. The
disadvantage of the lien system lies in the fact that
a comparatively large lien is necessary to offset a
small degree of extra mortality.

CHAPTER X
POLICY CONDITIONS
Acceptance Letter
After receiving the proposal form, medical report
and the friend’s report, the company will find out
whether the life is a normal risk according to the
Standards of selection- discussed previously and on
being found such it will fix the premium according to
the premium table prepared for standard lives and
shall intimate the applicant of the acceptance asking
him to pay the first premium within the prescribed
time. If the applicant does not pay the premium
within this period, the contract fails and the company
will charge the medical examination fees from the
applicant. However, if the applicant pays the pre-
mium in time, the risk commences and he now
becomes the assured. On the receipt of the first pre-
mium, the company will issue an interim policy as
the final policy takes a little longer time to be prepar-
ed and that will be sent to the assured as soon as it is
ready. If the assured happens to die in this period
the interim policy is treated as final policy and the
company will pay the assured sum.
96 INSURANCE

The Policy
The life insurance policy is a highly decorated
1

and attractive document containing the terms of the

contract and is duly stamped. It is signed by two
directors and counter-signed by the manager and
bears the company’s seal. It usually contains the
policy number; type of policy; date of proposal; age
at entry; name, residence and occupation of the assur-
ed; the sum assured; the amount of premium and the
date when due; name of the nominee; non-forfeiture
provisions and the other conditions regarding pay-
ment of premiums, revival of lapsed policies, surren-
der value' loans, assignment and nomination.
There is no standard form of a hfe policy for all
companies but the policy provisions of almost all
companies are standardised and they do not very
materiallly differ from one another. The contractual
relations between the parties to the insurance depend
on the conditions contained' in the policy and the law
in force. Following are the standard conditions which
are generally contained in life policies issued by the
companies. The prospectus of an insurance company
also contains them.

Proof of Age
As the rate of premium depends upon the age of
the assured at entry, it is very essential that it should
be quite accurate. For this purpose, the company re-
quires the proof of age from the assured who should
produce the age proof with the proposal or imme-
diately thereafter as early as possible. Of course,
the company does not withhold the issue of the policy
for want of it, but does not admit any claim unless
the age is proved to the satisfaction of the company.
Age can be admitted on production of a Certifi-
cate of Birth or Baptism, Horoscope, or Certificate
Extract from School Record, Service Book or Record
in Family Bible. In cases, where no evidence of ag e
1 See Appendix D.
 POLICY CONDITIONS or

is in existence a* nil a sworn affidavit on ‘he com-

pany’s form will he accepted.
However, if it is subsequently found that the ape
at entry was mentioned lower than the correct ape,
the assured sum is reduced to such amount as would
have been purchased at the true ape by the premium
actually paid, or if the assured wants to retain the
same assured sum. the premium will be increased ac-
cording to the correct age and all the differences in
past premiums with a compound interest rate at 6
per cent will be charged by the company. If the
actual age comes out to be lower than the stated age,
the difference in rate of premium is generally refund-
ed but some companies state it very clearly that in
such a case no refund is allowed. If the error is
discovered after the claim has arisen, the assurance
is treated as having been for so much as the annual
premium paid will cover, at the true age.
Payment of Premiums
The premium rate is always stated for the as-
sured sum of Rs. 1,000 and all premium payments
have to be paid at the beginning of each policy year.
Different premium rates for different types of policies
are given in the prospectus of a company and they
apply to normal lives i.e. those which are found medi-
cally fit and which have no extra hazard attached to
them on account of sex, residence, occupation, etc.
Ordinarily the premium is payable annually; but for
the convenience of the assured, it can also be made
payable half-yearly, quarterly or even monthly. Half-
yearly premium is not equal to one-half of the annual
premium but slightly more than that. This is neces-
sary since the company loses interest on the unpaid
premium during the early part of the policy year and
the administrative expenses also increase with the
frequency of payment. Recently a practice has deve-
loped where the instalment premiums are exactly in
proportion to the annual premium but a reduction in
98 INSURANCE

premium is allowed usually to the extent of 12 or 8

annas per assured sum of Rs. 1,000 if the mode of
premium payment is annual or semi-annual respect-
ively.
Again when the premiums are not annual but
.

premium will remain unpaid in

fractional, the part of
the year of death and this should be deducted from
the claim. Now-a-days many companies waive this,
deduction and they provide for this loss in determin-
ing the premium.
Days of Grace
One month but not less than thirty days of grace
is allowed for payment of yearly, half-yearly or quar-
terly premiums and fifteen days if the premium is
payable monthly. When the days of grace expire on
Sunday or a public holiday, the premium has to be
paid on the day previous to .holiday. The period of
grace is a period of automatic extension of policy and
the policy remains in full force during this period*
If the assured dies during the days of grace without
paying the premium, the full assured sum becomes
payable subject to the deduction of unpaid premium.
The remittance of premium should be in full with-
out deductions of any charges and the company is not
responsible for any delay in remittance through the
Post Office or otherwise. For the convenience of the
assured, generally the company sends him regular
notices about premiums falling due, though it is not
obligatory on it to do so and miscarriage or loss or
want of such notice will not be entertained as a plea
for the non-payment of premium. No such renewal
notices are necessarily sent if the premiums are pay-
able on monthly basis.
Commencement of Risk
The risk under a policy ordinarily commences on
the date of receipt of the first premium in full, or
from the date of the company’s Acceptance letter
whichever is later and the second instalment of the
 POLICY CONDITIONS 09

premium falls due on n date calculated from the above

date of commencement of risk. If the acceptance let-
ter is a conditional one, the risk will commence on
the fulfilment of that condition.

Ante-Dating
The date commencement of risk may be put
of
back within the calendar year for a period not more
than three months to enable the proposer to get the
benefit of lower premium rate at a younger age at
entry. Such ante-dating of policy beyond three
months is allowed by some companies after charging
a high interest rate for the poriod between the date
of commencement and the date of payment of pre-
mium.
Initial Expenses
medi-
All initial expenses incurred on account of
the
cal examination, stamp duties, etc. are borne by
company in all cases, except when a proponent fai s

within the days of grace

to pay the first premium
which
from the date of company’s acceptance letter, in
preliminary ex-
case he will be required to pay the
purpose, genera y
penses to the company. For this
companv asks for an advance deposit from ® Pr
proposal form and it is utilised for
ponent with the
contingency does not
the above contingency. If the m
refunded or adjusted
arise the deposit is either
payment of the first premium.

Hazardous Occupation
assured is
If at the time of taking the policy the
occupation or intends to take
1 Vir, n hazardous

he has to
pany may an s^a pemi
fix <
of the
tional risk, which is
remove^ o
| ssured has
,

hazardous occupation.. Ho
ev f
,
afterwards- he
*
changes
100 INSURANCE

different with different companies, some allow him to

do so freely while others charge an extra premium
for the period of his working in that occupation.
Residence and Travel
Now-a-days, the policies are issued free from all
rstrictions as to travel, residence or occupation. Not
only that there are no restrictions on residence or
travel in any part of the world but it is also provided
that if the assured proceeds to Enurope or other salu-
brious climatic regions specified in the policy, he is
allowed a fixed rebate on premium for the period of
such residence there.
Alteration in Policy
It sometimes happens that the assured desires to
change the terms of the policy after it has remained
in force for some years. The change may be in form
of alteration of the mode of payment of premium or
alteration of the amount of assured sum, or convert-
ing a whole-life into an endowment assurance or vice
versa. The alteration may be in favour of the com-
pany or against it. If the alteration results in increas-
ing the premium rate it is favourable to the company;
on the other hand, if due to the alteration the premium
has to be reduced, it is against the company. The
insurance companies generally grant those alterations
which result in a higher premium after charging the
difference in premiums with interest at compound rate
for the time the policy has remained in force, e.g., a
whole-life policy may be converted into an endow-
ment or the term of endowment assurance may be
shortened. If the alteration is such that the premium
is to be reduced in future on account of it, the com-
pany has to guard itself against the tendency of un-
healthy lives to make such changes by asking for a
satisfactory proof of good health. Such cases may be
when the assured wants to change the endowment
policy into a whole-life one or lengthen the term of
endowment policy. Many companies discourage such
 POLICY CONDITIONS 101

alterations by clearly stating in the prospectus that

iio alteration from one class of insurance
to another
is permissible if it results in lowering the scale of
premiums. However, the assured has to pay a certain
fee on each alteration except when it is waived by
the company.

Additional Assurance
If tiie assured desires to increase the sum assured
within six months of the original medical examina-
1

tion, ho may he permitted to do so without a further

medical examination, but he shall have to submit
such evidenc of his continued good health as the
Directors may require and then a new policy for the
increased sum will be issued. However, if he desires
to increase the amount of insurance after six months,
the request will be regarded as a new proposal to the
extent of the increase and a fresh medical examina-
tion is necessary.
Suicide
In the event of suicide 2 committed by the assured
within one year 3 from the date of commencement,
whether insane or not at the time, the policy will be
null and void except to the extent of the bonafide
interest thereunder acquired by any third party for
valuable consideration who has at least one month
prior to the date of suicide given notice to the com-
pany of his interest in the policy. Suicide after the
expiry of this period will not affect the full payment
of the claim in any way.

Lost Policies
Whenever a policy is lost or destroyed the assured
should at once intimate the company with full parti-
culars of the circumstance s of loss or destruction and
! The period is different with different companies. Some keep
it three months only. . ,,
2 Death at the hands of justice js also added by many
companies.
The period not same with all companies.
3 is
102 INSURANCE

the steps taken to trace the policy if not destroyed.

On a satisfactory evidence of the loss or destruction,
the company will issue a Duplicate copy after adver-
tising the fact and will charge the assured the fee
for issuing the duplicate copy, stamp duty and. other
incidental charges.

Assignment 1
Life policies have always been held to be, in the
absence of fraud, freely assignable. An assignment
may be made to anyone for valuable consideration or
as a gift out of love and affection. The assignee need
not have any insurable interest in the life of the as-
sured and, thus it is clear that a person debarred from
taking a policy on a third party’s life due to want of
insurable interest, can get it by asking such a third
party to obtain a policy and then assign it to him. But
if the assignment can be proved to be merely a sub-
terfuge to evade the rule of law requiring an insur-
able interest, such a policy will be null and void.
The assignment may be made either by an en-
dorsement upon the policy itself or by a separate
instrument duly stamped, signed in either case by
the assignor or his representative and attested by at
least one witness.
An assignment is not operative against the com-
pany and confers no rights to sue until a written
notice of the assignment with the endorsement or the
instrument of the assignment, or a copy thereof certi-
fied to be correct by both the assignor and the assignee
or their duly authorised agents, has been delivered to
the company. The priority of assignment will be
governed by the date of delivery of such notice to the
company. The notice of assignment will be register-
ed and acknowledged by the company on payment
of a fee of Rupee one per each assignment. However,
every company makes it very clear by stating in the
policy that in registering an assignment the company

1 See section 38 of Indian Insurance Act.

 POLICY CONDITIONS 103
-does not accept any responsibility or
express any
opinion as to the validity to legal effect thereof,
and
the parties interested are supposed to have taken
legal
advice and satisfied themselves as to the validity or
•effect of the assignment.

Nomination 1

The assured can, at any time before the maturity

of the policy, nominate the person or persons to whom
the claim on policy shall be paid in the event of his
death. A nomination can either be incorporated in
the text of the policy itself or can be made by an
endorsement on the back of the policy. To be effect-
ive, it should be sent to the company, for registration
and acknowledgement.
Before the maturity of the policy, a nomination
can be cancelled or changed by an endorsement or a
further endorsement or a Will as the case may be.
The company should at once be informed in writing
of any cancellation or change, absence of which it
shall not be liable for any payment under the policy
made bona fide to a nominee registered in the records.
A fee of Re. 1 is generally charged for registering any
cancellation or change.
When the policy matures by the survival of the
assured or where the nominee dies before the matu-
rity of the policy, the policy money will be payable to
the assured or his legal representative as the case may
be. An assignment of a policy automatically cancels
a nomination. Thus it is clear that a nomination doe.^
not give the same protection against creditors as an
assignment ordinarily does.
Incontestable Clause
The insurance contract is a contract of good _ faith
and, therefore, the policy can be avoided if it is
round
to be lacking in it. Many insurers took aa vantage
of this principle and long after the policy
was ta-.e..,

1 Sec section 39 of Indian Insurance Act.

10t INSURANCE

they tried to avoid the contract on grounds of alleged

deliberate misrepresentations or omissions. This
worked as a great hardship to the insured persons and
specially the beneficiaries after their death. It came
to be slowly realised that the beneficiaries named in
a life policy ought not to be allowed to suffer for mis-
takes innocently made in connection with the appli-
cation for insurance. In order to protect the interests
of the assured, many countries have enacted legisla-
tions requiring the companies to provide that the poli-
cies shall be incontestable after a stated period from
the date of issue except for non-payment of pre-
miums or for fraud. The purpose of this clause was
to give “an assurance to persons doubtful of the uti-
lity of insurance, that neither they nor their families,
after the lapse of a given time, shall be harassed with
lawsuits when the evidence of the original transac-
tion shall have become dim, or difficult of retention,
or when, perhaps, the lips of him who best knew the
facts are sealed by death.” Thus by this clause all
the policies are made undisputable after the lapse of
the stated period.
In India, too, the Insurance Act 1 provides that
no policy after it has remained in force for two years,
will be disputed on the ground that any statement
made in the proposal or to the Medical Officer or Re-
feree or in any other document leading to the issue
of the policy was inaccurate or false except on the
ground that such statement was on a material matter
and fraudulently made by the policyholder and that
the policyholder knew at the time of making it that
the statement was false.

Settlement of Claim
Apolicy may become a claim either by the as-
sured’s survival of a fixed period or by his death. Jn

1 See section 45.

 — — — —
POLICY CONDITIONS 105

the former case, the assured amount will be paid to

the person entitled thereto on submission of the nroof
of age (if not previously established) and the ‘duly
discharged policy. In the latter case, the claim will be
paid after the receipt of the (i) proof of the assured’s
death and (ii) the title.
The proof of death can generally be made by fill-
ing up the following forms supplied by the company:
'
1. Claimant’s statement.
2. Certificate of the attending physician.
3. Certificate of Registration of Death by the
Official Registrar of Deaths or other compe-
tent person present at the funeral.
4. Certificate of Identity either from employer
or from other responsible person.
The proof of the title of the claimant of the policy
moneys will have to be furnished in all cases where
the policy has not been duly assigned or a nominee
has not been appointed by the assured during his life
time and may be any of the following:
In the Presidency Towns:
Probate of Will from the High Court, if a
Will has been left; or
Letters of Administration from the High
Court, if no Will has been left; or
Where the total amount of Estate left by the
Deceased does not exceed Rs. 2,000 a
Certificate of Title from the Administra-
tor-General which is very easily ob-
tained.
In the Districts:
Succession Certificate, whether or not a Will
has been left from the Court of the Dis-
trict Judge having jurisdiction where the
deceased resided, or an Administrator-
General’s Certificate as above mentioned.
10G INSURANCE

If the company feels that the claim over a policy

cannot be settled due to conflicting claims or insuffi-
ciency of proof of title or any other adequate reason,
the Insurance Act 1 requires the company to apply to
pay into court the moneys due under the policy. Such
payment into court should be made within nine months
from the date of the maturity of the policy or from
the date of intimation of the death, as ‘the case may be.
Once the policy moneys have been paid into court,
the claimants can obtain them by applying to the court
only. In order to avoid this inconvenience, the claim-
ants should prove their claim and title as early as pos-
sible.

Optional Modes of Settlement

Generally the policy moneys are paid in one lump
sum when the policy becomes a claim but the prac-
tice is now growing with companies to allow the
assured or his beneficiary to select any one of the fol-
lowing optional modes of settlement: (1) Payment
of interst, annually or otherwise, at a specified rate
on the assured sum for a term of years together with
payment of the principal sum at the end of that term.
(2) Payment of equal instalments, annually or other-
wise, including both principal and interest, for a fixed
term. (3) Payment of equal instalments for a speci- ,

fied term of years and if the beneficiary is still alive

at the end of the term they may be continued till
his death. (4) Secure a life annuity or annuity cer-
tain with the claim proceeds payable during rest of
the life after maturity or for the benefit of the bene-
ficiary as the case may be.

1 See section 4T of Indian Insurance Act, 1938.

 CHAPTER XI
,
POLICY CONDITIONS (Continued)
Lapsing of a policy
Once an insurance is granted, the company shall
remain liable for the claim so far the assured continues
to pay the premiums when they fall due. If the as-
sured fails to pay any premium within the days of
grace, the company’s liability ordinarily ceases under
the policy and the contract comes to an end. Under
such circumstances the policy is said to have lapsed.
Thus it will be seen that if the assured is unable to
pay the premium in any year, he will have to forego
his rights under the policy and this works as a great
hardship specially when the policy has remained in
force for a long time. In order to help the insured
against such an eventuality, the insurance companies
generally provide the following special benefits'.
Revival of Lapsed Policies
If a policy lapses by non-payment of premium
within the days of grace, it may be revived to the full
policy amount at any time during the lifetime of the
assured provided that he is still an insurable risk. The -

revival can be effected on payment of the overdue

premiums with compound interest thereon at a sta-
ted interest rate per annum calculated from the date
of the unpaid premiums.
Usually, however, a medical examination is not
necessary where the lapse has occurred very recent-
ly 1 the company in such cases requires only the satis-
,

factory evidence of assured’s continued good health.

But if the revival is sought after the stated period,
the assured has to submit, at his own expense, the
evidence of insurability satisfactory to the company,
which may include not only his fresh medical exa-
mination but also an enquiry into his personal habits,
financial standing, etc., as is done on an
apphca-
1 Six months or one year ns allowed by 3 company.

107
7 08 INSURANCE

lion for a fresh proposal. In the absence of such a

condition, many policyholders who had discontinued
their policies and who unexpectedly found themselves
in poor health would take advantage of the right of
revival, while others in good health would not do so.
However, in India the companies ask for a fresh medi-
cal examination only.
Reinstatement by Redating
If the policy has not acquired a surrender value
and is discontinued due to non-payment of premiums,
it can be reinstated without the payment of the out-
standing premiums on the production of a satisfac-
tory evidence of the assured’s continued good health.
In this case, the premium payable on the re-issued
policy would be higher as it would correspond to the
age on the date of revival and the term of the policy
will be extended by a period for which the policy re-
mained lapsed.
Surrender Value
When the assured is unable to continue the pre-
mium payments on his policy, he can surrender it
to the company and acquire ‘the cash surrender value.’
With this payment, the contract comes to an end and
the assured will get the cash value without any lia-
bility of further premium payments. The amountr.of
surrender value will depend upon the class of the
policy and its duration.
According to the level-premium plan, it was seen
that in the early years of a policy tire premiums are
charged higher than the cost of insurance and this
excess charge goes on accumulating at compound in-
terest rate and is known as ‘fund’ or ‘reserve,’ which
is a liability of the company towards the assured. The
contribution of each policyholder towards this ‘re-
serve’ is called the Reserve-value of his policy and
sets the limit upto which the surrender value can be
paid. Usually in the early years of the policy, this
reserve value of a policy is nil or negligible on account
of medical fees, procurement commission and the other
 lore, tne average general vital stability and expecta-
tion of longevity anterior to withdrawals are reduced
in extent and power by the retirement of these vigor-
ous members. Hence equity requires that a com-
pensation should be afforded to the continuing mem-
bers by retaining in the common fund a portion of the
reserves connected with surrendered assurances as a
rectifying measure for the augmented mortality.
Again by the defection of the policyholders who sur-
render, the company has to incur additional expendi-
ture in maintaining the number of policyholders by
seeking new members. Further, when cash is paid
on surrender of a policy it may cause financial loss
to the office either because the assets might have to
be sold at an unfavourable time or the opportunity
of investment at higher interest had to be forgone.
The surrenders generally increase or decrease accord-
ing to the interest rates as they are high or low.
Lastly, the guarantee of cash values warrants to some
extent a greater liquidity in the assets which means
a lower yield.
The usual method of expressing the surrender
value is the percentage of the premiums paid exdu-
dU
ding the first year’s premium. Generally 25 to
no INSURANCE

per cent of the full year permium payments are given

as surrender value. .When the policy has received
bonus additions, their reduced reserve value is add-
ed to the surrender value of the original policy money.
Instead of it, some companies allow a higher per-
centage as surrender on the participating policies,
nearly 40 per cent.
The amount of surrender on any policy depends
on its reserve-value and, therefore, on such policies
which do not have any reserve, no surrender value
is allowed. Such cases are t of term assurance, re-
duced premium assurance, pure endowment without
return policies, immediate annuity, etc.
Extended Term Assurance
Under this plan, also known as continued term
insurance, if any premium remains unpaid at the end
of the days of grace and the policy has been in force
for at least three years, the insurance will continue
as paid up for the full amount of original assured sum
for an extended term from the due date of the pre-
mium in default. The term for which the policy con-
tinues in force is that period which the net cash value
(after deducting the debts to the company or adding
the accrued bonuses as the case may be,) at the pre-
mium due date will purchase applied as a net single
premium and it can be known from the company on
application. However, the term does not extend be-
yond the original maturity date of .the policy. .

If the assured dies during this term, the. full

amount becomes payable to his representatives but
,

if he outlives the period of term assurance, nothing

or a very small amount of cash will be paid which
will depend on the total, number of premiums paid.

Automatic Non-Forfeiture
The assured at the time of taking the policy or
.

at any time before its lapse may ask for the inclusion
of automatic non-forfeiture option in his policy, which
provides that if the assured is unable to pay the pre-
or three years of the policy when it has not acquired
any surrender value.
The main purpose of this provision is to protect
the accidental lapses through oversight or due to tem-
porary shortness of funds, non-receipt of notice, change
of residence, etc., and, therefore, some companies
limit the automatic non-forfeiture privilege only for
the first one or two unpaid premiums.. Such a plan is
called limited non-forfeiture. But if no such restric-
tion is imposed and the policy is kept in force till the
full surrender value is exhausted, the arrangement is
called unlimited non-forfeiture.
Reduced Paid-up Insurance
If the policyholder is unable to pay the further
premiums and does not want to assume any. liability
on. account of them in near or remote future, he can
have his policy paid up for a smaller amount. This
option is available to him only when the policy has
remained in force for at least t\vo or three years. The
policy becomes proportionately paid up by reducing
sum in such a way that the reduced
the assured
112 INSURANCE

amount will bear the same ratio to the original sum

assured as the total number of premiums actually paid
bears to the total number of premiums stipulated for
in the policy. The reduced amount is called the paid
up insurance or the paid up value of the policy and
the policy is called the paid up policy or free policy.
This paid up value is available only when the full as-
sured sum would have become payable under the ori-
ginal terms had the policy been kept in full force.
.

If the policy is a participating one, all the bonuses

accrued so far will remain attached to it. Some com-
panies allow the policyholder to receive the bonuses
in future as well.
Thus it is to be marked that only those policies
can be made paid up where the total number of pre-
miums to be paid is fixed in advance, e.g., endowment
and limited premium whole life policies. However,
now-a-days the companies grant this privilege to or-
dinary whole life policies as well, the paid up amount
in their case being quoted on application by the as-
*
sured.
Some companies make this privilege automatic
and include it in the non-forfeiture provisions. In
that case when the premium is not paid, the policy is
made paid up in the event of no other election being
made by the policyholder. However, this practice
is not common to all the companies and they allow
it only on the receipt of proper notice from the as-
sured.

Policy Loans
The majority of life offices are prepared to grant
loans on the security of their policies to an amount
slightly less than the surrender value, usually 90 to
95 per cent of it. The insured is charged a reasonable
rate of interest, generally six per cent, on the amount
of loan. The assured can utilise this loan for the pay-
ment of the premiums or to get over the temporary
financial stringency.
LIFE ASSURANCE

APPENDICES
16
INSURANCE

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insurance

Occupation

Address
 INSURANCE
18
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INSURANCE no

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insurance
INSURANCE
26 INSURANCE

Assured

be

>. « : to
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t o
Life

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Signatuie

Usual

,1 .

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o ’w D, 'd
 \ — .

INSURANCE
to nir. medic t. examiner.
srr.n. it. ixsrin ctioxs •

Thr Modi ml lA.tmir.rr 1* requested to notr lie following

t

l*r drawn up for bU guidance to enable Siim to n«sM the Dire '

*fi tlriiir- f»*fl> and rquilnMy ttith the proposal :

personal statement .

Before examining l He Pn.ptvcr t lie Medirot Examiner should rend over carefully
t)»r answer* in thr queried filled up hy thf Proposer to sec that they are complete in
ryrrv reluct piriiniliTly n> regard* the exact came of death, and the nnlurc, oppro-
xtmnlr date «nd duration of hut illnrs-; of members of the Proposer’s family. Puller
r ’ '
Inform allot* »hn«|tl fir obtained Mirh n* will explain lie* me t s
*
'

uur **n:vi:n. cough. inflammation ok lungs. c \s . .

ACCIDENT, OLD AGP.. GUN DUAL Dhllil.nT, NATUH.' \ U .

medical examiner’s report.

Q. 2.— U is important that the height, weight and other measurements he care-
fully taken and noted hy the Medical Examiner himself, ns serious
mltlnhe* have hern found to he possible otherwise, lending to a complete
mftapprrhrtuion of the nature of the risk. The weight must he taken
on n weighing machine known to he in order.
Q. 3 & j. —
Attention is particularly drawn to the special instructions given for
n complete nnd vatUfnetory reply to these questions. In Tcspect of all
Proposals of Its. 3 .000 and upwards and of lives aged 50 nnd upwards
as nlfo where thr Examiner detects or there is a past history oi Albu-
<

minuria, Nephritis or Heart Disease, the Blood Pressure (Systolic and

Diastolic) measured hy a Sphygmomanometer should be carefully
recorded.
Q. 5 A. O. —
It U cisntial that the parts he examined to nseerlnin ns far as possible
the correctness of the Proposer's statements ns to Hernia, Venereal
Diseases, Haemorrhoids. Hydrocele, etc. The approximate date nnd
duration of nil previous illnesses should he noted ns far ns possible.
—
Q, 0(6) Particular attention Is directed to the instructions given to assist
towatds a complete nnd satisfactory reply to this question. The urine
should he examined, in all cases, bv the Medical Examiner himself. If
Albumen is found on the first examination, two further examinations
should be male on each occasion uftcr a large meal and the results
recorded.
The action of the Board depends largely on the thoroughness of your
examination, nnd the fullness of the details sent in by you.
GENERAL.
The examination should be carried out In daylight.
The Medical Examiner is requested to satisfy himself before making the examina-
tion that the proposal for assurance Is actually completed. If the Proposer is Illiterate,
the Medical Examiner should also verify and attest the thumb mark of the Proposer
on the proposal form. Under no clrcumstnnccs should he examine his own
relatives or his employees or Ills Immediate colleagues In the service, senior
or Junior, of any Proposer introduced by n relative who is nn Agent.
Tiic Medical Examiner is particularly requested to eopmlctc the Report fully in
all respects to avoid any references and to slate Ids appointment and qualifications
in full as Medical Reports arc not accepted from any but the Company’s duly appointed
Medical Examiners or in the absence of such, the Civil Surgeon of the station where
the Proposer Is to he exa nined.
The Medical Examiner is requested not to examine any female cases if he finds
any evidence or lias any suspicion of pregnancy, advising the Company as to this.
The Medical Examiner is requested not to examine a proposer who has been
already examined by him or any other within the preceding six months under a
previous proposal to this Company, unless specially requested to do so by the controlling
office. , . . .

the party is to he examined by two examiners, the second examiner snouid

t

If
allow an interval of at least 3 hours to elapse after the first examination before proceed-
ing with the second examination.
It is required that no Medical Examiner shall on any account remunerate
directly
Examiner is
or indirectly any Agent of the Company in any way and the Medical for any
requested to immediately report to the Head Office should lie ever be asked
such remuneration^
^^
t j lC Medical Examiner’s opinion of the Life
or the results
Report must be
of the exan ination must be communicated to the Proposer and the address
forwarded, sealed, direct to the Company at the following
 ,

INSURANCE

.
.

(Designation)

(Signature)

(Address)
INSURANCE
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INSURANCE 13 ;

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 PART THREE
marine insurance
 CHAPTER XII

HISTORICAL

Origin

Marine insurance is the oldest form of insurance

of which there is any record. When, where and by
whom it was first devised is still a matter of research
in the field of commercial history. However, the fact
remains that early in the development of commercial
intercourse the need of distributing the marine losses
warranted the formulation of some equitable scheme
and the present system was the outcome of it.
In the daj's of yore, when the means of transport
and communication were very primitive, the risks
attached to sea-borne trade were large in number and
huge in magnitude. It often used to happen that if a
ship leaving the shores of a certain country was not
heard of for a very long time, it was taken to be
lost and the owner had to suffer the value of the ship
and the cargo it contained. Maritime traders, there-
fore, devised a scheme of insurance to distribute such
losses amongst all of them who were engaged in simi-
lar trade, so that the loss could be made bearable by
its distribution over a large number of persons. With
the devlopment in the means of transport and com-
munication the international trade also developed
and the marine insurance like the other branches of
commerce passed into the hands of experts who have
an uptodate knowledge of the various ships and the
sea routes.

Lombards
It can safely be said that marine insurance has
been practised for over 700 years. In England, the
187
1—9
138 INSURANCE

marine insurance was first practised by Lombards,

who, driven out of their homes in Italy about the
middle of the 13th century, settled in various parts
of Europe, many of them finding refuge in England.
These Lombards being persecuted by the public, set-
tled down in a part of the city of London, which be-
came known as Lombard Street. This street has
become famous in marine insurance history. With
the approach of England’s commercial awakening, the
Lombards’ power declined and by the end of 16th
century, their grip over the marine field was lost.
Lloyd’s
Prior to 1666, the underwriting was done by indi-
viduals only in their own private offices but the
introduction of the use of coffee, and with it the estab-
lishment in London of coffee houses, had a marked
effect on the course of marine insurance- in England.
Some of these houses became the common meeting
places for merchants and mariners who, over the frag-
rant cups of coffee, would discuss the latest marine
news. One of these houses belonged to Mr. Edward
Lloyd, who began to publish for his customers in 1696,
a paper called Lloyd’s News dealing largely with com-
mercial and shipping interests. Later on he published
a paper named Lloyd’s List, which reported the
movements of vessels in various parts of Europe and
also the various rates of exchange. Gradually Edward
Lloyd’s coffee house became the meeting place of
many of London’s underwriters who underwrote their
risks here and ultimately it became the centre for the
transaction of marine insurance business.
In 1774, the members of Lloyd’s laid the founda-
tion of the system of membership which still prevails
today. In 1779, they fixed the definite form of policy
which has remained the basis of various forms at-
tempted till now. Many attempts were made to float
new companies to conduct marine insurance business
but very few ones survived and most of the business
is still in the hands of Lloyd’s even to this day.
 CHAPTER XHI
THE CONTRACT OF MARINE INSURANCE
Parlies lo the Contract
In case of inland trade, where the goods are sent
from one place to another, the common carrier is res-
ponsible to deliver the goods to the destination, and
ii any loss takes place during the transit,
the carrier
must make it good. This is not possible in overseas
trade because there the risks are of a more serious
nature and it is not in the power of the carrier to
avoid them. The carrier will undertake the liability
for some of the risks only which are mentioned in the
Contract of Affreightment, which may be either a Bill
of Lading or a Charter Party. The rest of the risks
will not be assumed by the carrier and the property-
owner can get them insured with any marine insur-
ance company. Such risks are the risks arising on
account of an Act of God or king’s enemies, arrests
and restraints by rulers, princes and people, fire, gales.
etc. This type of insurance taken on the goods is
called cargo insurance and the assured, who is the
cargo owner is called the shipper.
Not only the cargo carried by a ship is subject to
the above mentioned marine risks but the ship itself
is exposed to the same perils and the shipowner can
take an insurance on ii as well In this case, the ship-
owner is the assured and the insurance is called
hull insurance.
When the ship is lost on account of any of the
marine perils, the cargo owner will suffer the loss of
of
his cargo and the shipowner will suffer the loss
his ship but there is still a third sufferer. It is the
freight receiver. The freight may be paid either in
advance or on the arrival of the ship at the port of
destination. In the former case, the loser will be
the cargo owner who may add the freight to the
mue
latter
of the cargo while taking the insurance; in the
139
140 INSURANCE

case, the shipping company will lose the freight as

the goods could not be safely delivered to the desti-
nation port and, therefore, it can take a marine insur-
ance policy on this freight. Such an insurance is
called freight insurance.
Thus the subject-matter of marine insurance may
be either cargo, or hull, or freight.
Effecting Marine Insurance
When a person wants to take a marine insurance,
policy, he may approach the insurer either directly
or through a broker. It is always better to employ a
broker on account of his specialized knowledge in
insurance matters. If the insurance is to be effected
with Lloyd’s underwriters, the employment of an
authorized broker is imperative as the assured is pro-
hibited to enter the Room.
Upon receipt of the instructions from the propo-
nent, the broker will prepare a slip on which will be
mentioned all the material information regarding the
risk and the conditions and clauses defining the lia-
bilities to be assumed. The broker will then approach
the individual underwriters who will signify their
acceptance of the insurance by initialling the slip and
indicating the sum they are prepared to accept on be-
half of their syndicate or company and the contract
will be concluded from the moment they have signed,
but this date does not determine the commencement
of the insurance or of underwriter’s liability.A time
policy will come in force on the agreed date, while a
voyage policy shall come in force when the ship sails
or when the cargo is loaded.
After the slip has been signed, the underwriter
will ask the broker or the assured to supply definite
instructions regarding certain details which might
have been of provisional character on the slip, so that
after their receipt a final policy may be issued. These
instructions are to be given on a form, which is called
closing slip. It contains the details regarding value.
 THE CONTRACT OF MARINE INSURANCE 141

quantity, marks, etc., which, possibly, were left inde-

finite when the original slip was prepared. During
this interval between receiving the closing slip and
signing the original slip, the risk is said to have re-
mained open, and as soon as the closing slip is received
by the underwriter, the risk is said to be closed, and
the final policy will be issued at once thereafter.
A contract of marine insurance is not valid or
enforceable in the law courts unless it be embodied
in a duly stamped policj’-. Therefore, the assured can-
not legally make any claim over the underwriter, if
the loss arises before a final policy is issued. The
slip is not legally binding on the underwriters, but,
.

such is the high standard of integrity of them that

they invariably pay the claims arising out of the con-
tract. In practice no underwriter would take advan-
tage of his legal position to decline the payment of
claims arising out of an insurance he has underwritten.

The Contract
In India, there is no statute which lays down rules
as regards the formation of contracts of marine insu-
rance. Here the insurance contracts are governed by
the Indian Contract Act and the Indian Stamp Act.
In England, the Marine Insurance Act was passed in
1906 and which governs all the marine insurance con-
tracts there. In India, for ascertaining the principles
and rules of marine insurance, recourse must be had
to the decided cases of this country as well as those
of England.
The above Act defines the contract like this: “A
contract of marine insurance is a contract whereby
the insurer undertakes to indemnify the assured, in
manner and to the extent thereby agreed, against
marine losses, that is to say, the losses incident to
marine adventure.” Thus the marine insurance is a
contract between the ‘assured’ on the one hand who
may be either cargo-owner or ship-owner or freight-
receiver, and the ‘insurer’ on the other hand who
is
142 INSURANCE

also called the ‘underwriter.’ The assured pays a cer-

tain sum which is called the ‘premium’ and the insurer
in exchange for it agrees to indemnify the assured
against loss or' damage caused by certain specified
perils known as ‘maritime perils.’
The term ‘maritime perils’ is not used in. a nar-
row sense. The definition includes the Tosses inci-
dent to marine adventure.’ The word marine
includes not only the “ocean- marine” but also the
“inland marine.” Marine contracts are now commonly
written to protect merchandise while in transit and
include the perils of both land and water conveyances
from the warehouse at the point of origin to the ware-
'

house at the point of destination. - 1

The document containing the terms of the con-

tract is called the “Policy” and it should always be
borne in mind that the policy insures the person or
persons interested in the subject-matter and not the
subject-matter itself. The policy undertakes to in-
demnify the insured for damage arising out of the
loss or damage of subject-matter insured, but does
.

not guarantee its continued existence or replacement.

Fundamental Principles
As stated above, the marine insurance contracts
are governed by the Indian Contract Act and, therefore,
should possess all the essentials of an ordinary con-
tract. In addition, the following principles should be
observed more closely as they have grown out of long
practice relating to marine insurance and form the
very basis of a valid contract.
Good Faith
A
contract of marine insurance is a contract based
•upon the utmost good faith, and, if this is not ob-
served by either of the parties, the contract can be
avoided by the other party. An underwriter is often
asked to insure a ship or a cargo, thousands of, miles
away, without any opportunity of making an inspec-
tion of the risk. In such cases, he must rely absolutely
 ;

THE CONTRACT OF MARINE IN:” E.'.NC.

r-n the statements made by the asst. !

.<.
'
'

the assured 5s under a duty to disclose r\

circumstance within his knowledge \v
:
;

affect the mind of a prudent underwriter m

fixing the
premium or undertaking the risk. In the words of
Lord Mansfield, “The special facts upon which the
contingent chance is to be computed lie most com-
monly in the knowledge of the insured only; the
underwriter trusts to his representation and proceeds
upon confidence that he does not keep back any cir-
cumstance in his knowledge to mislead the under-
writer into a belief that the circumstance does not
exist, and to induce him to estimate the risk as if
it did not exist. The keeping back such circumstance
is a fraud, and therefore the policy is void. Although
the suppression should happen through mistake with-
out any fraudulent intention, yet still the underwriter
has been deceived, and the policy is void because the
risk run is really different from the risk understood
and intended to be run at the time of the agreement.
The policy would equally be void against the under-
writer if he concealed anything within his own know-
ledge as, for example, if he insured a ship on a voyage,
and he privately knew that she had already arrived,
and in such circumstances he would be liable to
return the premium paid. Good faith forbids either
party, by concealing what he privately knows, to draw
the other party into a bargain owing to his ignorance
of that fact, and his believing the contrary.” 1
Thus it is clear that the duty to disclose the mate-
rial facts lies both on the assured as well as the in-
surer. Where the insurance is effected by a broker,
the broker, as the agent of the assured, must not
merely make a full disclosure of all the material facts
communicated to him by the assured, but must also
supplement this information with his special know-
ledge of any material facts regarding the proposed
1 Carter v. Boclim
144 INSURANCE

insurance. The examples of material facts are that

the vessel overdue or is damaged or is lost, etc.
is
However, in the absence of any enquiry the
assured is not bound to disclose the following facts:
(1) Any circumstance which diminishes the risk; (2)
any circumstance which is known or presumed to be
known to the insurer, e.g., the underwriter is presumed
to be acquainted with trade usages, the routes fol-
lowed, methods of loading, discharge, stowage and
packing of cargoes, etc.; (3) any circumstance as to
which information is waived by the insurer; (4) any
circumstance which it is superfluous to disclose by
reason of any express or implied warranty, because
all warranties must be strictly complied with, and if
they are not so complied with, the insurance is void.
Insurable Interest
No person can become a party to a marine insur-
ance contract unless he has an insurable interest in
the subject-matter insured. A person is said to have
an insurable interest “where he stands in any legal
or equitable relation to the marine adventure or to
any insurable property at risk therein, in consequence
of which he may benefit by the safety or due arrival
of insurable property, or may be prejudiced by its
loss, by damage thereto, or by detention thereof,
or
or mayincur liability in respect thereof.” From this
definition it is clear that a pei’son cannot legally take
out insurance on certain property for his own benefit,
merely because such property is subject to marine
perils. A
policy taken out by a person who has no
such interest is void at law and is called a wagering
contract.
As the insurances are frequentlyeffected before
the commercial transactions to which they relate are
formally completed, it is not necessary that the as-
sured must have an insurable interest when the con-
tract is made, though he should have an expectation
of acquiring such an interest at a future date. There-
 —
THE CONTRACT OF MARINE INSURANCE 145

fore is sufficient that he has an insurable interest

it
at the time of loss and this will entitle him to indem-
nification. As the rights of ownership and the other
interests in the subject-matter of insurance often
change hands whilst the goods are in transit, the
requirement of the insurable interest to be present
only at the time of loss makes a marine insurance
policy freely assignable.
The following persons have been held to have
insurable interest:

(1) A cargo-owner has it in his cargo.

(2) A ship-owner has it in his ship.
(3) A shipping company has it in the freight to
be received when the goods reach the port
of destination.
(4) An insurer has it in respect of risks under-
written by him for the purposes of reinsur-
ance.
to) The master or any member of the crew of a
ship has it in respect of his wages.
(6) The lender of money on bottomry or res-
pondentia has it in respect of the loan..
(7) Where the subject-matter insured is mort-
gaged, the mortgagor has an insurable inte-
rest in the full value thereof, and the mort-
gagee has an insurable interest in respect of
any sum due or to become due under the
mortgage.
Implied Warranties
In addition to the above two requirements, the
implied warranties must also be complied with to
render a contract completely valid. In marine insu-
rance, a ‘warranty’ means, a term the breach of which
entitles the insurers to avoid the policy altogether.
A warranty may be (a) ‘express’ or (b) ‘implied’.
An express warranty is one which is actually express-
ed in the policy or incorporated therein by reference,
whereas the implied warranties do not appear in the
146 INSURANCE

policy at all but are tacitly understood by the parties

to be present and are as fully binding as express
warranties. The examples of express warranties are
that the vessel is safe on a particular day, that ship
will sail with convoy, that the ship is neutral, etc. The
implied warranties are the ‘seaworthiness’ and the
‘legality of venture.’ All the warranties must be
literally complied with, as otherwise the underwriter
may avoid all liability as from the date of the breach.
However, there are two exceptions to this rule when
a breach of warranty does not affect the underwriter’s
liability. —
They are: (i) where owing to a change of
circumstances the warranty is no longer applicable,
and (ii) where compliance would be unlawful owing
to the enactment of a subsequent law.
Seaworthiness
The most important of the implied warranties is
that of seaworthiness. In order that this may be com-
plied with, it is necessary that the vessel, at the com-
mencement of the voyage, or if the voyage is carried
out in stages, at the commencement of each stage,
must be seaworthy. A vessel is said to be seaworthy
when it is suitably constructed, properly equipped,
officered and manned, sufficiently fuelled and provi-
sioned, documented and capable of withstanding the
ordinary strain and stress of the voyage contemplated.
It should be understood that seaworthiness is a rela-
tive term and the ship need only be seaworthy for
the purpose of the particular voyage insured. The
seaworthiness must be judged in the context of the
route of the voyage and the cargo to be carried.
Seaworthiness embraces not merely the condition of
the ship generally, but includes suitability and the
adequacy of her equipment, the sufficiency and com-
petency of her officers and crew, and what has been
described as “cargoworthiness”. That is, in a cargo
policy, the warranty means the ship must be reason-
ably fit and suitable to carry the kind of cargo insur-
ed. It has been felt by some writers that the term
 :

i i CONTRACT OF MARINE INSURANCE |.JV

seaworthiness docs i:ol convey all that is implied by

j* arri they
suggest that “fitness” would bo nd ‘or
term.
However, the standard to judge the seaworthiness
fixed and may vary with any particular vessel
is .iot
at different periods of the some voyage. A ship may
be perfectly seaworthy to load and carry a cargo
while lying in a sheltered port, but having reached
the open sea it may be completely unseaworthy for
the rest of the proposed voyage. There is a different
standard for every ocean, and the same standard of
seaworthiness will not apply to dilferent parts cf a
particular ocean or at different times in the same part
of the ocean. A ship seaworthy for Atlantic Coastal
trade may be absolutely unseaworthy for trans-
Atlantic voyage. So, too, a ship suitable for a sum-
mer voyage may be an unseaworthy risk in the
winter season. Again a ship suitable to carry
machinery may be unseaworthy to carry fish on the
same route and in the same season. Thus it must be
observed that the ship should be seaworthy at the
port of commencement (or at the subsequent ports if
the voyage is divisible) in the light of the cargo it has
to carry and the voyage upon which it is about to
enter. The risk being commenced, and the ship being
seaworthy, the happening of some fortuitous event
rendering the vessel unseaworthy, will in no wise
void the contract.
If goods are shipped by vessels which are proved
to be unseaworthy, the contract is voidable at the in-
stance of the underwriter and nothing can be legally
realised from him. However, the onus of proof of un-
seaworthiness lies in all cases upon the insurers. It will
be seen that the ship belongs to the shipowner and
the shipper has as a matter of fact no control over the
seaworthiness or otherwise of the ship and therefore
it is impracticable in modern shipping and overseas
trade to expect the innocent cargo-owner to warrant
the seaworthiness of the ship, or at any fate to avoid
148 INSURANCE

his policy if after the loss- her unseaworthiness is

proved. In order to avoid this hardship to the cargo-
owner, the underwriters now embody a Seaworthiness
Admitted Clause in all cargo policies, by which, as.
between the cargo-owner and the insurer, the sea-
worthiness of the ship is admitted, and would not be
raised as a defence to any claim for loss by insured
perils.

Legality
The second implied warranty in marine insurance
is concerned with the question of legality. To comply
with this warranty, the adventure must be lawful
and, so far as it is within the control of the insured,
carried out in a lawful manner. Obviously, marine
insurance policies cannot be employed to protect il-
legal voyages or ventures and such contracts are void.
The assured can have no right to claim a loss if the
venture was illegal. Cases of illegal ventures include
trading with an enemy, violating neutrality laws,
.

smuggling, breach of a blockade, and other similar

ventures prohibited by law.
Insurance which involves the illegal conduct of
the assured or of the underwriter must not be confus-
ed with insurance against the illegal conduct of third
parties, as in the case of barratry, theft, pirates or
rovers. The insurance of the latter type is valid.
The warranty of legality differs from the warranty
of seaworthiness, in that the parties cannot mutually
agree to waive this warranty. The waiver of the
implied warranty of legality is against public policy
and so cannot be allowed.
Indemnity
The marine insurance contract is a contract of
indemnity and the insurer binds himself to indemnify
the assured for loss or damage resulting from speci-
fied perils, to which the insured property is exposed
in a stated maritime adventure. The basis of indem-
nity is always a cash basis as underwriters cannot
 THE contract of marine insurance
149

thi5o
: e t O 1 ePl?Ce tfle l0S,
S, h S basis
nerefore, the K j .
“
ShiPS
off indemnification
d Car S MS and '

is the value or
atter
hi$ ,alue fitter
£<Ad^‘,r S
^
-
d tha curable;
value. If at the time of tak-
ini ?
agreed * is caUed the *«««-
eAi^ andd
®
5
egarded as sacrosanct and binding on
hnth
both P
nir.f +
arties to f,
the contract as representing the value
A the UbjeCt'matter insured
/
the indemnity voU be
When a loss arises,
-

measured in the proportion

iat the assured sum bears
to the insured value. In
-™ sured value of the goods, the
assured is
generally allowed to add anticipated
profits so that
m case of any loss he can recover
in the claim the
loss of proportionate
profits as well.
•
Where the value of the goods has not been fixed
_
m. tne beginning but
is left to be determined at the
inne °f loss, the measure of indemnity
will be based
on the insurable value of the goods and
its relation
o the sum assured. However,
it is in the interest of
tne assured as well as the insurer
to have the insured
-value, as no coverage
on account of profits is allow-
ed in estimating the insurable value.
Again if the
msurable value happens to be more than the assured
sum, the assured would be ratably uninsured in res-
pect of all claims. On the other hand, if it is lower
than the assured sum, the underwriter would be liable
for a return of premium on the difference. On ac-
count of this difficulty all branches of shipping and
overseas trade prefer the facility of policies with
insured value.
Thus it will be seen that a marine insurance con-
tract involves a departure from the principle of pure
indemnity as the reasonable anticipated profits are
also allowed to be covered by including them in the
value of the goods when it is insured value. It has
now become the common practice to issue such poli-
cies and there should be no objection to it as well
when the underwriter and the assured have mutual-
ly agreed that such value shall be insured.
 CHAPTER XIV
TYPES OF MARINE INSURANCE POLICIES
Marine policies, though commonly in one form,
are of different kinds because of the wide variety of
interests to be covered and the needs of different
classes of marine adventures. Fundamentally, they
have much in common. It is necessary, however, to
realise some of the more important differences and
the needs for which the various forms have been
made out.
Time Policies
Where the contract is to insure the subject-mat-
ter for a specific period of time, e.g., from noon 1st
January 1948 to noon 1st January 1949, the policy is
called a Time Policy. In England, time policies for
longer than one year are invalid but they can be
taken for any shorter period. This kind of insurance
is generally more suitable for hull insurance because
the ship-owners find it convenient to insure their
vessels for a specific period, instead of doing so
voyage by voyage. Sometimes time policies are also,
taken for goods and other movables when a multi-
tude of small, amounts are involved, the total of which
might remain stable every year.
Voyage Policies
A ‘voyage’ policy in contradistinction to a ‘time5

policy, is one in which the contract is to insure the

subject-matter at and from or from one place to an-
other or others. Here the subject-matter is insured
for a particular voyage, the limits of the risk being
defined by places, e.g., Bombay to Liverpool; or New
York to Karachi. Cargoes, because they are in danger
of destruction from sea perils during the period of
transportation only, are usually insured under the
voyage form. A
voyage policy is not suitable for hull
insurance as a ship usually does not operate over a
particular route only.

150
 TYPES OF MARINE INSURANCE POLICIES 151

However, a policy can be issued winch may

include both voyage and time elements in it, e.g., a
ship may be insured sailing between New York and
Shanghai for a year. Such a policy is called a Time
and Voyage policy or mixed policy and is generally
issued for steamers operating over a particular route.

Floating Policies
A
floating policy is one which describes the insu-
rance in general terms, and leaves the name of the
ship or ships and other particulars to be defined by
subsequent declaration. The declarations must be
made in order of despatch or shipment. Here the in-
sured takes a policy for a round sum, and whenever
he despatches shipments, he will make a declaration
to the underwriter, who will reduce the sum available
by the amount of shipment. The policy remains
“open” for the balance and, therefore, it is also call-
ed “open” or “declaration” „ policy. With each decla-
,
ration the amount will be reduced till it is exhausted
when the insured sum is said to be “closed” and the
policy is said to have been “fully declared” or “run
off”.
The floating policy is suitable for a cargo-owner
who makes regular shipments of cargoes, within a
designated geographical area. All his shipments are
automatically covered as soon as made, whether
known to the insured or not, provided that the decla-
' rations are duly and properly made as soon as possible.
It is not open to the insured to omit to send in decla-
rations for shipments which he knows have safely
arrived; if this is done it is a distinct breach of the
contract and will render the policy void. The pre-
mium is calculated upon the amounts at risk as deter-
mined from the declarations made.
Blanket Policies
Like floating policies, the blanket policies are also
taken to cover losses within the geographical and
152 INSURANCE
%
time Here the insurance is taken for a certain
limits.
amount but the premium is paid on the whole of it
in the beginning of the policy and is readjusted at
the end of the policy term in accordance with the
actual amounts at risk, as shown by the records of
the insured. If the shipments are made for an amount
greater than the insured sum, the additional premium
at a fixed rate is charged over the excess protection,
on the other hand if the actual coverage comes out
to be less than that estimated, a return of premium is
made at a fixed rate on the balance.. The blanket
policies are more common in America.

Named Policies
In floating policies, as was noted above, the name
of the ship is not mentioned when the policy is taken
but is declared afterwards when the shipment is
made. In contradistinction with this class, there are
policies where the name of the vessel, by which ship-
ment is made, is mentioned and the interest is speci-
fied, e.g., “1,000 bales of cotton per Bay of Bengal S.S.
from Calcutta to London.” Such policies are called
Named Policies.

Single Vessel and Fleet Policies

When an owner of the vessels insures his indi-
vidual vessels separately, it is called Single vessel
'policy. With the advent of steamships and the deve-
lopment of large companies, now many vessels are
owned by an individual corporation or company. Such .

a company can insure a fleet of steamers under one

policy, which is called Fleet insurance policy. The
advantage of this policy lies, in the fact that less de-
sirable and older vessels are also insured at an average
rate.
Valued Policies
Avalued policy is one in which the value of the
subject-matter is agreed between the underwriters
and the assured at the time of taking the insurance and
 —
TYPES OF MARINE INSURANCE POLICIES 153

is inserted in the policy itself. The value which is

agreed is called the insured value and forms the
measure of indemnity in time of loss. The insured
value is not necessarily the actual value, and it is
agreed upon in the following manner:

(1)Invoice cost of the goods, and

(2) Freight, shipping charges, insurance, etc., and
(3) 10 per cent, margin to cover anticipated pro-
fits and other incidental expenses.

Most of the policies are valued policies.

Unvalued Policies
A policy, which does not specify the value
of the
subject-matter insured but leaves the value to be
subsequently ascertained when the loss takes place,
is called an unvalued policy. The value thus left to
be decided later on, is called the insurable value and
will form the basis for the measure of indemnity
when the loss arises. In ascertaining the insurable
value, only the invoice cost and the freight, shipping
and insurance charges are included, no margin for
anticipated profits being allowed to be added. Unvalued
policies are seldom issued these days.

Block Policies
It has already been observed that marine insur-
ance policies are issued to cover incidental inland
risks also. Cotton is insured under marine contracts
during processing in compresses, while being shipped
by land by either trucks or railroads, and on steamers
until delivered abroad at point of destination. A
special type of this form is sometimes used in con-
nection with the insurance of gold in South Africa.
The interest is covered from the time of collection in
mines, through the refineries, and then to the port of
shipment and finally reaching the port of destination.
Such a policy is called Block policy.
1—30
154 INSURANCE

Currency Policies
A policy issued in foreign currency is called
currency policy. In such a policy the sum insured
and the value are stated in foreign currency, e.g., dol-
lars, francs, yens, etc. A
policy is usually taken for
one year and during this period the currencies of dif-
ferent countries may fluctuate violently, under such
circumstances the insured may not feel certain as to
what will be the actual amount of claim. In order to
avoid this uncertainty, the underwriters are prepared
to issue policies in any currency and when the loss
takes place the claim will be paid in the same cur-
rency irrespective of any rise or fall. Of course, the
premium is also charged in the same currency.
Wagering Policies
While discussing the insurable interest it was
observed that any policy to be valid must have insur-
able interest. Such policies are called interest policies.
Thus all policies which can be legally enforced are
interest policies. In contradistinction to this class, the
policieswhich do not have any insurable interest are
void and nothing but a gambling contract. Such poli-
cies are termed as wagering policies and cannot be
enforced in law courts. It does not mean that such
policies are not issued. The underwriters are willing
to issue policies without insurable interest and pay
the claims whenever they arise. Though no legal
action can be taken against an underwriter if he re-
fused to pay the loss on such a policy, but to main-
tain his honour and prestige he invariably makes the
payment. Hence such policies are also called Honour
policies. The most important form of the wager poli-
cies is the P. P. I. (Policy Proof of Interest ) policy
which indicates that no insurable interest is required
to establish a claim under the policy. It is also indi-
cated by the words interest or no interest which
means that insurable interest may or may not exist
to establish the claims. The P.P.I. policies include a
 TYPES OP MARINE INSURANCE POLICIES 155

clause stating that in the event of claim the under-

writers will dispense with proof of insurable interest
and the policy itself will be a sufficient proof of in-
terest. Generally, the P.P.I. policies are issued to
protect such persons who have insurable interest but
it is difficult to substantiate it. The English Marine
Insurance Act 1908 draws no distinction between
ordinary policies where the assured definitely has no
insurable interest and policies which merely dis-
pensed with proof of insurable interest, deeming both
kinds gaming or wagering contracts and therefore
equally void at law. To strengthen this point, the
Marine Insurance Act 1909 went still further by im-
posing fine or imprisonment on persons taking P. P. I.
or policies without insurable interest.

CHAPTER XV
THE POLICY AND ITS PHRASEOLOGY
The Policy
If the risk has been placed with Lloyd’s under-
writers, the broker will prepare one Lloyd’s form of
policy and after getting it duly signed, stamped and
sealed will send it to the assured. When the risk is
underwritten with different companies, each com-
pany will issue its own policy for the insurance it has
accepted. The policy embodies all the terms and
clauses of the contract and must specify the follow-
ing:—
(1) The name of the assured, or of some person
who effects theinsurance on his behalf:
(2) The subject-matter insured, and the risk in-
sured against:
(3) The voyage, or period of time, or both, as the
case may be, covered by the insurance:
156 INSURANCE

(4) The sum or sums insured:

(5) The name or names of the insurers.
Form of Policy
Speaking theoretically, an underwriter is free to
issue a policy of any form which contains all the
details of the terms of the contract but in practice it
is not possible. Most of the companies issue policies
of the standard form only. This standard form has
a long history and has been in use in England since
1523, and the Lloyds adopted it in 1779. The English
Marine Act of 1908 also recognised this form. This
form had been much criticised on account of its
quaint and archaic phraseology and many of the
perils, which it included, do not exist now at all due
to improved means of transport and certain new risks
have sprung up which are not covered by it. In spite
of all this the form still continues, though slight
modifications have been made in order to provide for
the above changes. The main reason for the conti-
nuance of the old policy form is that numerous legal
decisions during the past 300 years have determined
with certainty the meaning of its ancient forms and
clauses and it is improbable that a better alternative
form could be drafted to suit the great variety of
insurances effected in the marine market. The stand-
ard form of the policy is given on the next page.
As the standard form is adopted for all kinds of
insurances, the meaning of its terms and clauses should
be clearly understood while constructing a particular
policy. The policy must be constructed according to
its plain, ordinary and popular sense, but if there is
any doubt as to the intentions of the contracting
parties, evidence of usage or custom may be admitted
but such evidence cannot contradict what is clearly
stated in the policy.

Lloyd’s Form of Policy

BE IT KNOWN THAT as well in own name as
for and in the name and names of all and every
 THE POLICY AND ITS PHRASEOLOGY 157

other person or persons to whom the same doth, may,

or shall appertain, in part or in all doth make
assurance and cause
and them, and every of them, to be insured lost or
not lost, at and from
upon any kind of goods and merchandises, and
also upon the body, tackle, apparel, ordnance, muni-
tion, artillery, boat, and other furniture, of and in
the good ship or vessel called the
whereof is master under God, for this present
voyage,
or whosoever else shall go for master in the said
ship, or by whatsoever other name or names the said
ship, or the master thereof, is or shall be named or
called, beginning the adventure upon the said goods
and merchandises from the loading thereof aboard
the said ship,
upon the said ship, &c.
and so shall continue and endure, during her abode
there, upon the said ship, &c. And further, until
'
the said ship, with all her ordnance, tackle, apparel,
&c., and goods and merchandises whatsoever shall
be arrived at
upon the said ship, & c., until she hath moored at
anchor twenty-four hours in good safety; and upon
the goods and merchandises, until the same be there
discharged and safely landed. And it shall be lawful
for the said ship, &c., in this voyage, to proceed and
sail to and touch and stay at any ports or places
whatsoever
without prejudice to this insurance. Hie said ship,
&c., goods and merchandises, &c., for so much as
concerns the assured by agreement between the as-
sured and assurers in his policy, are and shall be
valued at

TOUCHING the adventures and perils which we the

assurers are contented to bear and do take upon us in this
voyage: they are of the seas, men-of-war, fire, enemies.
158 INSURANCE
pirates, rovers, thieves, jettisons, letters of mart and
countermart, surprisals, takings at sea, arrests, restraints
and detainments of all kings, princes and people, of -what
nation, condition, or quality soever, barratry of the master
and mariners and of all other perils, losses, and misfortunes,
that have or shall come to the hurt, detriment, or damage
of the said goods and merchandises, and ship, &c., or any
part thereof. And in case of any loss or misfortune it
shall be lawful to the assured, their factors, servants and
assigns, to sue, labour, and travel for, in and about the-
defence, safeguards, and recovery of the said goods and
merchandises, and ship, &c., or any part thereof, without
prejudice to this insurance; to the charges whereof we,
the assurers, will contribute each one according to the
rate and quantity of his sum herein assured. And it is
especially declared and agreed that no acts of the insurer
or insured in recovering, saving, or preserving the property
insured shall be considered as a waiver, or acceptance of
abandonment. And it is agreed by us, the insurers, that
this writing or policy of assurance shall be of as much
force and effect as the surest writing or policy of assurance
heretofore made in Lombard Street, or in the Royal
Exchange, or elsewhere in London.
And so we, the assurers, are contented and do hereby
promise and bind ourselves, each one for his own part,
our heirs, executors, and goods to the assured, their exe-
cutors, administrators, and assigns, for the true per-
formance of the premises, confessing ourselves paid the
consideration due unto us for this assurance by the
assured, at and after the rate of
IN WITNESS whereof we, the assurers, have subscribed our
names and sums assured in LONDON.
—
N.B. Corn, Fish, Salt, Fruit, Flour, and Seed are war-
ranted free from average, unless general, or the ship be
—
stranded Sugar, Tobacco, Hemp, Flax, Hides and Skins
are warranted free from Average, under Five Pounds per
cent; and all other Goods, also the Ship and Freight, are
warranted free from Average under Three Pounds per
cent, unless general, or the Ship be stranded.
 — —
THE POLICY AND ITS PHRASEOLOGY 159

Opening words of the Policy

A marine insurance policy generally begins with
the words
“Be it known that ” In some
opening words are “In the name of God,
policies, the
Amen.” The meaning of these opening words is the
same and has no special significance except the for-
mal declaration of the policy.

Name of the Assured

The above opening words are followed by a blank
space, which is intended for the insertion of the name
of the insured or his agent. The document will not
constitute a marine policy unless the name is inserted.
If the insured persons happen to be more than one,
the names of all of them or of their agents should be
written, as the case may be. It should be clearly
borne in mind that the names of only such persons
will be valid who have an insurable interest in the
subject-matter insured.
Assignment Clause
Just after the name of the assured or his agent,
the standard form continues as follows:

“ as well as in his/their own name

as for and in the name and names of all and every
other person or persons to whom the same doth,
may or shall appertain, in part or in all doth make
assurance and cause and them,
”
and every of them, to be insured

These words provide that the policy can be assign-

ed in favour of other persons to whom the interest or
ownership in the subject-matter insured may be trans-
ferred at a later date. Irrespective of these words, a
marine insurance policy is assignable unless assign-
ment is expressly forbidden by the terms of the con-
tract. The very fact, that in a marine insurance con-
 —
160 INSURANCE

tract the insurable interest must exist only when ihe

loss takes place, allows for the free assignment of a
marine policy. The policy is usually assigned by the
method of endorsement and delivery. The importance
of the assignment of a marine policy can be realised
from the fact that the cargoes on ship change owner-
ship several times before they reach the port of desti-
nation, and, therefore, the insurance also must be
allowed to be transferred to the owner concerned.
The wordings of this clause provide not only for
the assignment of the policy, but they also enable a
person, for whom insurance has been taken in good
faith by another person, to ratify or adopt the contract
even after he knows that a loss has already taken
place.

Lost or not Lost

The next wordings of the policy run as follows:
to be insured, lost or not lost.

The meaning of the words “Lost or not Lost” is

that the insurer insures the goods irrespective of the
fact whether they are already lost or not lost before
the issue of the policy. Sometimes it may happen
that a merchant receives information of the shipment
of his cargo very late after the sailing of the steamer
and, therefore, when he submits the risk to the under-
writer and effects insurance it is not known whether
the subject-matter to be insured is lost or safe on
this date. Hence to provide him with full protection
for such shipments, the words “Lost or not Lost” are
inserted which mean that the underwriter undertakes
to indemnify the insured whether the subject-matter
before the date of issue of the policy is already lost
or not. Thus the introduction of these words has a
retrospective effect to provide for any loss which
might have occurred during the period between the
date of shipment and the date of issue of the policy.
 THE POLICY AND ITS PHRASEOLOGY 161

Itshould be noted that the above clause is effect-

ive only where both the insurer and the insured
observe complete good faith and have no knowledge of
the safety or loss of the subject-matter at the time of
issue of the policy. If either the insurer knows that
the goods have reached the port of destination safely
or the assured knows that the goods have already been
destroyed, one must disclose the full information with-
in his knowledge to another, otherwise the policy will
be void and no advantage can be taken of the ‘lost or
not lost’ clause by the defaulting party.
This clause reminds us of the time when news
travelled slowly, steamers were unknown, and the
other means of communication were less rapid. Na-
turally the insured and the insurer were quite in the
dark about the loss or otherwise of the subject-matter
and hence this clause was of much value. But in
modern times with the invention of rapid means of
communication such position is unconceivable and
hence the clause has lost much of its significance.

CHAPTER XVI
THE POLICY AND ITS PHRASEOLOGY (Contd.)
THE VOYAGE
At and From
This clause relates to the description of the
voyage. In case of voyage policies, the subject-matter
is insured regarding a particular voyage. As to from
which time the risk exactly commences in a particular
voyage will be determined by the ‘at and from’ clause.
It means that the policy covers the subject-matter
while it is lying at the port of departure and from the
time the ship sails. This ‘at and from’ clause generally
relates to hull and freight insurance.
 — —
162 INSURANCE

Sometimes a policy contains not the words ‘at and

from’ but only ‘from’, in that case it means that the risk
is covered only from the time of departure and not
previous to that, e.g., if a policy contains ‘at and from
Calcutta’ it means that the underwriter is responsible
for any loss arising either when the ship is staying
at the port of Calcutta or at any time after it has left
Calcutta; on the other hand, if the policy contains the
words ‘from Calcutta’ it means that the underwriter
is liable for any loss arising after the ship has sailed
from the port of Calcutta and not before it.
In case of goods, the risk commences from the
time they are loaded on the vessel; the wordings of
the policy in this connection run as follows:
“Beginning the adventure upon the said goods
and merchandises from the loading thereof aboard
”
the said ship
It should be noted that the above clause does not
include preliminary risks in lighters, rafts, etc., and
the underwriter will not be responsible for any loss
arising in the process of loading the cargo from the
shore to the ship. However, this risk can be covered
by the inclusion of the “craft, etc., clause.”
Termination of Risk
Ordinarily the insurance ceases on the discharge
and safe landing of goods. The wordings of the policy
in this relation are as follows:
“And upon the goods and merchandises until the
same be there discharged and safely landed.”
the customary manner of discharge at a parti-
If
cular port is by means of lighters or other small craft,
the underwriter’s liability continues. If it is not cus-
tomary, the risk involved in the process of discharge
can be covered by inclusion of “craft, etc., clause.”
When the ship reaches the port of destination, the
goods must be landed within a reasonable time, and
if they are not so landed the risk ceases.
 ’
The risks covered by till*: policy atta -
;'. :k
thr.e the poods leave the Warehouse a:. r
1
.

at the place named In the policy for the ::. :

*

ment of the transit and continue during 1: :

' "
'
course of transit. Including customary t:
if any, until the goods are discharged o'. :!
the overseas vessel at the final port. Th- 1 1

risks covered are continued whilst the g ’

. :

'

transit and/or awaiting transit until <!... :

'
»

final warehouse at the destination nan

'-
policy or until the expiry of 15 days ' I

if the destination to which the goods aro

outside the limits of the port) whichever shall first

occur. The time limits referred to above to be rec-
koned from mid-night of the day on which the dis-
charge overside of the goods hereby insured from the
overseas vessel Is completed. Transhipment, if any,
other than as above, and/or delay in excess of the
above time limits arising from circumstances beyond
 1
1
“t; * «*/•-“

?h
Juiujj; u j.; 7L
5 V
’ A vt:r - 1
"
- k®d covered at a pre-
,
r
r- ; -T 3; vr
Cfmn^ r nf y n
"r

which
re shm.dd
’’hich ;jjr.
t i jr.
Hrr r
'
v>:r
* >:r
hy-uranre policy
c -' c
r C!: ^'l
-‘ :
in
is

describing the
»»<.
taken, great
voj'age
• •v-o-,
v,.. ,
. t
, .,j .

nnpori.-inee * l,n ««-kifcc. It is of paramount

*C. .j
cribed, in( .-
: voyage should be
accurately^'
j

Performed, V;,
performed fnr >rc-, that n oe properly
TJ, f ,
'.V T
*1 ‘»i;h it should
snouia be
cified nnt-i
'-meet *‘ " •> "
tnust
UiSl actually sail Prom
• uie^F
from thespe-
jjori nf ,
,

destination nil! 'P a r* llrc and for the specified port ^

f

KI U‘ise the
}bc ship 0^:1
f
risk does not attach. When
tGl n hc Port of departure for the con-
Pplated\. ~
nd if after gc
g<
!
1,10
m risk attaches under the pokey
f ,M 7, ;,
10
,‘j

ri iy dc<; tinnlion of the ship is volt®*

.^ ehannod fl
fhe po]j d °'P the destination contemplated by
Cy “ I

el^ct
0f
* *»d to be a ‘Change of Voyage.’ The
underwrite f. an c of voyage’ is to discharge tie
det f. the ,

erminati 0 n ? 1 ,abilit 3'

as from the time when
1
ria l th
a t thp °j
cban gc is manifested. It is .
",

Wage 11
^ nia y n °t have left the course o
coniomfi
j
Place
a{ ed by pk the policy when the
1°

ab nd Pos tion is the same when the voyage

int 0 5 °Ped’ f i
ntl ° n ’ the ship, having started with t-

ret of
rns to to tbe contemplated destmati
in „ the n '
rt of de Parture without any J aSllfy
incrp? Use
1
,
It ,° - •
'

°f ° r deov lrnrna terial whether the risk

en
end
_
U Clip
d th
tr,
J
a§e
8e
The
eas d1 b
'
- ? by
y a change or abanctonm-
......
der riter s liability
abandon®
comes to*
in T ’
cltt

donment^it
_ of
0f
*
(t the
^ e or
change
for chan
t |!
aha 7
decision
Ship Si Vo
S fr ^yao-e ls arnve
d at. similarly, if
he - .
1

the nn 7 rcy °®ism .

0r ^ y port other than that specified

1
but fo. * sa ils from the specified port
21 fbe n y destination
other than that
s.
po^
T^elay the risk does not attach at ai > •

Again it
1Ced a that the SS ary sh0U
uth
ttwwise
.r »d
the
oo^ ,
“«pleted
er wnter
within a reasonable
“ Je
e
W '

will not be respond

 .

Jcvialion
When the particular course of a vo;
'
escribed in the insurance policy, it mv
1
I ;

' 1

;d or where no such course is design?: .

-omary course must be followed. A ; 1

from the specified course or in its absey,, ' 1

:

usual or customary course amounts to deviation. When

the deviation takes place without any lawful excuse,
the underwriter is discharged from the liability from
the time the deviation takes place.
A ‘deviation’ can be distinguished from a
change
of voyage’ in so far as in the latter the port of desti-
nation agreed upon is changed, while in the
former
agreed, but the
case the destination is the same as
from. In the case of change
course thereto is deviated
an
of voyage, the underwriter’s liability comes to
164 INSURANCE
the control of the assured, held covered at a pre-
mium to be arranged.”
Change of Voyage
When a marine insurance policy is taken, great
care should be exercised in describing the voyage
which the vessel will undertake. It is of paramount
importance that the voyage should be accurately des-
cribed, and, further more, that it should be properly
performed. The ship must actually sail from the spe-
cified port of departure and for the specified port of
destination, otherwise the risk does not attach. When
the ship sails from the port of departure for the con-
templated voyage, the risk attaches under the policy
and if after this the destination of the ship is volun-
tarily changed from the destination contemplated by
the policy it is said to be a ‘Change of Voyage.’ The
effect of a ‘change of voyage’ is to discharge the
underwriter from liability as from the time when the
determination to change is manifested. It is imma-
terial that the ship may not have left the course of
voyage contemplated by the policy when the loss
takes place. The position is the same when the voyage
is ‘abandoned’, i.e., the ship, having started with the
intention of sailing to the contemplated destination
returns to the port of departure without any justify-
ing cause. It is immaterial whether the risk be
increased or decreased by a change or abandonment
of voyage. The underwriter’s liability comes to an
end, the moment the decision for change or aban-
donment of voyage is arrived at. Similarly, if the
ship sails from any port other than that specified in
the policy or if it sails from the specified port of
departure but for any destination other than that spe-
cified in the policy, the risk does not attach at all.

Belay
Again itnecessary that the voyage should be
is
commenced and completed within a reasonable time,
otherwise the underwriter will not be responsible.
 THE POLICY AND ITS PHRASEOLOGY (contd.) 165

When an insurance policy is taken, the vessel must

sail from the agreed port within a reasonable time.
It is required in all cases but in some cases it
is very
obvious, e.g., if the shipments are unreasonably delay-
ed, the risk may increase on account of ice conditions
or hurricanes or typhoons with the change of seasons.
But even if the risk is lessened, an unreasonable delay
is not justifiable.
Similarly, once the voyage is commenced, it must
be completed with reasonable despatch. Not only
the port of destination be proceeded to without delay,
but the venture too must be completed in the dis-
charge of goods. Again if the goods are insured for
inland risks they should be forwarded to the ware-
house or store promptly. Thus there should be no
unreasonable delay in commencing or in completing
the adventure, otherwise the underwriter is discharg-
ed from liability from the time when the delay
became unreasonable. The question what is un-
reasonable is a question of fact. Delay in prosecuting
the voyage is excused under certain circumstances
which are discussed under the next heading.
Deviation
When the particular course of a voyage has been
described in the insurance policy, it must be follow-
ed or where no such course is designated, the cus-
tomary course must be followed. Any departure
from the specified course or in its absence from the
usual or customary course amounts to deviation. When
the deviation takes place without any lawful excuse,
the underwriter is discharged from the liability
from
the time the deviation takes place.
‘deviation’ can be distinguished from a
‘change
A the port of desti-
of voyage’ in so far as in the latter
while in the former
nation agreed upon is changed,
as agreed, but the
case the destination is the same
deviated from. In the case of change
course thereto is
liability comes to an
of voyage, the underwriter’s
1G6 INSURANCE

end from the time the decision to change the voyage

is taken, but in case of deviation the mere intention
of deviation is immaterial, there must be an actual
deviation to discharge the underwriter of the liability,
under the policy. If once the deviation has taken
place the risk ceases to attach for the rest of the
voyage and loss cannot be realised even though it
might have occurred after the vessel had reverted to
the proper course. It is immaterial that the risk is
not increased by the deviation.
However, deviation or delay is allowed in certain
cases which means that the contract will remain valid
in spite of the deviation. Such cases are given
below:
(i) Where authorised hy any special term in the
policy.
Ifdeviation or delay in prosecuting the voyage is
‘authorised’ by any special term in the policy, such
deviation or delay is exusable. The authorisation
must be by a ‘special term’ in the policy, and this is
incorporated in the policy by the insertion of a clause
called the “Deviation and/or Change of Voyage
Clause.”
It will be seen that the shipper who takes insu-
rance has no control over the movements of the ship
and he has to agree with the shipowner to allow
deviation, change of voyage or any variation accord-
ing to the terms of the bill of lading or contract of
affreightment. In such a case, it will be a great hard*
ship to the shipper if deviation is not covered. Hence
underwriters are usually prepared to extend the pro-
tection of their policies by inclusion of the above
clause. Thus the insured is covered for both devia-
tion and change of voyage, and the only duty of the
assured is to give prompt notice to the underwriter
and to pay the additional premium which should be
reasonable.
 —
THE POLICY AND ITS PHRASEOLOGY (contd.) 167

(ii) Where caused by circuvistances beyond the

control of the master and his employer.
Such circumstances may be when the ship is
blown out of her course by violent gales or when the
master had to return to his home-port on account of
the threat of the crew to leave the ship if he would
not return to home-port because they feared attacks
•of pirates if the voyage was continued. In these
•cases the deviation is allowed.
(Hi) Where, reasonably necessary in order to comply
with an express or implied warranty.
Any deviation or delay in order to make the
vessel seaworthy is excusable.
(iv) Where reasonably necessary
for the safety of
the ship or subject-matter insured.
A
vessel, for example, may meet with violent
weather, and be so damaged that it becomes necessary
to put her into a port of refuge for repair or a large
proportion of her officers or crew may have died
from sickness or other causes and it is necessary to
put her into port to procure fresh officers or crew.
Deviation in such cases would be excusable.
(v) For the purpose of saving human life, or aiding
a ship in distress where human life may be in
danger.
(vi) Where reasonably necessaryfor the purpose of
medical or surgical aid for any
obtaining
person on board the ship.
Both the above excuses for -deviation are justi-
fied on the grounds of humanity. It should be noted
that the former deviation is excused for the purpose
of saving human life only and it does not cover a
deviation to save property alone.
(vii) Where caused by the barratrous conduct of the
master or crew, if barratry be one of the
perils insured against.
wil-
Barratry can be defined as any wrongful act
master and/or the crew of a
fully committed by the
168 INSURANCE

vessel to the prejudice of the shipowner and without

his consent. Any deviation or delay on account of
barratry is excused, if barratry is covered by the
policy.
It should be noted that ‘when the cause excusing
the deviation or delay ceases to operate, the ship
must resume her course, and prosecute her voyage,
with reasonable despatch.’ In other words, after an
excusable deviation there should be no unreasonable
delay in resuming the voyage, otherwise deviation
would occur which would not be excused.

Touch and Stay

This clause means that the vessel in the course
of her voyage must touch and stay at such ports and
in such order as are mentioned in the policy and if
no such mention is made, the ports called must be in
the ordinary course of the voyage and they must be
ports usually called at in the particular trade in which
the vessel is engaged. Following are the wordings of
the standard policy.
“And
it shall be lawful for the said ship, etc., in

this voyage to proceed and sail to and touch and

stay at any ports or places whatsoever without pre-
judice to this insurance.”

Though the meaning of the above clause appears

to authorise the ship to touch and stay at any port
she thinks fit, the courts have interpreted it in a res-
tricted sense. The ports or places at which the vessel
calls must be the usual calling places on the recognis-
ed route for vessels engaged in that trade and the
call must be for some justifiable purpose regarding
the voyage insured.
 CHAPTER XVII
THE POLICY AND ITS PHRASEOLOGY (Contd.)
Name of vessel
The name of the vessel by which the voyage is to
be made is usually inserted in the policy in the space
provided following the words
“Upon any kind of goods and merchandise
in the good ship or vessel called the ”

Though it is not legally necessary to mention the

name of the vessel, it is usually inserted in the body
of the policy. Of course once the name of a particu-
lar vessel is mentioned it cannot be changed unless
with the consent of the underwriter, although the
vessel so substituted may be even better than the
original one. But if the original ship during the
voyage becomes disabled due to a peril' insured against
and the cargo is transhipped to another vessel, the
liability of the insurer continues, notwithstanding
'

the change of the vessel.

The expression ‘good ship or vessel’ is meant to
remind the assured of the implied warranty of sea-
.

worthiness. But the word ‘good’ is superfluous, as

even in its absence the ship must be seaworthy and
this condition is implicit in a marine insurance con-
tract. •

Name of the Master

The name of the master is also to be inserted in
:

the space provided in the following manner.

“ whereof is master under God, for the
present voj'age, or whosoever else shall go for
master -.in the said ship, or by whatsoever other name
or names the said ship or the master thereof, is or
shall be -named or called. ...'..-;.”
In old times when the safety of the ship or the
cargo depended to a large extent on the skill and ex-
169
i.—
 170 INSURANCE

perience of master, it was necessary to mention his

name and it could also serve as a close identification
with the vessel. However, with modern up-to-date
means of transport and communication and the ade-
quate registration and classification of the vessels
existing to-day, it is not very necessary now to insert
the name of the master and in actual practice it is hot
mentioned except in special cases where a navigator
.of exceptional experience is required. Of course once
the name of master is inserted, it cannot be changed
except when the master originally named is prevent-
ed from taking command by reason of accident, ill-
ness, or otherwise. Again no element of misrepresen-
tation regarding the master can be justified under
the words of the policy which appear to, be very
liberal.
The wording “or by whatsoever other name or
names the said ship or the master thereof is or shall
be named or. called” affords protection to the assured
against any inaccurate spelling or insertion of wrong
name of the master provided' it was innocently made
,and such error has not misled the insurer.

The subject matter insured and the valuation

The formal words of the policy regarding the sub-

ject-matter and valuation are as follows:
“The said etc., goods and merchandises,
ship,
etc., for so much
as concerns the assured by agree-
;
ment between the assured and assurers in this policy,
are and shall be valued at ”

It is legally required that the subject-matter in--

sured must be specified in the policy. The descrip-
tion of the goods insured must be made with reason-
able accuracy including a statement as to quantity,
shipping marks, numbers, etc., as the rate of premium
is fixed in view of the risk which considerably de-
pends on the nature of the goods and their suscepti-
bility to damage.
 THE POLICY AND ITS PHRASEOLOGY— icontd.) m
Passing now to the question of value, it may be
observed that it is not necessary to mention it in the
policy. If it is mentioned, it is called “Insured Value”
and the policy is called “Valued Policy.” If it is not
mentioned, the space will be left blank and the value
will be determined when the loss takes place; in that
case, it is called “Insurable Value” and the policy is
called an “Unvalued Policy.” Unlike the value, the
insured sum must be given in the policy. In the case
of loss, the measure of indemnity will be determined
with reference to the assured sum and the value, be
it insured or insurable. The insured value is arrived
at by the agreement between the assured and the
underwriter and a reasonable margin of profit is
allowed to be included in arriving at it. The measure
of insurable value is ascertained as follows:
. (1) In hull insurance, the insurable' value is the
value, at the commencement of the risk, of the ship,
including her outfit, provisions and stores for the offi-
cers and crew, money advanced for seamen’s wages,
and other disbursements (if any) incurred to make
the ship fit for the voyage or adventure contemplated
by the policy, plus the charges of insurance upon the
whole:
The insurable value, in the case of a steamship,
includes also the machinery, boilers, and coals and
engine stores if owned by the assured, and, in the case
of a ship engaged in a special trade, the ordinary fit-
tings requisite for that trade:
(2) In insurance on freight, whether paid in
advance or otherwise, the insurable value is the gross
amount of the freight at the risk of the assured, plus
the charges of insurance:
(3) In insurance on goods or merchandise, the
insurable value is the prime cost of the property in-
sured, plus the expenses of and incidental to shipping
and the charges of insurance upon the whole:
(4) In insurance on any other subject-matter,
the
the insurable value is the amount at the risk oj-
 —
172 INSURANCE

assured when the policy attaches, plus the charges of

insurance.

The Perils insured against

When a person insures his house against fire there

are only two parties involved in the contract he and —
the underwriter. If any loss takes place on account
of fire, the loss will be realised from the underwriter.
In the case of marine insurance, however, the matter
is not so simple. The contract between the shipper
and the shipowner is expressed in the Bill of Lading
which will explain as to for which risks the shipowner
will be responsible'. But the nature of many of the
marine risks is such that they are not within the con-
trol of the shipowner and, therefore, the shipowner
takes no liability for them by mentioning the names
of the excepted perils in the Bill of Lading. The ex-
ceptions were originally three is number, viz., “The
Act of God, the King’s enemies and dangers of seas”
but subsequently their number was increased.
The shipper who wishes to be fully protected for
these perils' has to enter Into contract with an insurer.
The standard form of policy which covers the marine
risks runs as follows:
“Touching the adventures' and perils which we
the assurers are contented to bear and do take upon
us in this voyage: they are of the seas, men-of-war,
fire, enemies, pirates, rovers, thieves, jettisons, letters
of mart and countermart, surprisals, takings at sea,
arrests, and detainments of all- kings,
restraints,
princes, people, of what nation, condition or qua-
and
lity soever, barratry of the master and mariners,
'

and of all other perils, losses, and misfortunes, that

.have or shall come to the hurt, detriment, or damage
of the said goods and merchandises and ship, etc.,
or any part thereof.”

should be borne in mind that the insurance

It
policy does not cover all the possible risks which may
 —
THE POLICY AND ITS PHRASEOLOGY (contd.) 173

arise in course of the venture, it covers only those

perils which are specified in the above wordings.
These perils are discussed as under:
Perils of the Seas. This term refers only to fortui-
tous accidents or casualties of the seas. It does not in-
clude ordinary action of the winds and waves. By the
implied warranty of seaworthiness, it is understood
that a ship will be in such a condition as to withstand
the ordinary waves and winds and the perils which are
natural and frequent on the particular route. Any loss
arising out of such perils is excluded from the perils
of the seas and the underwriter is not liable for them.
The ‘perils of seas’ usually relate to casualties which
might occur and not to those which must occur. Ac-
cording to Phillips “Perils of the Seas
'
com-
prehend those of the' winds, waves, lightning, rocks,
shoals, collision, and, in general, all causes of loss and
damage to the property insured arising from the ele-
ments and inevitable accidents.” To this list may
also be added founderings and disappearances at sea
through unknown causes.
It should be noted that if the loss arising out of
any of the perils of the seas insured is attributable
to the fraud or wilful misconduct of the assured, the
underwriter is relieved from the liability under the
policy. However, in such a case if the interests of an
innocent third party are involved, the position is re-
verse and the underwriter continues to be liable under
the contract notwithstanding the misconduct or neg-
ligence of the master or crew.
Men-of-War. Men-of-war are vessels authorised
and maintained by nations for the purpose of defence
or attack in the event of hostilities. Any damage to
the goods on board arising out of collision against a
man-of-war is recoverable from the underwriters
under this risk.
Fire. Fire is one of the insured perils, which is
responsible for a large number of marine losses. In
spite of the modern fire protection, detection and
174 INSURANCE

extinction equipment the underwriters have to meet

enormous losses from serious fires every year. It
should be noted that losses arising out of every type
of fire are not covered by the policy. Damage caused
by smoke, or by the heat of fire is regarded as damage
by “fire”; and damage by water used to put out or >

prevent the spread of fire is also covered by the policy.

Fire resulting from lightning, spontaneous combus-
tion, explosion, negligence of the master or crew, etc.
is covered by the policy. But if the fire takes place on
account of the inherent vice or nature of the subject-
matter insured, the underwriter is not liable to pay
the loss provided he proves that it was so. Similarly
an underwriter has no liability for a loss caused by
the wilful misconduct of the assured.
The losses on account of perils of fire not covered
by the standard form can be covered by having spe-
cial clauses and paying the extra premium.
^ Enemies. It includes all types of ships and ves-
sels belonging to the foe and any loss arising out of
their action is covered under the policy. It also ex-
tends to all subjects of the enemy country and to their
hostile acts, provided such acts formed part of the
enemy campaign.
The perils on account
Pirates, Rovers, Thieves.
and thieves were very common in
of pirates, rovers
olden days and their frequency and magnitude
though now gone down to a very large extent, are
not completely eliminated. The acts by these per-
sons are committed for the pursuit of private ends,
as by robbery or murder in places beyond the juris-
diction of a state. The term ‘thieves’ does not cover
clandestine theft or a theft committed by any one of
the ship’s company, whether crew or passengers.
Jettisons. Jettison is the throwing overboard a
part of the cargo, or part of a vessel’s equipment for
the purpose of lightening or relieving the ship in case
of necessity or emergency. The throwing of the thing
overboard must be intentional and with the purpose
 ,

THE POLICY AND ITS PHRASEOLOGY (contd.) 175

of relieving the vessel -from some imminent peril. Ac-

cidental falling of things does not constitute jettison-
ing. Jettison of cargo by reason of its own inherent
vice is not recoverable.
Letters oj mart and countermart, surprisals
takings at sea. ‘Letters of mart’ or ‘Letters of mar-
que’ were powers granted by a state to persons who
undertook to attack the enemies of the nation in
revenge for losses where they had themselves suf-
fered, and “Letters of countermart” were powers
granted by the opposing nation to other persons to
resist and retaliate upon such attacks. The term
‘surprisals’ is associated with capture and is now an
obsolete term. The term “Takings at sea” relates to
stopping and taking into port for examination a ship
suspected of carrying contraband of war to the enemy.
Arrests, restraints, and detainments of all kings,
princes, and people, of what nation, condition, or qua-
lity soever. These risks, including the risks in
previous heading and men-of-war, pirates, rovers and
thieves are war risks. The underwriter is responsible
for any loss arising out of any of the above perils of
war, but these days there is a tendency to exclude
these risks by insertion of a clause in the policy and
the clause can be deleted only after the payment of
an extra premium.
Barratry of the Master and Mariners. The term
‘barratry’ includes every wrongful act wilfully com-
mitted by the master or crew to the prejudice of the
owner, or, as the case may be, the charterer. The act,
to be barratry, must have been committed without the
connivance of the owner. The casting away of a ves-
sel by the master or crew, the setting fire to her, or
fraudulently selling either the vessel or cargo, or
both, and appropriating the proceeds are examples
of barratry. The underwriter is liable for losses aris-
ing out of barratry.
Other perils. The policy next includes ‘all
other perils.” This is a very comprehensive term but
 —
176 INSURANCE

the law has interpreted it very narrowly as ‘to include

only perils similar in kind to the perils specifically
mentioned in the policy.’
It should be noted that according to the inten-
tions of assured and underwriters, the printed words
of the policy may be extended, modified or nullified
by mutual, agreement and new clauses may be in-
serted. Such clauses will be discussed at the end of
this chapter.

Sue and Labour Clause

Next in order in the policy follows what is known
as the “Sue and Labour clause.” It runs as follows:
“And in case of any loss or misfortune it shall
'
be lawful to the assured, their factors, servants and.
assigns, to sue, labour, and travel for, in and about
the defence, safeguards, and recovery of the said
goods and merchandises, and ship, etc., or any part
thereof, without prejudice to th.is insurance; to the
charges whereof we, the assurers, will contribute
each one according to the rate and quantity of his
sum herein assured.”
By this clause the assured is allowed to take
.

necessary steps in order to avert or minimize a loss.

Any expenses in this direction incurred by the assur-
ed or by anybody else on his behalf will be propor-
tionately paid by the underwriters. The expenses
may include, according to the circumstances, special
landing charges, re-conditioning, warehousing and re-
forwarding charges, etc. In this connection the fol-
lowing points deserve consideration:
(i) It is not left to the option of the assured to
take action under this clause. It is his bounden duty
to take measures for averting or minimizing a loss.
(ii) The expenses under this clause can be real-
ised only when they have been incurred to avert or
minimize losses which might arise by the operation
of some peril insured against. The underwriter is
 THE POLICY AND ITS PHRASEOLOGY ( conid .) 177

not responsible if the loss would have arisen on ac-

count of a peril not insured.
(iii) The measures taken by the assured and his
agents for the purpose of averting or minimizing a
loss must be prudent and reasonable.
(iv) The underwriter under this clause will pay
his share in proportion to the amount which the policy
bears to the insured value. If the subject-matter of
insurance be subsequently totally lost, sue and labour
charges incurred would be recoverable from the under-
writer over and above the payment of a total loss
under the policy.

Waiver Clause
- This clause is supplemental to the preceding Sue
and Labour clause and is for the benefit of both the as-
sured and the underwriter. Its wordings are as fol-
lows: — '

“And it is especially declared and agreed that

no acts of the insurer or insured in recovering, sav-
ing, or preserving the property insured shall be con-
sidered as a waiver, or acceptance of abandonment.”

This clause authorises the underwriter, as well

as the assured, to act in protecting their mutual in-
terests, without prejudicing their respective legal
rights, with special regard to abandonment. It pro-
vides that, on the one hand, if notice of abandonment 1
has been given by assured and declined by the in-
surer, any steps taken by the assured under the sue
and labour clause shall not be deemed as a waiver
of the notice of abandonment given already by him;
nor, on the other hand, shall any acts by the insurer
be regarded as an acceptance of the abandonment
which he has already declined.

1 See page 1ST.

 — —
178 INSURANCE

Premium Clause
The next clause relates to the- consideration -or the
premium under the contract and it reads as follows:
“And so we, the assurers are contended, and
do hereby promise and bind ourselves, each one for
his own part, our heirs, executors, and goods to the.
assured, their executors, administrators, and assigns,
for the true performance of the premises, confessing
ourselves paid the consideration due unto us for this
assurance by the accused, at and after the rate of

In all business contracts, the existence of the valu-

able consideration is of utmost importance for their
validity. Similarly, in marine contracts, this consi-
deration is the payment of the premium to the under-
writer who agrees to indemnify the assured against
loss by the perils insured against; and the rate of
premium is inserted in blank space. The underwriter
acknowledges the receipt of the premium, though in
practice it is never paid on the date of issue of the
policy, but according to custom is paid usually on the
8th of the month following the effecting of the insu-
rance. The policy with the acknowledgement of the
premium is the conclusive evidence of the contract
between the assured and the underwriter.
Memorandum Clause
The last clause of the standard form reads as
under:
—
N.B. Com, fish, salt, fruit, flour, and seed are
warranted free from average, unless general, or the
—
ship be stranded sugar, tobacco, hemp, flax, hides
and skins are warranted free from average, under
five pounds per cent, and all other goods, also the
ship and freight, are warranted free from average,
under three pounds per cent, unless general, or the
ship be stranded.
This clause was introduced into the policy in
1749 and is meant to provide a minimum limit to the
 the POLICY AND ITS PHRASEOLOGY (contd.) 179

underwriter’s liability regarding claims for particu-

lar average by exempting him from such claims,
either absolutely or partially depending on the sus-
ceptibility of the subject-matter insured. This clause
divides the subject-matter in three categories accord-
ing to the perishability in the following manner:
(1) The underwriter is not liable for partial loss
on corn, fish, salt, fruits, flour and seed at all.
(2) The underwriter is not liable for partial loss
if it is less than 5 per cent, on sugar, tobacco, hemp,
flax, hides and skins. These commodities are less
susceptible to damage than those in the first category.
(3) The underwriter is not liable for the partial
loss if it is less than 3 per cent, on all other goods
including the ship and the freight.
But there are certain exceptions to the above
limits to the underwriter’s liability and he has to as-
sume the partial losses even if they fall below the
specified limits mentioned above. The memorandum
clause becomes inoperative under the following
cases:
(1) If a partial loss is a general average loss. 1
(2) If the ship is stranded, i.e., she is run aground
and becomes stationary resulting in the resting or in-
terruption of the voyage.
Attached Clauses
In modern
times, there has developed the
practice to make
the insurance subject to clauses
attached to or otherwise added to the standard
form of policy in order to meet the circum-
stances of the individual cases. These clauses may
amend the conditions of insurance contract, limit or
extend the perils insured against, or provide for cer-
tain stated exigencies of modern commerce.
The Institute of London underwriters have evolv-
ed these clauses and hence they are
known as the
1 See page JOG.
180 INSURANCE

Cargo Clauses.” They are many in num-

“Institute of
ber but some of the important clauses are given be-
low. During the recent world-war, many new clauses
had been introduced in the name of war-time exten-
sions.
The F. C. & S. Clause. The modern practice is to
consider the war perils apart from the marine perils
and the underwriter is exempted from the war perils
by the inclusion of F. C. and S. (Free of capture and
seizure) clause. This clause has now become an in-
tegral part, of the policy. The clause can be deleted
after paying extra premiums, in that case the under-
writer shall be responsible for war perils as well.
F.S.R. and C.C. Clause. By the inclusion of the
“Strikes, Riots, and Civil Commotions clause,” the
underwriter is exempted from the risks on account of
strikes, riots and civil commotions. If the assured
wants to cover these risks in the policy, he can do so
by deleting this clause after paying an extra premium,
if any.
Frustration Clause. It may so happen that the
voyage or the adventure may be frustrated by agencies
other than enemy powers causing loss to the assured
and this loss can be covered from the underwriters,
e.g., at the outbreak of the Great War, British and
non-enemy vessels were prohibited from completing
their voyages to enemy destinations by the British
and Allied powers. In some cases they were ordered
to proceed to British ports where their cargoes were
discharged and sold. The underwriters were held
liable in such cases for a total loss, less proceeds of
sale. The Frustration clause was introduced to ex-
clude this risk from the policy and relieve the under-
writers from such losses. Thus the clause excludes
the liability for losses based upon frustration of the
adventure.
It will be seen that the Frustration clause can
come into operation only when the F. C. & S. clause
is deleted.
 THE POLICY AND ITS PHRASEOLOGY ( contd .) 181

F. G. A. (Foreign General Average) Clause. In the

absence of any stipulation to the contrary in the
contract of affreightment, the law which must govern
the adjustment of general average is the law of the
port, i.e., of the port of destination, if .the voyage is
completed or of the intermediate port if the voyage
is broken up. The laws of the various countries res-
pecting general average differ materially and with
that the liability for contribution would also vary ac-
cording to the port where the voyage is broken up.
In order to avoid this difficulty, it is provided by this
clause that the general average contribution will be
adjusted according to the law of the foreign port
wherever the adjustment is made and it will be
acceptable both to the insurer and the insured.
F. P. A. (Free of Particular Average). By the in-
clusion of this clause, the underwriter is exempted
from any liability in respect of particular average. Of
course, if the partial loss is not particular average the
underwriter will be liable for it.
W. P. A. (With Particular Average). It means
that the particular average is covered under the policy
and the underwriter is responsible for it.
F. A. A. (Free of All Average) . Clause. It ,

relieves the underwriter from all average claims,

general and particular average, etc.
A. R. (All Risks) Clause. This clause gives pro-
tection against all risks. The
expression “All Risks”
must be understood in a limited sense as referring to
consequent upon or incidental to the
those perils
of the seas, or to transit more generally.
navigation
This clause has
Warehouse to Warehouse Clause.
with previously 1
and is introduced
already been dealt
risks as are incidental to sea
to cover such inland soon as t
to operate as
vovaee. The clause ceases des ma ion,
warehouse at the
goods reach the
1 See page 103.
182 INSURANCE

after 15 or 30 days from the discharge of the cargo

from' the vessel used for ocean transport, whichever
ever occurs first.
R. D. C. (Running Down Clause). This clause is
usually included in hull' policies and is also
called ‘Collision Clause’. According to this clause
the '
underwriter agrees to take upon him-
the owner of the ship, for
self the risk of liability of
damage done by the vessel insured owing to collision
with another vessel to the extent of three fourths of
such liability. This clause was introduced later on
and without this the underwriter is not responsible
for the loss done to another vessel in collision under
the ordinary terms of the policy. The idea of limit-
ing the cover to three-fourths was to compel the as-
sured to bear one fourth of his loss so that he may
exercise greater care in the navigation of the insured
vessel than he would take if he were relieved of his
liability completely. Now, of course, the full protec-
tion can be afforded by deleting the words “Three-
fourths” from the clause.
Continuation Clause. It is included in a ‘Time’
policy by which it is agreed that if the policy
on the vessel expires while she is on sea, or if the voy-
age on which she was engaged was not then complet-
ed, the vessel shall continue to be covered under the
policy at a pro rata premium to her port of destination
provided previous notice be given to underwriters.,
Hague Rules
In order to avoid disputes or facilitate their
settlement with a view to promote the international
overseas trade and commerce, a Maritime Law Com-
mittee of the International Law Association sat at
Hague in 1921 and framed a set of rules regarding the
rights and liabilities of cargo-owners and ship-owners
in connection with Bills of Lading. These rules
have been set in a very fair and equitable way
and are calculated to indicate respective rights and
 THE POLICY AND ITS PHRASEOLOGY (canid.) ±83

responsibilities of the shipowners ana the

cargo-
owners in a most clear cut way so that no complica-
tions may arise in their determination.
These rules
are known as the Hague Rules of 1921 and
_
though
they do not directly concern marine insurance, their
principles have been incorporated in the English
Carriage of Goods Act of 1924.

. CHAPTER RATE
MARINE LOSSES
As observed previously, any loss arising in a
marine adventure has be borne by any of the three
to
parties. i.e., shipowner or the insurer. If
the shipper,
the loss takes place on account of a risk which
is covered by the contract of affreightment, the ship-
owner or the carrier will be responsible and he will
have to pay the loss to the shipper. II the loss takes
place on account of any of the perils insured against
with the insurer, he will be liable for it and shall
have to make good the loss to the insured (i.e., the
shipper). If the loss takes place on account of a risk
which is covered neither by the contract of affreight-
ment nor by the insurance contract, the shipper him-
self shall have to bear it. Of course most of the perils
are insured with the insurer and in all such cases the
liability falls upon him to inde mni fy the assured. La
a particular case whether the loss is recoverable rrom
the insurer or not will depend upon the fact whether
the risk resulting in loss is insured with the insurer.
If it is insured the insurer will indemnify the assured,
otherwise not. The principle governing tms pom* is
discussed below.
Doctrine of Causa Proxima
When the loss is caused by the operation ot a
peril and if this peril is an insured one, tne
un ce»-
184 INSURANCE

writer isresponsible to make good the loss. But the

difficulty arises when the loss is caused by the opera-
tion of several contributory causes or a chain of
causes, some of which are insured, while others are
not. Under such circumstances, the principle of pro-
ximate cause is applied in order to determine the
liability of the underwriter. This principle is ex-
pressed in the well-known legal maxim “ Causa
proxima non remota spectatur ” (the proximate
and not the remote cause must be looked to). It
means that when the loss arises on account of a series
of causes, the proximate cause should be regarded as
the cause for loss and if it is an insured peril the
underwriter will be responsible. Thus the insurer is
liable for any loss proximately caused by a peril
insured against. In a vessel, rats had gnawed a pipe
and as a consequence of it the sea water entered the
pipe and the cargo was damaged by the action of salt
water. In this case, there were two causes—rats and
salt water. The latter risk was. insured while the
.

former was not. The proximate cause is the action

of salt v/ater and this being an insured peril the
underwriter was held responsible to meet the claim.
However, the task of determining the proximate
cause is not an easy one where several causes .have
..been at work. The meaning of the proximate cause
should not be taken in its literal sense. The cause
which is proximate need not necessarily be nearest
in time but it should be proximate in efficiency; The
fact that the ^hazard which was the proximate -cause
was not in activity at the consummation of the disas-
,

ter would not- preclude that peril from being the

actual and efficient cause of. disaster.
.
,
The detailed
application of the principle of Causa Proxima can be
understood only by reference to the cases relating to
the various perils insured against. However, in this
connection the following provision of English Marine
Insurance Act will be helpful' in understanding the
scope of the principle.'
 MARINE LOSSES 185

(a) The insurer is not liable for any loss attribut-

able to the wilful misconduct of the assured, but, un-
less the policy otherwise provides, he is liable for any
loss proximately caused by a peril insured against,
even though the loss would not have happened but
for the misconduct or negligence of the master or crew.
(b) Unless the policy otherwise provides, the in-
surer on ship or goods is not liable for any loss proxi-
mately caused by delay, although the delay be caused
by a peril insured against.
(c) Unless the policy otherwise provides, the in-
surer is not liable for ordinary wear and tear, ordinary
leakage and breakage, inherent vice or nature of the
subject-matter insured, or for any loss proximately
caused by rats or vermin or for any injury to machi-
nery not proximately caused by martitime perils.
The onus of proof, that the loss took place on
account of a peril insured against under the policy
lies on the assured.

Types of Marine Losses

Marine losses are of two

types, viz., (A) Total loss
and (B) Partial loss. A total loss can be either (i)
actual or (ii) constructive. Apartial loss has the
following four kinds. (1) Particular average loss
(2) Particular charges, (3)
General average, and (4)
Salvage charges. Any loss other than a total loss is a
partial loss. Insurance can be taken to cover total
loss or partial loss or both. A
particular loss can be
realised only when it is covered by the policy. If the
both total and partial losses, the assur-
policy covers
cannot be
ed can make claim for a- total loss and if it
a partial
substantiated he can make a claim for loss.
construc-
An insurance against total loss includes a
actual totas loss, unless agreed
tive as well as an
otherwise.
I.— 12
18G INSURANCE

A. TOTAL LOSS
the subject-matter insured is totally lost, there
If
is goods are completely destroy-
a total loss, e.g., if the
ed by fire or captured by an enemy then the total loss
is apparent and it can be realised from the under-
writers if the risks of fire or war are insured. When
a total loss of the part of the subject-matter insured
takes place, the difficulty arises in determining
whether the loss should be regarded as a total loss
or partial loss. In such a case, if the part is a com-
plete ‘apportionable part’, it will be treated as a total
loss. An apportionable part is one where goods are
insured in such a way that separate valuations are
applied to subdivisions and each subdivision and its
apportioned value are considered separately in con-
nection with a claim. The loss of such part is regard-
ed as a total loss; on the other hand, in the absence of
such separate valuations being allowable, the total
loss of part will be treated as a partial loss. It should
be noted that in case of a total loss the measure of
indemnity will be determined with reference to the
‘insured’ or ‘insurable’ value of. the subject-matter
insured and the assured sum. This point has been
already referred to previously 1 .

(i) Actual Total Loss

Where the subject-matter insured is destroyed,
or so damaged as to cease to be a thing of the kind
insured or where the assured is irretrievably depriv-
ed thereof, there is an actual total loss. The vessel
of her cargo might have sunk beyond recovery, or
completely lost by fire; it might be a ‘missing’ ship; it
might have been captured by an enemy, pirates or
thieves, etc., (here assured is irretrievably deprived of
the ownership and possession- of the subject-matter),
or the interest might have been so changed in conse-
quence of the peril that it has ceased to be a thing
of the kind insured (e.g., hats may become shapeless

1 See page 149.

 MARINE LOSSES 187

pieces of felt or straw). These are all examples of

total losses.
When there is an actual total loss because the
subject-matter had ceased to be of the kind insured,
the assured will get the full amount of total loss from
the insurer, who will be subrogated to all rights and
remedies in respect of property. Any amount realis-
ed by the sale of the material which remains of the
insured goods will go to the underwriter, but if the
assured wants to retain such materials, an agreed
amount representing their value will be deducted
from the amount of total loss and the balance will be
paid to the assured.
(ii) Constructive Total Loss
Subject to any express provision in the policy,
there is a constructive total loss where the subject-
matter insured is reasonably abandoned on account
of its actual total loss appearing to be unavoidable, or
because it could not be preserved from actual total loss
without an expenditure which would exceed its value
when the expenditure had been incurred. The
example of a constructive total loss would be where the
cargo can be saved from a wrecked ship, but the total
expenses from the time steps are. taken to remove the
goods from the ship to the time of arrival at the des-
tination would be greater than the value of the goods
on arrival. In such a case, the goods may be abandon-
ed and the underwriters will have to pay the full
insured value. However, the assured is not compel-
led to abandon his interest and the law provides that
where there is a constructive total loss, the assured
may either treat the loss as a partial loss or abandon
the subject-matter insured to the insurer and treat
the loss as if it were an actual total loss.

Notice of abandonment
If the assured wants to recover a claim for a con-
structive total loss, he must abandon his interest in
188 INSURANCE

the subject-matter insured to his insurer, i.e., he must

surrender his interest in whatever is left of the sub-
ject-matter insured to the insurer, and claim from
him a total loss. Thus if the assured elects to abandon
the subject-matter insured to the insurer, he must
give notice of abandonment. If he fails to do so, the
loss can only be treated as a partial loss. The notice
of abandonment must be given with reasonable dili-
gence after the receipt of reliable information of the
loss. It can be given orally or in writing. Again the
notice when given, should be unconditional and ab-
solute. On receipt of the notice, the underwriter
may either accept or decline it. If he elects to accept
the notice, he shall have to indemnify the insured for
the total loss. On the other 'hand', when he rejects
the notice, the assured should at once commence
legal action against the underwriter, if he wants to
enforce his claim for a constructive total loss.
Difference between Actual and Constructive Total
Loss
Actual total loss relates to the physical impossi-
bility, while the constructive total loss relates to the
commercial impossibility. If in a vessel the hides
become so damaged by sea water that it is certain
that before the vessel reaches the port of destination,
the hides would cease to exist as hides and would
become a mass of putrified matter, the case is of an
actual total loss. But if by any process it was possible
to restore the hides to their original condition, though
the cost of so doing would exceed their value at des-
tination, the damaged hides can be abandoned, as the
completion of the adventure has become commercial-
ly impossible. Here the loss would be a constructive
total loss. No notice of abandonment is necessary in
case of an actual total loss.
Salvage Loss
When there is an actual total loss because the
subject-matter is so damaged as to cease to be a thing
 —
MARINE LOSSES 389

of the kind insured or when they have been sold short

of destination due to their inability to reach the des-
tination in specie, or, where there is a constructive
total loss, the usual form of settlement .is that the
net sale proceeds (amount realised by the sale, less
the expenses for the sale) will be paid to the assured
and he will recover from the insurer the total loss
less the net amount thus received. This net amount
received from the insurer is termed as a ‘salvage
loss.’

Making a claim for Total Loss

As soon as the assured comes to know of the total

he must inform the underwriter about his claim.
loss,
He must submit the following documents to substan-
tiate his claim:

(1) Insurance Policy. It furnishes an evidence

of the contract of insurance and the terms of it.
(2) Bill of Lading. It will show the correspon-
dence of the insurance contract with the voyage and
vessel.
(3) Copy of the Invoice. Acopy of the invoice
relating to the goods insured should also be sent. It
will help in estimating the correct value of the goods.
(4) Protest. When the total loss is due to the
loss of the vessel, or other accident, a copy of protest
must be sent. The protest is signed by the master
or by such member of the crew as has been saved, and
sworn before a Notary or Consul.
(5) Letter of Subrogation. If anything remains
of the subject-matter insured after the total loss or
if there are any rights or remedies regarding
the
interest or against third parties, a letter of subroga-
tion must also be sent. According to the law, when
the underwriter has indemnified the assured, he be-
comes entitled to all rights and remedies in respect
casualty
of the subject-matter as from the time of the
He can exercise these rights and
causing the loss.
 —
190 INSURANCE

remedies only on the strength of the letter of sub-

rogation.
(6) Notice of Abandonment. If there is a con-
structive total loss, the notice of abandonment must
be given in the manner discussed above.
(1)
B. PARTIAL LOSS
Particular Average Loss*
A
particular average loss is defined as ‘a partial
loss of the subject-matter insured, caused by a peril
insured against, and which is not a general average
loss/ A
general average loss is a voluntary and deli-
berate loss, and in contrast to that a particular aver-
age is fortuitous or accidental. A
loss to be a parti-
cular average loss must fulfil the following require-
ments:
(1) It should be the loss of a part of the sub-
ject-matter only.
(2) The loss should be of the particular subject
matter only.
(3) The loss should be accidental and not inten-
tional.
(4) The loss should be caused by a peril insured
against.

Particular Average on Cargo

A particular average loss may be either rhe
damage and depreciation of a particular interest or a
total loss of its part. As discussed previously, the
total loss of part canbe regarded either as a total loss
or as a particular average loss. If the property is in-
sured under one value for the whole, and it is all of
the same kind, quality or description, a total loss of
part will be recovered as a particular average loss
only, e.g., when wheat is shipped in bulk, some of it
might be pumped out during a storm, this will be a
case of a particular average loss. In such a case, the
1 The word ‘average’ denotes a partial loss.
 —
MARINE LOSSES 191

measure of indemnity will be based upon the value

(insured or insurable) of the part lost Li proportion
to the value (insured or insurable) of the whole of
which it forms a part and then applying this propor-
tion to the sum insured.
In a case where goods are delivered in a damaged
condition or where their value at destination is depre-
ciated, the resulting particular average loss will be
adjusted upon the basis of comparison between the
gross sound and damaged values. The law on this
point states that ‘where the whole or any part of the
goods or merchandise insured has been delivered
damaged at its destination, the measure of indemnity
is such proportion of the sum fixed by the policy in
the case of a valued policy, or of the insurable value
in the case of an unvalued policy, as the difference
between the gross sound and damaged values at the
place of arrival bears to the gross sound value.’ The
process of arriving at the particular average loss is
as follows:
(1) Find out the gross sound value on arrival of
the goods damaged or depreciated. This is the amount
for which the goods would have been sold had they
reached the port of destination in sound condition.
(2) Then find out the gross damaged value ot
the goods damaged or depreciated. This is the ac-
tual amount for which the goods in the damaged or
depreciated condition are sold.
(3) Deduct the gross damaged value from the
gross sound value. The difference is the measure of
"the actual damage or depreciation.

(4) Divide the amount of damage or deprecia-

tion by the gross sound value. This will give the
ratio of the damage or depreciation.
(5 )
Apply the above ratio to the value (insur-
ed or insurable value as the case may be) of the
damaged or depreciated goods and it will give the
amount of particular average loss.
192 INSURANCE

(6) Of the amount thus arrived at, the under-

writer liable for that proportion which his sum
is
insured bears to the value (insured or insurable).
Usually the sum insured and the insured value cor-
correspond exactly, and, therefore, the underwriter
simply for the ratio of the sum assured.
is liable

Illustration:
Suppose a cargo was valued at Rs. 10,000. Half
of the goods are damaged which would realise Rs. 2,000
only. It is to find out the amount of particular ave-
rage, if the damaged goods would have realised (a)
Rs. 4,000, (b) Rs. 8,000, had they reached undamaged,
(a) Gross sound value on arrival . . Rs. 4,000
Cross damaged value on arrival . . Rs. 2,000

Damage . . Rs. 2,000

Damage is Rs. 2,000, it is A of gross sound value.

Hence, the claim on policy is 4 of Rs. 5,000=
Rs. 2,500.
(b) Gross sound on arrival . . Rs. 8,000
Gross damaged value on arrival . . Rs. 2,000

Damage . . Rs. 6,000

The damage is f of gross sound value.

Hence, the claim on policy will be f of Rs. 5,000=
Rs. 3,750.
From the above two cases, it will be clear that
the amount of claim payable by the underwriter for
a particular average loss will be more or less than the
actual damage according to the fact' whether the in-
sured value of the damaged subject-matter is more
or less than its gross sound value. It has been assum-
ed in the above cases that the policy was valued and
the assured sum was equal to the insured value,
otherwise the calculation would have entailed fur-
ther complications. The main reason for the above
194 INSURANCE

voices of the whole interest and letter of subrogation.

If the policy covers the particular average loss only,
in case of stranding or other accident a copy of Mas-
ter’s protest should also be supplied. As an evidence
of the amount of particular average claimed and also
to show that the percentage according to the memo-
randum clause has reached, a Survey Report should
also be sent. Similarly a Bill of Sale, or other similar
document should also be given, if the loss is deter-
mined by selling the damaged goods.
Particular Average on Ship
When there is a particular average claim on a
-

ship, the assured is entitled to the reasonable cost of

repairs, less the customary deductions. When a ship
is repaired, the old material is replaced by the new
one and this results in the betterment of ship. Hence
some deductions on account of “New for old” are made
from the cost of repairs. This is the old established
practice but the Institute Voyage and Time Clauses
and the clauses based' upon them now provide that
no such deduction shall be made.
It should be noted that the insured value of the
ship is not considered at all in the adjustment of the
particular average loss except (i) that it sets up the
limit to which a claim can be made, and (ii) to as-
certain that the claim exceeds three per cent, of the
insured value.
In order to lessen the severity of the memoran-
dum clause in cases where the particular average may
be below three per cent, and still a very high amount,
the total value of a ship is divided into different parts,
e.g., Hull and materials, machinery and boilers, cabin
fittings and furniture, etc., so that the percentage will
be calculated on each sub-division to make the under-
writer liable.
Particular Average on Freight
The freight may. be paid in advance or at destina-
tion. In the former case, the cargo-owner will have
realised the loss of proportionate freight with his
 '

marine losses
195
claim for cargo
because the freight k ; - , ,
n the insured value /'" UQed
of the car? Tf
to be paid at the e r Sht is ,

port of destiSn^
will lose the pro nnr firm a ?V L* (5
on +the shipowner
•
’
? ;

to it only when ?
00 d°"
g
~ £r “
s he fe
I at the entitled
tion. In such a
cai f
he will be able to
, ,LT
d el lvered destina-
Cy °” freight
recover fromhh^f
1I S underw
’

proportion of the sum n^irei”

lost bears to
the whSe carg 0
d i ,
^
ntei's such
P ° rtlon of car S°'^
.

Janson Clause

ticu4TeS|e
t0
l„“f a””?™ ^ « *» I*>
feed
pays /he
%rth
e

ItuTtT
continent ? differ*?
Se (whieh
Ttr C “‘
loss to the ^ured.
,
is
offive pe^Jnt'

.
ies) '
‘he undetwriter
But on the
favour according TrT is Ending increasing
only for t} le he underwriter is liable
called ‘Janson Clause’
are termed
‘Franchise’
^5
ercess oT the JXed

?
er centa ge. is
6 ,tlPu ], ated percentages
P This

that a proportion n f in
P ° n of ^e loss should
,^
ls Is based on the
idea
sured. fall upon the as-

(2) Particular Charges

charges® lfave'been kn ° Wn as <Specia3

de
or on behalf nf thn ehn £
as expenses incurred
vation of the
- 0,1 subfec
,
&r th Safety
t maTtf msu
iauojeet-matter |
f other *1
insurer?
red
^ by
Prese/ P^-
f
-

ral
1

average and a 111 than gene- ’

,

are not included C r ^ es Particular charges

charges
mw
•

nir+- CU far
in particular
cm-rnn
curred short of average
average. «« in-
They are
lar interest
deWW' respect of the particu-
insured
misfortune Particular n ^op °wing upon some loss or
and Labour har S a e incurred under ‘Sue
or as a
Clause’ 1n ordei J
consennenro ?
f
to avert or minimize.
The rule of franchk°^’ a ° ss cove red by the policy,
SS 1S no a PPb" ca ble to partial!"

r A -
charges. Thev
"re ' e erable from the under wri
if the
follow^;
ouov mg conditions are fulfilled:—
194 INSURANCE

voices of the whole interest and letter of subrogation.

If the policy covers the particular average loss only,
in case of stranding or other accident a copy of Mas-
ter’s protest should also be supplied. As an evidence
of the amount of particular average claimed and also
to show that the percentage according 'to the memo-
randum clause has reached, a Survey Report should
also be sent. Similarly a Bill of Sale, or other similar
document should also be given, if the loss is deter-
mined by selling the damaged goods.
Particular Average on Ship
When there is a particular average claim on a
ship, the assured is entitled to the reasonable cost of
repairs, less the customary deductions. When a ship
is repaired, the old material is replaced by the new
one and this results in the betterment of ship. Hence
some deductions on account of “New for old” are made
from the cost of repairs. This is the old established
practice but the Institute Voyage and Time Clauses
and the clauses based' upon them now provide that
no such deduction shall be made.
It should be noted that the insured value of the
ship is not considered at all in the adjustment of the
particular average loss except (i) that it sets up the
limit to which a claim can be made, and (ii) to as-
certain that the claim exceeds three per cent, of the
insured value.
In order to lessen the severity of the memoran-
dum clause in cases where the particular average may
be below three per cent, and still a very high amount,
the total value of a ship is divided into different parts,
e.g., Hull and materials, machinery and boilers, cabin
fittings and furniture, etc., so that the percentage will
be calculated on each sub-division to make the under-
writer liable.
Particular Average on Freight
The freight may be paid in advance or at destina-
tion. In the former case, the cargo-owner will have
realised the loss of proportionate freight with his
 —
MARINE LOSSES 195-

claim for cargo because. the freight is also ir. eluded

in the insured value of the cargo. If the freight is
to be paid at the port of destination, the shipowner’
will lose the proportionate freight as he 'is entitled
to it onfy when goods are delivered at the destina-
tion. In such a case if he has taken a policy on freight,
he will be able to recover from his underwriters such
proportion of the sum insured as the portion of cargo-
lost bears to the whole cargo.

Janson Clause

According to the memorandum clause, if the par-

ticular average loss amounts to, or exceeds the sti-
pulated percentage (which is three or five per cent,
fixed for the different commodities), the underwriter
pays the whole of the loss to the insured. But on the
continent, a different practice is finding increasing
favour according to which the underwriter is liable
only for the excess of the fixed percentage. This is
called ‘Janson Clause’ and the stipulated percentages
are termed ‘Franchise.’ This is based on the idea
that a proportion of the loss should fall upon the as-
sured.

(2) Particular Charges

The ‘Particular Charges’ also known as ‘Special

charges’ have been defined as ‘expenses incurred by
or on behalf of the assured for the safety or preser-
vation of the subject-matter insured, other than gene-
ral average and salvage charges’. Particular charges
are not included in particular average. They are in-
curred short of destination in respect of the particu-
lar interest insured, and following upon some loss^or
misfortune. Particular charges are incurred under ‘Sue
and Labour Clause’ in order to avert or minimize,,
policy.
or as a consequence of, a loss covered by the
not applicable to particular-
The rule of franchise is
charges, They are recoverable from the
underwriters
if the following conditions are fulfilled:
196 INSURANCE

(i) They must have been incurred to avert or

.minimize a loss insured against.
(ii) They must have been incurred in respect of
•a particular interest only.
(iii) They must have been incurred by the assur-
ed or his agent.
(iv.) They must have been incurred short of des-
tination.

(3) General Average Loss

A general average loss is one which is caused by
an extraordinary sacrifice or expenditure voluntarily
and reasonably made or incurred, under fortuitous
circumstances, for the sole purpose of preserving the
common interest from an impending peril. An analy-
sis of *the definition reveals the following elements of
the general average loss:
(i) The loss must be extraordinary 'in nature.
‘The sacrifice or expenditure must not be one which
is necessarily involved in performance of the contract
of affreightment. The condition indicates a state of
affairs which may compel the master to do something
beyond his ordinary duty for the preservation of the
whole adventure.
(ii) The whole adventure must be imperilled.
'The peril must be real and not imaginary, i.e., it must
be substantial and threatening, and something more
than the ordinary perils of the sea. Sacrifices made
under the mistaken notion that peril existed, e.g.
where a ship was thought to be on fire, would not be
•allowed.
(iii) The general average act must be voluntary
•and intentional, and all accidental loss or damage is
excluded. In other words, the loss must be the result
of the deliberate act of the master.
(iv) The sacrifice or expenditure must be made
-

-or incurred reasonably and prudently. The master

-of the vessel is naturally the man who is responsible
for deciding as to what is reasonable under particular
•circumstances.
 MARINE LOSSES 197

(v) The object of sacrifice or expenditure must

be the preservation of the whole adventure. It must
not be for the safty of the ship or the cargo alone, nor
merely for the completion of the adventure. This is
the English law. Laws of many foreign countries
provide that the object of completion of the adventure
justifies a general average act.
(vi) The loss must be the direct result of a gene-
ral average act. Demurrage and loss of market are
indirect consequential losses and hence cannot be
allowed in general average.
(vii) The party claiming contribution should not
be at fault.
(viii) The attempt to avoid the imminent com-
mon peril must be successful at least in part. It may
happen that after the voluntary sacrifices have been
made, the entire venture may be a total loss. In such
a case, the sacrifices made have been abortive and only
the total loss can be realised.
Types of General Average Loss
The general average losses are divided into two
classes:

(1) General average sacrifices, and

(2) General average expenditures.
The most common example of general average
sacrifice is “jettison’ by which is meant the throwing
overboard of part of the cargo in order to lighten the
ship. Similarly, the use of cargo as fuel; the voluntary
destruction of a part of the ship; cutting away of
masts, spars and sails; damage by water used to
extinguish fire are instances of general average sac-
rifice.
The examples of general average expenditure are
where vessels are put for safety into ports of refuge
enable
and additional port charges are incurred; to
be effected, some of cargo
the repairs of the ship to
discharged and further expenses might be
might be r
etc.
incurred for reloading and leaving the port,
.198 INSURANCE

•course, theexpenses which fall upon the shipowner in

connection with discharging his duties under the con-
tract of affreightment are not general average expen-
diture.
The General Average Contribution
Where there is a general average loss, the party
•on whom entitled to a ratable contribution
it falls is
from the other parties interested, and such contribu-
tion is called a general average contribution. The
task of adjusting the general average loss among the
•different parties is a complex one and involves the
•consideration of the following three questions: —
(i) What are the contributory interests?
(ii) What is the amount to be made good?
(iii) What are the contributory values?
(i) Contributory interests
When a general average loss takes place, the party
whose been sacrificed is entitled to receive
interest has
a ratable contribution from the other parties whose
interests have been saved from destruction. Such
interests usually are the ship, the freight, and the
•cargo. The contribution is subject to martime law,
e.g., the personal effects of the crew, the wearing appa-
rel, jewellery and baggage of passengers, and mails
•are excepted from the general average contribution
but if those interests are sacrificed, they are entitled
to general average contribution.
When a general average loss is adjusted among
•different interests, it is of vital importance that the
interest which has been sacrificed must also ratably
contribute to the loss, otherwise it would be in a
relatively better position by reason of being fully
reimbursed for a loss which the other interests have
to bear.
(ii) Amounts to be made good
Ship. The amount to be made good in gene-
(a)
ral average in respect of any part of the ship's mate-
 MARINE LOSSES 199

rial is measured by the reasonable cost of repairs neces-

sary to make her as serviceable as she was imme-
diately before the general average sacrifice, less the
usual deduction (if any) ‘new for old.’ The deduction
is made because the replacement of old material by
new results in betterment of the ship depending on
its age. The cost of repairs is taken into account as
they might have been actually incurred either at a
port of refuge or at destination.
(b) Cargo. When the goods have been, sacrific-
ed, the amount to be made good in general average is
their net value. The net value is arrived at like this:
first the amount for which the goods sacrificed would
have been sold on the day of discharge had they arriv-
ed safely is ascertained, then from this gross sum the
amount of expenses (e.g., freight unpaid, discount,
duty, landing and sale charges) which would have
been incurred had the goods arrived instead of hav-
ing been sacrificed is deducted. The balance is the
net market value of the cargo sacrificed. Where the
remaining cargo arrives damaged from causes which
would have equally affected the sacrificed goods, the
amount to be made good for general average purposes
is their net value based on what the goods sacrificed
would have realised, had they reached the destination
damaged to the same extent as the other cargo. For
goods arriving damaged owing to general average
sacrifice, the allowance will be the difference between
their net sound value and net damaged value.
(c) Freight. If the shipper has paid freight in
advance on the cargo sacrificed, it is merged in the
value of goods and is not deducted to arrive at the net
value of the cargo. But where the freight is to be
and
paid at destination, the shipowner will lose it
be made good under general average
therefore it will
loss. The amount which the shipowner is entitled
to
earneo,
will be the gross freight which he would have
less the charges
had not the goods been sacrificed,
rei a
which he would have incurred to earn such
200 INSURANCE

during the remainder of the voyage, but which he has,

as a result of the sacrifice, not incurred.
Expenses. All extraordinary expenses properly
incurred by the shipowner in time of peril for the
joint preservation of all the interests are also made
good under the general average contribution.

(iii) Contributory Values.

When it has been decided as to who are the parties
to contribute and what is the total amount to be con-
tributed, the next question is as to on what basis the
contributory parties should contribute, i.e., in what
proportion they have to contribute. Broadly, the
interests contribute on the net values of their preserved
interests at the place where the voyage ends. These
values are known as contributory values and are
arrived at as follows:
(a) Ship. The shipowner will contribute on the
ship’s value as saved by the sacrifice. This value is the
amount for which the shipowner as a reasonable man
would be willing to sell her on arrival at her destina-
tion, or, at an intermediate port if the voyage is
broken up there. The value is generally assessed by
a professional ship valuer who can assess the value
of any particular vessel to her owners.
(b) Cargo. The cargo-owner will contribute on
the net arrived market value of the goods saved at
the place where the voyage ends. This will be arriv-
ed at in the same manner as the net market value of
the goods sacrified is arrived at, i.e., from the selling
price (gross value) the expenses incidental to the safe
arrival of the cargo will be deducted.
(c) Freight. If the has been paid in
freight
advance by the shipper, included in the value of
it is
the cargo and, therefore, it will not have to contribute
as a separate interest. But the freight at risk (i.e.,
the freight which will become due to the shipowner
only when the goods arrive at destination safety) will
 MARINE LOSSES 201

have to contribute on the basis of the net value of

freight saved. It will be arrived at by ascertaining
the actual sum of freight received at port of destina-
tion less the expenses of earning it from the date of
general average act.

General Average Adjustment

When a general average loss has taken place, the
shipowner upon arrival of the ship at the port of
destination, or at an intermediate port if the journey
is broken up, shall make Up a statement for the adjust-
ment of the loss among the various interests. The
work of adjustment is a long process and involves
several complexities of law and practice and there-
fore, he employs the services of a professional expert
called the ‘Average Adjuster’ for the purpose of deter-
mining the share of each interest in the general aver-
age loss. As the shipowner is responsible for the col-
lection of the contribution he has a general average
lien on cargo. The expenditure incurred in the ad-
justment, including the fees of the Average Adjuster
is also to be borne by all the parties, in the same pro-
portion as the amount of general average loss.
The adjustment takes a long time and when goods
are to be delivered before its preparation, the ship-
owner will hand over the goods to the consignee after
taking a General Average Bond signed by the con-
signee. Where the general average loss is of consi-
derable amount, the shipowner, in addition to the
Bond, will require a General Average Deposit which
may be sufficient to cover the estimated contribution
due. It will be subject to adjustment by refund (or
additional payment) on completion of the statement

Illustration

A vessel, valued at R s. 45,000 _ contains cargo

on which freight due is Rs. oOO. Sup-
Worth Rs. 4,500
- I.— 13
 —
202 INSURANCE

pose in the way whole of the cargo is jettisoned. The

general average adjustment will be as follows:
The amount to be made good:
Cargo Rs. 4,500
Freight Rs. 500

TOTAL Rs. 5,000

The contributory values:

Ship Rs. 45,000
Cargo Rs. 4,500
Freight .... Rs. 500

TOTAL Rs. 50,000

It is assumed that the net values at arrival are

the same The contribution from the ship-
as above.
owner, cargo-owner and freight-receiver will be in
'

the proportion of 90: 9: 1. Hence

The Shipowner will pay Rs. 4,500
The Cargo-owner 'will pay Rs. 450
The Freight-receiver will pay Rs. 50

Rs. 5,000

Thus the shipowner will pay Rs. 4,500. The

Cargo-owner will receive in net: Rs. 4,500 Rs. 450 —
(his contribution) =
Rs. 4,050. The freight-receiver
will receive in net Rs. 500 —
Rs. 50 (his contribution)
= Rs. 450.
As the shipowner is generally the freight-receiver,
the net' effect will be that he will pay Rs. 4,050 to the
cargo-owner.
York- Antwerp Rules
Though the general average exists in all countries
as a branch of maritime law quite apart from insu-
rance from time immemorial, its practice in detail
differs from country to country. In order to achieve
 MARINS LOSSES 203

uniformity in the divergent rules of different mari-

time nations, meetings were held in New York and
Antwerp and a code of rules was formed which is
called York-Antwerp Rules of 1890. In 1924, these
rules were revised at Stockholm and now almost all
the contracts of affreightment include them.
General Average Loss on Sale
When the shipowner has to incur expenditure for
the general safety of the adventure, he may be forced
to sell some of the cargo to raise funds as there might
be no other means available for getting money. In
such a case, the cargo-owner is entitled to the actual
sale proceeds and if there is any loss on account of
such forced sale he will be entitled to recover this
loss by general- average contribution. This is called
“General Average Loss on Sale.” If, on the other
hand, there is profit on the sale, it will go to the cargo-
owner. Thus the cargo-owner is not to suffer any
loss but is entitled to the profit, if any.

Substituted Expenses
When a vessel is damaged and seeks a port of
refuge for the purposes of repair, the cargo has to be
unloaded, warehoused and then reloaded after repairs.
The expenses involved in this step may be vex-y heavy
and sometimes it may be possible to adopt an alter-
native course which may be far cheaper than the
above one. The expenses incurred by such an alter-
native method are called “Substituted expenses,” e.g.,
in the above case if the destination is near, the vessel
may be towed to the port of destination from the port
of refuge instead of being repaired there. Hence the
expenses of towing will be substituted expenses. The
substituted expenses will be apportioned over the
various interests in the same ratio as the expenditure
in connection with the more expensive course would
have been borne had it been incurred. If the expen-
diture which has Been substituted would have been
wholly treated as general average, the substituted
2(H INSURANCE

expenses also will be included in the general average

statement and be dealt with similarly.
General Average and Insurance
It should be clearly borne in mind that the liabi-
lities to contribute towards the general average loss
exist quite independently of the question of insurance.
If the policy of insurance covers the general average
the underwriter will have to meet the claim if the
general average loss arose on account of a peril insur-
ed. 1 Where the assured has incurred a general aver-
age expenditure, he may recover from the insurer the
proportion of the loss which falls upon him. If the
assured fails to recover from the other parties to the
adventure their respective proportions of the expen-
diture, he cannot recover them from his underwriter.
If the property of the assured had been sacrificed
on account of a general average act, the assured can
recover from the insurer the whole loss. In such a
case, the insurer will be subrogated to the rights of
the assured and will recover in assured’s name the
contributions from the other contributory interests.
Again where the assured has paid, or is liable to
pay, a general average contribution in respect of the
subject-matter insured, he may recover therefor
from the insurer. Any provision in the policy regard-
ing the percentage under the memorandum clause
governing particular average, will in no way affect
the liability of the insurer for the general average
sacrifice. Of course, the general average cannot be
included along with particular average in ascertaining
whether any particular average percentage has been
reached in order to render the insurer liable.
The measure of indemnity, or the extent of in-
surer’s liability for general average contribution, is
the full amount of contribution, provided the contri-
butory value does not exceed the insured (or insur-
1 A policy covering the risks of ‘total loss only’ does not
include general average.
 MARINE LOSSES 205

able) value. If the contributory value exceeds the

insured (or insurable) value, it will be a case of under-
insurance and the insurer’s liability will be ratably
reduced.
(4) Salvage Charges
If a maritime property is in peril, the maritime
law provides that any third party may try to save it.
Such a party is entitled to a reward. The party sav-
ing the property is called “Salvor,” the interest saved
is called ‘Salvage,’ and the reward received by the
salvor is called the ‘Salvage Award.’ But the word;
‘Salvage’ is used to denote all these terms also. The
salvage charges to be recoverable must fulfil the
following conditions:
(i) The salvor should be a third party, i.e., a
party not interested in the property. He should be
under no legal obligation to act. The crew of the
salved vessel cannot claim salvage for assisting the
endangered ship and cargo.
(ii) The expenses can be claimed only for the .

services in saving maritime property, e.g., ship, cargo

or freight.
(iii) The salvage services must be either wholly
or partially successful. No reward for services, or
payment for loss or expenses, can be claimed by sal-
vors where the services have been unsuccessful and
the property has been totally lost.
It should be noted that a salvor is entitled to his
reward for his services even if he acted without the
knowledge or consent of the owner of the property,
even against his express wish. A salvor has a lien on
the property saved and if the property is not in his
possession, he can hie a suit in a court of law.
Salvage charges are recovered from interests
salved in the proportion of the actual values of the
interests salved. Salvage charges incurred in prevent-
ing a loss by a peril insured against are recoverable
from the insurer as a loss by that peril.
206 INSURANCE

Successive Losses
In ordinary circumstances the underwriter’s lia-
bility under the policy is limited to the amount in-
sured. But there are exceptions to this general rule,
where successive losses are incurred, on the same
subject-matter on the insured voyage. Such succes-
sive losses should distinctly occur separately, each
involving the insured in distinct and actual loss.
Where, under the same policy, a partial loss, which
has not been repaired or otherwise made good, is fol-
lowed by a total loss, the assured can recover only
the total loss. But if the loss has been repaired and
then the total loss occurs, the underwriter is liable
for both. If there is a particular average loss on ship
and the damage has not been repaired and the ship
subsequently meets a total loss by a peril not insured
against, the underwriter is liable for neither of the
two losses. Where there is unrepaired damage, the
underwriters are liable for the reasonable deprecia-
tion to the ship thereby, provided she is not a total
loss before the expiry of the policy.
But suppose a vessel is damaged and the damage
is not repaired before the policy covering the vessel
expires, and the vessel subsequently meets a total
loss under a different policy in the continued
voyage. In such a case, the assured is entitled to
recover from the latter insurer the total loss and from
the former insurer, the amount due for the unrepair-
ed damage.
Where the insurer is liable for sue and labour
charges, he has to pay them even if when added to
— —
the partial loss or total loss incurred subsequently,
the claims together exceed the sum assured.
 CHAPTER XIX
RETURN OF PREMIUM AND' SUNDRY MATTERS
Rate of Premium
Premium is the price for the protection sought
for from the insurance company. The premium in
marine insurance is generally expressed as a per cent,
on the value of the interest insured. In fixing a rate
of insurance premium, the calculation cannot be so
scientific as in life insurance. The main reason for
this is that the classification of risks in life is very
simple but it is not so in case of marine insurance.
Here the risks differ according to the type of vessel,
nature of cargo, nature of the voyage, seasons, routes,
etc. Again the matritime perils are of a large variety.
Further, the past records available regarding the
marine losses are not available in the same amount
as for human mortality. Due to these reasons, the
calculation of premium though made on above con-
siderations involves some guess-work. In actual
practice, a new company will fix the premium rates
in conformity with the rates of existing concerns and
later on may make adjustments in the light of its
own experience. Of course, due to competition there
cannot be much difference in the premium rates of
the various companies.
Where the assured has transacted directly with
the insurer, the liability to pay the premium is direct.
If the insurance is effected through a broker, the
insurer must look to the broker for the payment of
premium.
Return of Premium
Ordinarily the premium once paid cannot be
refunded. However, in the following cases the refund
is allowed.

(1) By agreement in the policy

The assured may pay the full premium while
effecting the insurance but it may be agreed to return
207
-
208 INSURANCE

it wholly or partly on the happening of a certain

event. In such a case, the premium is returnable ac-
cordingly when the event takes place, e.g., special
packing may reduce the risk and hence part of the
premium is returnable.

(2) For reasons of equity

(i) Non-attachment of risk.- Where the subject-
matter insured, or part thereof, has never been im-
perilled, e.g., the voyage might not be made or the
goods might be ‘short shipped.’ <
(ii) Undeclared balance of an open policy may
be cancelled and return of premium for short-interest
allowed, provided the assured has no further interest
to declare within the scope of the policy in question.
(iii) Where the consideration for the payment
of the premium is apportionable, and there is a total
failure of any apportionable paH of the consideration,
a proportionate part of the premium is, thereupon,
returnable to the assured, provided there is no fraud
or illegality on the part of the assured or his agents,
e.g., insurance may be taken for a voyage in stages,
each stage being rated separately. In such a case, if
some stages are not completed, the premium relating
to uncompleted stages is returnable.
(iv) Where the assured has no insurable interest
throughout the currency of the risk, the premium
is returnable, provided the policy is not attached by
way of wagering, e.g., the cargo insured might never
have been shipped.
(v) Unreasonable delay in commencing the
voyage may also entitle the insurer to cancel the in-
surance by returning the premium.
(vi) Where
the assured has over-insured under,
an unvalued policy, a proportionate part of the pre-
mium is returnable.
(3) Over-insurance by double insurance
There is said to be over-insurance by double in-
surance where two or more policies are taken by an
 RETURN OF PREMIUM & SUNDRY MATTERS 209

insured on the same adventure and interest or any

part thereof, and the sums insured exceed the in-
demnity legally allowed. Where the assured has
over-insured by double insurance, a proportionate
part of the several premiums is returnable, provided
that if the policies are taken at different times, and
any earlier policy has at any time borne the entire
risk, or if a claim has been paid on the policy in res-
pect of the full sum insured thereby, no premium is
returnable in respect of that policy, and when the
double insurance is effected knowingly by the assured
no premium is returnable.
Under-Insurance
Where the subject-matter is insured for less than
itsvalue (insured or insurable), it is said to be under-
insured and the assured is regarded to be his own
insurer for the difference between the assured sum
and the value. This has already been discussed.
Bottomry and Respondentia Bonds
In the early days of commercial history when the
means of communication were not so rapid, the cap-
tain or the shipowner was at times confronted with
a peculiar situation when he went short of funds at
a foreign port. He could borrow money if he had a
high reputation in the foreign country but generally
a lender would not lend without security. In such a
case, the captain could pledge the ship or cargo as a
security by executing bonds. If the bond was exe-
'

cuted on the security of ship it was called “Bottomry

Bond,” but if the cargo was pledged, the bond was
called “Respondentia Bond.”
Botttomry is derived from the word ‘Bottom’,
which signifies that whole of the ship is pledged. Of
course, the money should be borrowed in this manner
only when the voyage cannot be continued without
this loan and the loan could not be obtained by
any
other means. Again the loan should be the minimum
necessary to reach the destination. The important
210 INSURANCE

feature of this loan is that it is repayable only on the

arrival of the vessel at a named port. If the vessel was
lost the borrower was discharged from his obligation.
Due to this high risk the interest charged on such
loans was very heavy. If the loan is borrowed at
various ports during the same voyage by executing
bottomry bonds, the last lender will have a preference
over the previous ones in getting the payment. It is
because of the fact that had the last lender not lent,
the previous lender could not get anything as the
voyage could not be terminated successfully without
the last loan.
When the loan is taken on the security of the
cargo, the bond to be executed is called ‘Respondentia
Bond.’ For the validity of this bond it is required
that the loan should have been taken for the exclu-
sive benefit of the cargo and there was no other means
of getting money except by the sale of cargo. If
possible, the consent of the cargo-owner should be
obtained before taking a loan. The condition for the
repayment of this loan is also the safe arrival of fhe
cargo to the port of destination. If the ship fails in
way, the loan given will be regarded as bad debt.
However, the bottomry and respondentia bonds
simply remind us of the old days and one now seldom
hears of loans raised on them.
 PART FOUR
FIRE INSURANCE
 CHAPTER XX
ORIGIN AND NATURE OF FIRE INSURANCE
Fire Waste
“Fire and people doe in this agree,
They both good servants, both ill masters be.”
—
(Lord Brooke Inquisition upon Fame)
He will be bold who will dispute the tremendous
service done to the humanity by fire. To speculate
about the conditions of human existence without this
great boon of fire is almost an impossible task. But
like the dictum that there is no unmixed good in the
world, ‘Fire is a good servant but a bad master.’ So
far it is under control, its obedience is beyond ques-
tion, but once the control is lost it spells untold tra-
gedies and disasters to humanity. Fire is responsible
for huge losses of property every year and in spite of
the many centuries of progress, mankind is still far
from the complete mastery of fire. On the one hand,
the fireproof and fire extinguishing appliances are
being invented more and more, and, on the other hand,
the discovery of new materials, machinery and pro-
cesses of manufacture and the greater concentration
of values which are taking place create conditions
more favourable to the inception of fire and, when
fire occurs, to its spread. Governments also try to
minimise fire waste by enacting various types of legis-
lation regarding construction of buildings, storage of
hazardous materials, etc., and by maintaining fire
brigades. In spite of all this, fire takes a heavy toll of
human property every year.
Causes of Fire '

, . , ,

Fire waste is the result of two types of hazard,

viz., ‘Physical’ and ‘Moral’.
inherent risk
Physical Hazard. It refers to the
which may be on account oi
of fire in the property
213
214 INSURANCE

the situation, inflammable nature, construction, arti-

ficial lighting and heating, lack of extinguishing ap-
pliances, etc.
Moral Hazard. The physical hazard depends on
the property or its situation while the moral hazard
depends upon the man. The property may be wil-
fully and maliciously set on fire by the owner or
somebody else. One may allow the avoidable
conditions favourable to the creation or spread
of fire owing to carelessness or lack of sense of
duty towards the community. In times of trade
depression, the claims on account of fire losses
increase because the owner of the property can realise
more from the loss by fire than by selling the goods
in the open market which is very low owing to depres-
sion. cases of wilful acts of setting one’s own
Such
property to are expressed by the term ‘incendiar-
fire
ism’. There may also be cases where third parties out
of malice, political situation or religious fanaticism
may put to fire the properties of others. Such acts
are known by the term ‘arson’. Losses by arson are
very common in India where the communal riots often
break out. Some persons may put fire to the property
of others, also with a motive to get reward on giving
information about the breakout of the fire or assisting
in its extinction. Again the wilful neglect by the
assured to maintain proper safeguards for extinguish-
ing fire and his carelessness when the fire has broken
out are cases of ‘passive dishonesty.’
Thus all the above causes lead to a huge amount
of fire waste every year and this feature of moral
hazard is peculiar only to fire losses.
Fire Insurance
r
it has been noted that the fife causes huge
Thus
lossesevery year'-'and the state or individual owners
by taking various safeguards can try to prevent the
fire waste' to some extent. But such" safeguards can
in no way completely eliminate the fire waste and
the society as a whole has to bear the losses. Of
 ORIGIN AND NATURE OF FIRE INSURANCE 215

.course the actual sufferers will be only a few in num-

ber, hence the loss to them individually will be very
.heavy and the rest of the members of the society will
bear no loss. But this fact cannot be known in
advance as to who will be the actual sufferers in a
particular year and hence the horror of loss will loom
over the head of every individual. It is just here that
an insurance company comes in the picture. It acts
as a middleman between all the members of the
society who are exposed to the fire risk on the one
hand and the members who will be the actual victims
of the fire losses on the other.
. The company will
charge the premiums from all the members and make
good the losses when they occur. Thus a fire insurance
company shifts the burden of fire losses from their
actual victims over to all the members of the society.
It relieves every individual from the horror of the
fire losses to which he is exposed. Each member feels
protected against the risk of fire.

Functions of Fire Insurance

From the above, however, it should not be under-
stood that the fire insurance company is able to eli-
minate the losses by fire. The society as a whole is
no gainer by the working of a fire insurance company.
Considered economically, the fire waste is dead loss
to the community and it would be fallacious to argue
that no one suffers so long as there is insurance behind
the loss. Really speaking the total loss to the society
remains the same and the premiums paid for fire
insurance are a part of unproductive tax on all the
members of the society to make good the loss of those
who really suffered. From the point of view of the
insured who actually suffers, the insurance premium
is nothing but a contribution
towards the loss by fire.
The greatest advantage of fire insurance lies in the
fact of individual enterprise and security but this does
not counteract the fire waste in any way; on the other
encourages the dishonest insures to
hand it actually
and realise its cost value
burn’ their own property
216 INSURANCE

from an insurance company which would not be pos-

sible but for insurance. Of course by the better sys-
tem of rating and fixing premium according to the
actual risk, the insurance does reduce the fire waste
to some extent.
Origin of Fire insurance
Like marine insurance, the fire insurance has not
a long history. Comparatively it is of late origin and
though the efforts were made since long the real
establishment of fire insurance came only after- the
Great Fire which took place in London in 1666. The
main cause of its late development was that com-
;

merce was not so much developed at that time, and

is was only after its growth that the fire insurance
received a real fillip. The early companies which
started fire insurance based their business mostly on
complete guess-work and there was no reliable data
available on which could be based the premium rates.
Many of such companies came to grief very soon. Of
course, there were a few concerns which tried to be
more scientific and it is not a little remarkable that
some of their rates remain standard even now. Gra-
dually thy collected data on the experience as it went
on accumulating, and the premium rates became more
equitable and scientific. Simultaneously the decisions
of law courts also brought the principles of fire insu-
rance to a standard form. With increasing competi-
tion the practice of all insurers in the field became
gradually standardised and thus was evolved the fire
insurance in its present scientific form. However, it
should be noted that the fire insurance practice is still
not and can never be as scientific as the life assurance
because the system of rating the risk is fraught with
many complexities and is not so simple as it is in life
insurance business.
In India, the fire insurance business is not so much
.

developed as it is in foreign countries and until

recently most of the business was in the hands of
foreign companies. In recent years, the share of
 ORIGIN AND NATURE OP FIRE INSURANCE 217

Indian companies in the total fire business carried in

India has increased gradually. Most of the foreign
companies working in India have their head offices
situated in the United Kingdom.

Fundamental Principles of Fire Insurance

(i) Indemnity All . — fire insurance contracts are
indemnity contracts. Indemnity is the most essential
principle of fire insurance. By the terms of the con-
tract, the. insurer undertakes to recompense the insur-
ed either by monetary payment or by the replacement
or repair of the property damaged, so that the insured
remains in the same position financially, as far as the
property destroyed is concerned. The principle is
based on the simple fact that by being indemnified
the insured should not be placed in a better position
after the fire than he .was before its occurrence. His
position by the fact of being insured should be neither
better nor worse, but the same.
This principle, that a policy of fire insurance is a
contract of indemnity against loss and not to produce
gain, has yen’- definite legal support. Brett L. J. once
I'emarked: “The very foundation in my opinion of
every rule which has been applied to insurance law
is this, namely, that the contract of insurance contain-
ed in a marine or fire policy is a contract of indemnity,
and of indemnity only .” 1 It follows that where the
assured has not sustained any loss, he is not entitled
from the insurer to anything. And where the loss has
occurred nothing more than the actual monetary value
of it can be realised. Bowen L. J. also similarly re-
marked: “It is an ocular illusion to suppose that un-
der any circumstances more may be obtained by the
.” 2
assured than the amount of the loss .

'
The main objection for any departure from the
indemnity is that
strict application of the principle of

1 Casiellain v. Preston (1SSS).

2 Casiellain v. Preston (1SS3).
I.— 15.
218 INSURANCE

the assured will be able to make gain out of the

occurrence of a fire and this will result in two evils:
Firstly, the insured will be induced to cause fire
by either active or passive means. This tendency will
increase the aggregate fire-waste caused to the society.
Hence, the society will not only be deprived of a large
part of goods and property but its energy which could
have been used for other constructive purposes would
be wasted in making this loss good. Hence, it would
work against public policy if the assured is permitted
to make a gain out of the fire insurance. Further,
when a fire occurs in the property of an individual; it
will not only cause a loss to himself but it may also
prove dangerous to the human, life and property in the
neighbourhood. :

Secondly, as a result of the first evil, the total

claims by' fire will increase or larger’ amount will be
paid for a smaller loss and this will increase' the cost
of insurance and hence the premiums of the other fel-
lowrinsurers ,will have to- be raised. This will defeat
the" very purpose of insurance.
’
> -
•

~ .
.

Measure’ of Indemnity
The indemnity is limited to the amount for which
the premium has been paid and which is specified in
the policy. This assured amount is not the measure of
indemnity, but it sets an upper limit upto which the
loss can be indemnified. The actual amount of indem-
nity will be the market value of the subject-matter
destroyed or damaged by fire at the time and place of
the occurrence of fire but it can never exceed the
assured amount. Thus, when the actual loss is equal
to or less than the assured amount, whole of it will be
paid by the insurer; but, if it is more than the assured
amount then only the insured sum will be paid and
nothing more, because it will be a case of under-
insurance and upto the extent of underinsurance the
insured himself is regarded to be his own insurer.
 ORIGIN AND NATURE OF FIRE INSURANCE 2] 9

However, the above principle does not hold good

when the policy is a valued policy. Here the basis of
indemnity will not be the actual cash value of the pro-
perty at the time of its loss but the insured value
which is named in the policy when it was taken, e.g.,
suppose property is insured for Rs. 10,000 and half
of the property is destroyed by fire and the market
value of the destroyed property is Rs. 8,000 then in
case of an ordinary (i.e. unvalued) policy, the insured
can claim full Rs. 8,000 as it is less than the insured
amount Rs. 10,000. But suppose the policy is a valued
policy and the value is the same as Rs. 10,000, then
the assured will be paid only Rs. 5,000, though his
actual loss is Rs. 8,000, because in a valued policy,
no consideration is given to the actual loss. Thus the
amount of claim may be greater or less than the actual
loss at the time of fire in case of valued policies.
-

The basis of indemnity will be further adjusted if

the ‘average clause’ is introduced in the policy. It
will be discussed later on.
Extent of Indemnity
Insurance does not necessarily give a perfect in-
demnity but gives sometimes more and sometimes
less, as seen in the case of a valued policy. Formerly
the meaning of the word ‘indemnity’ was understood
in the sense of material indemnity only, i.e., in-
demnity restricted to the loss of tangible, ma-
terial property only. This was based on the
of
idea that if there is any intangible loss also, e.g., loss
must be borne by the insured so that
rent profit, etc., it
it work-
he will be interested in preventing fire. But
honest in-
ed as a great hardship on the genuine and insurance
satisfy them, the
sured persons. In order to
loss or
was extended to cover not only the material Consequential
cover the
property insured but also to mate
when is burnt, not only the
a factory
loss” e g building,
.
'f
’
n aC count of the destruction of
covered but theconsequential loss o
plant and stock is
220 INSURANCE

profits on account of sales, salaries,

of cessation
taxes, rent, rates, etc. is also indemnified.
interest,
These days the fire insurance policies are issued
which cover both the tangible and intangible losses
and it is now
generally recognised that the compen-
sation consequential loss is also within the
of
meaning of indemnity.
The consequences of the principle of indemnity
may very briefly be stated as follows ;
(a) The insured can claim only when he has
actually suffered and the amount of the claim
cannot exceed the actual loss. If there is any partial
damage the insured can recover only the amount of
injury actually sustained or can get the damaged
property restored to its original condition. No more
than the amount of actual loss can be lawfully reco-
vered, and if more is recovered, the insurer can get
the excess back if he paid unawares. .

(b) If the insured has recovered from the in-

surer the amount of his actual loss, he must transfer
to the insurer all the rights which he may possess
relating to the property or against third party in
respect of the loss. .

(c) Where the insurance is effected with more

than one insurer, the insured is precluded from ob-
taining more than actual loss from all the insurers
combined.
(ii) Good faith
In insurances, it is the insurer’s intention
all
to charge a premium commensurate with the
risk run. To enable the insurer, therefore, to
assess the risk, the insured must supply a de-
tailed information regarding the subject-matter to
be insured. For this purpose, the insured has
first to fill a printed proposal form which con-
tains a long list of questions regarding the nature
of the' property and the circumstances affecting the
risk. -The insured must observe complete good-faith
 ORIGIN AND NATURE OF FIRE INSURANCE 221

and is bound to disclose all the information asked

for with complete and correct answers. Though the
duty to observe good faith lies on both the parties, it
is applicable to the assured with special force because
of his being owner of the subject-matter. The assured
must fully disclose all the facts which are material
to the contract whether they are asked in the proposal
form or not. A material fact is one which will in-
fluence the insurers in their decision as to whether
they will accept or decline a risk and, if they accept,
in determining the premium. The material facts
are: any other insurance on the same property;
refusal by other insurer to insure; previous fire on
.

the same premises or in the neighbourhood; materials

used in construction of the building; uses to which
the building is put; character and structure of sur-
rounding buildings; at present occupied or not; etc.,
etc. If the assured has not observed good faith
or is guilty of concealment or non-disclosure of
any material fact, the contract can be avoid-
ed by the other party. If a material fact is
concealed the contract is voidable and the assured
will not be allowed to plead later on that he was
unaware that it was a material fact. The onus of
proof of concealment rests on the insurer. However,
the doctrine of good faith is not one-sided. The
insurer has also to disclose such material facts as are
within his knowledge or that of his agents and he
must draw attention, for example, to any restrictions
in his policy.
In practice the risk is accepted by the insurer
on the basis of the proposal form if the risk is an
ordinary one. But, if the risk involves more compli-
cations, the insurer will send his surveyor to assess
the risk by examining the property. The insured must
correctly answer to the questions of the surveyor
and
disclose all other material facts within his knowledge.
nou
The observance of good faith is necessary but
of the contract
only during the negotiations
222 INSURANCE
throughout the term of the policy and in making of
claims. Any change increasing the risk subsequently
must be communicated to the insurer. Again the
insured or his agents must take all such steps as may
be reasonable for averting or minimizing a loss. Once
the fire has happened the insured must do his utmost
to extinguish it. In such cases he must act as if he
was not insured.
However, the insured or the proposer need not
disclose the following information in the absence of
any enquiry:
(a)any circumstance which diminishes the risk.
(b) facts which are known or reasonably pre-
sumed to be known to the insurer, e.g., that which is
common knowledge; facts which the insurer in the
ordinary course of his business ought to know; or
which the insurer ought reasonably to have inferred
from the details given to him.
(c) facts as to which information is waived by
the insurer.
'(d) facts which it is superfluous to disclose by
reason 'of a condition' or warranty.
(iii) Jnsurable interest. It is a corollary of the
principle, of indemnity. An individual must have
insurable interest in the subject-matter if he wants
'

to insure it. A person is said to have an insurable

interest in the subject-matter of insurance when he
stands in such a relation to it as to benefit by its
existence or be prejudiced by its destruction. The
;

insured must be interested in the preservation of the

subject-matter and if this condition is not fulfilled he
does not sustain any loss on its destruction or damage
and any compensation to him would be "contrary to
the principle of indemnity. Only those can recover
who have an insurable interest and they can recover
is
only to the extent to which that insurable interest
policy
damaged by the loss. What is insured in a fire
 ORIGIN AND NATURE OF FIRE INSURANCE 223

is not the brides and materials used in building the

house, but the interest of the assured in the subject-
matter of .insurance; not the legal interest only but
the beneficial interest 1 .

A
fire insurance policy without an insurable inte-
rest is void and no better than a wagering contract.
A fire policy is termed as personal contract between
the insurer and the insured. The contract does not
insure the property but it implies an undertaking to
indemnify the insured for any loss which he may
suffer by reason of his interest in the property. If
the insured sells the property, his interest ceases to
exist and hence the insurance comes to an end. If
the insurance is to pass to the new owner of the pro-
perty, the consent of the insurer must be obtained
specifically. Thus, a fire insurance is a personal con-
tract and it can be assigned only after the express con-
sent of the insurer has been secured. Thus, in case
of fire insurance, insurable interest must exist at both
—
the times when the insurance is effected and when
the claim arises.
The following persons are said to have insurable
interest: the owner can insure his property, mortga-
gors and mortgagees can insure to the extent of their
separate interests; a trustee can insure the trust pi'o-
perty, a warehouseman can insure his customers’
goods, a pawnbroker may insure goods pledged with
him and in his custody, a bailee his insurable inte-
rest in the goods held by him in trust; an insurance
company has insurable interest in the subject-matter
insured, etc.
Fire insurance and Life insurance
(a) A insurance is a contract of indemnity
fire
while a life insurance is not so. Hence, when a claim
arises, in the former case only the actual loss caused by
fire can be recovered, but in the latter case the
whole
maturity of policy.
assured sum is payable on the

1 Caslcllain v. Preston (1 889).

 —
224 INSURANCE

(b) Classification of risks in fire insurance is

very complex while in case of life assurance it is quite
simple.
(c) In fire insurance, the term of the policies
usually does not exceed one year but in life insurance
it lasts for a very long period, usually 20 to 30 years.
(d) In case of life assurance, the insurable inte-
rest must exist at the inception of the policy; but in
fire, it must exist at the time of loss as well. As a
consequence of it, a life policy can be assigned to any-
one at any time but a fire policy can be assigned only
after the consent of the insurer has been obtained.
(e) Fire insurance contains only the element of
protection, while life insurance has the element of
investment also. Therefore, the life insurance poli-
cies acquire surrender value while the fire policies do
not.
(f) Unlike life insurance, in fire insurance the
moral hazard exists. Very few persons will like to
commit suicide for the sake of getting insurance
money as they cannot utilise it personally after their
death. But the owners of property are under a great
inducement to set their properties to fire on account
of various reasons.
Fire insurance and Marine insurance
Unlike life insurance, fire and marine insurance
contracts have many points of similarity. Both are
indemnity contracts and issued for short periods. But
their points of dissimilarity are as follows:
(a) In marine insurance, there exists usually no
moral hazard as the shipper is away from his cargo
on ship, but the dangers of moral hazard in fire insu-
rance are very great.
-(b) In fire insurance, only the actual loss mea-
sured by the market value of the property destroyed
or damaged by fire at the time of its occurrence can
be claimed, no profit can be included in the claim; but
are
in case of marine insurance most of the policies
valued policies which allow a margin of expected
 THE FIRE INSURANCE CONTRACT 225

profits to be. covered.

(c)The insurable interest in case of a fire policy
must exist both at the inception of the policy and at
the time of loss, but in case of a marine insurance it
is sufficient if it exists only when the loss takes place.

CHAPTER XXI
THE FIRE INSURANCE CONTRACT
Definition of the contract
A fire insurance contract may be defined as ‘an
agreement whereby one party in return for a consi-
deration, undertakes to indemnify the other party
against financial loss which the latter may sus-
tainby reason of certain defined subject-matter being
damaged or destroyed by fire or other defined perils
up to an agreed amount.’ The party undertaking to
indemnify is called the insurer; the party who is to
be indemnified is called the insured; the consideration
for the contract is termed the premium; the defined
subject-matter is known as the property insured; the
sum set forth in the contract is called the assured sum;
and the document containing the terms and conditions
of the contract is known as the policy. The contract
to be valid must satisfy all the requirements 1 of an
ordinary contract and the principles set forth in the
previous chapter. Now-a-days, the insurance busi-
nesses carried on mostly by the insurance companies,
and any person desirous of securing protection of
his property against fire must approach a fire insu-
rance company.
Definition of “Fire”
According to the above definition of a fire insu-
rance contract, the losses to the property by fire are
covered. The meaning of the word ‘fire’ should be
clearly understood in order to make the insurer liable
under the contract. For this purpose, a fire must
1 See Sec. 10 of Indian Contract Act.
22G INSURANCE

satisfy two conditions. Firstly, there must be actual

fire or ignition; and secondly, the fire must be for-
tuitous in its nature.
The first .condition requires that there must be
actual fire or ignition. In a case, Byles J. said: “The
expression in the policy we have to construe is ‘loss
or damage occasioned by fire.’ These words are to be
construed as ordinary people would construe them.
They mean loss or damage either by ignition of the
article consumed, or by ignition of part of the pre-
mises where the article is; in the one case there is
loss, in other a damage occasioned by fire .” 1 Loss or
damage caused by excessive fire heat cannot be in-
cluded in ‘loss or damage by fire.’ All that is neces-
sary to prove in the case of fire insurance is that the
loss is caused by fire. The cause of fire is immaterial.
Even if the fire is caused by the negligence of the
servants of the insured or of himself, the loss is cover-
ed. Of course, there should be no fraud or wilful
misconduct by the assured. If the. proximate cause
of loss or damage is fire, the insurer is responsible.
But, if the loss occurs not by the actual ignition but
by a process resembling fire, it is not regarded to be
a loss by fire. Loss or damage by explosion is not a
loss by fire. The word ‘fire’ does not extend to
chemical actions, which; though they may correspond
in their effect to fire, do not result in actual ignition.
Similarly, loss occasioned by lightning without igni-
tion is not a loss by fire; but where lightning results
in ignition, the loss caused by such ignition is a loss
by fire and can be recovered from the insurer.
The second condition stipulates that the fire
'

should have been accidental and not intentional. Any

loss caused by a fire lighted purposely for some use is
not a loss by fire if it was intended. But, when pro-
property is accidentally burned in an ordinary fire,
such as a domestic fire, the loss is covered even if the

1 Bvcrcil v. London Assurance (580 X).

 THE FIRE INSURANCE CONTRACT 227

fire remains under control. Here, something is

burned which ought not to have burned. Similarly,
when a fire is purposely lighted but later on it escapes
control and causes loss to the property, the
loss is a
loss by fire and is recoverable under the contract.
The object of the contract is to indemnify the insured
against accidental loss by fire, and so long as the pro-
perty is accidentally burnt, the precise nature of the
accident seems to be immaterial.
Proposal
When person wants to insure his property
a
against he approaches a fire insurance company.
fire,
Sometimes he is invited by the insurer either by ad-
vertisement or by agent to insure his property with
him. The proposer can make the proposal either ver-
bally or in writing. The proposal is sent by the assured
to the insurer giving the necessary description of the
property to be insured and the period of insurance.
Ordinarily the assured makes his offer by filling up a
printed form 1 of proposal obtained from the office of
the' insurer. The proposal form contains many ques-
tions regarding the property and the assured must
answer to these questions completely correct. As has
already been seen, he must observe utmost good faith
and disclose all the material facts, the answers should
be given in unambiguous language. The description
of the subject-matter of insurance is the basis of the
contract for identification as well as for assessing the
risk and fixing the premium accordingly.
Acceptance
When the insurer receives the proposal form, he
will assess the risk. If the insurance is sought for a
private dwelling house, or for building and contents
of smaller shops, and other trade premises, he will
-

assess the risk on the basis of the proposal form only.

But if the risk is of a larger magnitude and where the
1 Sec Appendix A.
228 INSURANCE

hazard involved is of a variable or unknown nature,

he will send his surveyor to survey the property. Big
insurance offices usually keep surveyors who are ex-
pert in surveying the properties and can determine
the degree of risk precisely. When the surveyor has
submitted his report, the insurer will consider the
proposal in the light of this report. Sometimes when
the proposer is completely a stranger the insurer may
also request him to submit an evidence of respecta-
bility. This precaution is taken on account of moral
hazard in fire insurance. The proposer has to submit
a certificate from some known and respectable person
about honesty and integrity. When the insurer has
decided to accept the risk, he will at once inform the
proposer of his acceptance and the contract becomes
binding.
Commencement of Risk
In a contract of fire insurance, the risk commences
as soon as a binding contract of insurance is concluded
although it is open to the parties to the contract to
agree as regards the time from which the risk will
commence. Such a contract is enforceable notwith-
standing the fact that no policy in the usual form had
been issued and no premium had been paid. The
reason for this rule is, ‘that it is very important that
there should be prompt insurance in respect of goods
against fire risk. Considering how great is the risk to
an individual, and how small a premium he has to
pay, the great object is to get himself insured against
damage by fire, and if the law were otherwise, then
no man would be able to effect a prompt insurance
against damages by fire .’ 1
Of course, the insurer can give his acceptance of
the proposal subject to the payment of the premium,
and this is the usual practice. In such a case, the risk
will commence only when the premium has been paid
and not before it. When the insurer has issued a
1 Thomson v. Adams (18S9).
 THE FIRE INSURANCE CONTRACT 229

policy, whether it contains a condition making the

payment of the premium precedent to the right of the
insured to claim thereunder, or not, the liability has
attached.
Cover Note
When the risk has been accepted unconditionally
or subject to the condition of payment of premium,
-

then, after the receipt of the premium the insurer will

’
issue a ‘cover note 1 or ‘interim protection note’, as it
is sometimes called, to the insured. This cover note
will cover the property so far the final policy has not
been issued as that takes some time to prepare. If a
loss occurs before the issue of the policy, the cover
note will be sufficient evidence of the insurance and
the insurer will be liable under it.
Policy
After some time of issuing cover note the insurer
will issue a duly stamped policy which will bear all
the terms and conditions of the contract. Any con-
tract of fire insurance comes within the meaning of
the word ‘policy’ and there is no statutory or formal
document necessary to make a contract of insurance.
In England, a standard form is used which contains
printed conditions. It incorporates in it the name and
address of the insured, the subject-matter of insur-
ance, the sum insured, the term and the premium. The
policy also contains clauses, stipulations and warran-
ties peculiar to the individual contract. Any subse-
quent alterations in the interest, amount, description
of the subject-matter, etc., are also registered in the
policy. The terms of the policy will be discussed
later on.
Term of Fire Policies
The term of a fire insurance policy depends upon
the requirements of an insured. Usually the policies
are issued for one year in which case they are called
‘Annual Insurances.’ Policies issued for a period

1 See Appendix B.
 2.30 INSURANCE

shorter than one year are known as ‘short term’

policies; and those issued for a period longer than one
year are called ‘long term’ policies. Majority of the
policies are annual policies, and very few of ‘short
term’ and ‘long term’ policies are issued. In a long term
policy, the insurer usually inserts a clause reserving
to himself the right to bring the premium into line
with any alteration in rate which may take place dur-
ing the term of the policy. Such policies are effected
generally for buildings. The premium- for short-term
policies is slightly more than the pro-rata proportion
of the annual charge on account of heavier ratio of
expense. -
•

Renewal of Policies
' ' !

The insurance is terminable at the end of its term

by either party. In practice, usually the insurer will
issue, a renewal. notice a few days before a policy falls
due advising the insured for renewal of the insurance.
The, insured can renew his .policy by paying the pre-
mium within 15 days of the expiry of the .policy these —
days being known as the ‘days of grace’. If the pre-
mium has not been paid and the loss occurs on ac-
count of fire during the days of grade, the insurer will
pay the claim. But if it is proved that the insured
has no intention to renew the contract, the insurer is
under no liability to meet the claing e.g., if the insured
is found to have approached other insurers during the
days of grace for quotations, his intention to renew
can be said to have been in doubt, and the insurer can
repudiate liability for any loss. However, it should
be understood that the giving of renewal notices and
allowing the days of grace is not a compulsory obliga-
tion on the part of the insurer. No days of grace are
allowed for short term policies.
Renewal of a. fire insurance policy is a fresh con-
tract dating back to the date of the expiry of the ori-
ginal contract and not the continuation of the pre-
existing contract. Hence, the insured should make a
 TKS FIRE INSURANCE CONTRACT
231

“L
full disclosure of all material
Chan 6
f
pect of the risk.
facts
w£ ich mi § ht
The insurer
is
terms and rates of premium on the
and intimate
hav e taken place
of any
in res-
also free to revise his
renewal. He may
increase the rates for risks which have
proved to be
unprofitable and decrease for those which
have im-
proved from his point of view.
Cancellation of Policies
A
policy on the expiry of its term may not
be re-
newed. It may be so because the insured
does not
want to continue and he has not paid premium during
the days of grace. In such a case, the policy
automati-
caliy comes to an end. Sometimes
the insurer may
not be willing to renew for some reasons and hence
m such cases it is customary to give notice to the in-
sured of his intention a week or so before the expiry
of the original policy so that the insured may not claim
ihe benefit of days of grace and he may also make his
own arrangements for insurance with some other com-
pany.
.
But neither the insured nor the insurer can de-
.
.

mand a cancellation of the insurance during the term

of the policy. However, if some change has been in-
troduced in the subject-matter or in the circumstances
affecting it during the currency of the policy or there
has been a breach of' condition, the insurer can cancel
the contract. The examples of such changes are:
where a fresh trade process is carried on involving
greater fire hazard, or more hazardous goods are in-
troduced into a risk, etc. When a policy is cancelled
on account of these reasons, a pro rata return of pre-
mium is invariably allowed in respect of the unexpired
term of the policy, though the insurer is under no such
legal obligation. Similarly the insured may
request
for the cancellation of a policy during its term, m
which case any return of premium allowed woul
e
of the annua pre-
less than the pro rata proportion
mium on account of greater incidental expenses.
232 INSURANCE

More than one fire

When there is more than one fire in respect of the

same subject-matter insured, the insurer is not bound
to pay in all more than the assured sum stated in the
policy. Thus the payment of a loss automatically re-
duces the amount of the policy by the amount so paid,,
the contract being ‘fulfilled’ to that extent and if there
is any subsequent loss by fire even of the whole pro-
perty the insured cannot realise more than the balance
of insured amount. Of course, if the insured wants,
he can reinstate the assured sum to the original
amount by paying a freslj premium on a pro rata basis
to date of expiry. But the insurer is under no obliga-
.

tion to comply with any such request. -

More than one Policy

the insured has taken insurance for the same
If
subject-matter with more than one insurer he cannot
realize more than the actual loss from all the insurers
combined. Each insurer will pay his ratable propor-
tion of loss to the property insured against fire. If
any ‘one of such policies contains an ‘Average Clause’
then all other policies will also be subject to it as here-
after mentioned.
Assignment of Fire Policy
Unlike a life policy, a fire policy is not assignable
at the option of the insured as it is a personal contract
between him and the insurer. The fire insurance
policy covers the interest of the insured in- the pro-
perty and not the property itself. Where a fire policy
is assigned, the insurer, in the absence of any express
contract to do so, not bound, upon the application ot
is
the assignee, to pay him upon the policy. It should
be remembered that in a fire insurance the insurable
interest must exist both at the inception of the pokey
and at -the time of loss. Therefore, when the property
the
is transferred to some other person, neither
m'
assignor- nor the assignee can have a claim on the
vn
surer in case of a loss by fire, because the assignor
 THE EIRE INSURANCE CONTRACT 233

liave no insurable interest at the time of loss and the

assignee had no insurable interest when the policy
was taken. In such a situation the assignee can get
protection of the insurance only when there is a nova-
tion of contract between him and the insurer by the
latter’s acceptance of the former contract. Hence, an
assignment is valid only when the express consent of
the insurer has been secured. Usually, the insurer
will signify his consent to an assignment, the only ob-
jection will be when the assignee is an undesirable
person, because, in such a case the moral hazard to the
property increases. Of course, when the interest in the
property is transferred by will or through the opera-
tion of law, the policy automatically passes to the legal
owner of the property.
“Lloyds”, by including ‘assignment clause’ in their
policies, appear to allow a fire insurance policy to be
assigned to a new owner without the consent of the
insurer being first secured.

Kinds of Fire Offices

The insurers are generally the insurance com-
panies which are of two types: Tariff Offices and Non-
tariff Offices. Usually the companies form an
.

association which is called ‘Tariff Association’ and all

•

the member companies of this are called ‘Tariff Offices’.

The association is formed with a view to prevent un-
due competition among the tariff offices and standard-
ize the rates ofpremium and other policy conditions
for similar risks. The members of the Association
have to charge the same rates prescribed by it and not
below them. Most of the insurance companies are
Tariff Offices. In India also, the Tariff Association has
been formed and most of the fire insurance companies
are its members.
The insurance companies which do not join this
Association are called ‘Non-Tariff Offices’. Their num-
ber is of course very small. They can charge any
premiums as they like. Some new companies,, in
order to secure more business, reduce their premium
I.— 1G.
234 INSURANCE

rates to a level lower than that charged by the Tariff

Offices, but their financial stability is generally of a
questionable character.

CHAPTER XXII
TYPES OF FIRE POLICIES
The fire policies issued so far were of the general
type but since the end of the last Great War in 1918
various modifications and developments have taken
place in the scope of the policies which are issued in
England. The main reason for the change was that
due to keen competition, the offices began to issue
policies to meet the varying demands of the insured
persons. The following types of policies are in com-
mon use.
Valued Policy
A valued policy is one in which the value of the
property insured is agreed upon when the policy is
effected and is the amount which the Insurer under-
takes to pay in the event the property is destroyed by
fire. Thus the insurer is liable not to indemnify the
insured but to pay him a fixed sum when the loss
occurs. The amount fixed may be greater or less than
the actual market value of the property destroyed by
fire at the time of loss. In a valued policy, the mea-
sure of indemnity is based on the value of property
rather than on the market value of the property des-
troyed. Therefore, it has been alleged that a valued
policy is a departure from the strict principle of in-
demnity and this is correct also to some extent.
Valued policies are not very common in fire insurance.
The valued policies are usually issued on pictures,
sculptures, works of Art, jewellery, specified articles
 TYPES OF FIRE POLICIES 235

of furniture, and the things not in every day use, the

value of which must be decided by experts and whose
worth can be determined only with difficulty when,
the loss takes place. When partial damage occurs, the
value is often seriously affected and the only method
of settlement is to pay the agreed value, the insurer
taking over the salvage.
When a valued policy is issued on household goods
it has certain advantages and disadvantages from the
point of view of both the insured and the insurer. So
far as the insured is concerned he is relieved of prov-
ing the value by searching invoices and receipts at the
time of loss, and he knows what he will receive. But
the preparation of inventory is costly and there is
made no provision for any appreciation in value and
new purchases and replacements. From the point of
view of the insurer, a valued policy is the violation of
the principle of indemnity, for household goods may
depreciate in value owing to wear and tear or change
of tastes and fashions, and, in the event of loss the
insurer will have to pay more than the actual loss and
this increases the moral hazard. Again there arises
always a difficulty to settle the partial losses.
The above objectionable feature can be removed
by allowing for a reasonable adjustment for apprecia-
tion or depreciation of the property at the time of fire,
the insurer’s liability not exceeding the total sum
insured.
Specific Policy
A specific policy is one where a specific sum is
insured upon a specified property and in case of any
loss to the property, the whole of the actual loss will
be payable by the insurer provided it does not exceed
the specified sum. The value of the whole of the pro-
perty is immaterial. If a person takes out a policy
for Rs. 6,000 on a property of Rs. 10,000 and the dam-
age done to the property is to the extent of Rs. 5,000,
the assured can realise the whole of loss, viz. Rs. 5,000
236 INSURANCE

be Rs. 6,000, this

from the insurer. Even if the loss

full amount can be recovered.

the loss is for Ks.
If
recovered. Thus the
7 000, then only Rs. 6,000 can be
relevance in
value of the property insured has no
in a specific
arriving at the measure of indemnity
up. to winch
policy and the assured sum sets a limit
Hence, the specific poh cY
the loss can be made good.
does not penalise under-insurance except where total
policy exists, the
loss occurs. If more than one specific
aggregate amount
loss 'is distributed pro rata to. the
insured.

Average Policy
policy containing an ‘Average Clause’ is called
A this
an Average policy. Unlike a specific policy,
policy penalises under-insurance and the measure
ol
value
indemnity is determined with reference to the
for an
of the property insured. If the policy is taken
amount less than the actual value of the property, the
insured will be deemed to be his own insurer for the
amount of under-insurance and the insurer will pay
only such proportion of the actual loss as his insurance
amount bears to the actual value of the property at
the time of loss. Thus if a person insures his property
for Rs. 10,000 and the loss occurs for Rs. 6,000 and sup-
pose the value of property insured happens to be Rs.
15,000 at the time of loss, the insurer will pay only
the ratable proportion which will be arrived at as
follows:
insured amount
.

Claim *= — i —
value or5 property
„ ,
,
of actual loss
,

= 15,000
of Rs; 6000 = Rs. 4000.

Thus the insured has to suffer the loss of Rs. 2,000

ha
himself on account of under-insurance. Of course
of t
the insured amount been equal to the value
been n
property or more than that, there would have
 TYPES OF FIRE POLICIES 237

underinsurance, and the insured would have been able

to recover the total amount of loss, viz., Rs. 6,000 in the
above case. Thus the average clause is operative only
in case of an under-insurance.

Floating Policy
A floating policy or a ‘floater’ is a policy taken to
cover one or several kinds of goods lying in different
localities under one sum for one premium and in rela-
tion to the same owner. Such policies are specially
taken by big manufacturers or traders whose mer-
chandise might be lying in parts at warehouse, go-
down, port or railway station, etc. It is very difficult
for the owner of such goods to take a specific policy
for each part of the goods because the quantities of
the goods deposited in each will fluctuate from day to
day, some being increased, and others decreased, de-
pendent upon sales or consumption or consequent re-
moval and replacement or augmentation by fresh im-
ports. The owner can take one floating policy for
all

the goods and the insurer will fix the average rate.
The average rate of premium is ascertained by taking
into account the total premium payable had the pro-
perty been insured by specific policies for sums insur-
ed representing the stocktaking values in each sepa-
ie
rate location and then finding out an average of t
total on a percentage basis. An annual revision of
the rate is, of course, necessary. Afloating policy
‘average’ and ‘marine’ clauses.
usually contains the
The former is meant to penalise the under-insurance,
the
while the latter provides that if any goods under
against fire,
policy were covered under a marine policy
this policy would be inoperative and the
assured can
recover loss only from the marine insurance
company.

Excess Policy
one
The businessman may cover his stock under tor
arises as to
specific policy but usually the difficulty
what amount he must take the insurance because
ms
238 INSURANCE

stock fluctuates from time to time. If he takes the

policy for the highest possible amount to which his
stock may go, he will have to pay a high premium rate
for the whole year; on the other hand, if he takes in-
surance for a lower amount, the actual loss may be
higher and he may not be fully indemnified when the
loss occurs. Therefore, in such a case he will take
—
two policies on the same stock one policy for the
amount below ^which the stock never goes. This he
can find out from his past experience and for the
balance he will take the second policy, e.g., when a
merchant knows that his stock never falls below
Rs. 10,000, but at times may go up to Rs. 15,000, he can
take one policy for Rs. 10,000 and the other for Rs.
5,000. The former policy is called the “First Loss
Policy” and the latter, the “Excess Policy”. Thus the
‘First Loss Policy’ is applied to a fire policy covering
stock for an agreed sum insured, which represents
only part of the value at risk, the balance of value be-
ing covered under the ‘Excess Policy.’
The actual value of the excess stock is declared
every month. The monthly average of these declara-
tions is taken out to determine the average amount at
risk and the amount of premium is regulated from
these declarations. It should be noted that the probabi-
lity of the insurer being called upon to pay a loss un-
der an excess policy is more remote than under a First
Loss Policy and hence the premium rate under the
former is always lower than that under the latter.
Declaration Policy, 1
The above type of policy does not fully meet the
requirements of a merchant whose stock fluctuates
from time to time, because if the amount of excess
stock exceeds the sum set in the excess policy the
merchant will not have a full cover owing to average
condition. Again, if the First Loss Policy is also made
subject to average condition, then -the assured will al-
1 See Appendix C.
 TYPES OF FIRE POLICIES 239

ways be at a loss. In such a case the declaration

policy will give better protection.
A declaration policy is issued for a sum insured
up to' which the maximum value of stock may go at
any time. This amount is the largest amount at risk
during the year and indicates the maximum liability
of the insurer. The premium is calculated in the or-
dinary manner on this sum and a provisional payment
of the proportion of the premium, usually 75 per cent,
is paid in the beginning of the contract. At regular
intervals, usually monthly, the insured is required to
furnish a declaration of the amount then actually at
risk; this may be the value on a particular day or the
highest amount at risk since the last declaration was
made. The declaration must be made on a specified
day or within the next 14 days, otherwise the sum in-
sured will be deemed to be the declaration value. At
the close of the year of insurance an average is taken
of the twelve monthly declarations and the premium
actually payable is calculated at the agreed rate on
the average. If this premium exceeds the provisional
premium paid at the beginning of the year, the excess
will be charged to the insured; if it is less a return is
allowed. Generally it is stipulated that the maximum
return allowable is one-third of the provisional pre-
mium. A declaration insurance is generally subject
to average but it is of little significance as there is no
temptation to the insured for under-insurance.
It should be clearly borne in mind that the amount
at risk is always the maximum amount fixed in the
beginning and the monthly declarations do not vary
the liability, they are mereiy part of a device to ascer-
tain the final premium. The amount of the declara-
tion offers scope for fraud, for the insured may under-
declare the values of his stock at risk and thus a lower
premium may be paid. For this reason the insurance
companies restrict the issue of declaration policies to
the concerns of repute.
240 INSURANCE

Adjustable Policy
In the case of a declaration policy the insurer is
at the mercy of the unscrupulous insured who may
put the insured amount at unduly inflated figure. By
doing so he does not lose anything as the excess pre-
mium is refundable at the end of the year and he may
put fire to the property. This danger is avoided in an
‘Adjustable Policy’. It is issued for a definite term
on the existing stock. The premium is calculated in
the ordinary manner and paid in full at the inception
of the policy. Whenever there is any variation in the
value of the stock, the insured informs the insurer.
On receipt of this information, the policy will be suit-
ably endorsed and the premium will be adjusted on a
pro rata basis. The variation in the sum insured
would apply from the date admitted by endorsement
on the policy. The premiums are usually settled in
account at the expiry of the policy.
The difference between the declaration and the
adjustable policy is very clear. In the former, the in-
surer’s liability is the insured amount and the perio-
dical declarations have no direct bearing on the mea-
sure of indemnity. But in an adjustable policy, the
insurer’s liability is only the value of the last declara-
tion made. Hence, the declaration policy provides a
good margin of safety. In declaration policy, there is
nothing to prevent the insured from taking out an in-
surance for double the amount he anticipates to be at
risk, even then the final premium payable will not be
effected as he will get the refund back. It is not possi-
-
ble in an adjustable policy where the premium is pay
able on the actual amount of declaration, e.g., a mer-
chant takes a declaration policy on his stock for Rs.
20,000 on 1st January, 1947. Suppose the declaration
is for Rs. 15,000 on 1st March, 1947, and after 15
made
days of this declaration the stock is destroyed by fi re
and the loss is estimated to Rs. 19,000. In this case
the insured will be able to recover the full loss Rs.
 TYPES OF FIRE POLICIES 241

19,000 from his insurer though he will have to give an

explanation as to why the declaration was made at
such a lower figure just before 15 days. Had the
policy been an adjustable one in the above case, the
insured would have been able to claim Rs. 15,000 only,
the amount of last declaration.
Maximum Value with Discount Policy
Underthis policy, the insurance is taken for the
maximum amount of the stock for the year and the
full premium is paid. The assured has not to make
any periodical declarations or adjustments during the
year. At the end of the year one-third of the pre-
mium paid is refunded as a consideration of the varia-
tions in value during the year. Thus it does away
with the botheration of declarations and serves a rough
and ready method of coverage for maximum amount.
It is confined to certain types of commodities only ac-
cording to customs of the trade. However, the amount
of discount is only arbitrary and may be inequitable
to either party to the contract.

Reinstatement Policy. 1
Under the terms of the ordinary policies, when-
ever a loss arises on the property by fire, the measure
ei
of indemnity is the market value of the subject-mat
damaged or destroyed. In case of building or mac -

deducting ie
inery, the actual loss is arrived at by
original cost of it. us
regular depreciation from the
than tne
the amount of indemnity will be far less
es
amount to be spent in reinstating the proper y
order to meet the demanr
troyed or damaged. In
rep ace
a full coverage, the “reinstatement” or
policies have begun to be issued.
According
t
instatement policy’, the basis of settlement
i

of destruction is the cost of rebuilding P

repiacement by similar ma^
or in respect of plant its
not e
chinery in a condition equal to but .

1 See Appendix D.
242 INSURANCE

extensive than its condition when new. Where th<

property is damaged, the repair of the damage and th<
restoration of the damaged portion of the property tc
a condition substantially the same as but not bette]
or more extensive than its condition when new. Wher
the property insured is damaged or only partly des-
troyed, the liability of the insurance company cannol
exceed the cost which would have been incurred iJ
such property had been totally destroyed.
The insurer will not pay beyond the actual value
of the property until the cost of reinstatement has
been incurred, i.e., the payments on a reinstatemenl
or replacement basis shall be made only after the ex-
penditure has actually been incurred. The reinstate-
ment insurance is subject to average, the basis oi
valuation for the purposes of average being the cost of
reinstatement.
As the insured gets the new property instead of
the old, the policy is also called “New Lamps for Old’
1

policy. Such policies are issued only on buildings,

plant and machinery, but not for stock, merchandise
or materials. The demand for such policies arose only
after the last Great War when the prices of the new
buildings or machinery had soared up very high.
Comprehensive Policy
The fire insurance companies also issue policies of a
comprehensive nature to householders and house-
owners. But by the word ‘comprehensive’, it should
not be understood that every type of risk is covered.
It requires a careful study of the conditions of the
policy which mention many exclusions and limita-
tions. Such policies are beneficial to the insured and
a usual source of additional premium income to the
insurers. Usually the risks covered are fire, explosion,
lightning, thunderbolt, aircraft, riot, civil commotion,
strikes, labour disturbances, burglary or housebreak-
ing, loss of rent up to a certain limit, insured’s legal
liability for accidents to servants, liability to public
 TYPES OF FIRE POLICIES 243

for damage to property or personal injury caused by

defects in the property insured upto a specified limit,
etc., etc. Such a policy is also called “All Insurance
Policy”.
Sprinkler Leakage Policy
In many of the buildings sprinklers are installed
which automatically operate when there is fire. Some-
may
times there be accidental leakage of water and it

may damage the building or its contents or both.

Hence, to cover such a loss the “Sprinkler Leakage
Policies” are taken.
Blankete Policy
This policy is issued to cover all contents in one
insurance without the customary divisions between
fixtures, machinery and stock, and extending to other
properties lying in the insured’s premises without re-
gard to separate buildings. Such a policy is not of
much benefit to the insured and is detrimental to the
best interests of the business.
Consequential Loss Policy
An important development in connection with fire
the
insurance is the issue of policies indemnifying
consequential loss following e i.

businessman against
policy to in-
outbreak of fire. The purpose of the
is
winch he
demnify the insured against financial loss
o
may sustain due to the interruption .

The policy is called Consequentia

following a fire.
Loss” or “Loss of Profits” policy.
insurance, the
Under the simplest form of this entsige of the
specified perc
measure of indemnity is a m res
fire policy
amount payable under an ordinary
'
:

Percentage has
pect of a material loss.
However this
fits su
oo true relationship to the
actual loss of P™
The
tained, except in a few
cases.
insure ^ ®n
method is to pay to the
on a reduction m turnover
turno
ing (i) Loss of Profits based
244 INSURANCE

or output, and (ii) increased cost of working in main-

taining the business on its pre-fire level.
Such policies were condemned in the beginning as
a departure from the principle of indemnity but any
fears that existed have proved to be unfounded and
consequential loss insurance is now widely under-
written. However, its protection remains restricted
to large businesses and industrial concerns and it has
not found favour with small traders who need it
most. -

CHAPTER XXIII

THE POLICY AND. ITS CONDITIONS

Standard Form of Policy
In England there is no statute law relating to fire
insurance. Hence, the fire insurance principles and
their practice are governed by the conditions contain-
ed in the policy. Legally no particular form of in-
surance policy is necessary. The standard form used
at present is the outcome of several vicissitudes in the
past. In the beginning, the policy conditions were
few and were in the nature of information only. With
increase in the demand in the nineteenth century,
fresh conditions were introduced. But this tendency
to increase the conditions grew so formidable that one
would require courage to go through them all. As a
reaction of it they began- to be curtailed, so much so
that a leading office issued a ‘conditionless policy’-
This title is quite misleading as no contract can be con-
ditionless. Generally, the need was felt to have a
common form of policy, and the leading companies got
.together and agreed on a code of essential conditions
 THE POLICY AND ITS CONDITIONS 245

embodied in a common form known as the ‘Standard

Policy’. This policy has been adopted by majority
1

of the offices since 1922 and has the merits of simpli-

city and uniformity.

Wordings of the policy

The preamble to the policy sets forth the agree-
ment between the insurer and the insured subject to
the conditions of the policy. Payment of the premium
as consideration of the contract is a condition prece-
dent to liability. The insurer undertakes to pay to
the insured the value of the property at the time of
its destruction or the amount of the damage done, or
at his option, to reinstate or replace the property or
any part thereof. The agreement is subject to the
proviso that the insurer’s liability shall not exceed the
sum set opposite each item or, in the whole, the total
sum insured.
The final clause provides for the renewal of the
policy which limits the liability of the insurer to any
term in respect of which the insured shall have paid
and the insurer shall have accepted the premium in
renewal of the policy.
Then follows the schedule which contains the
name of the insured, the property insured with
columns for Sum Insured and Total Sum Insured;
period of insurance and premium.
Perils insured
The preamble of the Standard form of policy also
stated in the fol-
contains the perils insured against,
'owing words: „ . .

explosion or
Cl) Fire (whether resulting from
happening roug
itherwise) not occasioned by or
own Spontaneous Fermentation
(a) Its
undergoing any
or Heating or its
application of
process involving the
heat,

1 See Appendix E.
 —
246 INSURANCE

(b) Earthquake, Subterranean Fire, Riot,

Civil Commotion, Foreign Enemy,
Military or Usurped Power, Rebellion,
or Insurrection,
(2) Lightning,
(3) Explosion of Boilers used for domestic pur-
poses only,
(4) Explosion, in a building not being part of
any Gas Works, of Gas used for domestic purposes or
used for lighting or heating the building.
Thus it is clear that the policy provides protection
in respect of loss or damage by three perils, viz., Fire,
Lightning and Explosion with certain exceptions. Re-
garding the first peril, viz., fire, it has already been
observed that to constitute fire, there must be actual
ignition and the fire must be accidental. Again, the
fire should not be caused by its own spontaneous fer-
mentation or heating or its undergoing any process
involving the application of heat. The exceptions
contained in sub-section (a) relate to causes depen-
dent upon inefficient workmanship and could be
avoided if proper care had been taken. Sub-section
(b) relates to excepted perils which might cause
widespread devastation and thereby involve the
insurers in serious financial losses. The excepted
perils can be covered by payment of an extra
premium.
The second peril insured against is Lightning. Fire
caused by lightning is covered under the first peril
‘Fire’. Hence, any damage other than fire damage
caused by lightning is included under this peril.
The third and fourth perils relate to explosion of
domestic boilers, of gas used for domestic purposes or
lighting or heating but not for trade or manufacturing
purposes.
The burden of proof that the loss was caused by
any of the perils insured against lies on the insured.
 THE POLICY AND ITS CONDITIONS 247

Policy Conditions

Having considered the wording of the preamble

of Standard Policy, we now come to the condi-
tions of it. The conditions must be fully complied
with to make the insurer liable under the contract.
These conditions may or may not be incorporated in
the policy. The latter type of conditions are called
the implied conditions, while the former are called
express conditions. The following are the implied
conditions.
(1) That the insured has an insurable interest in
the property insured.
(2) That such property exists at the time policy
was effected.
(3) That when a fire occurs the property
damaged is the property originally intended to be
insured. , , 4J . , ,

That the insured observes good faith towards

(4)
the insurer (a) in making the proposal
and (b) in
connection with any claim. ,
relate to the
The first three implied conditions
fourth one relates
principle of indemnity, while the
These implied condi-
to the principle of good faith.
or altered by the express terms
tions can be modified
°f tl
incor-
are those which are
TheTxprcss
h conditions
C

P oraTe d%?Spres ed
in the policy^ These >
expr™
ditions are again of two
types General and Spec
oi me
The are printed in the body
General’ conditions
ScyS and are common to all Wes of contra
£
writ
contract only and are s to a
embodied a P m y y reference
or may be of any am biguitv
attached. I
printed slip ... special con-
between these two type* of
dition ovemdes th e
express
follows
conditions
:
are
^
!

general
ei
;

^
&
^ aU ,
the
as
248 INSURANCE

1 . Misdescription. 7. Insurer’s Rights after a fire..

2 . Alteration. g Contribution and average.

3. Exclusions. Q Subrogation.
4. Claims.
5. Fraud. 10- Warranties.
6 . Reinstatement. 11. Arbitration.

The first, second and fifth conditions relate to the

principle of good faith; sixth and ninth relate to prin-
ciple of indemnity; second relates to personal nature
of the contract; eighth relates to the principle of con-
tribution amongst co-insurers; tenth arises out of ano-
maly in law as to warranties; third refers to the limi-
tations of the contract; and fourth, seventh and ele-
venth deal with procedure in event of loss.
We
will now examine these express conditions,
one by one, in the order given above, setting out the
standard wording in each case.
Condition 1. Misdescription
This policy shall be voidable in the event of mis-
representation, misdescription or non-disclosure in
any material particular.

This condition
a reiteration of the implied con-
is
dition of goodbut modifies it. According to the
faith,
implied condition of good faith, any material mis-
representation or non-disclosure renders, the contract
void at Common Law, but this condition states that
in such a circumstance the policy will be voidable,
i.e., to be set aside at the option of the insurer. Even
if the misrepresentation relates to a part of the policy
only, it will render the whole contract voidable, for a
breach of good faith cuts at the root of the whole
contract.

However, in the wording of this .

condition the
governing word “material”. Any
is .
misrepresenta-
tion, misdescription or omission must be material.
Usually the questions asked to the insured at the time
 .

THE POLICY AND ITS CONDITIONS 249

of filling up the proposal form are the material ques-

tions, specialty those relating to the past losses
sus-
tained on the property, refusal by any insurer to pay
claim, refusal for renewal, etc.

Condition 2. Alterations
This policy shall be avoided with respect to any
item thereof in regard to which there be any altera-
tion after the commencement of this insurance.
(1) by removal; or
(2) whereby the risk of destruction or damage
is increased; or
(3) whereby the insured’s interest ceases except
by will or operation of law, unless such alteration be
admitted by memorandum signed by or on behalf of
the company.
This condition provides that" any changes during
the currency of the policy cannot be introduced with-
out the consent of the insurer because the risk to be
run will be different from the risk intended to be run.
The changes dealt- with are of three types:—
.
(a) By removal of the property the
Removal.
risk mayincrease and hence the consent of the insurer
is necessary, otherwise he will be no longer respon-
sible for any loss arising in relation to the property
removed, e.g., if the furniture from an ordinary pri-
vate house is removed to a cabinet factory without
the insurer’s consent, the risk increases several times
in the place. For such a removal, the insured must
inform the insurer who may refuse to cover the fur-
niture in the new place because he has already cover-
ed a sufficient risk there and does not want to extend
the risk in one place. Or the insurer may agree to
the alteration but only after charging extra premium
for the extra risk. -

(b) Increase in Risk. Similarly, if the alteration

to an increase in risk the insurer
can avoid the
amounts
r .— 17
250 INSURANCE

policy in respect to the item altered. Here, also, the

consent may be obtained after paying extra premium,
if the insurer agrees. If the insurer is not prejudiced
by alteration, or if the enforcement of the condition
works as a great hardship on the insured, the insurer
will usually accommodate the insured either by waiv-
ing his right or by charging extra premium depending
on the circumstances of an individual case.
(c) Change of Interest. The fire insurance con-
tract is a personal contract between the insured and
the insurer, hence the interest in the property cannot
be transferred to any third party without the insurer’s
consent. The assignment of a fire policy will be valid
only when it has been made after the express consent
of the insurer has been obtained. Usually, the insurer
gives his consent to an assignment except where the
assignee is unfavourably known to him. But where
the interest in the property changes on account of will
or operation of law, the cover continues and the
-
insurer will still be liable though his consent has not
been obtained.
The difficult position is created when the insured
has contracted to sell his property to some' third
party but the sale has not been completed at the time
of fire. As a result of these two actions the interests
of neither the vendor nor the purchaser would appear
to the covered after signature of the contract and
pending delivery of the deeds. To remove this con-
fusion, the practice of all fire offices is now, by insert-
ing an “optional memorandum”, to hold both parties
covered for their respective interests pending comple-
tion of purchase. When the sale is completed, the
policy is given with the deeds and then sent to the
insurer for endorsement, the assignee paying the
assignor the amount of premium unexpired to date of
renewal. Usually, this memorandum is confined to
private house policies but may be extended to other
buildings as well.
 THE POLICY AND ITS CONDITIONS 251

Condition 3. Exclusions

This policy does not cover:

(a) Destruction or damage by explo-') except as stated

sion (whether the explosion be S- on the face of
occasioned by Fire or otherwise)
j this Policy.
(b) Goods held in trust or on com-")
mission, money, securities, unless specially
stamps, documents, manus- mentioned as
cripts, business books, patterns, insured by this
f
models, moulds, plans, designs, Policy.
explosives.

(c) Destruction of or damage to property which,

at the time of the happening of such destruction or
damage, is insured by, or would, but for the existence
of this policy, be insured by any Marine Policy or
Policies, except in respect of any excess beyond the
amount which would have been payable under the
Marine Policy or Policies had this insurance not been
effected.

This clause should be read in conjunction with

the perils insured against given in the preamble to
the standard form which have been discussed in the
beginning of this chapter. The sub-clause (a) of this
condition excludes any loss caused by explosion ex-
cept as stated on the face of the policy. Sub-clause
(b) excludes certain properties which are ordinarily
not covered under the policy. Any of such excluded
properties can be included in the policy by specifically
mentioning it there but it is done so only after the
agreed extra premium has been paid by the insured.
In such a case, it will also be agreed as to how the
claim will be settled in case a loss arises.
The sub-clause (c) is known as the Marine Clause;
it requires a marine policy to contribute
first to any

loss covered by the fire policy.

252 INSURANCE

Condition 4. Claims
On the happening of any destruction or damage,
the Insured shall forthwith give notice thereof in
writing to the company and shall within thirty days
after such destruction or damage, or such further
time as the company may in writing allow, at his
own expense deliver to the company a claim in writ-
ing containing as particular an account as may be
reasonably practicable of the several articles or por-
tions of property destroyed or damaged and of the
amount of destruction or damage thereto respectively
having regard to their value at the time of the
destruction or damage together with details of any
other insurances on any property hereby insured.
The insured shall also give to the company all such
proofs and information with respect to the claim as
may reasonably be required together with (if de-
manded) a statutory declaration of the truth of the
claim and of any matters connected therewith. No
claim under this policy shall be payable unless the
terms of: this condition have been complied with.
This condition lays down the procedure to be
followed by the insured in connection with claims'. It
is also emphasized in the last sentence that the
insurer shall not be liable for any claims unless these
terms are complied with. The insured must give
immediate written notice of any destruction or
damage. This must be followed within 30 days by
a written claim giving full details of the property
affected and of the amount of damage done. Particu-
lars regarding any other insurance on the same pro-
perty should also accompany the claim. The time
may be extended by the insurer where there is a
reasonable case for it. Further, the insured must
furnish all reasonable proofs and information required
together with a statutory declaration as to the truth
of the claim or any matters connected therewith, if
required. Such a declaration is, however, rarely
 THE POLICY AND ITS CONDITIONS 253

required. It should be noted that the expenses of

making the claim fall on the insured and are not
covered by the policy.
Condition 5. Fraud
If the cla.im be inany respect fraudulent or any
fraudulent means or devices be used by the insured
or anyone acting on his behalf to obtain any benefit
under this policy or if any destruction or damage be
occasioned by the wilful act or with the connivance
of the insured, all benefits under this policy shall be
forfeited.

This condition states that fraud will forfeit all

benefits under the policy. The main underlying ideas
are two in this condition. Firstly, a claim of a
fraudulent nature will avoid the policy. An over-
valuation is not always fraudulent but it would be
taken to be so if the claim was grossly in excess of the
actual value of the property. Similarly, if the insured
deliberately included into his claim one article which
he never possessed, the claim would be fraudulent.
The second idea relates to the incendiarism or
arson committed by the insured or by any one else
with his connivance. This will also avoid the policy.
These: acts mean a definite breach of the principle of
utmost good faith and absolve the insurer from any
liability under the policy. In practice, the insurers
seldom make use of this condition as it is very diffi-
cult to prove that the fire was caused by the wilful act
of the insured or by his consent. In such cases, they
avoid the liability on the ground of the technical
breach of some other condition. Due to this, the
insurers are criticised that they evade claims on minor
technical grounds.

Condition 6. Reinstatement
the company elect or become bound to rein-
If
state or replace any property the insured shall at
his own expense produce and give to the company
254 INSURANCE

all such plans, documents, books and information as

the company may reasonably require. The com-
pany shall not be bound to reinstate exactly or com-
pletely, but only as circumstances permit and in
reasonably sufficient manner and shall not in any
case be bound to expend in respect of any of the
items insured more than the sum insured thereon.
The preamble of the policy provides for a cash
payment or for the reinstatement or replacement of
the property in the event of loss and this condition
governs such reinstatement by the insurer. Usually
the monetary payment is much simpler and seldom
has any attendant complications. But, occasionally a
settlement is not arrived at on the basis of cash com-
pensation and in that case the only solution of exact
indemnity remains the reinstatement of the property
lost. If the insurer has once exercised his option to
reinstate, he cannot subsequently withdraw and offer
a cash settlement.
The condition requires that the insured must at
his own expense produce all plans and information, as
may be reasonably required in order to enable the
insurer to reinstate. Again it is also provided that the
insurer is expected to reinstate as reasonably as pos-
sible and not exactly, he cannot be compelled to
expend more than the sum insured.
Condition 7. Insurer’s Rights after a Fire
On the happening of any destruction or damage
in respect of which a claim is or may be made under
this policy, the company and every person author-
ized by the company may, without thereby incurring
any liability, and without diminishing the right of the
company to rely upon any conditions of this policy,
enter, take or keep possession of the building or pre-
mises where the destruction or damage has happened,
and' may take possession of or require to be delivered
to them any of the property hereby insured and may
keep possession of and deal with such property for
 THE POLICY AND ITS CONDITIONS 255

allreasonable purposes and in any reasonable man-

ner. This condition shall be evidence oi the leave
and licence of the insured to the company so to do.
If the insured or any one acting on his behalf shall
not comply with the requirements of the company or
shall hinder or obstruct the company in doing any of
the above-mentioned acts, then all benefit under this
policy shall be forfeited. The insured shall not in
any case be entitled to abandon any property to the
company whether taken possession of by the com-
pany or not.
This condition gives the insurer on the occur-
rence of a fire and before a claim is made, the right to
(1) enter and take possession of a building where
property insured has been damaged;
(2) take possession of or require delivery to him
of insured property damaged;
(3) keep possession of, for a reasonable time, and
deal with for all reasonable purposes, all
such damaged property.
Any action which the insurer takes under this
clause cannot be regarded as an acceptance of liabi-
lity. The above rights are necessary to minimize the
damage by fire and to enable the insurer to make en-
quiries concerning the origin of fire and to ascertain
the degree of damage sustained. All benefit under
the policy is forfeited if the insurer is hindered or ob-
structed while exercising his rights under this condi-
tion.
The insured cannot abandon property to the in-
surer and insist that the claim be paid in full. It is
expressly stated so in the condition.
'

Condition 8. Contribution and Average

If at the time of any destruction of or damage to
any property hereby insured, there be any other in-
surance effected by or on behalf of the insured cover-
ing any of the property destroyed or damaged, the
limited
liability of the company hereunder shall be
256 INSURANCE

to its ratable proportion of such destruction or

damage.
If any such other insurance shall be subject to
any condition of average, this policy, if not already
subject to any condition of average, shall be subject
to average in like manner.
If any other Insurance effected by or on behalf
of the Insured is effected to cover any of the pro-
perty hereby insured, but is subject to any provision
whereby it is excluded from ranking concurrently
with this policy either in whole or in part or from
contributing ratably to the destruction or damage,
the liability of the company hereunder shall be
limited to such proportion of the destruction or
damage as the sum hereby .insured bears to the value
of the property.

The first part deals with the principle of contri-

bution amongst various insurers whose policies apply
jointly to the property destroyed or damaged. It is
based on equity. It states that if there are any ether
insurances in force covering the property destroyed
or damaged or any part thereof, the liability of the
insurer is limited to a ratable proportion of the loss.
In the absence of this clause, an insured could recover
the whole of the partial loss from any one insurer
leaving him to collect the proper contributions from
the other insurers. No doubt, the final result would
have been much the same whether the contribution
condition was inserted or not, but its inclusion is a
great administrative convenience and simplifies the
claim settlements. The ratable proportion of each
insurer is arrived at by dividing the sum insured un-
der his policy by the total insured sum of all policies
on the risk. The contribution of the insurer could
then be obtained by multiplying the loss by the pro-
portion so obtained. Suppose a person insures his
house and furniture both under two policies one with —
A for Rs. 10,000 and the other with B for Rs. 4,000,
 — —
THE POLICY AND ITS CONDITIONS 257

each policy covering both the house and the furni-

ture. Such policies are called concurrent policies.
Now suppose the loss is for Rs. 9,000, the contribution
will be as follows:
A would pay X 9,000 = Rs. 6,429.
B would pay xY<nrV X 9,000 = Rs. 2,571.
In the above case, there is no difficulty and the
above contributions will be paid by A and B. But the
position is not so simple when the policies are only
partly concurrent. In the above case, suppose A’s
policy covers house and furniture for the same amount
and B’s policy covers only house for the same amount
and the loss is, say, Rs. 8,000 on house and Rs. 1,000
on furniture. In this case, the contribution of the in-
surers will differ according as the loss is made good
first on house or on furniture. If the loss is made good
first on house, the contribution will be as follows:
House
A will pay X 8,000 = Rs. 5,714.
B will pay tYoW X 8,000 = Rs. 2,286.
Furniture
A will pay the total loss Rs. 1,000.
Thus, in all, A will pay Rs. 6,714 and B will pay
Rs. 2,286.
But if furniture is taken first the contribution will
be as follows:
Furniture
A will pay total loss Rs. 1,000.
House
Now the amount of risk under A’s policy remains
Rs. 9,000 only.
A will pay A"<nnr X 8,000 = Rs. 5,538.
B will pay TY«Vcr X 8,000 = Rs. 2,462.
Thus, in all, A will pay Rs. 6,538 and B will pay
Rs. 2,462.
 —
258 INSURANCE

It will be seen lhat if house is taken first, A will

have to pay more and B less. But there is nothing to
prove as to which method is more equitable. The
usual practice is to take the mean of the two methods.
It is called the ‘mean method’ or the “method of in-
dependent liability-for-payment-of-the-loss-in-ques-
tion.” According to this method, the liability under
each policy is taken to mean full liability without re-
ference to the amount of loss. When this method is
applied, the contribution in the above case will be
The liabilities of A and B in respect of house in-
dependent of each other’s existence are:
If A was the only insurer, his liability for loss
would have been Rs. 8,000.
If B was the only insurer, his liability for loss
would have been Rs. 4,000.
A’s contribution would be AVinr X 8000 = Rs. 5,338
B’s contribution would be TVoVtr X 8000 = Rs. 2,667
Regarding the furniture, the liability of. A would
have been Rs. 1,000 on similar basis.
Hence, in all A would pay Rs. 6,333 and B would
pay Rs. 2,667.
The second part imports average into a non-aver-
age policy. It states that where the loss is apportioned
among different insurers by way of contribution,
it will be made on the basis of average for all policies
if one of the policies contained the average clause.
It enables all insurers to contribute on an equal foot-
ing. The average clause in fire insurance penalises
an under-insurance by a corresponding underpayment
of loss. The condition states that if the property in-
sured shall at the breaking out of any fire be collect-
ively of greater value than the total sum insured, then
the insured shall be deemed as being his own insurer
for the difference, and shall bear a ratable share of
the loss accordingly. This condition is of significance
 THE POLICY AND ITS CONDITIONS 25

only when
there is underinsurance and there is partial
loss. Suppose a person takes a policy on his stock for
Rs. 10,000 with A and Rs. 5,000 with B, and the loss
occurs for Rs. 9,000. Now if the value of the stock at
the time of loss was found to be Rs. 20,000, the insured
is underinsured to the extent of Rs. 5,000. Hence he
can realise, in all, only of the loss Rs. 9,000, i.e.,
| of Rs. 9,000 which is Rs. 6,750. A will payTJnfffv of
Rs. 6,750, i.e., Rs. 4,500 and B will pay nnnnx of
Rs. 6,750, i.e., Rs. 2,250.
Thus the insured will have to suffer the balance of
Rs. 2,250 himself as he has not insured for Rs. 5,000.
The above position would hold good whether both the
policies included the average clause or any one of
them. In the absence of the average clause from both
the policies, the insured would have recovered the
full loss Rs. 9,000; Rs. 6,000 from A and Rs. 3,000 from
B.
The third part imports average clause in contri-
bution with ‘excess’ policy. The businessmen, in
order to get advantage of lower premium, split their
insurance in two parts; the first is called the ‘first loss’
insurance and the second is called the ‘excess’ insu-
rance. The latter is responsible only when the loss
exceeds the cover under the first and it can be secured
at a lower rate. Therefore, this clause imports an
average in the ‘first loss’ policy and counteracts the
effects of any advantage due to excess policy. The
following illustration will make it clear. A merchant
has a stock for Rs. 40,000. He takes a first loss policy
for Rs. 30,000 and an excess policy for Rs. 10,000. Sup-
pose the loss is Rs. 32,000. In that case ordinarily he
can realise under the ‘first loss’ policy Rs. 30,000 and
Rs. 2,000 under the excess policy. But when this
caluse introduces the average in the policy, the insured
can realise under the first loss policy only *££££. °f
Rs. 32,000 — Rs. 24,000; and under the excess policjr
he can realise Rs. 2,000 provided it is not subject to>
2G0 INSURANCE

average. If the excess policy is also subject to aver-

age he can realise under that only of Rs. 32,000
= Rs. 1,600.
Thus an excess policy and
this clause discourages
"thereby prevents unfair methods of competition.

Condition 9. Subrogation
Any claimant under this policy shall at the re-
quest and at the expense of the company do and
concur in doing and permitting to be done all such
acts and things as may be necessary or reasonably
required by the company for the purpose of enforcing
any rights and remedies, or of obtaining relief or
indemnity from other parties to which the company
shall be or would become entitled or subrogated upon
its paying for or making good any destruction or
damage under this policy, whether such acts and
things shall be or become necessary or required be-
fore or after his indemnification by the company.

This condition is a reiteration of the principle of

indemnity. It states that the insured is precluded
from obtaining more than an indemnity. When the
insurer has indemnified the insured against a loss, the
insured must transfer all the rights regarding the
property destroyed or damaged against any third party
to the insurer. The insured cannot recover from the
insurer as well as the third party. Where the insured
has been indemnified by the insurer and then recovers
from the third party, the insurer can claim the return
•of the sum he has paid. The insured may have his
rights against the third party by reason of negligence,
law or agreement. In such cases, the insurer is sub-
rogated to all the rights of the insured against third
parties and recover from them the amount of their
liability.

The insured is bound to give all such facilities to

the insurer which the latter may require in enforcing
Tiis rights against third parties. Any action taken by
 the policy and ITS
conditions
201
e e 0f the
but irSsttfoT/b^e
recovered by the insurer
by
become
C“ surer -
™red,
Amounts
to the right of the insured
to be
fuu/SSife^0 '

Condition 10. Warranties

Every warranty to which
the nrnn P ,-t •

or any item thereof is or may msured

be mad/ /
from the time the warranty ShaU
attaches
tinue to be in force during 7 and con ~
the whnlfCUlrenc
this policy, and noncompliance
with an
y of
War '
ranty, whether it increases the
Xk 0 r n Sha be /X
a bar to any claim in respect of
item; provided that whenever this
such /i /
policy is renewed
a claim in respect of destruction or
ing during the renewal period shall not
damage oXX
be barred h
reason of a warranty not having been complied
»ifh
at any time before the commencement of such
per a
This condition states that every warranty attac]
during the whole currency of the policy, and if durW
this period a warranty has not been complied with
the insurer will not entertain any claim in respect of
the property or item affected. A warranty i s an
agreement expressed in the policy whereby the insur-
ed asserts that certain facts are, or shall be true, or
that certain acts shall be done relating to the risk.
The compliance with a warranty must be literally
true. The condition makes clear that breach of war-
ranty, by which the risk is increased or not, avoids
any cover.
The latter portion of the condition, however,
modifies this position by stating that if the policy is
renewed and there was breach of a warranty before
loss occurs
the renewal date and not after it and a
renewal effected, in such a case the claim
after the is
warranty prior
can be made. Noncompliance with a
period of a policy is not a bar
to the current renewal
to a claim. Thus non-compliance with a \w ranty
262 INSURANCE

avoids a cover only during the period of insurance in

which the breach occurred.
A
policy usually contains a list of warranties some
of which are made to apply. Later on, some war-
ranties may be deleted or others might be added. In
the former case premium is increased and in the latter
it is decreased.

Condition 11. Arbitration

All differences arising out of this policy shall be
referred to the decision of an arbitrator to be ap-
pointed in writing by the parties in difference, or, if
they cannot agree upon a single arbitrator, to the
decision of two arbitrators, one to be appointed in
writing by each of the parties within one calendar
month after having been required in writing so to do
by either of the parties, or, in case the arbitrators do
not, agree, of an umpire appointed in writing by the
arbitrators before entering upon the reference. The
umpire shall sit with the arbitrators and preside at
their meetings and the making of an award shall be
a condition precedent to any right of action against
the company. After the expiration of one year after
any destruction or any damage the company shall not
be liable in respect of any claim therefor unless such
claim shall in the meantime have been referred to
arbitration.

This condition is meant to prevent undue litiga-

tion and settle the dispute by arbitration. It is a very
simple, cheap and expeditious method of settling dis-
putes. Both the parties will appoint one arbitrator
and if they do not agree upon one, then they will ap-
point one each. The arbitrators will settle the dis-
pute and if they also disagree they may appoint an
umpire who will settle the dispute in consultation
with them. The insured cannot proceed in a law
court against the insurer until the award is made.
The arbitrators will also decide as to how the cost of
arbitration -will be borne by the parties.
 THE POLICY AND ITS CONDITIONS 263

Purchaser's Interest Clause

Sometimes a further memorandum in the follow-
ing terms is also appended to the conditions:—
If at the time of destruction or damage to
any
building hereby insured, the insured shall have con-
tracted to have sell his interest in such, building and
the purchase shall not have been but shall be there-
after completed, the purchaser on the completion of
the purchase, if and so far as the property is not
otherwise insured by or on behalf of the purchaser
against such destruction or damage, shall be entitled
to the benefit of this policy so far as it relates to such
destruction or damage without prejudice to the rights
and liabilities of the insured or the company under
this policy up to the date of completion.

This clause provides that property which is the

subject of contract to purchase shall be covered joint-
ly for the benefit of the vendor and purchaser up to
the date of completion of the sale for their respective
interests. When the purchase is completed the ‘alte-
rations’ condition applies and the insurer must be
advised if the change of interest is to be admitted.
The purchaser may elect to continue the insurance in
his own name, in that case the purchase price will
include the value of the unexpired insurance.
Loss Procedure
As soon as a loss occurs the insured must at once
inform the insurer about it. If the loss is trivial, the
.

insurer will send a claim form to the insured. this

form requires the detailed information about the loss
concerning the time, place and the circumstances un-
der which it occurred and the details about the pio-
rea-
perty. If the claim is regarded by the insurer as
sonable, he will send a cheque in settlement.
If the loss is serious, the insurer will
appoint an
assessor as soon as he is notified of the loss.
T e
assessor will at once proceed to the place of me o
enquire into the cause of fire.
protect the salvage and
262 INSURANCE

avoids a cover only during the period of insurance in

which the breach occurred.
A policy usually contains a list of warranties some
of which are made to apply. Later on, some war-
ranties may be deleted or others might be added. In
the former case premium is increased and in the latter
it is decreased.

Condition 11. Arbitration

All differences arising out of this- policy shall be
referred to the decision of an arbitrator to be ap-
pointed in writing by the parties in difference, or, if
they cannot agree upon a single arbitrator, to the
decision of two arbitrators, one to be appointed in
writing by each of the parties within one calendar
month after having been required in writing so to do
by either of the parties, or, in case the arbitrators do
not, agree, of an umpire appointed in writing by the
arbitrators before entering upon the reference. The
umpire shall sit with the arbitrators and preside at
their meetings and the making of an award shall be
a condition precedent to any right of action against
the company. After the expiration of one year after
any destruction or any damage the company shall not
be liable in respect of any claim therefor unless such
claim shall in the meantime have been referred to
arbitration.

This condition is meant to prevent undue litiga-

tion and settle the dispute by arbitration. It is a very
simple, cheap and expeditious method of settling dis-
putes. Both the parties will appoint one arbitrator
and if they do not agree upon one, then they will ap-
point one each. The arbitrators will settle the dis-
pute and if thejr also disagree they may appoint an
umpire who will settle the disputeconsultation
in
with them. The insured cannot proceed in a law
court against the insurer until the award is made.
The arbitrators will also decide as to how the cost of
arbitration will be borne by the parties.
 —
THE POLICY AND ITS CONDITIONS 263

Purchaser’s Interest Clause

Sometimes a further memorandum in the follow-
ing terms isalso appended to the conditions:
If at the time of destruction or damage to any
building hereby insured, the insured shall have con-
tracted to have sell his interest in such building and
the purchase shall not have been but shall be there-
after completed, the purchaser on the completion of
the purchase, if and so far as the property is not
otherwise insured by or on behalf of the purchaser
against such destruction or damage, shall be entitled
to the benefit of this policy so far as it relates to such
destruction or damage without prejudice to the rights
and liabilities of the insured or the company under
this policy up to the date of completion.

This clause provides that property which is the

subject of contract to purchase shall be covered joint-
ly for the benefit of the vendor and purchaser up to
the date of completion of the sale for their respective
interests. When the purchase is completed the ‘alte-
rations’ condition applies and the insurer must be
advised if the change of interest is to be admitted.
The purchaser may elect to continue the insurance in
his own name, in that case the purchase price will
include the value of the unexpired insurance.
Loss Procedure
As soon as a loss occurs the insured must at once
inform the insurer about it. If the loss is trivial, the
insurer will send a claim form to the insured. This
form requires the detailed information about the loss
concerning the time, place and the circumstances un-
der which it occurred and the details about the pro-
perty. If the claim is regarded by the insurer as rea-
sonable, he will send a cheque in settlement.
If the loss is serious, the insurer will appoint an
assessor as soon as he is notified of the loss. The
assessor will at once proceed to the place of fire to
protect the salvage and enquire into the cause of fire.
264 INSURANCE

He will send a preliminary estimate of the loss to the

insurer and then furnish the insured with a claim
form to be completed. When the details of the claim,
are available, he will assess the loss and settle with
the insured and take a declaration from him regard-
ing his acceptance. This, with the claim form and
the Assessor’s final report will be sent to the insurer
for his consideration. The insurer will see whether .

warranties are complied with, and if he is satisfied

he will remit the agreed amount to the insured. The
Assessor’s fees are payable by the insurer but the
insured must bear the costs incurred in preparation
of his claim.
When the property is insured with more than one
insurer, the leading office or the office with the largest
interest, will appoint the Assessor. He will send
copies of his reports to each office and will apportion
the claim.
Ex Gratia Payment
Sometimes a situation
,
arises where a loss occurs
to a property insured but the loss cannot be legally
recovered either on technical ground or due to unin-
tentional omission to include the property in the scope
of the policy. There is no legal liability of the in-
surer under the policy in such a case, but the insurer
regards it a moral obligation and makes good the loss.
Such a payment is called “ex gratia” payment. It
denotes an “Act of Grace” and the insurers pay it 'to
avoid the hardship to the insured and also to keep the
reputation of their fairness and generosity high. It
serves as a sort of advertisement also, but any payment
of this nature should not be construed as a precedent
for similar action on a future occasion.
 CHAPTER XXIV
RATING AND AVERAGE
The word ‘rating’ denotes the idea of fixing rates
of premium for different risks. The system of rating
in fire insurance is not so scientific as in life assurance,
because no exhaustive statistics are available. The
system of rating was, in its initial stages, more or less
a guesswork but now with the passage of time, the
experience has increased and efforts have been made
to put it on a more equitable basis. The actual pro-
cess of rating consists of three steps: (i) Classification,
(ii) Discrimination and (iii) Fixing rates.
Classification
In the earliest stage the premium was fixed arbit-
rarily without any reference to the degree of hazard
in a particular case. The method of fixing the pre-
miums was simply to find out the average claim and
,

average insurance over a number of years in past and

fix the future premiums in view of that. Gradually it
was realised that the above system did not take into
consideration that all properties are not of similar
class so far the risk is concerned and hence the pre-
mium should be fixed in relation to the class of risk.
Therefore, the properties were divided in three classes,
viz., (a) common or ordinary, (b) hazardous and (c)
doubly hazardous. Different premium rates were
fixed for each class.
The above classification remained substantially the
same for many years, but with the passage of time it
was found to be no longer appropriate because the
simply too crude and will not hold
classification is
good when it is carried further to its logical conclu-
divi-
sion. However, in course of time, the process of
variety of risxs
sion was extended to the infinite
existence. Moreover, experience was accumulated
bo,
which could correct the rates fixed on. old basis. ^ or
now classified according to trades
the risks are
'
265
i.—is.
266 INSURANCE

sections of trades, for the purpose of accumulating

adequate data from which the rates may he calculated
according to the hazards inherent in the process car-
ried on and materials used.

Discrimination
When the different risks are put in a specified
class, they are further differentiated from each other
according to the merits and demerits of the indivi-
dual risk. This process is called “discrimination” of
the risks, and it aims at a more equitable basis of
rating. To illustrate the point, dwelling house forms
one. class and all the dwelling houses could be put in
the same class. But the different dwelling houses
differ from each other so far as the risk is concerned,
By the process of discrimination, it is possible to
penalise those houses which have the extra hazard
such as absence of water, distance from fire brigade
station, dangerous method of heating, lighting, etc., by
Charging an extra premium; on the other hand, an
appropriate discount could be given for those houses
which have telephone, fire extinguishing appliances,
nearness to fire brigade station, absence of dangerous
processes in the vicinity, etc.

Rating
Having determined the class of a particular risk
and discriminated the degree of hazard, the next step
is to work out a rate of premium for it. The method
of finding out the average premium rate for a class of
risk is to take a particular period of years and com-
pare the total of the losses in that class with the
total values at risk as represented by the sums insured
in the class. However, a sufficiently long period should
be taken so that the experience of good as well as bad
years may he taken into account Again the expe-
rience should be taken from as wide a field as possible
so that the law of averages may apply and the results
may be fairly representative. The total losses should
 RATING- AND AVERAGE 267

also include the margin for expenses, reserves and a

reasonable profit. If “L” represents the losses plus
the estimated expenses, etc., and “V” the values (total
sum insured), the ‘average rate per cent.’ can be cal-
culated from the formula xlOO.
y
The figure so obtained forms the basis for fixing
premiums. From this, first, the insurer will fix a
‘normal’ rate, which is not the charge for the best risk,
nor for an average risk, but for a risk lying between
the two. Then the insurer will draw up a table on
the basis of discrimination, both as an act of fairness
to the insured and as a protection to the insurer
against the competition. The table will include a list
of features of extra hazard. Now, the premium for a
particular risk will be fixed like -this. First, the nor-
mal rate will be put and the additional charges will
be added according to the extra hazard indicated from
the table. The system is called ‘normal plus extra.’
If the property has better methods of reducing the
risk, e.g., fire extinguishing appliances, fire proof mate-
rials used in construction, etc., the discount will be
allowed depending upon the efficacy of the means
adopted.
The above system of rating has two-fold advan-
tages: firstly, it, ensures an equitable treatment to the
insured, and secondly, by inducing him to reduce the
fire waste the benefit goes to the community. Such a
system is called ‘tariff’ rating and is a middle course
adopted between the so-called ‘scientific’ method of
rating adopted in the United States and the old ‘rule
of thumb’ method of pure guess-work. In U.S.A. the
system is a very elaborate one, where every conceiv-
able form of hazard is taken into consideration and
the premium is charged accordingly.
It should be noted that the rates fixed according
to the above system are not permanent, as the intro-
duction of new materials and methods and the pro-
gress in fire prevention direction constantly introduce
268 INSURANCE

fresh features which either increase or reduce the

fire -hazard. Premium rates, therefore, are applicable
only for a particular period of time and have no per-
manent character.
Combined Risks
When there isa combination of risks of more
than one class in respect of the same subject-matter^
the treatment of the question of fixing one premium
rates for them are 3 per cent, and 6 per cent, respec-
tion, suppose in one building a part is lent to a book-
seller and the rest is used as workshop and the normal
rates for them are 3 per cent and 6 per cent respec-
tively. What should be the rate for both the classes
of risk under one policy ? In such a case, one method
is to charge the higher rate, i.e., 6 per cent, which
includes the. lower rate also. The other method is to
add up both the rates and charge a rate between the
higher rate, i.e., 6 per cent, and the combined rate, i.e.,
9 per cent. The second method is more equitable
because the elements of risk common to both classes
go to determine the extent of hazard and this fact is
recognised in this method, though in practice the first
method finds more adherents.
Under-insurance and its Effect on Rating
One of the difficulties in arriving at a scientific
basis of rating in fire insurance is of under-insurance.
The equitable distribution of total losses over all the
insured persons is possible only when each insured
declares for insurance purposes, the full value of the
property to be insured, i.e., when each insured takes
insurance for the full value of his property. If this is
not done, as is the case in practice, the premium rates
will have to be increased for all. The persons taking
policy for an adequate insurance will be penalised in
form of higher premiums. The insured himself whose
property is destroyed will also lose by underinsur-
ance, as,- in addition to higher premium, he. is not
 — — —
RATING AND AVERAGE 269

covered for the sum exceeding

the insured amount;
The only persons to gain be those who
from this will
have under-insured and who suffer only partial losses
below the insured amount. The following illustration
will explain the point clearly.

The average rate of premium is ^XlOO.

Let L— Rs. 500 as representing losses plus ex-
penses and profits.
V=Rs. 4,00,000 as representing the total
insurance based on the full value of the
properties insured.
In the above case of full insurance the rate will be
X x $-
Re. I ~ =
2 as. per cent.
But, suppose the total insurance for the same
properties of the same value was only Rs. 2,00,000.
The premium rate would have been
X 1 ®- = Re. | = 4 as. per cent.
srinnrotr

Thus it is clear that the underinsurance increases

the premium rate, and, hence, should be discouraged.
The insurers, in an attempt
:
to this end, introduce the
'average’ clause.

Average
It has already been explained that the ‘average’
clause inserted in order to penalise under-insurance.
is
It restricts the liability of insurer to the amount pro-
portionate to the premium received and thereby
ensures the receipt of adequate premiums in respect
of the risks undertaken. The simplest form of average
clause is the “pro rata” condition of average. Accord-
ing to this, the insured is regarded hi,s own insurer for
the amount of underinsurance. Thus suppose the pro-
perty worth Rs. 1,000 has been insured for Rs. 800 only,
the liability of the insurer under the average clause
will be as in the following cases:
 —
270 INSURANCE

On a loss of Rs. 100, x 100 =

Rs. 80.
„ Rs. 800, x {£? x 800 =
Rs. 640.
„ Rs. 1000, tVo°5 X 1000 =
Rs. 800.
The condition of average has no effect when there
is a total loss as is clear from the last case; but in case
of partial loss, the insured suffers a penalty for the
under -insurance.
Special Condition of Average
The above illustration is the case of a pro rata
condition of average. Sometimes the ‘special condi-
tion of average’ or generally as it is called ‘75 per
cent, clause’ is inserted in the policy. This clause
states that the average will be inoperative if the sum
insured is not below 75 per cent, of the value of the
property insured. This clause is usually inserted
where the property necessarily fluctuates in value
from time to time. Suppose a property is insured for
Rs. 15,000 and the loss is Rs. 2,000. Now, if the pro-
perty is valued at Rs. 20,000, the insured amount is
not less than 75 per cent, of the value, hence the
clause is inoperative and insurer will pay the full
amount of loss, Rs. 2,000. But, if the value of the
property was estimated to be Rs. 25,000, the insured
amount falls below 75 per cent, of the value and hence
the clause will operate. Therefore, the insurer is
liable to pay of Rs. 2,000=Rs. 1,200.
The degree of concession given to the insured
under such a clause may be varying in different
cases,
e.g./‘80 per cent average’, ‘50 per cent average’, etc.

Co-Insurance Clause
The terms of this clause are
If at any time of fire the whole amount of in-
surance on the property covered by this policy shall
be less than. per cent of the actual cash value
thereof, this companyshall, in case of loss or
damage, be liable for such portion of such loss or
 RATING- AND AVERAGE 271

damage as the amount insured by this policy shall

bear to the said per cent of the actual cash
value of such property.
Thus the co-insurance clause provides an un-
limited gradation of under-insurance with a corres-
ponding scale of rating. The insured gets more under
this clause than what he will get under an ordinary
average clause.
Suppose, the policy has “75 per cent average”
clause and the property worth Rs. 4,000 is insured for
Rs. 2,400 and the loss is Rs. 500. The insurer is liable
for linro of Rs. 500=Rs. 300.
But if the policy contains “75 per cent, co-insur-
ance” clause, the insurer’s liabilty in the above case
would be
2400 2400
of Rs. 500 of Rs. 500=Rs. 400.
75% of 4000 3000
This system is more common in America.

CHAPTER XXV
RETENTION AND RE-INSURANCE
Retention
An insurer while accepting a risk has not only to
see the degree of hazard in the risk but also to look to
the possible loss which he may sustain as a result of
fire. He has to be vigilant about fixing an adequate
premium commensurate with risk, but there is one
more point in fire insurance which deserves his care-
ful consideration, and it is this that he shall not un-
dertake a very heavy liability under one policy. As
a prudent underwritter he must limit his liability
to an amount which he can meet by the funds avail-
able at his command. If he accepts an unduly heavy
liability under one risk, a serious loss may jeopardize
the security of the other policy-holders by making
272 INSURANCE

heavy inroads upon his funds. Therefore, it is in his

interest not to accept a liability beyond a certain limit
under one policy. He can do this by two methods,
either he can refuse to underwrite heavy risks in
which case he will lose business and hence it will be a
bad security, or he can underwrite such risks but
transfer a part of the liability to some other insurer.
The latter method is the method of re-insurance.
Here he has to decide the amount of maximum liability
which he can assume on a particular risk. This is
called the amount of retention.

There canbe no hard and fast rule about the cor-

rectamount to retain over a risk in general. It will
depend on the premium income of the company and
the class of risk. Regarding the first point, it can be
said that if the company is new it cannot afford to re-
tain a large proportion of the liability under one risk
because one loss may wipe out the whole year’s pre-
mium income. Hence the insurers with higher in-
come and reserves can keep a higher limit of retention.
The other consideration is the class of risk. If the
risk is hazardous, the probability of heavy loss is much
greater in it than in other risks and hence the limit of
retention should not be fixed very high in such risks.
An insurer who could retain only Rs. 2,000 on a saw-
mill can afford to retain very easily Rs. 15,000 on the
hard-pressed cotton, though both of them might be in-
sured for Rs. 20,000. Thus the fire risk is said to be a
“double-edged entity” having the above two sides to
be considered simultaneously for fixing the limits of a
particular risk. The insurer will have to take into
account all the factors which influence the degree of
hazard in a particular risk, e.g., the type of property;
standard of construction; nature of heating and light-
ing; the location of the property; the nature of the
processes carried on and materials in use; the degree
of exposure hazard;, the direction of the prevailing
winds, nature of adjoinings, etc.
 RETENTION AND RE-INSURANCE 273

Re-insurance
Re-insurance is the transfer of insurance busi-
ness from one
insurance office to another. The
office transferring the business is called the ‘ced-
ing office’ and the office to which the busi-
ness is transferred is called the ‘re-insurer’. Accord-
ing to the re-insurance contract, the re-insurer assumes
all or part of the liability contracted for by the ceding
office through the direct writing of a policy. The ori-
ginal insured is in no way affected by this re-insurance
contract and he has no relationship with the re-insurer.
Thus there are two separate contracts quite indepen-
dent of each other. In the event of loss, the re-insurer
ivill pay only to the ceding office upon payment of the
loss by that office to its policyholder.
The contract of re-insurance, like the ordinary fire
contract, is and requires
also a contract of indemnity
utmost good faith. The ceding office must disclose all
the material facts to the reinsurer. The system of re-
insurance has several advantages. It enables a wider
distribution of risk and hence the personal incidence
of loss is spread over the widest possible area. Due to
this the insurers are enabled to limit their maxi-
mum loss on any one fire to a figure which does not de-
plete their funds. The insurer can assume more risks
and thereby collect the experience of loss from a larger
field. Without the re-insurance facilities a new office
cannot enter the field successfully owing to the small
retentions which it must observe. Again re-insurance
has the effect of stabilizing income and losses over a
period of years. The insured also has the advantage
of dealing with only one office even for very large
risks.

There are two principal methods of effecting re-

insurance cover: Facultative re-insurance and Treaty
re-insurance.
 —
274 INSURANCE

Facultative Re-insurance
‘Facultative re-insurance’ also termed ‘Specific re-
insurance’ is a form which concerns itself with a spe-
cific transaction. It is in no way connected with other
re-insurance business between the offices concerned*
nor is dependent in any way upon other similar con-
tracts. Each contract is written on its own merit and
is a matter of individual bargaining between the par-
ties. The insurer has the option of rejecting an offer
if he so likes. The re-insurer will accept a risk only
'

after proper scrutiny of the case. All information

given to the re-insurer must be true and there must be
no misrepresentation.
The advantages of this system are that the inci-
dence of loss is spread over wider field. Again the
scrutiny of each risk to be re-insured serves as a
healthy check on the ceding office. The temptation to
accept undesirable risks diminishes when it is felt
that re-insurance would be difficult. But the dis-
advantage of this method is that it involves a lot of
clerical work in issuing various documents and scru-
tinising the risk in great detail.

Treaty Re-insurance
The above system is an old one. There the ceding
office isalways under an uncertainty as to whether
it will be successful in re-insuring a risk. To over-
come this and other shortcomings of the specific re-
insurance, treaty insurance was developed. The
re-insurer and the direct insurer enter in a treaty pro-
viding that the former shall accept, without the option
of rejecting, a specified proportion of the excess on
any risk over the insurer’s limit of retention. A treaty
embraces future contracts as well as those in exist-
ence at the time the agreement is executed. There
are, in general practice, two kinds of treaty, viz.,
‘Quota Treaty’ and ‘Surplus Treaty.’ Under the for-
mer system, a specified proportion of every risk good
—
and bad must be re-insured with the re-insurer. Thus
 RETENTION AND RE-INSURANCE 275 -

the liability of the re-insurer attaches as soon as the

ceding company assumes the risk. Here the re-in-
surance is automatic. Under the ‘Surplus Treaty,’ the
direct writing company retains to itself the right to
decide whatever retention it considers neces-
sary but must cede a specific proportion of the surplus
to the treaty company. Most treaties to-day are writ-
ten on the surplus basis, thereby permitting the
ceding company to retain as much of the risk as it
cares to and to cede only as much of the risk as is
in excess of its facilities to handle.
The system of treaty re-insurance is more advan-
tageous from the insurer’s standpoint than the facul-
tative system. There is a considerable saving in time
and expense, and above all, it gives the insurer im-
mediate cover for large amounts, as a definite mea-
sure of re-insurance cover is available automatically.
As the expenses incurred by the treaty offices are
lower, they pay invariably the higher commission to
their insurers. The disadvantage of the treaty sys-
tem is that heavy risks can be transferred at inade-
quate rates. Of course such a practice eventually
defeat itself, as no re-insurer will continue a treaty
unless it shows a reasonable profit over a period of
years.
FIRE INSURANCE
APPENDICE
 APPENDICES 279
APPENDIX A
fire insurance proposal form
Name of Proposer (in full)

Address of Proposer

Business or Profession
PARTICULARS OF INSURANCE REQUIRED
1. Situation (in full)

Wails Roof.
2. Construction of Building
or Buildings

S. Occupation of Building or
Buildings . . ....
R
(Please state the nature of
goods stored in othcri
Shops or Godovas in
the same Building. 1

On House-
4. Amount to be Insured. On Buildings hold Furni- On Goods &/
ture Personal .On Machi- or Merchan-
Effects, &c. nery. dise.

I
i

5. Term of Insurance for Montli From

A'.fJ. —If the Insurance is to cover :

1. Goods and/or Merchandise state the nature thereof/

Special f
2. Household Furniture and personal cUe
P lct “^n
mention must be made of any curiosity, Rs.
work t/f art, the value of which exceed 200 orj
£ 20/- L *

3. Premises having Servants’ Quarters, Stables or f

other outbuildings adjoining „In distance J
the Construction of such outbuildings, their
. .

from main building, and declare what amount of this

Insurance is to apply thereto* *
^
 —
280 INSURANCE..

Acceptance of this Proposal is subject to the rates and regulations of the

Association’s Tariffs lodged with the Superintendent of Insurance.

6. Is the building detached 1 If so, f

give distance from nearest building.

Give the construction and occupa-

tion of adjoining buildings, if any.
{
.8. Has any Insurance Company ever f
declined a proposal from you, or
terminated your Policy ? t
9. Have you ever sustained loss by
Fire ? If so, give particulars.
{
I hereby declare that the statements made by me in this Proposal Form are-
true to the best of my knowledge and belief, and I hereby agree that this declaration
shall form the basis of the contract between me and THE
INSURANCE CO., LTD.
Date at dayof.. 194 .

Proposer's Signature

APPENDIX B
No Bombay,
TEMPORARY COVER-NOTE.
(NOT EXCEEDING 30 DAYS.)
M
having this day proposed to effect an Insurance against Fire and Lightning for a period
of months, from to
on the usual terms and conditions of this Company’s policiesand having agreed to pay
the undernoted premium on or before the the following property
is'hereby insured to the extent of Rs in the manner specified below :

Rs

For Months. Rate Premium Rs,

T.q be paid.to the. Co. Stamp Duty Rs.

on. or. before ;

Total Rs.

Subject to the Special Conditions Overleaf.

Fire Manager.
 APPENDICES 281
APPENDIX C
DECLARATION CLAUSE.
1.
THE INSURANCE COMPANY, LIMITED
Special Conditions attached to and Forming part of Policy No
In consideration of the premium by this policy being provisional in that it is
calculated on 75% of the sum insured hereby and is subject to adjustment on expiry
of each period of insurance.
The Insured agrees to declare to THE INSURANCE COMPANY LTD.
in writing
the value of his stocks other than retail in each separate Building or Non-
communicating Compartment or in the open on the following basis namely

and to make such declaration (s)

within fourteen days of the of each calendar month, such declara-
tions2.to be signed by the Insured or by a responsible person authorised to sign on his
behalf.
3.
In the event of a declaration not being made within the fourteen days mentioned
above then the Insured shall be deemed to have .declared the sum insured hereby as
the Value at risk.
On the expiry of each period of insurance the premium shall be calculated at the
rate of as shown in the Policy on the average sum insured, namely, the total of the
value declared or deemed to have been declared divided by the number of declarations
due to have been made. If the resultant premium be greater than the provisional
premium the Insured shall pay the difference, if it be less the difference shall be repaid
to the Insured but such repayment shall no t exceed 50% of the provisional premium.
The basis of value for declarations shall be the market value and any loss
hereunder shall be settled orf the basis of the market value immediately anterior to the
loss.
If after the occurrence of a loss it is found that the amount of the last declara-
tion previous to the loss is less than the amount that ought to have been declared, then
the amount which would hove been recoverable by the Insured shall be reduced in such
proportion as the amount of the said last declaration bears to the amount that ought to
have been declared. .

4. Notwithstanding the occurrence of a loss it is understood that the sum insured

will be maintained at all times during the currency of the policy and the Insured there-
fore undertakes to pay extra premium on the amount of any loss pro rala from the
date of such loss to the expiry of the period of insurance, the premium being calculated
at the rate applicable to the stocks destroyed and such extra premium shall not be
taken into account in, and shall be distinct from the final adjustment of premium.
5. In the event of this Policy being cancelled by the Insured during its currency
(whether stocks exist or not) the premium to be retained by the Company shall be the
appropriate short period premium calculated on the average amount insured upto the
50% of the provisional premium whichever is the greater, but if
**’
.' .* *

,y the Insured after a loss has occured the premium to

be retnind
be the pro rata proportion of the premium calculated on the
average amount insured upto the date of cancelment plus the pro rata proportion of the
premium from the date of loss to the expiry of the period of insurance on the amount
of the loss paid, or 50% of the provisional premium which ever is the greater.
G. The maximum liability of the Company shall not exceed the sum insured here-
by and premium shall not be receivable on values in excess thereof. The sum Insured
may however, be increased by prior agreement with the Company in which event the
new sum insured and the date from which it is effective will be recorded on the policy
by endorsement.
 —
282 INSURANCE
8. It is warranted that every policy covering the Insured’s stocks on a declara-
tion basis shall be identical in wording.
9. This Insurance is subject in all respects to the printed conditions of the policy
except in so far as they may be varied by tiiese special Conditions.

APPENDIX D
THE INSURANCE COMPANY, LIMITED
REINSTATEMENT CLAUSE.
Attached to & Forming Part of Policy No
Whereas the amounts declared for insurance on Buildings and Machinery covered
by Policy represent their reinstatement value and whereas the Assured undertake
tliis
to maintain insurance upto reinstatement value during the currency of this policy it is
hereby declared and agreed that :

(1) Basis of loss settlement shall be the cost of replacing or reinstating pro-
perty of the same kind or type but not superior to nor more extensh e
than the insured property when new.
(2) Failing reinstatement or replacement the Company shall not be liable
(5)
for more than the actual value of the property at the time of the fire.

(3) Payments in excess of what would be payable under the ordinary fire
Insurance can only be made after expenditure has been incurred by the
Assured in replacing or reinstating the property damaged and the total
amount paid shall not exceed the amount of such expenditure.
(4) The amount payable under the Policy shall not exceed that proportion of
the cost of reinstatement that the sum insured under the Policy bears to
the total reinstatement value of the property insured.
During the currency of this insurance the buildings and machinery
hereby insured shall be kept in thorough repair.

APPENDIX E
STANDARD FIRE POLICY, Edition 1923.

In Consideration of the Insured named in the Schedule hereto paying to the

ASSURANCE COMPANY LIMITED (hereinafter called the
Company) the. first premium mentioned in the said Schedule the Company agrees
(subject to the Conditions contained iierein or endorsed or otherwise expressed hereon
which Conditions shall so far as the nature of them respectively Will permit he deemed
to be Conditions precedent to the right of the Insured to recover hereunder) that if
after payment of the premium the property insured described in the said Schedule,
or any part of such property, be destroyed or damaged by
(1) Fire (whether resulting from explosion or otherwise) not occasioned by or
happening through
() Its own Spontaneous Fermentation or Heating or its undergoing
any Process involving the application of Heat,
() Earthquake, Subterranean Fire, Riot, Civil Commotion, Foreign
Enemy, Military or Usurped Power, Rebellion, or Insurrection,
(2) Lightning,
(3) Explosion of Boilers used for domestic purposes only,
(4) Explosion, in a building not being part of any Gas works, of Gas used
for domestic purposes or used for lighting or heating the building,

at any time before 4 o’clock in the afternoon of the last day of the period of insurance
named in the said Schedule or of any subsequent period in respect of which the Insuica
in
shall have paid and the Company shall have accepted the premium required for
renewal of this Policy, the Company will pay to the Insured the value of the propc it
ri}
at
at the time of the happening of its destruction or the amount of such damage or
 APPENDICES 283
optionreinstate or replace such property or any part thereof Provided ihal theliability of
the Company shall in no case exceed in respect of each item the sum expressed in the
said Schedule to be insured thereon or in the whole the total sum insured hereby or such
other sum or sums as may be substituted therefor by memorandum hereon or attached
hereto signed by or on behalf of the Company.

SCHEDULE
The Insured Policy No.
Agency. .

The Property Insured Sum Insured

Total sum insured

Period of Insuranee
From First Premium Annual Premium
To
at Four o’clock in the afternoon Due.

Signed this on behalf of the Assurance Company,

Limited.

Fire Manager Director.

 PART FIVE
MISCELLANEOUS
 CHAPTER XXVI
MOTOR INSURANCE
Bio tor Risks

The owner of an automobile vehicle is exposed

to various types of risks. These risks fall into two
groups: First, those of damage to, or loss or destruc-
tion of, the car itself and, second, that of being called
upon to pay damages for injuries which may be done
to others through the use, ownership or maintenance
of the car.
The first type of risk may further be classified
as follows:
(i) Destruction by fire, internal or external in
origin.
(ii) Theft.
(iii) Injury through collision, with some other
moving or fixed' or through upset.
object,
(iv) Other damage to car as by breakage of glass,
damage in a flood, or while being transported.
The second type of risk is the liability of the in-
sured to third parties arising out of accidents caused
by the -use of a motor vehicle on the road. The lia-
bility may be for death or bodily injury or for damage
to property. The risks also vary according to the
class of vehicle, e.g., in a passenger automobile the
liability may be for death of, or injury to, passengers
or in a common carrier the liability may be loss of or
damage to the property carried.
Motor Insurance
The owner of a vehicle who is exposed to the
above risks may get himself insured against all or
some of them with an insurance company. Regarding
third party risks of personal nature, i.e., any liability
in respect of the death or bodily injury to any person
287
288 INSURANCE

caused by or arising out of the use of the vehicle in

a public place, the owner has no option but to insure
because under the Motor Vehicles Act of 1939 he can-
not use a motor vehicle in a public place without a
policy of insurance. Similarly he has also to take an
insurance policy covering any liability arising under
the provisions of the Workmen’s Compensation Act,
1923 in respect of the death of or bodily injury to
any paid employee engaged in driving or otherwise in
attendance on or being canned in a motor vehicle.
Thus it will be seen that an owner must take an in-
surance policy to cover his legal liability to third
persons and his driver. This factor of compulsory
insurance of third party risks is unique in motor
insurance. It is a matter of national policy. So far
the other risks are concerned he is at liberty not to
insure, but it is in his interest to do so; and usually
all the owners take insurance against most of the risks
mentioned above. The insured will pay the agreed
premium to the insurance company which will make
good all the losses arising out of the risks insured
against in a particular policy.
The insured can combine the different risks under
one policy. These days comprehensive policies are
issued which cover a wide variety of risks under a
single coverage. In America all the risks cannot be
insured with one company. Usually fire and theft
risks are written by fire companies and liability in-
surance is entirely written by casualty companies.
The collision and property damage coverages are
'divided between both the groups. When there is a
common control over the two companies, combination
policies are issued to cover all risks. In India, how-
ever, there is no such distinction between different
companies and any company doing general insurance
business can cover all the risks under one policy.
Classification of vehicles insured
Thevehicles are generally divided in the follow-
ing four categories for the purposes of insurance:
 MOTOR INSURANCE 2S9

(1) Private cars.

(2) Commercial vehicles which refer to any type
of mechanically driven vehicle used for busi-
ness or trade purposes. They may be passen-
ger vehicles, goods vehicles or tractors.
(3) Trade vehicles.
(4) Motor cycles.
Rates are promulgated for each classification, and
for rate-making purposes further classification on the
basis of the use to which the vehicle is put is made
within those classes.
Tariff and Non-Tariff Offices
The insurance companies are of two types. Those
which are members of the Motor Tariff Association
are called ‘Tariff Offices’ and those which are not the
members of the Tariff Association are known as
‘Non-Tariff Offices.’ Most of the companies are tariff
offices. The premium rates and policy conditions of
all the tariff offices are regulated by the Tariff Asso-
ciation. In India there is one Tariff Association for
commercial vehicles for the whole country, but for
the private cars and motor-cycles there are regional
tariffs. The country is divided in three regions, viz.,
Bombay, Calcutta and Madras and any insurance
company lying ijn a particular region has to become
the member of that particular regional Tariff Asso-
ciation. Of course there are no territorial limits and
restrictions for the driving of vehicles in any region
but the insurance must be effected in a particular
region. Similarly a tariff office in a particular region
can insure a vehicle in some other region but the pre-
mium and the conditions must be governed by the
Tariff Association of the region in which the vehicle
is.

Types of coverages
each
From the standpoint of the risks covered
the following three
vehicle policy can be divided in
types.
290 INSURANCE ,

(1) Act Policy

An Act 'Policy covers which a policy
all risks for
is necessarily to be taken by the owner of a vehicle
under the Motor Vehicles Act. According to this Act,
a policy must be taken to cover any liability which
may be incurred by the insured in respect of the death
of or bodily injury to any person caused by or arising
out of the use of the vehicle in a public place. The
extent of the amount to which a policy should be
taken is also specified in the Act. Again a policy of
insurance is also necessary to cover any liability
arising under the provisions of the Workmen’s Com-
pensation Act 1923, in respect of the death of or bodily
injury to any paid employee engaged in driving or
otherwise in attendance on or being carried in a motor
vehicle. All these provisions together with the ex-
ceptions are printed on the policy itself. It should
be seen that insurance is compulsory as to personal
injury only and not as to damage to property.
(2) Third Party Policy
This policy covers not only those third party risks
for which an insurance policy is legally necessary as
explained above but also covers such risks for which
the insured may be held liable under various laws,
such as Fatal Accidents Act 1855 and common law.
Here the policy includes also the damage to property
of third parties for which the insured is liable. The
insurer undertakes to pay in addition to the compen-
sation, all sums including claimant’s costs and expen-
ses for which the insured becomes legally liable.
(3) Comprehensive Policy
A comprehensive policy covers a wide variety of
risks under single coverage, but it should not- be
understood that it covers each and every imaginable
risk. There are some very common risks which alone
are covered by this policy and if any other risk is to
be covered it can be added to the risks insured aftei
the payment of extra premiums. A comprehensive
 Medical Expenses up to a certain limit incur-
red in connection with injuries sustained by
the insured or any occupant of the car.
In addition to the above risks, the insured can
also secure additional benefits after paying extra pre-
miums. These benefits may be (i) death or bodily
injury of the insured alone or together with wife,
and of unnamed passengers, (ii) riots and strikes,
etc., (iii) loss of rugs, coats or luggage by theft, lar-
ceny or fire, etc.
Policies relating to commercial vehicles are not
so comprehensive as those by which private cars are
insured. The main difference being the omission of
personal accident benefits and the limitation of third
party indemnity in respect of damage to property to
Rs. 20,000 on any one accident. The policies on motor
cycles are issued on similar lines as the cars.
•292 INSURANCE

Usually the insured takes comprehensive policy

which includes the third party risks as well. The
•conditions of different policies are different and must
he studied carefully.
TSxtra benefits in policies on private cars
(i) Personal Accident Insurance
A comprehensive policy in addition to the coverage
mentioned above also confers extra benefits for which
the insured has to pay extra premiums. He may
include ‘personal accident insurance,’ by which the
company undertakes to indemnity the insured or a
named person, in case of death, bodily injury result-
ing in (i) loss of two limbs or sight of two eyes or
loss of one limb and sight of one eye, or (ii) loss
of one limb or sight of one eye and temporary
total disablement. The measures of indemnity in
these different cases are fixed in a table and premium
is charged according to the indemnity desired by the
insured. In the first two cases, i.e., death and bodily
injury the indemnity is a lump sum while in case of
temporary total disablement it will be in periodical
payments upto a stated number of instalments. The
insured can insure his wife too for the above casual-
ties. The benefits are available to the insured not
under 16 and not above 65 years of age. Similarly
the personal accident insurance can also be taken on
unnamed passengers in the insured car.
:
(ii) Riots, Strikes, etc.
Loss of or damage to the car occasioned by strike,
riot and civil commotion can also be covered by pay-
ing extra premium. The company reserves to itself
the right to alter this premium without notice.
(in) Loss of rugs, etc.

Loss of rugs, coats or luggage by theft, larceny

-or fire with a stated limit for any one loss can be
covered by paying extra premiums.
of this Chapter Proposal form for insurance of
.
1

motor cycles is similar to that for private cars. The

proposer must carefully answer all the questions
which are mentioned in the proposal form. It will
be on the basis of his answers that the risk will be
assessed and the premium will be fixed. Non-disclo-
sure about any material fact will entitle the company
to repudiate the liability.
The questions the different proposal forms
in
differ because relate to the different vehicles.
the}'
The first part of the questions relates to the identifi-
cation of the vehicle such as the registered letters and
number, make, horse power, type of body, year of
manufacture, seating or carrying capacity as the case
may be, present estimated value, etc. The second
part of the proposal form deals with questions the
answers to which will determine the risk so that an
appropriate premium may be fixed. These questions
are. with regard to the use to which the vehicle is
put, its equipment, past insurance, type of policy
desired and risks to be covered, etc.
At the end of the proposal form there is the
declaration about the truth and completeness of the
statements made in the proposal form by the proposer
1. See Appendix A and B.
294 INSURANCE

and this declaration is made the basis of contract

between the assured and the insurance company sub-
ject to the conditions prescribed in the policy.

Rating
When the proposal form is received by the com-
pany itwill fix the premium rate. If the company is
a tariff office, it will consult the rating book issued by
the Tariff Association, which contains schedules of .

rates for different vehicles for different policies. Each

member company charges the rates according to the
schedule for the particular vehicle under a particular
policy. The company will first find out the “basic
premium” from the schedule and then add to it the
amounts for additional risks or subtract from it the
rebates allowed for excluding certain risks. The final
amount will be the premium charged from the insured.
In case of Act and' Third Party Policies, it is the
horsepower which determines the premium for
private cars and motor cycles, and for the comprehen-
sive policies horsepower and the value of the vehicle
are the principal factors for fixing the premium.
If the owner or a named person is to drive the
car, a rebate of the premium is allowed because of
lower milage. A rebate is also allowed if the insured
agrees to bear a particular first portion of each claim
for damage to the insured car. Similarly if one
owner possesses more than one car and all of them
are insured the company will allow a rebate. Fur-
ther, if the insured is the member of any recognised
Automobile Association, a rebate of 10 p. c. is allowed.
In rating the Commercial Vehicles, the procedure
is a little complicated one. It will depend on the
type of vehicle, its carrying capacity, vehicle hauling
trailor or not, value, risks covered, etc. Different rates
are charged for town and mofussil areas. The rebates
are allowed in case of commercial vehicles and motor
cycles on the same grounds as those mentioned in
case of private cars.
 MOTOR INSURANCE
Issue of Policy
On hearing from the company, the proposer will
pay ;he premium fixed and the agent wili first issue
a “cover note" together with a “certificate of insu-
rance'' to the assured. The ‘cover note' denote:; the
acceptance of the risk by the company and will servo
as the basis of contract till the final ‘poiicy is issued.
The ‘certificate of insurance' is also Issued with the
cover note for the convenience of the insured who
can produce it before the regional authorities in proof
of the insurance of his vehicle. It contains cevlilieale
number and other particulars about the vehicle and
the insurance. A specimen of its form is given at the
end of the chapter .
1

There are various types of forms of certificate of

insurance depending on the type of vehicle, persons
entitled to drive and limitations as to use.

Term of Insurance
No insurance is usually granted for a period longoi
than one year excepting for any part of the next year
required to make the policy fall due on some particu-
lar date to meet the convenience of the insured.
Policies for periods shorter than a year can be granted
at short term rate where 'the proportionate premium
will be higher on such policies, e.g., a policy covering
not more than G months will be charged three fourths
of the annual premium.
Additions of benefits during the currency of policy
If the insured wants to cover any extra benefits
or cancel limitations during the currency of an annual
policy up to the expiry date he is allowed to do so
after paying extra premiums on a pro-rata basis subt
ject to any minimum premium applicable.

Change of vehicle
car
If the insured wants to dispose of his insured
1. See Appendix D.
296 INSURANCE

and replace it by another, the policy can be transfer-

red to apply to the newIn such a case the pre-
car.
mium will have to be adjusted on a pro-rata basis, if
necessary.

Furlough concessions
If the car is laid up in a garage for two or more
consecutive months the company will, provided pre-
vious notice is received and the Certificate of Insu-
rance is returned, restrict the cover to fire and theft
risks only, and either (a) make a refund of the pro-
rata premium for such period or (b) extend the policy
for a period equal to the period during which the
cover is so restricted, subject in either case to pay-
ment of a small additional premium. These conces-
sions are known as “furlough concessions”.

Settlement of claims
The insured should give a notice in writing to the
company immediately upon the occurrence of any
accident or loss or damage. This is essential as the
company may be seriously prejudiced in obtaining
the facts and circumstances of an accident if the notice
is delayed. Eye-witnesses must be traced if possible
and their statements secured whilst the details are-
fresh in their minds. On receiving the above notice,
'

the company shall send a Claim Form to the insured

to be filled up by him. A
specimen copy 1 of such a
form is given at the end of the chapter which will
show as to what information is usually required
therein. If the claim relates to personal injury, a
medical examination will be arranged by the com-
pany. It should, however, <-be remembered that
fraudulent claims are not uncommon in motor insu-
rance and hence a searching enquiry is essential about
the claims made. The company may check the claim
form to find out whether the claim appears to .be one
which is covered by the policy. The claim might be
1 See Appendix E.
 MOTOR INSURANCE 297

a loss of, or damage to the car itself or regarding the

third party risks. For the latter type of claims the
policy conditions provide that the insured must not
make any admission of, offer or promise payment or
indemnity without the written consent of the com-
pany. If the company wants to defend any such claim
or to prosecute any party the insurd is bound to render
all assistance to the company in such proceedings.
The insured is also bound to take all possible steps to
prevent any loss or damage to the vehicle.
In settlement of ‘own damage’ claims, the insurer
shall try to ensure that the insured obtains a settle-
ment which will not leave him dissatisfied, but in case
of third party claims the settlement will be made in
accordance with the strict letter of the law and at as
little cost as possible.

In case of ‘own damage’, the company will pay

the claim for repair charges. If the claim is serious,
a detailed enquiry is undertaken and the insurer may
undertake to repair the damage.
Negligence of the parties
It should be noted that the policy covers the third
—
party risks only such risks for which the insured
Would be legally liable. If due to an accident through
the insured vehicle a third party claim arises but if it
can be proved that the accident was not on account
of any negligence on the part of the insured or his
driver, the insured will not be legally liable for the
claim and hence the insurance company, will have no
liability. In order to prove that there was no negli-
gence on the part of the insured, many times the in-
surer defends any legal proceedings for claim. If
it
_

was fault, the insur-

is proved that the injured party at
avoid
ed has no liability if he had taken proper care to
are a,
the accident. When drivers of two vehicles
third person then die
fault for any injury to the
the ov.ne-
injured person can recover damage from
of any of them or both jointly.-
1—20
298 INSURANCE

Total and partial losses in “own damage”

As soon as the company receives information of
an accident, it will send its surveyor who may ascer-
tain whether the loss is the total or partial one. If
he finds that the loss is a total loss, the measure
of indemnity will be the value mentioned in the policy
less the depreciation charges. If there was an under-
insurance the proportionate claim only will be paid.
Any salvage remaining after paying the total loss to
the insured will go to the company. If the loss is not
total loss the surveyor will assess the loss and the com-
pany will pay the amount. In case of partial loss as
well, if there is under-insurance the average clause is
applicable and the claim will be settled on a pro-rata
basis. The cases of under-insurance in motor insu-
rance are rare and specially it becomes 'difficult to
prove the real value of the vehicle. The company, if
it so selects, can undertake to replace or repair the
losses instead of cash payment.

Knock for Knock agreement

This is an agreement between two different insu-
rance companies by which they agree that neither
party will seek to recover from the other, any damage
done in collision or attempt to avoid collision, to
vehicles insured or owned by either party. It means
that when a collision or attempt to avoid collision
results in damage to one or both vehicles insured
with them, each insurer will bear his own loss and
will not recover from the other irrespective of the
consideration* as to who was legally liable. This
agreement does not affect the insured parties. It is
entered into with a view to reduce the heavy cost of
investigation and litigation for claims and also to
expedite settlement, much to the advantage of the
insured. The agreement applies to cases of damage
.to vehicles only. „ .
• •

But the above agreement will not be equitable

when made with commercial vehicles, because ordi-
 MOTOR INSURANCE 299

narily these vehicles being heavier than a large

majority of other vehicles, do more damage than they
sustain. In such cases, therefore, the “knock for
knock” agreement is substituted by a “halving agree-
ment,” according to which the two insurers pool the
damage done to both the vehicles and each pays one-
half of the total damage.

The Policy and its Contents

As observed previously the vehicles are of four
types, viz., private cars, commercial vehicles, motor
cycles and trade vehicles. Again the coverage asked
for any of these vehicles is of three types, viz., act
only, third party and comprehensive. Usually the
companies have one ‘Act only’ form for all vehicles
and different comprehensive policy forms for the four
types of vehicles. By studying the comprehensive
policy for any vehicle a full idea can be obtained of
the other coverages also, as they are usually included
in it. The provisions of a comprehensive policy for 1

private cars are given below.

Loss or damage
The company indemnifies the insured against loss
or damage to the car and/or its accessories arising
(i) . by accidental external means, (ii) by fire, exter-
nal explosion, self-ignition, lightning, or frost,, or
burglary, housebreaking or theft, (in) by malicious
-act (iv) whilst in transit by road rail, inland water-
:

way, lift or elevator.

The company is not liable for (a) consequential
loss, depreciation, wear and tear, mechanical
or elec-
trical breakdowns failures or breakages and (b) dam-
age to tyres. If the motor car is disabled by reason o
loss or damage covered under the policy, the company
shall pay the reasonable cost of protection
and re-
and of redelivery to the
moval to the nearest repairers

1. See Appendix C.
300 INSURANCE

insured but not exceeding a fixed amount for any one

accident.
Liability to third parties
The company will indemnify the insured in the
event of accident caused by or arising out of the use
of the motor against all sums including claimant’s
costs and expenses which the insured shall become
legally liable to pay in respect of (a) death or bodily
injury to any person except where such death or in-
jury. arises out of and in the course of the employment
of such person by the insured, (b) damage to property
other than property of insured or held in his trust or
custody or control. The company will pay all cost
and expenses incurred with its written consent. The
company is also liable to indemnify the driver who
drives the motor car on insured’s order or permission,
provided that such driver (i) is not entitled to any
indemnity under any other policy, (ii) shall .observe
conditions laid down in policy as if he were the in-
sured.
Medical expenses
The company pays to the insured also the rea-
sonable medical expenses not exceeding a stated
amount in respect of afiy one accident incurred in
connection with any bodily injury sustained by the
insured or any occupant of the car, as the direct and
immediate result of ah accident to the car.
General Exceptions
The company is not liable in respect of
(1) any accident, loss, damage, liability caused,
sustained or incurred outside the geographical area,
(2) any claim arising out of contractual liability,
(3) any accident, loss, damage, liability caused
sustained or injured whilst the insured car is (i) being
used otherwise than in accordance with the limita-
tion as to use, or (ii) being driven by any person other
than a driver.
 MOTOR INSURANCE 301

Moreover, the policy does not cover any loss

damage or liability due to flood, typhoon, hurricane,
volcanic eruption, ‘earthquake, warlike operations,
civilwar, strike, riot, civil commotion, mutiny, etc. It
also excludes any liability to the driver who is under
the influence of liquor or drugs with consent of the
insured.
Conditions
The other conditions of the policy refer to im-
mediate notice of an accident to the company and
to the rendering of every assistance to it in assessing
the cause of accident, extent of damage or in civil
court proceedings. The insured cannot settle or ad-
mit any claims without the consent of the company.
It is the duty of the insured to reasonably safeguard
the car from loss or damage and to maintain in effi-
cient condition and to prevent further damage after
accident. When there is any loss, the company can
either repair or reinstate the car or its part or may
pay in cash the amount of loss or damage and the
liability of the company shall not exceed the actual
value of damaged or lost parts plus the reasonable
cost of fitting and' in no case shall exceed the insured
value of the car. The policy can be cancelled by in-
surer after seven days’ notice and in that case the
unexpired premium at pro-rata basis will be refund-
ed. Similarly, the insured can also ask for cancella-
tion of the policy and in that case the balance of
premium will be refunded after deducting the pre-
mium at short period rates for the time the insur-
ance remained in force. In case of double insurance,
the company pays only its ratable proportion of the
claim. Lastly, there is an Arbitration clause which
lays down that the arbitration will precede any civil
suit in case a dispute arises between the parties.
No-claim Bonus
policy also provides that when a policy
is
The
bonus in form of reduction of renewal
renewed, a
302 INSURANCE

premium will be allowed, provided there was no claim

under that policy in the preceding years. The per-
centage of reduction will vary according to the num-
ber of preceding years during which there was no
claim. Such a bonus is called ‘no claim bonus.’ It
is meant to encourage careful driving.

Transfer of Interest
The policy also provides for transfer of interest
during the currency of the policy to any other person,
but the period during which the interest was in the
transferor shall not accrue to the benefit of the trans-
feree for the purposes of ho claim bonus’.

The schedule
The other part of the policy is the schedule which
contains the policy number, the name of the com-
pany, the name address and profession of the insured,
period of insurance and geographical area. It also
includes the registration mark, make, type of body,
horsepower, year of manufacture, seating capacity
and the value of the car insured. This information is
required for the identification of the car and settling
the claim. The schedule also limits the use of the car
for social, domestic and pleasure purposes and for the
insured’s business only. The use of the car for hire,
reward, racing, speed testing or carriage of goods in
connection with any trade or business is excluded
from the scope of the policy. The name of the driver
is also mentioned who must hold a licence to drive
the car. Lastly, the schedule contains the date of
proposal and the amount of premium.

Policies on commercial vehicles

Mostof the conditions of comprehensive policies

covering commercial vehicles are same as those of
private cars. There are some differences regarding
the risks covered and their limit. Usually the com-
mercial vehicle policies contain a long list of excep-
 MOTOR INSURANCE 303

tions which are not included in the cover. All these

are clearly mentioned in the policy itself and a peru-
sal of the document will make them clear to the rea-
der.
Policies on Motor Cycles
A comprehensive policy on motor cycles is gene-
rally issued to cover the third party risks, accidental
or malicious damage including transit, fire, lightning,
self-ignition or explosion, theft, removal charges.
Damage to rubber tyres is not covered unless the
motor cycle and/or side car is damaged at the same
time. The general exceptions of this policy are same
as in case of a private car.
The liability to side-car passengers on account of
any accident in direct connection with the insured
motor vehicle can also be covered by paying extra
premium. Similarly the personal accidents to him-
self or driver can also be covered. The rebate is also
allowed for bearing the first stated portion of any
claim or for being the member of a recognised Auto-
mobile Association or on no-claim grounds in preced-
ing years.
The other conditions regarding notice of acci-
dents, arbitration, etc., are same as in case of private
car policies.
MOTOR INSURANCE
APPENDICES
 Cars.

Private

a of

Insurance

appendix

for

Form

Proposal
308

Purposes

trade

or

business

for

used

Lorries

or

Cars

for

applicable

not

Is

form

This
 Vehicles

Commercial

B
of

Insurance
APPENDIX

for

Form

Proposal
310 INSURANCE
812 INSURANCE-

APPENDIX C
Private Cars Comprehensive Policy (India)

f
INSURANCE CO. LTD.
WHEREAS the Insured by a proposal and declaration dated a9 stated in the
Schedule which shall be the basis of this contract and Is deemed to be In-
corporated herein has applied to the Company for the insurance hereinafter
contained and has paid or agreed to pay the premium as consideration for such,
insurance in respect of accident loss or damage occurring during the Period
of Insurance.
NOW THIS POLICY WITNESSETH :

That subject to the Terms Exceptions and Conditions contained herein

or endorsed or otherwise expressed hereon
SECTION I.— LOSS OR DAMAGE
The Company will indemnify the Insured against loss of or damage to the Motor
Car and/or its accessories whilst thereon
() by accidental external means
() by fire external explosion self-ignition lightning or frost or burglary house-
breaking or theft
(c) by malicious aet
(d) whilst in transit by road rail inland waterway lift or elevator
The Company shall not be liable to make any payment in respect of —
(a) conse-
:

quential loss depreciation wear and tear mechanical or electrical breakdowns failures-
or breakages and (6) damage to Tyres unless the Motor Car is damaged at the same time-
when the liability of the Company is limited to 50% of cost of replacement.
In the event of the Motor Car being disabled by reason of loss or damage covered
under this Policy the Company will bear the reasonable cost of protection and removal
to the nearest repairers and of redelivery to the Insured but not exceeding in all Rs. 150-
in respect of any one accident.
The Insured may authorize the repair of the Motor Car necessitated by damage for
which the Company may be liable under this Policy provided that
() the estimated cost of such repair does not exceed Rs. 300
() the Company is furnished forthwith with a detailed estimate' of the cost and
(c) the Insured shall give the Company every assistance to see that such repair iff-
necessary and the charge reasonable.
SECTION II —LIABILITY TO THIRD PARTIES .

1. The Company will indemnify the Insured in the event of accident caused by or
arising out of the use of the Motor Car against all sums including claimant’s costs and
expenses which the Insured shall become legally liable to pay in respect of
(a) death of or bodily injury to any person except where such death or. injury
arises out of and in the course of the employment of such person by the Insured
(b) damage to property other than property belonging to the Insured or held in
trustby or in the custody or control of the Insured
2. The Company will pay all costs and expenses incurred with its written consent
3. In terms of and subject to the limitations of the indemnity which is granted
by this Section to the Insured the Company r^ill indemnify any Driver who is driving
the Motor Car on the Insured’s order or with his permission provided that such Driver
(a) is not entitled to indemnity under any otheT Policy
(b) shall as though he were the Insured observe fulfil and be subject to the terms,
exceptions and conditions of this Policy in so far as they can apply.
4. In terms of and subject to the limitations of the indemnity which is gr-'ud rd
by this Section in connection with the Motor Car the Company will indemnify the
Insured whilst personally driving a private Motor Car (but not a Motor Cycle) not
belonging to him and not hired to him under a hire purchase agreement.
5. In the event of the death of any person entitled to indemnity under this Policy
the Company will in respect of the liability incurred by such person indemnify
niff
policy
personal representatives in the terms of and subject to the limitations of this
so reu
provided that such personal representatives shall as though they were the In
in so
observe fulfil and be subject to the terms exceptions and conditions of this Policy'
far as they can apply.
 —

INSURANCE. -
313

0. Inc Company may at its own option (a) arrange for representation at any
inquest or Fatal Inquiry in respect of any death which may be the subject of indemnity
under this Section and (b) undertake the defence of proceedings in any Court of Law
in respect of any act or alleged offence causing or relating to any event which mav
he
the subject of indemnity under this Section.

'SECTION III.— MEDICAL EXPENSES

The Company pay to the Insured the reasonable medical expenses not ex-
will
ceeding Rs. 350 in respect of any one accident incurred in connection with any bodily
injury by violent accidental external and visible means sustained by the Insured or any
occupant of the Motor Car as the direct and immediate result of an accident to the Motor
Car. -

AVOIDANCE OF CERTAIN TERMS AND RIGHT OF RECOVERY

Nothing in this Policy or any endorsement hereon shall affect the right of any
person indemnified by this Policy or any other person to recover an amount under or
by virtue of the provisions of the Motor Vehicles Act 1939 Section 9G.
BUT the Insured shall repay to the Company all sums paid by the Company which
the Company would not have been liable to pay but for the said provisions,
GENERAL EXCEPTIONS
The Company shall not be liable under this Policy in respect of
(1) any accident loss damage and/or liability caused sustained or incurred outside
the Geographical Area
(2) any claim arising out of any contractual liability
(3) any accident loss damage and/or liability caused sustained or incurred whilst
any Motor Car in respect of-or in connection with which insurance is granted
under this Policy is
(a) being used otherwise than in accordance with the limitations as to Use or
(b) being driven by any person other than a Driver.
The Company shall not be liable in respect of any accident loss damage and/or
liability directly or indirectly proximatcly or remotely occasioned by contributed to
by or traceable to or arising out of or in connection with flood, typhoon, hurricane,
volcanic eruption, earthquake or other convulsion of nature war invasion, the act of
foreign enemies, hostilities or warlike operations (whether before or after declaration of
war), civil war, strike, riot, civil commotion, mutiny, rebellion, military or usurped
powerorbyanydireef orindirectconsequencesofanyof the saidoccurrcncesand except
under Section II— 1 (a) of this Policy whilst the Insured or any person driving with the
general knowledge and consent of the Insured is under the influence of intoxicating
liquor or drugs and in the event of any claim hereunder the Insured shall prove that the
accident loss damage and/or liability arose independently of and was in no way con-
nected with or occasioned by or contributed to by or traceable to any of the said occur-
rences of any consequence thereof and in default of such proof the Company shall not
be liable to make any payment in respect of such a claim.

No-Claim Bonus :

In the event of no claim being made or arising under this

the Policjthe rtinewat
insurance specified below immediately preceding the renewal of
I

premium for such part of the insurance as is renewed shall be reduced a

Reduction.
Period of Insurance
The preceding year • •
10 %
.
.
consecutive years
. 15%
- two
The preceding *
••‘••'years 20 %
The
ears
The '
33 1 1/3%
The preceding m l ui mo**, ^^.^-cutive jears
If the Company shall consent to a UwU-n^fit^Mi'.e
Transferor shall not accrue
during which the interest was in the
fransferree. „ . , , A »i, e <>eliedule the No-CUim Bonus shall
If more than one Motor Car of each such Motor Car.
respect oi
in respeci
applied as if a separate Policy had been {i»ued
ie<j to
be
1—21
 314 INSURANCE
CONDITIONS
This Policy and the Schedule shall be read together and any word or expression to
which a specific meaning has been attached in any part of this Policy or of the Schedule
shall bear the same meaning wherever it may appear.
1. Notice shall be given in writing to the Company immediately upon the oc-
currence of any accident or loss or damage and in the event of any claim and thereafter
the Insured shall give all such information and assistance as the Company shall require.
Every letter claim writ summons and/or process shall be forwarded to the Company
immediately on receipt by the Insured. Notice shall also be given in writing to the
Company immediately the Insured shall have knowledge of any impending prosecution
Inquest or Fatal Inquiry in respect of any occurrence which may give rise to a claim
under this Policy. In case of theft or other criminal act which may be the subject of a
claim under this Policy the Insured shall give immediate notice to the Police and co-
operate with the Company in securing the conviction of the offender.
2. No admission offer promise payment or indemnity shall be made or given by or
on behalf of the Insured without the written consent of the Company which shall be
entitled if it so desires to take over and conduct in the name of the Insured the defence
orsettlement of any claim or to prosecute in the name of the Insured forits own benefit
any claim for indemnity or damages or otherwise and shall have full discretion in the
conduct of any proceedings or in the settlement of any claim and the Insured shall give
all such information and assistance as the Company may require.
3. The Company may at its own option repair reinstate or replace the Motor Car
or part thereof and/or its accessories or may pay in cash the amount of the loss or dam-
age and the liability of the Company shall not exceed the actual value of the parts
damaged or lost plus the reasonable cost of fitting and shall in no case exceed the
Insured’s estimate of the value of the Motor Car (including accessories thereon) as
specified in the Schedule or the value of the Motor Carfincludnig accessories thereon)
at the time of the loss or damage whichever is the less.
4. The Insured shall take all reasonable steps to safeguard the Motor Car from
loss or damage and to maintain it in efficient condition and the Company shall have at
all times fcee and full access to examine the Motor Car or any part thereof or any
driver or employee of the Insured. In the event of any accident or breakdown the
Motor Car shall not be left unattended without proper precautions being taken to
prevent further damage or loss and if the Motor Car be driven before the necessary
repairs are effected any extension of the damage or any further damage to the Motor
Car shall be entirely at the Insured’s own risk.
5. The Company may cancel this Policy by sending seven days’ notice by regis-
tered letter to the Insured at his last known address and in such event will return to the
Insured the premium paid less the pro rata portion thereof for the period the Policy
has been in force or the Policy may be cancelled at any time by the Insured on seven
days’ notice and (provided no claim has arisen during the then current period of in-
surance) the Insured shall be entitled to a return of premium less premium at the Com-
pany’s Short Period rates for the period the Policy has been in force.
0. If at the time any claim arises under this Policy there is any other existing
insurance covering the same loss damage or liability the Company shall not be liable to
pay or contribute more than its ratable proportion of any loss damage compensation
costs or expense. Provided always that nothing in this Condition shall impose on the
Company any liability from which but for this Condition it would have been relieved
under proviso (a) of Section II-3 of this Policy.
7. AU differences arising out of this Policy shall be referred to the decision of an
Arbitrator to be appointed in writing by the parties in difference or if they cannot agree
‘
upon a single Arbitrator to the decision of two Arbitrators one to be appointed >n
writing by each of the parties within one calendar month after having been required in
writing so to'do by either of the parties or in case the Arbitrators do not agree of an
Umpire appointed in writing by the Arbitrators before entering upon the reference.
The Umpire shall sit with the Arbitrators and preside at their meetings and the making
of an Award shall be a condition precedent to any right of action against the Company.
If the Company shall disclaim liability to the Insured for any claim hereunder and
such
claim shall not within twelve calendar months from the date of such disclaimer have
claim shall
been referred to arbitration under the provisions herein contained then the
be re-
for all purposes be deemed to have been abandoned and shall not thereafter
coverable hereunder.
8. The due observance and fulfilment of the terms conditions and emiorsemcms
by tn®
of this Policv in so far as they relate to anything to be done or complied with conm-
Insured and the truth of the statements and answers in the said proposal shall be oucj •
tions precedent to any liability of the Company to makeany payment
under tins l
 : : :

INSURANCE 315

THE SCHEDULE
POLICY No. M. V.
The Insured : Name
Address
Business or Profession
Period of Insurance : (a) From to (Both dates inclusive)
( b) Any subsequent period for which the Insured shall
pay and the Company shall agree to accept a re-
newal premium
Geographical Area : India and Burma
The Motor Car : Any of the following
Insured’s
Seating estimate of
Registration Type Horse Year of Capacity value
Mark Make of Power Manufacture including including
Body Driver Accessories
Rs.

Limitations as to use
Use only for social domestic and pleasure purposes and for the Insured’s
business
The Policv does not cover use for hire or reward or for organised racing pace-
maklno reliability trial speed-testing the carriage of goods (other than
or use for any purpose in
samples) in connection with any trade or business
connection with the Motor Trade.

important notice
NOT INDEMNIFIED IF THE
THE INSURED ISDRIVEN
VEHICLE IS USED OR OTHERWISE THAN IN
YrrnnnANCE WITH THIS SCHEDULE. ANY PAY-
MFCT L\DE APPEARING IN THE BY
by THE COMPANY REASON OF
CERTIFICATE IN
-fFRMS
TO COMPLY WITH THE MOTOR VEHICLES
IS RECOVERABLE FROM THE
INSURED.
ffiaA®|VD “AH«D^CEpF
^E TERMS AND RIGHT OF RECO\ EH *
TAIN
CER-
•

Driver : Any of the following

(a)
b
drive the MotorCar or has
[ J ... nerson driving holds a license to a license.
not d'JsTuaUficd for holding or obtanung such
heM and is

of Proposal and Declaration

Date of Signature
Premium

witness •‘'Srs-.r'
the Company has/have hereunto
bus,

^ -pjjE .... INSURANCE CO., LTD.

Exam wtd
Enierc-d
31 G INSURANCE
APPENDIX D
MOTOR VEHICLES ACT, 1930

Certificate of Insurance

Certificate No.

1. Registration Mark and Number or

Description of the Vehicle insured

2. Name and Address of Insured

3. Effective date of Commencement of

Insurance for the purposes of the Act

4. Date of Expiry of Insurance

5. Persons or Classes of Persons entitled

to drive

Any person

Provided the person driving holds a license to drive the vehicle or has held
and is not disqualified for holding or obtaining such a licence.

6. Limitations as to use

The policy covers use for any purpose other than

() Hire or reward

() Organised racing or speed testing I

I/WE HEREBY CERTIFY that the policy to which this Certificate relates a®
well as this Certificate of Insurance are issued in accordance with the provisions of
Chapter VIII of the Motor Vehicles Act, 1939.

For THE INSURANCE CO., LTD.

( Authorised Insurer.)

•SEAL •

Examined.
 . 7

INSURANCE 31

APPENDIX E •

MOTOR CLAIM FORM.

Policy ATo.
Aro, Claim
THE INSURANCE COMPANY, LIMITED

THE ISSUE OF THIS FORM IS NOT TO BE TAKEN AS AN

ADMISSION OF LIABILITY.
Please do not disclose to anylTliird Party that you are Insured and in no case
admit your fault nor make any payment or offer of payment without the n rltten
outhorlty of the Company.
Answer ALL questions and FULLY. It will avoid unnecessary corres-
pondence and consequent delay in the settlement of Claim.
. —
. Name of Insured {in full)
2, Address
3. Occupation

4. The Insured Vehicle.

(a) Make (b) Horse Power .(c) Registered No
(d) Price paid by the Insured (e) Year of manufacture. *

(f) Purpose for which was being used at the time of accident
it

(g) Was it in proper order and condition at the time ?

(h) Was it being used with your knowledge and consent ?
(*) If the claim is in respect of a motor cycle state whether a Pillion passenger was
being carried at the time of accident
(j) If the claim is in respect of a lorry, state whether a trailer was attached

5. The Person driving at the time of accident.

() Full name of the person
() His address
(c) Ilis age. (d) Is lie your permanent paid driver?
(e) Date and Number of License (/) Was it in force at the time of
accident ?.
( g ) Has it ever been endorsed or suspended ? If so, give full details with dates. . .

(/<) Is he entitled to indemnity under any other Company's Policy?

(i) Was he sober? (j) Is he, in your opinion, to blame ?

6. The Accident. (Damage, Fire . Theft.)

(a) Date of Occurrence (i>) Time *

(c) Place (Street or Rond and Town)

(d) Were you in the Vehicle? (e) If not, when was it reported to
you?
side of the Street or Road was your vehicle and bow far from the
(/) On what
kerb

(g) What was the width of the Street or Road ? *

( /, ) At wliat speed was the vehicle being driven before the accident ?
And at what speed was it being driven at the time of the accident
1
(i)
 —

318 INSURANCE

(j) Give full details of the nature and cause of the Accident/Theft/Fire

1 ,

(/c) If possible draw a sketch of the scene of accident.

7. The Damage.
(a) Give in detail the extent of all damage to the insured vehicle directly due to
the accident

(6) Estimated cost of repairs Rs

(e) Where can the vehicle be inspected ?
(d) Have you given instructions for repairs to be carried out? If so, to whom
(Name and Address).

(e) Have you instructed them to send an estimate to the Company immediately ?

N.B . — If possible an estimate of repairs should be attached to this form and in any
event it must be sent to the Company without undue delay.

8, The Result.
(a) Has the accident caused any injury to any person or persons ?
If so, give the following particulars :

tSRasaitffci..
Whether being
Name Address. Occupation. Nature of Injuries conveyed in the
vehicle or not.
 INSURANCE 819

{b) If any injured person has been removed to an Hospital or medically attended
givename and address of the Hospital or Doctor

(c) Did the accident cause damage to property or live stock ? If so, give name and
address of the owner staling nature and extent of damage

9. General,
() Has any claim been made upon you by any Third Party? If so, give details
and. attach the intimation

() If accident was caused by the fault of any third party, give name and address
of such person/s.

(c) How many persons were in the vehicle at the time of accident ?
(d) Give the following particulars about all witnesses to the accident

Whether being
Name Address. conveyed in the
vehicle or not.

(e) Was the matter reported to the Police? If so, give name of the Police Station

(/) What action, if any, has been or is being taken by the Police or any other autho-
rity ?

(g) Give particulars of other insurance on the vehicle, if any.

I/Wc the abovenomed, do hereby, to the best of my/our knowledgeagree and belief,
thatif
warrant the truth of the foregoing statements in every respect ; and I/W e
made, or any further declaration the Company require >» respect of the
I/We have in
or an 5u pr
said accident, shall make any false or fraudulent statement, X P *!?i£?f of
thereunder in respect
concealment, the Policy shall be void and nil rights to recover
past or future accident shall be forfeited.
.19. Signature.
Date . . ,

HVfnfw.
 CHAPTER XXVII
WORKMEN’S COMPENSATION INSURANCE
Principle of Workmen’s Compensation
The origin of the principle underlying the work-
men's compensation Acts is to be found, not in the
civilization which produced the English Common law,
but in the pretensions of economists of the continent.
The measure is designed to correct what has become
a very generally recognised evil. The object of the
Act is to safeguard the workmen and their dependents
against becoming objects of charity, by making rea-
sonable compensation for all such calamities as are
incidental to the employment. Economic loss to
employees, owing to such calamities, should be
regarded as an item of the cost of production of the
goods on which the work was being done, and, as
such, should be borne by the consumers of those
products in the same manner as the destruction and
obsolescence of the machinery is borne as a part of
the cost of production. As
a step to realise this object
in practice, the cost isto be assessed on the
first
employer who produces the goods, and he is made
responsible for indemnity to the injured in all cases
without the question of fault or negligence as was
the old theory. Of course in order not to remove
from the employee all incentive to care, only partial
indemnity is provided.
Workmen’s Compensation Act
In England, the Employers’ Liability Act was
passed in 1880 but it became a comprehensive and
effective enactment so late as that in 1906. On the
model of this Act, in India, too, the Workmen’s Com-
pensation Act was passed in 1923 for the first time
and since then it has been amended several times,
the most drastic amendments having been made in
320
 WORKMEN’S COMPENSATION INSURANCE 321

1934. According to this Act, ‘if personal injury is

caused to a workman by accident arising out of and
in tlie course of employment, his employer shall be
liable to pay compensation.’ The measure of com-
pensation too has been fixed by the Act. The Act
also makes the employer liable if the employee con-
tracts any of the specified occupational diseases pecu-
liar to the employment. However, the employer is
not liable in respect of any injury, which does not
result in death and which is caused by an accident,
which is directly attributable to (i) the worker hav-
ing been under the influence of drink or drugs at the
time of accident, or (ii) his wilful disobedience to an
express order or rule meant for his safty, or (iii) his
wilful removal or disregard of any safetyguard or
other device meant for his safety to his knowledge.
Hence, if the accident results in death due to am/ of
the above causes, even then the employer is liable
under the- Act.
Workmen’s Compensation Insurance
It has been observed that an employer is liable
to compensate his employees in respect of personal
injuries or certain occupational diseases under the
Workmen’s Compensation Act. He can transfer this
liability of his to an insurance company by paying
an appropriate premium and the insurance company
will pay the compensation payable to the employees
under the Workmen’s Compensation Act. The em-
ployer has not to worry about his liability under the
Act after he takes the insurance. Such an insurance
is called “Workmen’s Compensation Insurance” or
“Employers’ Liability Insurance.” A distinction,
however, is drawn between the two terms, whereby
used for the insurance of the
the latter term is
relevant Act, while e
employers’ liability under the
addition to this also includes the
former term in other
compensation payable to the workmen under
Acts, such as Fatal Accidents Act, 18oo and Commo
Law.
 —
322 INSURANCE

Scope of the workmens’ compensation Act

The Act protects the workers against employ-
ment injuries (including industrial injuries and
diseases) who are employed on monthly wages not
exceeding Rs, 400 per month 1 in any of the occupa-
tions specified in the Act itself. Persons whose em-
ployment is of a casual nature and who are employed
otherwise than for purposes of the employer’s trade
or business are not included. Similarly employees
forking in a clerical capacity are also excluded. No
compensation is payable in respect of an injury which
does not result in the total or partial disablement of
the workman for a period exceeding seven days. This
period is known as the ‘Waiting Period.’
In case of death, the compensation is payable to
the employee’s dependants. The word dependant
includes (i) a wife, a minor legitimate son, unmarried
legitimate daughter or a widowed mother 1

and (ii) a
husband, a parent other than a widowed mother, a
minor illegitimate an unmarried illegitimate
son,
daughter, a minor brother and some other relatives,
if these are wholly or in part dependant on the earn-
ings of the employee at the time of his death.

The Compensation Payable

The results of injuries, so far as compensation is
concerned, are divided into:
A. Death.
B. Permanent Total Disablement.
C. Permanent Partial Disablement.
D. Temporary Disablement.
In each of the three cases, provision is made
first
for payment by lump sums. In the fourth case, pay-
ment is ordinarily to be in a series of half-monthly
sums. In every case a distinction is drawn between
adult and minors 2 because firstly a minor does not

1. In 1949 the limit was raised from Rs. 300 to Rs. 400.
2. A minor means a person nnder the age of 15 years.
 WORKMEN’S COMPENSATION INSURANCE 323

ordinarily support a family and secondly he receives

much lower wage. The amounts of compensation
depend on the wages of the deceased or the injured
employee prior to the accident. The following table
shows the compensation payable for death and total
disablement:

Monthly wages Amount of Compensation for

/Half —
monthly
ol the workman [
Death of Permanent total Dis- payment
f
as
injured 1

Adult ablement of Adult Compensa tion

for temp o r a r y
disablement of
- Adult

1 2 3 4
1

More But not 1

than more than

Rs. Rs. |
Rs. Rs. Rs. As.

|
Halfhis
0 10 500 700 monthly wages
10 15 550 770 5 0
15 18 COO 840 G 0
18 21 63o 882 7 0
21 24 720 1,008 8 0
24 27 810 1,134 8 8
27 30 000 1,2G0 9 0
30 35 1,050 1,470 9 8
35 40 1,200 1,680 10 0
40 45 1,350 1,890 11 4
45 50 1,500 2,100 12 8
50 GO 1,800 2,520 15 •ft
8"
GO 70 2,100 2,010 17
2,400 3,300 20 0
70 80
3,000 4,200 25 0
80 100
4,900 30 0
100 200 3,500
5, GOO 00 0
200 300 4,000
.

G,300 30 0
300 4,500

In case of a minor, the

compensation payable fox-
permanent total disablement
death is Rs. 200, and for
partial
Re i 200 Compensation payable for permanent
the compensation
disablement is such percentage of
 —

•324 INSURANCE

which would have been payable in the case of per-

manent total disablement as is specified above in
column 3 as being the percentage of the loss of earn-
ing capacity caused by that injury. In case of tem-
porary disablement, a minor is entitled to one-half of
his monthly wages, subject to a maximum of Ks. 30.
Loss of earning capacity in permanent partial
disablement
The Act down an
objective standard of per-
lays
centage of earning capacity in permanent
loss of
partial disablement according to the nature of injury
and the compensation payable in this case is calcu-
lated on this basis. The law has tried to make the
worker feel as much certain as possible about the
amount of compensation so that not much may be
left on the judging capacities of the individuals who
have to make an award. The following table will
show the percentages of earning capacity by the
different injuries as laid down by the Act:

i Percentage of
Injury. loss of earning
'

capacity

Loss of right arm above or at the elbow. 70

Loss of leftarm above or at the elbow. 60
Loss of right arm below the elbow. 60
Loss of leg at or above the knee. 60
Loss of left arm below the elbow. 50
Loss leg below the knee.
of 50
permanent total loss of hearing. 50
Loss of one eve. 30
Loss of thumb. 25
Loss of all toes of one foot. 20
Loss of one phalanx of thumb. 10
Loss of index finger 10
Loss of great toe 10
Loss of any finger other than index finger. . . 5

Occupational diseases
TheAct also lays down certain occupational
diseases which shall be deemed to be injuries by ac-
 .WORKMEN’S COMPENSATION INSURANCE S25-

cident for the purposes of employer’s liability for

compensation. Anthrax, Lead poisoning, phosphorus
poisoning, Mercury poisoning, poisoning by benzene
and its homologueSj chrome ulceration, compressed
air illness or their respective sequelae have been list-
ed as occupational diseases if they are contracted in
the employments peculiar to them. All these have
been specified in the Act itself.
The effecting of Insurance
An employer wishing to insure himself against
his liability arising under the above Act can approach
an insurance compuany for the purpose. He has to
a proposal form supplied to him free of charge by
fill
the company. A specimen Proposal Form is given1

at the end of the Chapter. The particulars required

in this form are the name of the proposer; his trade
or occupation; particulars of work; description of
employees; their estimated number; estimated annual
wages, salaries and other earnings; insurance cover-
age required; and other particulars regarding the
nature of the work done in the employer’s premises.
He has also to state whether any proposal or renewal
of insurance of his liability was ever declined or
withdrawn. Lastly, he has to state the number of
accidents to his employees during the past three years
and the compensation paid in respect of them. In the
end he has to sign the declaration that every informa-
tion supplied in the proposal form is correct. The
insurance is based on utmost good faith and any sup-
pression or misstatement of material facts will avoid
the contract.
Rating
The insurance company after receiving the pro-
posal form will fix the premium. The companies
the Association will
which are the members of Tariff
schedule prescribed
fix the premium according to the

1 Sec Appendix A.
 —
326 INSURANCE

by the The y premium in a workmen’s com-

Tariffs.
pensation insurance is determined by the class of
work done by the employee and his estimated annual
earnings. Generally, it is expressed as so many
annas per cent. At the end of each period of insu-
rance, the employer makes a return to the company
of the amount actually paid in wages and the pre-
mium is adjusted accordingly.
Forms of Insurance
Usually the insurance companies issue policies
covering indemnity to employers under any of the
following forms:
(A) Indemnity against legal liability for acci-
dents to employees under the workmen’s compensa-
tion Act, 1923, and subsequent amendments of the
said Act prior to the date of issue of the policy, the
Indian Fatal Accidents Act, 1855, and at Common
Law.
(B) Indemnity against legal liability under the
Indian Fatal Accidents Act, 1855 and at Common Law
only.
(C) Indemnity against legal liability as under
cases Aor B above and in cases of injury for which
no legal claim can be made for accidents to employees
arising out and in the course of employment, here the
compensation being payable on the basis as laid down
in Workmen’s Compensation Act, 1923. This form
has been designed to meet the demands of the pro-
gressive employers who want to compensate the
employees not covered under the said Act.
The premium will be different for the above
.three forms and the proposer has to mention in the
proposal form as to which coverage he wants to insure.
Term of Insurance
Usually, a policy is issued for a period not longer
than a year excepting for the additional odd time
required to make the policy renewable on a particu-
lar date to meet the convenience of the insured.
 WORKMEN’S COMPENSATION INSURANCE 327

The Policy
After the receipt of the premium the company
will issue a policy which contains the policy number,
name and address of the insured, his business, esti-
mated number of employees, their occupations and
estimated total annual earnings, place of employ-
ment, period of insurance and the premium. On the
back of the policy, the conditions are printed. A
specimen form 1 of policy together with its conditions
is given at the end of the chapter.

Policy Conditions
According to the conditions of the policy, the
employer must record the name of every employee
together with the amount of wages, salary and other
warnings in a proper wage book. The insured must
allow the company at any time to inspect this book
and should supply an abstract of this to the company
within one month from the expiry of the period of
insurance. The premium will be adjusted on the
basis of this.
Whenever there any accident or disease cover-
is
ed by the must at once give notice
policy, the insured
of this to the company and must forward to the com-
pany every written notice of information received
relating to the claim. The insured should not, with-
out the written authority of .the company, incur any
expense, litigation or make any payment, settlement
or admission of liability covered by the policy. The
company will bear all costs and expenses of defend-
ing or settling claims and the insured is bound to
help the company in every possible way and allow it
to use his name. The insured must take all reasonable
steps to prevent accidents.
The liability of the company does not commence
before the actual receipt of the premium and is over
with the expiry of the period of insurance unless the
policy is renewed by pay ment of renewal premium.
1 See Appendix B
328 INSURANCE

The policy contains a clause by which the liability

towards sub-contractors is excluded unless it is cover-
ed by a specific mention of it after the payment of
extra premium. The company can cancel the policy
with three days’ notice in which case the premium
will be returned for unexpired period of insurance.
Lastly, there is the arbitration clause which lays -

down that any dispute between the company and the

claimant will be settled by arbitration according to
the manner prescribed therein.
'

Settlement of claims
The insured must at once give the notice to the
company of any accident or disease covered by the
policy and the company will send a Claim Form to 1

him. The claim form requires the details about the

-

employer, the injured person and the accident, in

addition to a Statement of Wages regarding the em-
ployee injured. The insured must carefully supply
all the information required therein and send it to
the company without delay. The company on receiv-
ing the claim form will scrutinise it and ascertain
whether the risk was covered under the insurance.
It may also send its medical doctor to verify the truth
of statements regarding the injury or disease. On
"being satisfied of the validity of claim the company
will at once pay the amount of compensation but in
'
:

case any difference of opinion arises regarding the

expected durability of the disablement, the company
may wait and meet the claim when the disability is
over. The company undertakes to bear all costs and
expenses of litigation in defending or enforcing the
legal proceedings, if there be any.
WORKMEN'S COMPENSATION INSURANCE
APPENDICES
332 INSURANCE

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g-j: E
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Q a g a a «
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 will

explosives

or

chemicals

gases,

acids,

wliat
334 INSURANCE
APPENDIX B
Workmen’s Compensation Policy
(TABLE A.)

Policy No. W. Estimated Amount of Wages,

Salaries and other Earnings Rs.
Pale of Expiry : Premium on above Rs.
WHEREAS
(hereinafter called “the Insured”) of
carrying on the business of and no other for the purposes of this
insurance has made to ASSURANCE COMPANY LIMITED (hereinafter called
“the Company”) a -written proposal and declaration dated containing
certain particulars and statements which are the basis of this contract and are to be
considered as incorporated herein :
NOW THIS POLICY WITNESSETH that in consideration of the payment to
the Company of the above-mentioned premium (which premium is subject to adjust
ment as hereinafter provided) for the following indemnity from 4 P.M. Standard Time
on the day of 10 to 4 P.M. Standard Time
on the day of 19 ,
both days inclusive :

IT IS HEREBY AGREED that if at any time during the said period, subject
to the receipt of premium as provided in the conditions hereunder and during the con-
tinuance of this Policy by renewal ; any Employee included in the Schedule hereto
shall sustain any personal injury by Accident or by any Disease which, at the date of
commencement of this Insurance, was described in Section 3(2) or Schedule III of the
Workmen’s Compensation Act, 1923, and subsequent amendments of the said Act,
whilst engaged in the Insured’s immediate service in an occupation and place of em-
ployment specified in the said Schedule hereto and if the Insured is liable to pay com-
pensation for such injury either under the Workmen’s Compensation Act, 1923, and
subsequent amendments of the said Act prior to the date of the issue of this Policy the
Indian Fatal Accidents Act, 1855, or at Common Law, then the Company shall indemni-
fy the Insured against all sums for which the Insured shall be so liable and will in addi-
tion be responsible for all costs and expenses incurred with its consent in defending
any claim for such compensation.
PROVIDED ALWAYS that the due observance and fulfilment of the conditions
of this Policy (which conditions and all endorsements hereon are to be read as part of
this Policy) shall so far as they relate to anything to be done or not to be done by the
Insured be a condition precedent to any liability of the Company under this Policy.

SCHEDULE.
Estimated
Total Salaries Value of board,
Estimated Occupations Wages and lodging or other Estimated Place or
Number of of Employees other money consideration Total Wages Places of
Employees earnings of in addition to Employment
persons money earnings
employed
direct.

the Company and on behalf of the Company lias/have hereunto set his/their hand
at

this day of 19

Examined
Entered
 INSURANCE 33b
CONDITIONS.
. .. Every notice or communication to be given or made under this Policy shall be
delivered in writing at the Head Office or any Branch Office of the
Company. i

2 The Insured shall give notice to the Company of any accident or disease
*

by ?- IS ^ ~ '
y case within 48 hours after the
SSUSi
accident *
or diseas . . comes to the knowledge of the
insured or of the - Deing (and similar notice of any
recurrence of such incapacity) and shall forward to the Company forthwith after
reajjpt thereof, every written notice or information as to any verbal
notice of claim
ana all other matters relating to the accident or disease.
The Insured shall not, without the written authority of the Company, incur
3.
ai ens ?’ litigation or otherwise, or make any payment settlement or admission
e
?•^?.
olJliability in respect of any injury for which the Company shall be liable under this
irnlicy. The Company shall in respect of anything under this Policy be entitled to use
the name of the Insured, including ^ '
enforcing or settling of lega
1

proceedings for the benefit of the shall give all necessary in-
zormotion and assistance and forw able the Company to settle
or resist any claim as the Company may think fit and to enable the Company to enforce
for the benefit of the Company any order made for costs or otherwise or any rights of
indemnity^ vested in the Insured against third parties; and the Insured shall not
contract himself out of any such rights not take upon himself any liability in excess of
his statutory liability without the knowledge and written consent of the Company.
4. The Insured shall take reasonable precautions to prevent accidents and shall
comply with all Statutory obligations.
The first premium and all renewal premiums that may be accepted are to be
5.
regulated by the amount of wages and salaries and other earnings paid by the Insured
to Employees during each period of insurance. The name of every employee together
with the amount of wages, salary and other earnings shall be duly recorded in a proper
wages book. The Insured shall at all times allow the Company to inspect such book
and shah supply the Company with a correct account of all such wages, salaries and
other earnings paid during any period of insurance within one month from the expiry
of such period of insurance. If the total amount so paid shall differ from the amount
on which premium has been paid the difference in premium shall be met by a further
proportionate payment to the Company or by a refund by the Company as the case
may be.
Unless specifically included by endorsement hereon the indemnity granted
6.
under this Policy or any renewal thereof shall not apply to the Insured’s liability to
employees in the employ of sub-contractors to the Insured.
7. The Company shall not beliablein rcspectof any accident ordisease occurring
before the actual receipt of the premium by the Company or its authorised agents or in
respect of any accident or disease occurring after the date of expiry and before the actual
receipt of the premium for renewal.
8. The Company shall not be bound to accept any renewal premium nor to give
notice that such is due and the Company may at any time by notice to the Insured
_

cancel the Policy as from three days after the date when the Insured should receive such
notice in the ordinary course of post, subject and without prejudice to any rights or
’

claims, either of *!;"T irr» i iy ui lit* T:* i:v !. a: iu ,ri ! r ;he Policy prior to that date,
, , ,
!

and the premium i'v i«* !

;
IV**:: !!:,• •••
of the then current period of
nsurance to the la'** of * '"i v.w* : *:i led as provided in Condition 5
i'.i

above.
9. If any dispute shall arise as to whether the Company is liable under this Policy
or as to the amount of its liability the matter shall be referred to the decision of an
Arbitrator to be appointed in writing by the parties in difference or if they cannot
agree to appoint a single Arbitrator to the decision of two disinterested persons as
Arbitrators of whom one shall be appointed In writing by each of the parties within
two calendar months after having been required so to do in_ writing by the other party.
In case either party shall refuse or fail to appoint an Arbitrator within two calendar
months after receipt of notice in writing requiring the appointment the other party
shall be at liberty to appoint a sole Arbitrator and in case of disagreernent between the
Arbitrators the difference shall be referred to the decision of an Umpire who shall have
been appointed by them in writing before entering on the reference and who shall sit
with the Arbitrators and preside at their meetings. The death of any party shall not
umpire
revoke or affect the authority or powers of the Arbitrator, Arbitrators or
 . .

830 INSURANCE
respectively, anti in the event of the death of an Arbitrator or Umpire another shall in
each case be appointed in his stead by the party or Arbitrators (as the case may be)
by whom the Arbitrator or Umpire so dying was appointed. The cost of the reference
and of the award shall be in the discretion of the Arbitrator or Arbitrators or Umpire
making the award. And it is hereby expressly stipulated and declared that it shall be
a condition precedent to any right of action or suit upon this policy that the award by
such Arbitrator Arbitrators or Umpire shall be first obtained.
10. If the Company shall disclaim liability to the Insured for any claim hereunder
and such claim shall not within twelve calendar months from the date of such disclaimer
have been referred to arbitration under the provisions herein contained and no notice
of action shall have been received by the Company from the Insured within the said
period of twelve calendar months then the claim shall for all purposes be deemed to have
been abandoned and shall not thereafter be recoverable hereunder.

NOTICE TO THE INSURED.

No
alterations in the terms and conditions of this Insurance, nor any endorsement
hereon, will be held valid unless the same is recognised and initialled by an Official
of the Company. No renewal receipts are valid unless they are on the printed office
form and under the signature of a duly authorised Agent.

APPENDIX €
Claim No
REPORT OF ACCIDENT TO WORKMAN
Theissue of this form is not to be taken as admission of liability nor answering these
questions implies that the injured person is making, or will make, a claim.
If any detail of information is not readily available, please do not delay despatch of
this report. Such particulars may be sent later.
All written communications should be forwarded to the Company.

THE EMPLOYER
1. Name of Policyholder
2. Business
3. Address (and nearest Railway Station)
4. No. of Policy .. .. ..

THE INJURED PERSON

I. Name . . . . .

3. Local Address .

4. Mofussil Address

5. Name and Address of father . . . . . . 1

6. State occupation in which the injured person

is employed . . . . . . . . . •

7. Was the injured person engaged in this occu-

pition when the accident occurred? If not
state fully the nature of the work he was doing ,

at the time of the accident .. .. .. 1

8. Is the injured person in your direct employ ? 1

If not give name and address of Contractor . . 1

 . .. .,

INSURANCE 337

9. -When did the injured person enter your

• service?

10. Name of hospital taken to

31. In or out-patient . .. . .. .
12. State whether still in hospital, or when dis-!
charged

13. Has the injured person been medically exami-

ned ? If so, please send report. If not, was
free medical examination offered ? .

14. State whether returned to work, and if so,

when
15. Are you satisfied, the injured person has met
with a bona fide accident of employment? .

16. Is the injured person able to do partial work ?

IT. What the probable period of the disable-

is
ment (approximate)? ..
THE ACCIDENT
1. Date Time Place

2. Upon what date did you receive notice of

accident and from whom ? If in writing please
attach to this form

3. On what date did the injured person actually

cease work ?

4. State cause of accident ; and if from machi-

nery or gearing
(a) Whether it was fenced or guarded
(5) Was it being cleaned whilst in motion ? .

5. What was the general nature of the contract

or work going on ?

0. State nature of injury

7. State regions injured

8. State right or left side

D. Was the injured person under the influence of

drink or drugs at the time of tire accident ? .

10. Was he guilty of any misconduct or dis-

obedience to orders or rules? If so, please
give full particulars . . ••
State through whose neglect it occurred, if any
.

’ll.

12. State the names of any persons who witnessed

The above replies are correct to the best of m Vlour knowledge and belief.

ir.T.o.
 338 INSURANCE
STATEMENT OF WAGES
1^ 18 a ? certa ln l h e injured person’s average monthly
earnings Please tliercfnrr^nhc
obscrv e *i°
.
the following instructions very carefully. Failure-
to do so will Mlnil.mlf ry
corres Pondence and cause undue delay in the
of the claim settlement
1.

2.
S
period of moie
wages “
P n
tl?a°n
thnThweWn paid
n»M
entered Fn the statement.
P " SOn
aS
on J?0ntu
’
CC

°r r
,
the Employer’s service during a continuous
,mC ,at Iy P rceedin 8 the accident, then the
S due
fallen j f
for payment, to him in each month
® tWelve prCcediE S ^°nths in all),

”1 the Employer’s service for less than one

must be

month 7!!r,l, 'r

be entered m the statement the wages paid to another
tne twelve
the twel\ ^ ° r *? ? ame
e months immediately
kind of work by the Employer during
preceding the accident.

bonus, value of free

'Wages QUARTERS & ANY OTHER
MONTH ALLOWANCES ETC.
Us. As. Ps. Rs. As. Ps.

TOTAL

Total ineldg. all Allowances!

(a) Were the above stated wages paid, or fallen due for pavment, to the injured
~
person ?
If not, state to whom
*

(b) Was the injured person absent from work at anj’ time, during the above stated
period, for 14 or more consecutive days?.
If so, give the following particulars :
Absent for days from to....

Date,. .19
Signature of the Employer.
 CHAPTER XXVIII
PERSONAL INSURANCE
Personal Insurance
It has already been observed in the second chapter 1
that all insurance contracts can be divided in four
groups. Personal insurance is one of those four groups
and deals with the protection against the cessation of
the current earning power of the insured. Speaking
from a strict economic viewpoint, the permanent
loss of earning capacity amounts to an ‘economic
death’, though the insured may be physically alive.
Thus to an economist, death may be either actual, or
retirement or living. The first type of death is called
the ‘casket death’ and is provided for by the life insu-
rance. The ‘retirement death’ means the loss of
earning capacity in the old age which is provided
either by endowment insurance or by annuity con-
tracts. Both of these insurances have been dealt with
at length in second part. The ‘living death’ is a result
of the loss of earning capacity due to accident or
health. It is the intention of this chapter to discuss
these accident and health insurances.
Personal Accident Insurance
Origin of Accident Insurance
The introduction of railways in England resulted
in the development of new insurance business. Many
companies were formed to insure against death or
injury from railway accidents and they soon extend-
ed the protection to accidents of other forms. The
method of insuring against death by railway
accidents was to charge 3d., 2d., and Id., to a
first, second and third class ticket for the insu-
rance of £1000, £500 and £200 respectively.
The
be consi-
distance of the journey was not a factor to

1 See page 21
339
340 INSURANCE

dered in fixing the premium rates. If the accident

resulted in a casualty other than death a liberal com-
pensation was provided for. Later on, by the Act of
Parliament passed in 1864, the compensation was fix-
ed at £6, £3 and £1J per. week for insurances of
£1000, £500 and £200 respectively for total disable-
ment. In partial disablement, the compensation was
fixed at one fourth of the above amounts. In all the
above cases the limit for the benefits was fixed to 28
weeks.
Personal Accident Insurance defined
‘
A Personal Accident Insuranceis a contract,
’

whereby the insurer agrees to pay

to the insured, or
to his personal representatives in case of death, stated
sums in the event of his being killed, or totally or
partially disabled by accident. It is not a contract of
indemnity as it is not possible to measure the value
of a man’s life or health in monetary terms. Limbs
and eyesight cannot be measured in terms of money
and they are irreplaceable; an artificial limb, despite
all the progress of science, can in no way match the
performance of the original limb. However, the
principle of indemnity is not lost sight of completely
and the companies do not issue policies as are incom-
mensurate with the proposer’s financial condition.
Hence no right of subrogation exists in favour of the
insurance company against a third party whose negli-
gence might have caused the injury for which com-
pensation has been paid. Unless engaged in business,
females are usually not insured against Personal
accident and sickness insurance except for small
amounts.
The word ‘accident’ has a restricted meaning in
personal accident insurance and the policies granted
to cover it confine the insurance to bodily injuries re-
ceived “by violent, accidental, external, and visible
means independently of any other cause.”
“Permanent Total Disablement” is immediate,
 PERSONAL INSURANCE 341

permanent, and absolute disablement from engaging

in or giving attention to profession, business or occu-
pation of any kind. “Temporary Total Disablement”
is inability to attend to usual profession or business.
Death or loss of limb or eye must occur within three
calender months after the injury.
Types of the Insurance Policies
The gradual growth of personal accident insurance
in England has evolved three main classes of policy
1. Accidents only.
-
2. Accidents and specified diseases.
3. Accidents and all sickness.
Each of the last two policies is but an extension
of its predecessor and embodies all the benefits of the
previous one. All these policies are issued only for
one year and cannot be renewed after the insured has
attained a certain age. But the premiums within the
permitted age limits are same for the different ages
because the element of age in personal accident in-
surance is not so important as in life assurance. There
the mortality rate has a definite correlation with the
increase in age, but in case of accidents the increase
in the probability of greater exposure to risks due to
decreased vitality with advancement of age is com-
pensated by the greater prudence to avoid the risk in
matured age. Therefore, the premiums do not vary
according to the age of the insured but mainly depend
upon the benefits sought for and remain uniform at
all ages.

Essentials of a Valid Contract

Like all other contracts, the personal accident in-
surance is also a contract of utmost good faith and the
correct-
proposer while filling the proposal form must
queries laid down in it. He must
ly answer to the
the facts material to the contract An>
disclose all
material fact win
concealment or mis-statement of
Similarly, the proposer
render the contract invalid.
 342 INSURANCE

must have insurable interest in the life insured.

Usually the persons take policies on their own lives
and for the purposes of insurance, they have sufficient
insurable interest.

Classification of Risks
The premium depends on the measure of benefits
asked for and the occupation of the proposer. The
occupations for the purposes of fixing premiums have
been classified into three groups.
Class I. Ordinary Risks. Solicitors, bankers,
merchants, agents, clerks, tradesmen superintending
only, and others whose occupations involve them in
no undue risk.
Class II. Extra Risks. Shopkeepers and tradesmen
working in non- hazardous employments, commercial
travellers, manufacturers in certain trades superin-
tending and occasionally working, and the like.
Class III. Haza?'dous Risks. Auctioners, builders,
carpenters, engineers, tradesmen doing manual work
and veterinary surgeons. Persons employed in extra-
hazardous trades such as butchers, wood-working
mechanists, horse-breakers, foresters, etc. are charged
special rates.

Benefits
The premiums and the corresponding benefits
have already been given in the beginning of this chap-
ter in a railway accident insurance. Of course the
rates have undergone changes from time to time owing
to changed circumstances. Usually the compensation
is in the form of a lump sum in case of death or loss of
two limps orjtwo eyes, or of one limb and one eye;
smaller sums for loss of one limb or -one eye; payments
at the rate of a stated sum per week during temporary
total disablement, and at a lower rate during partial
disablement upto 52 weeks, and annuities or fixed pay-
ments in the case of permanent disablement not other-
wise compensated. Double benefits are insured when
 PERSONAL INSURANCE 343

the injury arises from accident to a passenger lift or

train, tramcar, omnibus, licensed passenger vehicle, or
is sustained in a burning building in which
the insured
has been since the inception of the lire.
When the insured has taken a life policy with the
same company or if he is a total abstainer, the com-
pany allows him a reduction of premium.
Age limits

.
The age limits are usually from 16 to 60 for acci-
dent policies and 16 to 50 or 55 for sickness policies.
The premiums are, of course, uniform in all ages and
are payable in lump sum.

Exclusions
Policies always exclude suicide and self-inflicted
injuries and also injuries received during a state of in-
toxication or insanity. Similarly the policies do not
cover the children below the age of twelve. Again
injuries or sickness directly or indirectly caused
through war, invasion and veneral disease are not
covered by such policies.

Renewal of Insurance
Usually the accident insurance policies can be re-
newed by a notice of renewal. The insured must dis-
close any change of material facts at the date of rene-
wal. Usually a bonus in form of percentage increase
in the policy amount for the same premium is allowed
in all.
at every renewal not exceeding fifty per cent,
encourage the insured to continue the in-
This is to
retention of
surance with the same company and the
old business is also less costly to the company. On
reduced
the sixth renewal the premium is generally
For the payment of renewal premium
by ten per cent.
fifteen days of grace are allowed
Of course the com-
pany has every right to refuse the renewal of insur-
ance if it so wishes.
344 I2\'SURA2\T C3

Policy conditions
The policy lays dovm that if the insured changes
his occupation to the more hazardous one than that
m entioned in the proposal form, he must immediately
inform the company which will reduce the indemnity
to the sum which would have been secured by the pre-
mium paid. The policy also mentions the risks which
are not covered under the policy. Ixo alterations in
the terms of the policy can he effected unless consent-
ed by the company. If any claim arises under the
policy, the insured must at once give the notice of the
accident to the company. The policy contains a pro-
vision for arbitration in case any dispute arises bet-
ween the company and its policyholder. The policy
also provides that the company may cancel the cover-
age at any time upon delivering a written notice to the
insured in which case the unearned premium will be
returned.
Settlement of claims
Whenever there is any accident, the policyholder
must send a notice to the company as early as possible.
The company will then send a claim form to the in-
sured to be filled up and returned with a medical cer-
tificate. If the accident resulted in the death of the
insured, his representative will fill up the form and
send it with the certificate of death. On receipt of the
claim form, the company will consult its medical ad-
viser regarding the validity of the statements made
therein. If the accident is of a minor nature, the com-
pany will settle the claim on the advice of the medical
attendant of the insured. But if the injury is a serious
one, the company will wait to see as to how long the
disability continues and at the end of the disability
period the insured and his medical attendant will have
to fill other forms on ihe basis of which the claim wifi
be settled.
In case of sickness insurance, the company will try
 PERSONAL INSURANCE 845

to settle the claim, after receiving the claim form and

the medical certificate, on the basis of estimated dura-
tion of the disease. If this settlement is not accepted
by the insured, the matter remains open until the end
of the disablement or the expiration of the period for
which the compensation is payable under the policy
but the compensation will never be payable for a
period longer than that prescribed in the policy,
though the sickness may continue even beyond this
period.

Permanent Sickness Insurance

Unlike the above three types of accident and sick-
ness policies, this is a permanent contract and hence
cannot be terminated at the end of the year. Like a
life insurance policy, it also acquires surrender value.
When the insurance is sought for, the searching en-
quiries are made at the time of proposal as to health
or habits, and a medical examination is often required.
This insurance has proved to be of immense value to
professional men and others, whose incomes depend
mainly upon their own work.
The premium is based upon the age and gradually
increases with advancement, in age. The other factor
Which determines the premium is the occupation. For
lives which are underaverage on account of occupa-
tional hazards or unfavourable personal and family
history, loading is added to the premiums.. On change
of occupation towards a more hazardous one, the
insured must inform the company and the extra pre-
mium fixed by the company must be paid. The risk
commences from the time the premium is paid. There
are always restrictions imposed on the travel or resi-.
dence of the insured. For the payment of renewal
premiums usually a month’s grace is allowed.
The policy covers all accident and sickness except
those caused wilfully, or by riding races of any
kind,
or by breach of law, or by war or riot. The benefit be-
1—33
346 - INSURANCE

gins from the day the insured is disabled due to acci-

dent or sickness. He must send the notice of such
disablement within a week to the company and also
furnish periodical medical reports when required. The
company has, a right to examine the insured at any
time during the disablement term.
Like a life policy, the sickness policy also contains
clauses of proof of age, revival of lapsed policy and
assignment. Usually, an arbitration clause is also
found in the sickness insurance policies to settle the
claims by arbitration in case there is any difference of
opinion between the parties. Many companies also
advertise guaranteed surrender values, but it is diffi-
cult to justify such a step.

CHAPTER XXIX
MISCELLANEOUS
War Risk Insurance
When the war breaks out human life and property
falls an easy victim to its vagaries. With the com-
plete mechanisation of the fighting weapons and the
increased possibilities of aerial bombardment and sub-
marine activities the destruction in terms of
human life and property knows ho bounds. The war-
risk, to which the civilians are exposed, can be covered
during peace times by the life insurance policies, and
anybody, who wants to join the military after taking
insurance policy, can do so by paying extra pre-
miums. Some companies issue policies without any
restriction to change of occupation and hence in such
cases no additional premium is charged. The persons
who are already in military can also take a life insur-
ance policy covering the war-risk, but the premium
 MISCELLANEOUS 847

rate for them will be slightly higher. As the life in-

surance contract is a life long or a long period contract
the policies issued in peace time continue to cover the
policyholders even during the war-time. But in the
'

'

latter case, anybody, who is either in military service

or who wants to join military, can be granted insur-
ance only after paying an additional premium which
will depend upon the circumstances of war at that
time. When the war is very' imminent or the region
is already under war operations, the premium goes
very high. During the war time the governments of
the various countries evolve schemes of insurance to
cover the fighting forces against death by war.
Regarding the Insurance on property the case is
not so simple. In. peace time,. usually the marine and
lire insurance companies grant war-risk coverage by
charging additional premiums. But when the. war
breaks out, the companies withdraw war-risk insur-
ance from the policies as the dangers to the property
assume unthinkable proportions.
Really speaking, to talk of war-risk insurance in
the world of today is a myth when the human
ingenuity has been able to bring out the weapons like-
atom bomb and we are further assured by the ser-
vants of humanity in laboratories of still more capa-,
ble monstrous weapons. No scheme of insurance can
work out successfully in the real theatres of war.
where the war-like operations are carried on. It has.

already been observed that for the successful working

of an insurance project, certain conditions must be ful-.
filled. First of all a roughly accurate estimate of the
losses must be made so as to fix the premiums in ad-
vance. Secondly, the number of the persons exposed
r

to the risk must be far higher than the number

of per-
sons who will actually suffer, otherwise the premiums
will be prohibitive. Thirdly, if possible, the cost of
so as
the scheme may be spread over a- long period,
minimum per year. In view of
to reduce the cost to
348 INSURANCE

the above principles, let. us examine the case of

.

war-risk insurance. In order to fix the premium we

must know the probable magnitude of losses and the
time of their occurrence. If this can be known, the
total losses may be spread over the intervening
period and the premium be fixed per unit of property
taking into consideration the value. Anybody fami-
liar with the international situation in the political
—
sphere can very well understand if he is in his senses
— as to how difficult it is to predict the next conflagra-
tion. Nobody could know in the beginning of 1939
whether the world-war would break out so soon.
Even if it is granted that the time of the break out of
a war can be precisely predicted, it would be a diffi-
cult task to make an estimate within some sensible
range of truth about the losses of property in mone-
tary terms. In cases of other types of insurance, such
an estimate is possible on the basis of past records
with the assumption that they will hold good in
future too. No such assumption can be warranted in
case of war losses. How foolish it would have looked
to estimate the possible losses in the recent world-
'

war caused by up-to-date destructive weapons on the

experience of the Great War, when the speed and
capacity to destroy were far less. What a progress!
Even if it is possible to make an estimate of losses,
the further difficulty would be that when a country
is involved in active warfare, the proportion of per-
sons who actually suffer to the total insured popu-
lation in the particular region or country will not be
so small as it is in life or other insurances. There will
not be much disparity in losses in the affected areas
and this will cause the premium rate to be fixed up
very high, because the insured persons will be mostly
from those parts where there is any possibility of
being attacked. Again, the premium cannot be
spread over a longer period as the people are not very
 MISCELLANEOUS 349

much inclined to insure against war-risks during the

peace time.
Hence, whenever a war breaks out, usually the
insurance companies withdraw insurance against this-
risk and it is regarded the task of the government to
afford protection to the public. In December 1941, in
U.S.A. the War-Damage--Corporation with a capital
of ten crores of dollars was set up to meet the demand
for insurance against war-damage. The corporation
insured individuals against direct physical loss or
damage to the property which may result from enemy
attack including any action taken by the military,
naval or air forces of the United States in resisting
enemy attack. The work of issuing policies, collect-
ing premiums and assisting in adjusting losses was
given over to fire and casualty insurance companies
who worked as agents of the corporation on the basis
of ten per cent, underwriting participation. In India,
the Government made it compulsory on the factory
owners and the industrialists to insure against war-risk
and the premium was collected through the agency
of the insurance companies on a commission basis.
The premium collected was on a quarterly basis and,
therefore, could be increased at the end of each quar-
ter in view of the conditions of war affecting the
country. It was feared that Japan would invade India
and hence in order to effect an equal distribution of
the war damage the scheme was launched, but as the
conditions changed- subsequently and the fears were
not realized there were practically no claims on
account of the war “damage and the government got
huge funds out of the scheme.
Third Party Insurance
Under the various laws of the country, a person
may become liable for financial loss due to causing
damage— actual or alleged—to the person or property
of some third party. This legal liability can be insured
350 INSURANCE

with an insurance company by paying the required

.

premium. Such* an insurance is called ‘liability insur-

ance’ or ‘third party insurance’. There are various
classes of liability insurance and in many cases it is
combined with other insurances, e.g., motor insurance
is a combination of third party, property and accident
insurances. The assured may be insured against all
liabilities to third parties for accidents arising in. con-
nection with the use of motor vehicle, the vehicle it- .

self may be insured for ‘own damage’ of all kinds, and

the owner may be insured against all kinds of acci-
dent while driving his motor car. The other example
.

of liability insurance is the employer’s liability insur-

ance where the employer is covered by insurance for
his liability to his employees for accidents arising out
of and in the course of employment. Both of these
types of insurance have already been dealt with in
detail. In addition to these, there are many other
insurances where a person may become legally liable
to third parties. Owners and occupiers of buildings
and factories may become liable to their neighbours
for negligence in handling the property. The liability
may arise to owners of horses and horse-drawn vehi-
cles for accidents arising from their use including
loading and unloading, delivery to and from the vehi-
cles and. bites and kicks of the horses. All such risks
can be covered by taking a third party insurance
policy. In an insurance against liability, the liability
of the assured must be a legal one. To determine
his legal liability for injuries unintentionally caused
io-others, he must be found- guilty of negligence. Neg-
ligence, in its legal sense, can be established, if the
:
•

insured had a legal duty to use' Care and he failed to

exercise such care though he never intended to cause
the damage which actually followed. Again the third
party so injured must not have been in any way neg-
ligent. If -the insured is not proved guilty of negli-
gence, the insurance company will not pay the claim
 miscellaneous 351

to the third party. Anemployer is liable for the re-

sults of negligence of his employees according to the
legal maxim, “Qtti facit per alium facit per se” (He
who does a thing by another must be legally assumed
1o have done it himself). Of' course the employer is
responsible for the acts or omissions of his employees
only when they arise in the course of employment.
The employer can take out an insurance policy for
such a liability which may arise on account of the
negligence of his servants.
Whenever any loss arises, the court will deter-
mine the compensation to be payable by the party
responsible for causing injury and this party, if insured,
can get this compensation from the insurance com-
pany. Usually the insurance companies do not .grant
unlimited coverage under liability insurance but
place a limit on the amount which can be recovered
in respect of any one accident or series of accidents
arising out of one occurrence. Frequently they also
place limits in respect of the total sum payable in any
one year. Many times these limits apply to compen-
sation payable, legal and other costs being payable by
the insurance company in addition thereto.
When the proposer wants to take a liability insur-
ance, he must fill' up a proposal form very correctly.
It contains detailed questions regarding the name,
address, the trade or business of the proposer, the -

nature and amount of indemnity, required, past

•
.

claims experience, previous proposals-, .-and insur-

-

ances, etc. The premium is determined according .to

the nature -and extent of the- indemnity required.. Thg
•

proposer -must observe complete good faith in giving

answers to the questions. He must also take 'reason-
able precautions to prevent accidents.
The important forms of liability insurance are
(i) Property owners’ indemnities, which
cover the lia-
bility of an owner or an occupier of building
towards
persons off the-
invitees, licensees, trespassers^ or: to
 852 INSURANCE

buildings, (ii) General third party insurance, which

provides an indemnity in respect of accidents occa-
sioned by defects in the insured’s ways, works, machi-
nery, premises or plants. It also includes the damage
caused by food and drink risks; bursting of bottles;
sanitation risks; flood risks; lifts, hoists, and cranes;
cricketers indemnities, amusements; golf clubs; guns;
hairdressers, etc. (iii) Driver’s indemnities, (iv)
Scholars’ indemnities, where management authori-
ties may be liable for injuries done to students due to
defects in buildings or appliances, (v) Professional
indemnities to cover accountants, architects, che-
mists and druggists, doctors and dentists, etc* (vi)
Lift insurance which may cover the liability for
damages and injuries to third parties from accidents
in lifts. The insurer inspects the lift and its machi-
nery at intervals and sees that they are properly
maintained.
Guarantee Insurance
’
Acontract of guarantee is a contract to answer
for the debt, default, or mis-carriage of another per-
son, and it being also a promise to be answerable for
a debt of, or a default in, some duty by that other
person towards the promisee. In a contract of
guarantee insurance, the ‘insurer’ is the party who, to
a certain extent, undertakes under certain conditions
as mentioned in the policy,' to indemnify the insured
against pecuniary loss arising through the acts of a
third party sustaining a contractual relation to the
insured. The ‘insured’ is the party whom the policy
:

is issued and to whom the loss, if any, is payable.

-

Guarantee insurance contracts may be divided into

three classes: (i) Fidelity, (ii) Commercial and (iii)

Judicial.
A ‘fidelity insurance’ is a form of guarantee insur-
ance whereby the insurer, in exchange of a premium,
agrees to indemnify the insured, in a designated
amount against loss arising through the fraud, dis-
 ,

MISCELLANEOUS 353

honesty, or unfaithfulness of a third party (usually

his employee), sustaining a fiduciary relationship to
the insured. The risks usually covered under this
policy are those arising through fraud, dishonesty or
negligence of the employee and includes larceny,
embezzlement or want of integrity, honesty, or
on the part of the employee in connection with
fidelity
the duties of the office or position in the service of the
insured. The insured must disclose all material facts
while filling up the proposal form so that the insurer
may fully assess the risk. He must observe complete
good faith and should not keep dishonest servants at
the insurer’s risk, when once he knows or reasonably
suspects their dishonesty. Nor should he alter the
terms of the employment, if the policy was granted
on the faith of them. Whenever any loss arises under
the policy, the insured must at once send the notice
of claim. He must also send the proof of loss. If the
insurer wants to prosecute the accused the assured
must give all such aid and information as may be pos-
sible.

A ‘commercial insurance’ is a form of guarantee

insurance whereby, for a stated premium, the insurer
agrees to indemnify the insured, in a designated sum
against losses sustained by the insured through
breaches of contract by a third party having a non-
fiduciary contractual relationship with the insured.
The commercial insurance may be either ‘contract’ or
‘credit’ or ‘title’ insurance. In case of a ‘contract
insurance’, the insurer agrees to indemnify against
damage or loss arising through a failure on the part
of third parties for. specific performance of contracts.
Such a cover is granted to secure the faithful per-
formance by contractors, common carriers, ware-
housemen, apprentices, ship owners, importers depo-
,

sitories, public builders, bankers, etc. The

second type
of commercial insurance is the ‘credit insurance
against losses
where the insurer protects the insured
354 INSURANCE

arising through the insolvency of third parties to

whom he might have sold goods on credit. This is
also called “solvency insurance” or “Insurance of
Debts.” Similarly an insured holding debentures
maturing on a particular date may take an insurance
policy by which the insurer will guarantee that if the
debtor makes default in payment of any particular
money due under the debenture, he will pay it' to the
insured. Such an insurance is called ‘debenture insur-
ance’. The third type of commercial insurance is the
‘title insurance’, whereby the
insurer, for a stipulated
premium, agrees to indemnify the insured in a speci-
fied amount against loss through defects of title to real
estate wherein the latter has an interest either as
buyer or otherwise.
Lastly, ‘the judicial insurance’ refers to insurance
bonds or policies issued in connection with a regular
course of judicial procedure, either for the purpose of
securing the faithful performance of duty on the part
of the court of appointees or in order to guarantee
due compliance with the terms of undertaking entered
into by parties litigant -before the courts.* Here the
insurer undertakes to indemnify the assured for any
loss which he may sustain through the official mis-
conduct of third, party in his capacity as an apprentice
of a court or through his failure to faithfully perform
the conditions of his formal undertaking entered into
while a litigant before a court.
. _
It must be noted that in all types of guarantee
insurance contracts the insurer undertakes to indem-
nify only upto a specified, sum and. not to the full
extent of loss. The payment of premium, is a condi-
,

tion precedent to the validity of the contract and the

assured must observe complete good faith and comply
with the conditions laid down in the policy.
- -
1

Burglary' Insurance
Loss of the property by theft or robbery has, from
time immemorial, been a hazar.d to which the owners
 MISCELLANEOUS 355
•> >
of movables have been exposed. Burglary insurance
policies arenow very common which usually cover, as
regards private dwelling-houses, loss by burglary,
house-breaking and larceny, and as regards other pre-
—
mises, loss by burglary and house-breaking the risk
of larceny not being insurable as a rule in respect of
business premises or places which are within the ac-
cess of general public. The subject-matter in burglary
insurance is always the movable property.
It iscustomary for the insurers to insist upon a
signed proposal and as this is made the basis of the
contract, every care must be exercised to see that the
particulars given and the answers to the questions on
it are absolutely correct. Any decline to insure or to
renew a policy in past by other insurer is a material
fact to be disclosed. Similarly the fact of previous
losses suffered and the previous claims made is also
material. Any inaccuracy or misrepresentation will
invalidate the policy.
In case of ‘private residence insurance’ the pro-
poser must declare the full value of the property. The
premium will be fixed on this declared value. If the
contents consist of a large proportion of valuables such
as gold and silver articles, jewpllery-and furs, a-higher
premium rate is charged. If the house is left un-
occupied for more than ninety days in any one year of
insurance, notice must be given to the company and
an extra premium paid. Theft by or with the conni-
vance of a member of the insured’s family is excluded
and the larceny risk is uncovered whilst the house is
lent, let or sublet.' Similarly /property removed, fop
sale"- or exhibition JjS-jiot covered..
;

y
: In case of ‘business premises insurance’,. the risks
covered are only burglary and' house-breaking. It ds
usual to have business premises surveyed before the
rates are quoted. Many times- the insurers insist
on
installing the safety measures in the form of fitting
win-
additional bolts, dead-locks or doors or bars on
356 INSURANCE

dows, and automatic burglar alarms. There are two

—
methods of insuring the cover may be either -for the
full value of the property or it may be only for a
smaller sum in which case it is called the ‘first loss’
policy. The premium rate in the latter is higher than
that in the former.
While fixing the premium rates, the various fac-
tors are taken into consideration, viz., accessibility to
burglars, degree of attractiveness of goods to burglars,
class of neighbourhood, portability of the goods, un-
occupancy during night hours, etc. At times “All
risks” policies are also issued which cover almost all
risks except those stated in the policy. Such policies
are largely used for works of art sent to exhibitions
and for cups and trophies temporarily held by the
winners of competitions. This form is an extension of
the burglary insurance on private residence.
Consequential Loss Insurance
Fire .Insurance policies are issued to cover the
direct material losses on account of fire done to the
insured’s property and if the policy is taken for the full
value the insured will be able to make good the build-
ings, plant, machinery, stock and the like which were
destroyed or damaged by fire. But in addition to this
direct material loss, the fire also causes other indirect
immaterial losses in the form of the loss of profits
'

owing to the interruption of business which is inevit-

able when the machinery or vital part of the factory
-has been damaged. _ The insured may not be able to
execute the orders in hands or take new orders for a
sufficiently long period. The loss of profit so incurred
is a result of the fire, but only a secondary and conse-
quential one; it cannot be ordinarily covered in a fire
policy and hence a new form of insurance has develop-
ed to cover this risk. It is called ‘Consequential Loss
Insurance’ or ‘Loss of Profits Insurance’ or also called
‘Profits Insurance’. The purpose of this class of in-
surance is to indemnify against only such trading
 MISCELLANEOUS 357

losses which arise solely and directly from a business

falling off due to fire.
The standard policy of ‘Consequential Loss Insur-
ance’ usually covers the risks —
(a) Loss of net profit,
(b) Standing charges, such as rent, rates and taxes; in-
terest; salaries; and wages of permanent staff and
other permanent expenses, (c) Increased working ex-
penses due to the fire, such as rent of temporary build-
ings, hire of machinery, etc. The premium charged de-
pends upon the length of the period of indemnity and
upon the average rate for the insurance on the contents
against fire. For the purposes of the settlement of
claim, the loss of net-profits will be calculated by find-
ing out the monthly decrease in turnover from the
corresponding months of the previous financial year
and applying to it the ratio which the sum insured (if
it is upto the full value of net-profits of. the past year)
bears to the turnover for the last year. To the amount
thus arrived at, the increased cost of working will be
added. No claim on a consequential loss policy is
payable until the fire claim has been paid or admitted.
i

Plate-Glass Insurance
Large glass plates are costly and are susceptible
to breakage from 'many causes.' A large mercantile
firm may have to. undergo loss of trade due to the tem-
porary hoarding up of. broken show-windows. The
policies are issued to cover breakage of fixed glass and
provide for the replacement without- minimum delay.
In order to allow, for difficulties of procuring the ser-
vices of skilled glass setters the company reserves to
itself the right to settle the claims in cash. In most
cases the insurers settle claims by instructing their
glazing contractors to carry out replacement, rather
than making a direct payment to the insured. Usually
the' risks of fire, scratches, damage to frames fixtures
and fittings, and' damage to goods in windows are not
covered. Several of these risks can be covered on pay-
ing extra premiums, In addition to the windows, the
.
358 INSURANCE

show-cases and shelves, light shades and mirrors can

also be insured.
Premium is fixed on the area of each pane of glass
in case of windows and higher charges are made for
shelves and show-cases, which are more subject to
breakage.
Crop Insurance
The general crop insurance may be granted to
cover damage to crop caused by draught, blight, insect,
pest, etc. The difficulty in this class of insui’ance
arises on account of moral hazard in times of falling
prices. However, this insurance is still in its infancy.’
1

Really speaking such an insurance cannot be success-

fully undertaken by private insurance companies and
the state should take up this most important form of
insurance. In India, there is a great need for the
measure.
Live-stock Insurance
The insured is. covered for the loss due to death of
animals ..through accident of disease. Sometimes cover-
age is also granted for loss due to temporary total dis-
ablement. Usually the risks of slaughter without the
insurer’s consent and under Government orders are
excluded. The risks of fire, lightning, transit by sea,
surgical operations and breeding can be covered by
paying extra premiums. The moral hazard is of spe-
cial significance in live-stock insurance. .
Rain Insurance •

Rain insurance may be taken to cover the damage

done by rain to the crops or hay. But usually the rain
insurance is devised to cover the damages on account
of unexpected showers in cases when long prepara-
tions are made eithers for some game or business exhi-
bitions covering several days, fair, or public entertain-
ments. The loss under the policy becomes payable
only when a given amount of rain falls during the
period specified in the policy. This type of insurance
has been developed particularly in America.
 MISCELLANEOUS 359

Baggage Insurance
The insurance is granted to cover travellers
against the risk of loss, larceny, or theft of, or damage
to their baggage. The policy can be issued either for
one country or world- wide. It does not include
clothing on the persons, damage by moth or wear and
tear, cash, notes, tickets, securities, etc. The basis of
the policy is insurance for full value, and the protec-
tion applies during travel by land or sea and also
whilst the assured is temporarily staying at hotels,
boarding houses, or private dwelling houses.
Other Kinds of Insurance
In addition to the above types of insui ance poli-
cies, there are many other forms as well. Boiler in-
surance may be taken to cover the damage to the boi-
ler itself by its explosion or the liability to third
parties in respect of such explosion or the liability for
the death or injury of persons caused thereby.
Tornado or windstorm, insurance may be taken to
cover the loss or damage by windstorms, cyclones, and
tornadoes. Hail insurance is written to cover agricul-
tural crops against material damage by hail. Water
damage insurance is written to cover.the damage caus-
<

ed, by the leakage of water from the automatic sprink-

ler system installed to extinguish fire. Aviation in-,
surance can be obtained to cover destruction or dam-
age to the plane itself, or its contents, as well as dam-
age to property on the ground caused by fall of planes,
or of contents of planes. License insurance provides
indemnity against financial loss resulting from. the for-
feiture of a license by virtue of which a business is
carried on. Weather insurance policies are issued for
holiday makers to^pay a stipulated sum, should the
rainfall during the period of a holiday exceed an
agreed amount. Cash .in transit insurance policies pro-
tect the insured against loss in respect of money
stolen
from, or lost by, messengers, clerks and other
emplo-
yees whilst it is being conveyed between the bank and
360 INSURANCE

his premises. Similarly goods in transit insurance

covers the loss of, or damage to, the goods in transit by
the risks of fire, theft and damage. Malpractice liabi-
lity insurance policy indemnifies professional practi-
tioners for loss or expense arising or resulting from
claims on account bodily injuries resulting from
any malpractice, error, or mistake committed, or
alleged to have been committed, by the insured in the
practice of his profession.
Many other kinds of insurance can be mentioned,
such as the bee-keepers’ third party, building society
indemnity, redeemable securities, hand disablement,
doctor’s bills, school fees, libel, wireless, beauty par-
lour liability, insurance against issue, names and arms
insurance, pay and coupon insurance, insurance of
dancers’ legs and singers’ throat, etc. New forms of
insurance are continually arising and it can be said
that it is possible to insure almost any calculable con-,
tingency which is outside the control of the proposer.
Social Insurance
We have so far dealt with such forms of insurance
which protect an individual against particular uncer-
tainties of life. But there are some other uncertain-
ties which are created by the evils of social structure
of the society and for which the individual has to suffer
with no fault of his own, e.g., due to the industrializa-
tionunder the system of private enterprise the workers
may suffer in the form of sickness or ill health, absence
of any protection during old age, accidents of the fac-
tory, unemployment in periods of depression, etc.
Hence the duty of the state to provide for social
it is
security services in such cases. The protection so
afforded is called the ‘social insurance’. Usually for
the successful and effective operation of such a scheme,
the basis is the contribution from all the classes or
groups concerned or benefitted, viz., the worker, the
employer and the state. It means that the premium is
to be collected from all the three parties in certain
 MISCELLANEOUS 361

stated —
proportions not necessarily equal, and the
scheme is run by the state rather than by the private
insurance companies.
In the matter of social insurance, England is very'
much advanced amongst the countries with the capi-
talistic structure of economy. As early as 1911, the
British National Insurance Act was passed which pro-
vided for insurance against unemployment and loss of
health -with prevention and cure of sickness. By this
Act, unemployment insurance on a compulsory' basis
for some selected vocations was introduced in England,
and the measure was extended in 1916 and then in 1920
bringing all the manual workers with a few exceptions
and all non-manual workers having an annual income
of not more than £250 within its fold. Similarly the
State Compulsory Sickness Insurance system was in-
troduced in 1911 and later on the Act was' amended
several times till in 1924 it became fully consolidated.
The benefits were in the form of medical attendance,
payment of compensation due to sickness or disability
and. maternity benefits.
In November, 1942, Sir William Beveridge sub-
mitted his Report on Social Insurance and Allied Ser-
vices. This was an outline plan, covering “all citizens
without upper incbme limit. .all embracing in "scope
. .

of persons and needs”. This plan is the most compre-

hensive plan so far produced and was. based upon three
assumptions; first the institution of a scheme of child-
ren’s allowances, second the framing of a comprehen-
sive health service, and third the avoidance of mass
unemployment! The scheme embraces the entire popu-
lation of all ages, and all occupations, and recognises
the right of all citizens, to stand in together, without
exclusions based upon difference of status, function or
wealth. The benefits are in form of family allowances,
orphan’s allowance, sickness and unemployment’s
self-
benefit, training allowance, sickness benefit for
employed, dependent’s allowance, retirement pensions,
T— 24
362 INSURANCE

etc. different ways of life and

and are related with the
requirements of different sections of community.

In India, however, no efforts were made to intro-

duce any scheme like that of social insurance by the
Government of India. The only piece of legislation in
this direction is the Workmen’s Compensation Act
passed in 1923, but as the entire responsibility for com-
pensation is placed on the employers and the em-
ployees are not required to contribute in any way, it
cannot be called strictly a social insurance measure.
Again like motor insurance there is no legal liabi-
lity to insure under this Act. The details of the Act
have already been explained previously. It was only
in March 1943, that the Government of India appoint-
ed Prof. B. P. Adarker for preparing a health insurance
scheme for industrial workers in India and the report
was submitted in August 1944. But: no action was
taken to implement the scheme and it is only now that
at last the Employees’ State Insurance Act has been
passed in April 1948. With -the achievement of our
freedom now it will not be very difficult to make a
headway in the direction of social security. The above
Act is restricted to factory workers but gradually will
be extended to all categories of. workers in the light of
experience gained. The benefits provided for by this
Act are sickness benefit, maternity benefit, disablement
benefit and dependents’ benefit. The scheme is com-
pulsory and contributory—the contribution to be made
by the employee, employer,, and the state. The em-
ployees whose average daily wages are below one
rupee are exempted from the contribution. All the
contribution will be paid in a fund called the Em- .

ployee’s State Insurance Fund which shall be held and

administered by a special body "set up for the purpose
called the Employee’s State Insurance Corporation. 1
The government has already started taking steps for
the implementation of the scheme.
1 The, corporation has been formed on 1st October, 1948,
 PART SIX
INSURANCE IN INDIA
 CHAPTER XXX
INSURANCE IN INDIA
History of Life Insurance Business

Life insurance in its present form is a heritage

fiom England. In India, the joint family system of
Hindus had worked as an insurance institution for the
past so many centuries and the dangers of old age, early
death, livelihood of widows and children, etc., were
very easily provided for in its fold. With the advent
of large-scale industrialisation, the replacement of bar-
ter economy by money economy and the spread of in-
dividualism in social life, the joint family system has
slowly disintegrated and all its attendant advantages
are on the way to their gradual disappearance. On
account of this factor, the need for modern insurance
has become more urgent in the India of today, though
owing to the fatalistic attitude of the masses, their
poverty and ignorance, the development of life insu-
:

rance business has been slow.

Very little is known about the early history of the
insurance companies in India. Perhaps, the first com-
pany to make its appearance was the Oriental Life
Assurance Company in 1818 in Calcutta started mainly
by Europeans. Subsequently0 some other companies
were also started but all these were British Companies
floated in the United Kingdom and they mainly insur-
ed the lives of Europeans.’ This early period marked
the attempts of many pioneer companies, Indian and
English, for underwriting business in India.
In 1866, the Bombay Mutual Life Assurance So-
.

ciety was registered under the Indian Companies Act

1866 and Oriental Government Security: Life Assurance
Company. Limited was floated in 1874. Both these
companies started at this early period are still in exis-
365
366 INSURANCE IN INDIA

fence and undoubtedly are the front-rank companies.

By 1871, there were in all nearly fifteen companies
working in India. The important feature of the in-
surance business during the last century was that most
—
of the insurance companies majority of them being
—
foreign were insuring only European lives and when
they insured Indian lives, extra premium to the extent
of nearly 10% was charged for them over the European
lives rates. The reason for this discrepancy was the
non-availability of any data regarding the mortality
experience of Indian lives, on the basis of which inde-
pendent premium rates could be fixed. Of course,
some of the Indian Companies including the above two,
charged the same rates for the Indian lives.
The dawn of the twentieth century witnessed a
vigorous development of life insurance business in
India. The Swadeshi Movement gave a great fillip to
the Indian insurance companies. Old companies got
more share of the business and several new companies
were started. Many of the important companies work-
ing at present in India were the outcome of this period.
Of course, several unsound concerns were also floated
at this period, some of which died a natural death. In
order to control the insurance companies in the public
interest, the Government in 1912 passed the Insurance
Act and the Provident Insurance Act on the models of
similar Acts in England. As an effect of this step,
some English companies ceased to write further busi-
ness as they were required to submit reports to the
Government of India. Indian companies had to im-
prove their financial structure and those which could
not conform to the provisions of the Act, had to liqui-
,

date. Then the war came, and its effect on the stock
exchange securities was to reduce their value. As the
insurance companies invested their funds- mostly in
these securities, the problem of investment became
acute and the business dwindled; in 1916 it touched the
lowest level. Apart from this financial aspect, there
 INSURANCE IN INDIA 867

was no other adverse effect of the war on the mortality

experience of the insured lives. The end of war wit-
nessed the floatation of many new companies. The
post-war prosperity accounted for a large increase in
the volume of new business. Tire non-co-operation
movement of 1920-21 also secured larger patronage for
the Indian companies and this enabled them to gain a
stronger financial foothold. However, the develop-
ment of life insurance business during this period had
—
an unhealthy feature. Many new companies foreign
—
as well as Indian were started, some of them were
either closed or absorbed by the other companies. The
defect of the most of the Indian companies lay in the
fact that owing to greater competition the expenses
had increased to uneconomic levels. The civil disobe-
dience movement of 1930 and the spirit of Swadeshism
prevailing in the country helped the Indian companies
to tide over the stress of trade depression.

Upon an analysis of the nature of business done

during this period, it is revealed that the endowment
assurance accounted for nearly 70 to 80 per cent of the
entire business. Again, practically all Indian insur-
ance companies distributed at least 90 per cent, of
their divisible surplus among the policyholders in the
form of bonus. On a comparison, it is found that the
average policy sum of the Indian companies is much
lower than that of the foreign companies; it is so prob-
ably on account of the fact that the richer people
(mostly Europeans) insure with the foreign companies.
However, theTndian companies were feeling the pinch
of competition from the. foreign companies, but so far
no united action was taken by them. In 1927. was form-
ed the Indian Life Assurance Offices Association as a
companies.
step for protecting the interests of Indian
has justified its existence and _has
The Association
out their
helped the member offices by pointing
defects and suggesting remedies.
3GS insurance

Insurance Legislation in India

Prior to 1912, there was no legislation exclusively
applicable to insurance companies carrying on busi-
ness in British India and they were governed by the
provisions of the Indian Companies Act 1882. In the
first decade of the present century, a large number of
insurance companies and provident societies. sprang
up due to swadeshi movement. Many of these compa-
nies were unsound and the failure of some of these
concerns led to an agitation for the control of insur-
ance companies. In 1912, the Government realised
that the provisions of the Indian Companies. Act were
not adequate for the control of the insurance com-
panies and as such the Indian Life Insurance Compa-
nies Act and the Provident Insurance Societies Act
were passed dealing with life insurance only. At that
time very few Indian companies used to carry on non-
life business and, therefore, as a result of the above
Acts, the foreign companies which had almost a- mono-
poly of the non-life business got complete- freedom
in their business.
The Indian Life Insurance Companies Act of 1912
was based on the model of the English Insurance Com-
panies Act of 1909 with the difference that the Indian
Life Insurance Companies Act related to life insurance
only and excluded the non-life business from its fold.
Even within the limited scope relating to life insur-
ance business, the Act of 1912 had some defects: firstly,
no provision was made for the deposit to be made
by the. foreign insurance ..companies; secondly, the
deposits required from the Indian companies were
also not sufficient to check the floatation of unhealthy
concerns; thirdly, there was no restriction imposed
on the investment of their funds; fourthly, the foreign
companies were. exempted from submitting particulars
regarding their Indian business. Again, even if a
company was known to be unsound, there was no
 INSURANCE IN INDIA 369

power given to the Government Actuary to order

investigation. . .

As a result of the above defects, the law in India

was not in line with the law in force in other coun-
tries. Persistent demands were made by various im-
portant public bodies in the country for statutory
provisions which would provide for disclosure and
publication of the business carried on in India by
foreign companies. In 1924 the Government decided
to amend the existing law in the country in the light
of the above drawbacks. The Government of India
went ahead and in 1925 a draft Bill of the proposed
new Act intended to provide one comprehensive piece
of legislation was introduced in the Legislative Assem-
bly but the consideration of the Bill was postponed
because the Government of India thought it fit to
watch the course of new legislation on Insurance Law
in England. In England, a committee presided over by
Mr. A. C. Clanson, K.C., was appointed to revise the
insurance legislation of that country. The Clanson
Committee submitted its report in February 1927, but
no action was taken on its recommendations by the
Government of England. The Government of India
in 1928 passed a stop-gap legislation with the main
object of collecting statistics regarding insurance mat-
ters so that the information collected would be of
value when the time would come to pass a compre-
hensive act. '
-

At that time the Government of India wanted to

await the United Kingdom legislation which was ex-
pected to-be taken up in 1929 or so and base the law
for India on the British model but: the legislation was
never passed in Britain. The slow, progress of events
in United Kingdom again revived the agitation for
amendment of the law of insurance in India indepen-
dently of the English statute. Due to this public
pressure, the Government of India decided in 1935 to
proceed with the reform of insurance law without
 '

370 INSURANCE

waiting for the British legislation. Mr. Sushil C. Sen,

a well-known Calcutta solicitor, was placed on special
duty to report on the amendments necessary to
modernise insurance legislation and practice in India.
His report was considered by the Advisory Committee
appointed by the Government of India from repre-
sentatives of all branches of insurance. The com-
mittee made several changes and the Government of ;

India introduced the bill in the Legislative Assembly

in 1937 and after much debate and several changes, it
emerged as the Insurance Act of 1938. It came into
force on 1st July, 1939.
This Act of 1938 has neither strictly followed the
English principle of ‘minimum interference with
)
maximum publicity’ nor the Canadian principle of
‘direct control’. It provides for a strict control
of insurance business and is really the first
comprehensive piece of insurance legislation in
this country, governing both life and non-life
branches of insurance. So far the Indian companies
are concerned, provision has been made in, this Act:
(i) to prevent the growth of mush-room companies;
(ii) to enforce working on sound principles; (iii) to
prevent misapplication of funds; and (iv) for the pro-
tection of assets. A few changes were introduced in
the Act by amendments in 1939, 1940, 1941, 1944 and
1946.
Salient Features of the Act
(1) Wide Scope. The Act
applies to all types of
—
insurance business life, fire, marine/- etc.—done by
companies incorporated in British India or elsewhere.
(2 Deposits. To prevent the growth of insurers
of small financial resources or speculative concerns,
the Act provides for registration of all insurers and a
substantial deposit with the Reserve Bank.
(3) Submission of Returns. The Act provides for
’

the creation of a post of Superintendent of Insurance

—
and it is obligatory on all companies including the
 INSURANCE IN INDIA 371

—
foreign ones to submit all annual and quinquennia]
returns in the prescribed form within a stated period.
The superintendent has been given wide powers to
reject all incomplete and inaccurate returns, etc.
(4) Prohibition of Rebating, restriction of com-
mission and licensing of agents. The provisions relat-
ing to these points have been framed to control the
high costs on. account of excessive rates of commission
which naturally resulted in rebating to the assured
the whole or part of the commission earned by the
agents. The Act fixes maximum rate of commission
at 40 per cent, of the first year’s premium and 5 per
cent, of the renewal premiums for the life business
and 15 per cent, for non-life business. Rebate is com-
pletely prohibited. The agents have got to be licensed
and the fee which was Rupee one is now increased to
Rupee one and eight annas.
(5) Investments. It is laid down that 55 per cent,
of the net life liabilities of an Indian or a British
insurer should be invested in Indian Government and
Approved Securities with at least 25 per cent, in
Indian Government Rupee Securities. All other com-
panies must invest 100 per cent, of their Indian liabili-
ties in Indian Government and Approved Securities
with at least one-third in Indian Government Rupee
Securities. This provision has been made for the pre-
vention of the misapplication of assets and for their
preservation so that the funds of every insurer should
not only be safely invested but they should also be so
invested as to make them readily available and if
necessary, to be readily convertible into liquid funds.
With this end in view, the companies must maintain
issued,
certain books, such as Register of Policies
Register of Claims, Register of Funds and Investments,
0tc.
Safeguard of Policyholders' Interests
The
r.
(6) i

to the
policyholders can elect their representatives
being one-fourth ot
Board of Directors, the proportion
372 INSURANCE

the totalnumber of Directors of the company. Again,

the Act makes the policies indisputable after two
years from the date on which they are effected. Fur-
ther the provisions are made for informing the policy-
holder of the options available to him within, three
months of the non-payment of a premium due. .

(7)Restriction on Loans. The insurer cannot

grant loans or temporary advances to any director,
manager, managing agent, actuary, auditor, etc., ex-
cept on life policies issued by him within their sur-
render values: Managing agency has been abolished
by the Act. '

The Act was really a distinct improvement over

the previous measures' but it had its shortcomings. No
attempt has been made to control the maximum ex-
penses of the insurers and this has been the greatest
weakness of the Indian insurers. There has been much
criticism levelled by the insurers regarding limitation
on investments and even today it remains' the most
controversial point. Due to the changed circumstan-
ces, the Act in spite of its many good points has be-
come out-of-date and the time has come for its revi-
sion. The Government is also alive to the situation
but on account of many controversial points, the mea-
sure has been postponed again and again. In 1946, two
Insurance Amendment Bills were introduced in the
budget session. The first Bill, which sought to remedy
some administrative defects was passed, but the, second
Bill which was the outcome of a series of conferences,
negotiations and adjustments was referred to the
Select Committee which submitted its report in the
budget session of 1947. But owing to the heavy legis-
lative programme the Bill could not be dealt with
,

then. This Bill contained the most drastic proposals

and a huge storm of protest was raised over the whole
country over its provisions. The points raging the
controversy were mainly relating prevention of insu-
of
rance companies, from falling into the hands
 INSURANCE IN INDIA 373

designing financiers, prevention of inter-locking of

interestsbetween insurance companies and banks, and
control of investments. The Select Committee
tightened up the provisions further in some respects.
The Bill was expected to come up for considera-
tion in the budget session of 1948 but the Commerce
Member announced its withdrawal on 30th January,
1948 and assured to bring forward a new comprehen-
sive Bill after consulting the various interests concern-
ed. Towards the middle of 1948, the Government of
India appointed an informal Expert Committee to
examine and report on the law of insurance in India.
It reviewed not only the sections of the Insurance
Act 1938 from the point of view of the latest political
changes in the country but also examined the provi-
sions of the above referred Second’ Insurance Amend-
ment Bill.The informal committee submitted its
'

report towards the' close of the year and its

recommendations were approved by the Insurance
Advisory Committee. It can be safely stated that
•

very few Bills in the past suffered so much from

the conflict of group interests. It is anticipated that
a comprehensive Bill embodying the proposed changes
will soon be placed before the Central Assembly and
let us /hope that its long and tortuous journey will
now come to an end.
Present Position
Taking the period after the Great War as a whole,
lifeinsurance in India has shown good progress. The
new life business written by Indian companies in-
creased from Rs. 2 .crores in 1917 to Rs. 43 crores in
1939 and to Rs. 131 crores in 1946. Similarly, business
;

in force at the end of the above years has expanded

from Rs. 24 crores to Rs. 215 crores and Rs. 514 ciores
that the rise
respectively. -..These statistics also reveal
war years. The war
was more marked during the of
attributed to a large outburst
period boom can be
industrial, and other activities, currency ex™^,nn.
372 INSURANCE

the total number of Directors of the company. Again,

the Act makes the policies indisputable after two
years from the date on which they are effected. Fur-
.

ther the provisions are made for informing the policy-

holder of the options available to him within, three
months of the non-payment of a premium due. ..

(7) Restriction on Loans. The insurer cannot

grant loans or temporary advances to any director,
manager, managing agent, actuary, auditor, etc., ex-
•it on life policies issued by him within their sur-
der values. Managing agency has been abolished
’

y the Act.
The Act was really a distinct improvement over
the previous measures' but it had its shortcomings. No
attempt has been made to control the maximum ex-
penses of the insurers and this has been the greatest
weakness of the Indian insurers. There has been much
criticism levelled by the insurers regarding limitation
on investments and even today it remains the most
controversial point. Due to the changed circumstan-
ces, the Act in spite of its many good points has be-
come out-of-date and the time has come for its revi-
sion. The Government is also alive to the situation
but on account of many controversial points, the mea-
sure has been postponed again and again. In 1946, two
Insurance Amendment Bills were introduced in the
budget session. The first Bill, which sought to remedy
some administrative defects was passed, but the second
Bill which was the outcome of a series of conferences,
negotiations and adjustments was referred to the
Select Committee which submitted its report in the
budget session of 1947. But owing to the heavy legis-
lative programme the. Bill could not be dealt with
.

then. This Bill contained the most drastic proposals

and a huge storm of protest was raised oyer the whole
country over its provisions. The points raging the
controversy were mainly relating prevention of insu-
ox
rance companies, from falling into the hands
 INSURANCE IN INDIA 373

designing financiers, prevention o£ inter-locking of

interestsbetween insurance companies and banks, and
control of investments. The Select Committee
tightened up the provisions further in some respects.
The Bill was expected to come up for considera-
tion in the budget session of 1948 but the Commerce
Member announced its withdrawal on 30th January,
1948 and assured to bring forward a new comprehen-
sive Bill after consulting the various interests concern-
ed. Towards the middle of 1948, the Government of
India appointed an informal Expert Committee to
examine and report on the law of insurance in India.
It reviewed not only the sections of the Insurance
Act 1938 from the point of view of the latest political
changes in the country but also examined the provi-
sions of the above referred Second' Insurance Amend-
ment Bill. The informal committee submitted its
report towards the close of the year and its
recommendations were approved by the Insurance .

Advisory Committee. It can be safely stated that

very few Bills in the past suffered so much from
the conflict of group interests. It is anticipated that
a comprehensive Bill embodying the proposed changes
will soon be placed before the Central Assembly and
let us hope that its long and tortuous journey will
,

now come to an end.

Present Position
Taking the period after the Great War as a whole,
lifeinsurance in India has shown good progress. The
new life business written by Indian companies in-
creased from Rs. 2 crores in 1917 to Rs. 43 crores in
1939 and to Rs. 1ST crores in 1946. Similarly, business
;

in force at the end of the above years has expanded

from Rs. 24 crores to Rs. 215 crores and Rs. 514 crores
respectively. These statistics also reveal that the rise
was more marked during the war years. The wai
of
period boom can be attributed to a large outburst
industrial and other activities, currency expansion,
374 INSURANCE

lack of alternative avenues for -investments to the

middle class community, great reduction in unemploy-
ment, huge profits in industrial concerns and a large
increase in the salaries of employees. Though the
progress may be called satisfactory, it is clear that we
have reached nowhere near the saturation point. If a
comparison is made with the advanced countries, the
backwardness of India in the matter of insurance can
at once be realised. The per capita life assurance in
U.S.A. and Canada is nearly 1,000 and 700 dollars res-
pectively while that for India is just above Rs. 10 only!
In America, 4 out of every 5 families possess protection
of life insurance which averages about 4,700 dollars for
every insured family. In India, 1 out of every .153
persons is insured and hardly 2.6 per cent, of popula-
tion is covered by life insurance. The main reason for
such a low standard lies in the fact that the people are
very poor and there is left a very little margin for sav-
ings. With the industrialisation of the country and
. ,

the consequent improvement in the economic condi-

tion of poverty-stricken masses, life, insurance in India
will have enormous field for expansion.

The number of insurers registered under the In-

surance Act 1938 upto the 30th September, 1948 was
339. Out of these, 232 insurers were for the Dominion
of India. Of these Indian Insurers, 191 transacted busi-
ness is either life alone or with other class of business.
There were 107 foreign companies transacting insurance
business in India, out of which only 20. companies
transacted business in either life ;alone or with other
class of business. Thus it is clear that nearly. 82% of
the Indian insurers are transacting business wholly or'
partly in life insurance while the foreign insurers have
their field mostly in the non-life business. Out of the
107 foreign insurers, as many as 67 are constituted in
U.K. alone. At the end of 1947, the total number of
policies in force was 29,36,000 of which 27,07,000 poll-
 INSURANCE IN INDIA 375

cies were insured with Indian* insurers. The total

amount insured for was Rs. 640.07 crores of which the
Indian share was Rs. 547.17 crores, nearly 84%. The
premium income totalled Rs. 32.81 crores of which the
Indian share was Rs. 26.98 crores, nearly 82%. The
average sum insured per policy with Indian concerns
was Rs. 2,177, and. that by non-Indian concerns being
Rs. 6,170.
A scrutiny of the above statistics will reveal that
.
though the Indian insurers have a very large share of
life insurance business, it must not be understood that
the non-Indian insurers are completely insignificant.
The Indian concerns have suffered much in the past
due to the competition from the foreign insurers, par-
ticularly British, as they received a preferential treat-
ment in the collateral services of banks, shipping and
business in general. This handicap is sure to go as the
Indian legislature is now sovereign, perfectly compe-
tent to safeguard the national interests in every possi-
ble way. The larger average assured amount per
.

policy with the non-Indian insurers is due to the fact

that the policyholders with them are mostly Europeans
and rich persons. In this connection, however, it
should be noted that the mere statutory safeguards
and the appeal to patriotic sentiments would hardly
help the Indian insurers to compete successfully with
the foreign insurers who are still catering to the needs
of a large number of our countrymen. t

A comparative study of statistic's regarding the

life insurance for the last feW years would show that
the expansion of the business owing to the last world
war is showing the signs to have come to an end and
the inflated war time business is falling off. It seems
that the boom period for life insurance business ended
with the year 1946. The decrease in the net' amount
of life business effected in In dia during
the year 1947

includes Pakistan as well so far these

* The word ‘Indian’
statistics are concerned.
376 INSURANCE

over that for the previous year was to the tune of

nearly Rs. 18 crores, a reduction of about 12.5 per cent,
in business. The main factor responsible for this posi-
tion is the currency inflation and the consequent steep
rise in the cost of living which resulted in the falling off
of real income of the people. Therefore, with the cur-
tailment in the ability to save, people have not pur-
chased many new policies and there has been an in-
crease in the lapses. The other factor causing the loss
of new business was the abnormal situation existing in
the country as a result of partition.
Upon an working of the Indian
analysis of the
insurance companies, it is found that the rate of in-
terest realised on life insurance funds by them is
gradually going down. This is mainly because of the
cheap money policy followed by the Government of
India. On the other hand, the ratio of their expenses
of management to the premium income is gradually
increasing except in the last year 1947 which shows a
slight fall. This ratio is very high when compared to
that of the non-Indian insurers for similar business in
.

India. Though there are a few Indian insurers whose

reputation is as high as that of some in the advanced
countries of the world, this cannot be said of a sub-
stantial majority of our insurers. The recent increase
in the 'expense ratio may be attributed to some extent
to the increased management expenses in the form of
increased salaries to the clerical staff, etc., but the
greatest vulnerability of our insurers on the flank of
management expenses remains an open secret even
today. The lavishness of many insurers is alarming
and the. existence of small, uneconomic and unsound
units is a very disquieting feature of the growth of our
life insurance business. Thus on the one hand, there
is a fall in income and on the other hand, the expenses
are increasing and on account of this fact, most of the
life insurance companies have increased their pre-
mium rates recently. This is likely to affect the insur-
 INSURANCE: J.N INDIA 37 7

ance business adversely. The insurers accuse the Gov-

ernment for this situation due its cheap money policy
and taxation system, while the Government lays the
blame on the insurers for their extravagance in the
management expenses. However, the situation is a
very crucial one at present and it is certain that the
Government will have to be liberal in its taxation
policy towards the insurance companies but that alone
will not solve the problem until and unless the com-
panies set their own house in order first and increase
the efficiency of their management and economise the
expenses at every possible score. The world today
stands on the brink of another serious economic
depression. If the all-round slump in production is
any indication of the coming depression, India with
its warborn and post-war-augmented shattered eco-
nomy cannot afford to indulge in the luxury of being
lost in the ideological controversies. A comprehensive
plan for an increased output, curtailment of Govern-
ment budgets specially on new projects, stabilisation
of price level at a low stratum, austerity campaign at
home and a vigorous export drive at the foreign front
will go a great way to prevent the impending economic
crisis from carving out deep furrows on the already
shattered economy of India.
 APPENDIX
IMPORTANT SECTIONS
OF
INDIAN INSURANCE ACT, 1938.
 THE INSURANCE ACT, 1938.
(ACT IV OF 1938)
r
.0* ^* ° insurer iiicoriioralcd after, or who commenced
... carrying on the business of
iiic insurance m
British India, whether solely or in common with any other business,
Requirements as to after the 2Cth day of January, 1037, shall be registered
capital unless he has as working capital a net sum of not less than
. .
fifty thousand rupees exclusive of the deposit to be made
,
he To re registration under sub-section (5) of section 7 of this Act, and exclusive in the
case of a company of any sums payable as preliminary expenses in the formation of"
the Company.
7. (1) Every insurer not being an insurer specified in sub-clause (c) of clause (9)
of section 2 shall, in respect of the insurance business carried on by him in British
India, deposit and keep deposited with the Reserve Bank
Deposits of India in one of the offices in India of the Bank for
and on behalf of the Central Government 1 [ the amount
hereafter specified, either in cash or in approved securities estimated at the market
value of the securities on the day of deposit, or partly in cash and partly in approved
securities so estimated]:

() where the business done or lo be done is life insurance only, two hundred
thousand rupees
() where the business done or to be done is fire insurance, only one hundred and
fifty thousand rupees
(c) where the business done or to he done is marine insurance only, one hundred
and fifty thousand rupees
(rf) where the business done or to be done 2 [is miscellaneous insurance only, that
is to say, insurance which is not in the opinion of the Central Government
principally or wholly of any kind or kinds included in clauses (a), (6), or (c)],
one hundred and fifty thousand rupees
(e) where the business done or to be done 3 (is) life insurance and any one of the
three classes specified in clauses ( b ), (c), and (d), three hundred thousand rupees
of which two hundred thousand rupees shall be the deposit for life insurance
business
(/) where the business done or to be done 3 (is) life insurance and any two of the
three classes specified In clauses (b), (c), and (d), four hundred thousand rupees
of which two hundred thousand rupees shall be the deposit for life insurance
business
(g) where the business done or to be done (is) life insurance and all three classes
3

specified in clauses (b), (c) and (d), four hundred and fifty thousand rupees of
which two hundred thousand rupees shall be the deposit for life insurance
business
(/<) where the business done or to be
done does not include life insurance but4
(is) any two of the classes specified in clauses (b), (c) and (d), two hundred and
fifty thousand rupees

(j) where the business done or io be done docs not include life insurance but 4

1. These words were substituted for the words “cash or approved securities estimated
at the market value of the securities on the day of deposit of the amount hereafter
specified
namely" ( with retrospective effect) by s. 1 of the Insurance ( Amendment ) Act, 1940 (20 of
 :

382 1
INSURANCE
(is) all three classes specifiedin clauses (b), (c) and(d). three hundred and fifty
thousand rupees j

* * * *

2 (Provided that, where the business done or to be done is marine insurance

only and relates exclusively to country craft or its cargo or both, the amount
to be deposited under this sub-section shall be ten thousand rupees only.)

(2) Where the insurer is an insurer specified in sub-clause (c)

of clause (9) of section
2, heshall be deemed to have complied with the provisions of this section as to deposits,
if in respect of any class of insurance business 3 (carried on) by him in Brit isli India under
a standing contract of the nature referred to in sub-clause (c) of clause (9) of section -
a deposit of an amount one-and-a-lialf times that specified in sub-section (1) ns the
deposit for that class of insurance business has been made in the Reserve Bank of India
3

in one of the offices in India of the Bank for and on behalf of the Central Government
in cash or approved securities estimated at the market value of the securities on the
day of deposit by or on behalf of the underwriters who are members of the Society ol
Lloyd’s with whom
he has his standing contract.
(3) Where the deposit is to be made by an insurer incorporated before, or
carrying on the business of insurance in British Indiabcfore, the 27th day of January,
1937, the deposit referred to in sub-section (1) may be made in not more than seven
instalments, of which the first shall be not less than one-fourth of the total amount of
the deposit and shall be paid before the application for registration is made, the second
1
shall be not, less Ilian one-sixth of the balance of the deposit and shall be paid before
(the expiry of four months from the commencement of this Act), and the subsequent
instalmens shall be of not less than the minimum amount required as the second instal-
ment and shall be paid before the 1st day of January of each succeeding year
Provided that in the case of insurers carrying on life insurance business only, the
deposit may be made in not more than ten instalments, of which the first shall be not
less than one-fourtli of the total amount of the deposit, and shall be paid before the
application for registration is made, the second shall be not less than one-ninth of the
balance of the deposit, and shall be paid before (the expiry of four months from the
commencement of this Act), and the subsequentinstalmcnts shall be of not less than
the minimum amount required as the second instalment, nnd shall be paid before the
1st day of January of each succeeding year.
(4) Notwithstanding anything contained in sub-section (3), in the case of an
insurer® (to whom that sub-seetion applies), not being an insurer specifiedin sub-clause
(a) (ii) or sub-clause (b) of clause (9) of section 2, and not being an insurer incorporated
in or domiciled in the United Kingdom, the depositrefermltoin sub-section (1) shall
be made in two instalments of which the first shall not be less than one-half of the total
amount of the deposit and shall be made before the application forregistration is made,
and the second shall be made before the expiry of one ycarfrom the date of registration 7 -

(3) Where the deposit

be made by an insurer neither incorporated before,
is to
nor carrying on insurance business in British Indiabcfore, the 27lh day of January,
1937, the deposit may be made in instalments of not less than one-fourth the total
amount before the application for registration is made, not less than one-third the
balance before the expiry of one year from the commencement of business in British
India, and not less than one-lialf the residue before the expiry of two years from the
commencement of business in British India, and the balance before the expiry of three
years from the commencement of business in British India :

Provided Hint in the case of any insurer not being an insurer specified in sub-clause
(a) (tl) or sub-clause(b) of clause (9) of section 2, and not. being an insurer incorporated
in or domicile^ in theUnitedKingdom, the deposit shall be made in full before the
application for registration is made.

1 The word '.'and” and danse O') were omitted bit

. s. i of the Insurance (Amendment)
.-ieM9 10 (20 0/1040).
2. This proviso was added, ibid.
3. These words were substituted for the t cord “transacted" bn s. 3 of the Insurance
(Amendment) Act, 1039 (11 o/1939).
•t. These words were substituted for the words and figures “the 1st daj of January,
1939,” ibid.
3. These words were substituted for the words and figures “the 1 st day of January,
1939” by s, 3 of the Insurance (Amendment) Act, 1939 (H 0/1939).
0, These words were inserted, ibid.
 • —

INSURANCE 388

.
(fi) No class jof insurance business in addition to the class or classes
in respect of
wiuen an insurer is already liable to make a deposit under sub-section
(1) or sub-section
UJ snail be undertaken by the insurer until the.dcposit to which he
is already liable has
been made in full, and the additional deposit required in respect of the additional class
ot business or sq much thereof as unefer the provisions
of sub-section (3), (4) or (5)
isto be made before the application for registration has also been
made in full.
.
already deposited with the Controller of Currency in compliance
with(J)
the Indian Life Assurance Companies Act, 1912, shall be transferred by him to the
iteserve Bank of India and shall, to the extent of their market value 1 (as at the date of
commencement of this Act) be deemed to be deposited under this Act 2 (as the instal-
ment or as part of the instalment to be made under the foregoing provisions of this
section before the application for registration is made whether any such applicable is
or is not In fact made).
($) AdcpositmadeineasbslmllbeheldbytheReserveBankof Iudiatotbe credit
oft he insurer and shall 3 (except to the extent, if any, to which the cash has been invested
m securities under sub-section (9A)), be returnable to the insurer in cash in any case
in which under the provisions of this Act a deposit is to be returned; and any interest
accruing due and collected on securities deposited under sub-scction (1) or sub-section
(2) shall be paid to the insurer, subject only to the deduction of the normal commission
oliargcablc for the realization of interest.

.
t*(9) The insurer may
at any time replace any securities deposited by him under
Inis section with the Reserve Bank of India cither by cash or by other approved securi-
ties or partly by cash and partly by other approved securities, provided that such cash,
or the value of such other approved securities estimated at the market rates prevailing
at the time of replacement, or such cash together with such value as the case may be,
is not less than the value of the securities replaced estimated at the market rates pre-
vailing when they were deposited.
(9A) The Reserve Bank of India shall, if so requested by the insurer.
(o) sell any securities deposited by him with the Bank under this section and hold
the cash realised by such sale as deposit, or
( b ) Invest in approved securities specified by the insurer the whole or any part of a
deposit held by it in cash or the whole or any part of cash received by it on the
safe of or on the maturing of securities deposited by the insurer, and hold the
securities in which Investment is so made as deposits (and may charge the
normal commission on such sale or on such investment). .

(OB) Where sub-section (OA) applies. —

(a) if the cash realised by the sale of or on the maturing of the securities (excluding
in the former case the Interest accrued) falls short of the market value of the
securities at the date on which they were deposited with the Bank, the insurer
shall make good the deficiency by a further deposit either in cash or in approved
securities estimated at the market value of the securities on the day on which
they are deposited, or partly in cash and partly in approved securities so esti-
mated, within a period of two months from the date on which the seuritfes
matured or were sold or where the securities matured or were sold before the
21st day of March 1940, within a period of four months from the commence-
ment of the Insurance (Amendment) Act, 1940 ; and unless he does so the
insurer shall be deemed to have failed to comply with the requirements of this
section as to deposits ; and
(b) if the cash realised by the sale of or on the maturing of the securities (excluding
in the former case the interest accrued) exceeds the market value of the secun-
t ics at the date on which they were deposited with the Bank,
the Central Gov-
ernment may, if satisfied that the full amount required to be deposited under
sub-section (1) is in deposit, direct the Reserve Bank to return the excess.
 '

381 , INSURANCE
'
(10) If . \ny part of a deposit made under this section is used in the discharge of
any liability of the insurer, the insurer shall deposit such additional sum in cash or
approved securities! (estimated at the' market value of the securities on the day of de-
posit, or partly in cash and partly in such securities) as3 will make up the amount so
used. The insurer shall he deemed to have failed to comply with the requirements of
sub-section (l), unless the deficiency is supplied within a period of two months from
the date when the deposit or any pari, thereof is so used for discharge of liabilities.
16 (1) The audited accounts and statements referred to in section li and the
,

abstract, and statement referred to in section 13 shall l>e. printed, and four copies
(hereof shall be furnished as returns to the Superin-
Submisslon of Returns Pendent -of Insurance 2 (iii the ease of the accounts and
statements referred to in section II within six months
and in the case of the abstract and statement referred to in section 13 within nine '

months) from the end of the period to which they refer.

* * * * *
Provided'that the said period of six months shall in the case of insurers having
their principal place of business or domicile outside India and in. the case of insurers
constituted, incorporated or domiciled in Britisli India but also carrying On business
outside India be extended by three months, and provided further that, the Central
Government may in any ease extend the time allowed by this sub-section for the furni-
shing of such returns by a further period not exceeding three months.
‘

(2) Of the four copies so furnished one shall be signed in the case of a company by
the Chairman and two directors and by the principal officer of the company, and, If the
company has a managing director or managing agent, by that dlrectoror managing
agent, in the case of a firm, by two partners of the firm, and, in the case of an insurer
being an individual, by the insurer himself.
(3) Where the insurer’s principal place of business or domicile is outside British
India, he shall forward to the Superintendent of Insurance, along with the documents
referred to in section 11, the halance-shect.pTofit and loss account andxevenue accounts
and the valuation reports and valuation s tatemenls, if any .which the insurer is required
to file with the public authority of the country in which the insurer is constituted,
incorporated or domiciled, or, where such documents are not required to be filed, a
certified statement showing the total assets andliabiliticsof the insurer at the close of
the period covered by the said documents and his total income and expenditure during
that period.
16 ( 1).Where by the law of the country in which an insurer, not being an insurer
s P e °fficd in sub-clause (1) (ii) or sub-clause (6) of clause
Returns by J Insurers
established 0>) of section 2, is constituted, incorporated ordomiciled,
outside
British India the ‘usurer is required to prepare and furnish to a public
authority of that country documents of substantially the
same nature as the documents required to he furnished as returns in accordance with
the provisions of section 15, the provisions of sub-section (2) of thissection shall apply
to such insurer in lieu of the provisions of sections 11, 12, 13 and 15.

(2) The insurer shall, within the time specified in sub-section (1) of section 15,
furnish to the Superintendent of Insurance four certified copies in the English language
of every balance-sheet, account, abstract, report and statementsuppliedto the public
authority referred to in sub-section (1) of this section, and in addition thereto,! (four
certified copies) in the English language of each of the following statements, namely :•
(a) a statement 3 (audited by a person duly qualified under the law of the insurer's
country) showing the assets held by the insurer in India 0 (as at the date of any
balance-sheet so furnished ;)

1. These words were inserted by s. 1 of the Insuranc Amendment Act, 19-10 (20 of
1910),
These words and figures were substituted for the words "icithin six months ” by
2.
s. 11 of the Insurance ( Amendment ) Act, 1011 (13 of 1911).
3. The words “ The Superintendent of Insurance may extend the time allowed for
furnishing the abstract and statement referred to In section 13 by a period not exceeding
three months " were omitted, ibid.
4. These words were substituted for the words "four copies ” by s. 7 of the Insurance
( Amendment ) Act, 1039 (11 of 1089). .
5. These words were inserted by s. 7 of thelnsuranee {Amendment) Act, 1930 (11 o]
1939). -
„„ ,
0. These words were added bys. 12 of the Insurance ( Amendment ) Act, 1911 (!•* °l

1941).
 ; ; ; —
INSURANCE 885

(6) i(foreach d:ua or sub-class of insurance business for which lie is required under
sub-section (1) of section *. \ .... .. .

a revenue account for tin ; . ; .

form or forms set forth i . ^ n litM ^ ^

class or sub-class of Insurance busincs3) 3 (nnd similarly audited), showing
separately with respect to business transacted by the insurer in India the
details required to be supplied in a revenue account furnished uuder this clause
of this sub-section
4 l(c)
a separate abstract of the valuation report in respect of nil business trans-
acted in India in each class or sub-class of insurance business to which section
13 refers, prepared in the manner required by that section, and
] ;
(a) a declaration in the prescribed form stating that all amounts received by the
insurer directly or indirectly whether from his head office or from any other
source outside India have been shown in the revenue account except such sums
as properly appertain to the capital account.
18. Every insurer shall furnish to the Superintendent of Insurance a certified
’
copy of every report on the affairs of the concern which is
Furnishing Reports submitted to the members or policy-holders of the
Insurer immediately after its submission to the members
policy-holders as the ease may he.
Powers 21. If it appears to the Superintendent of (I) thal
of Superinten-
int of Insurance re- any return furnished to him under the provisions of this
ading returns Act is inaccurate or defective in any respect, he may
(a) require from the insurer.such further information, certified if he so directs by
an auditor or actuary, as he may consider necessary to correct or supplement
such return
(h) callupon the insurer to submit for Ids examination at Hie principal place of
business of the insurer in Rritisli India any book of account, register or other
documentor to supply any statement which he may specify in a notice served
on the insurer for the purpose ;
(c) examine any officer of Inc insurer on oath in relation to the return
(d) decline to accept any such return unless the inaccuracy has been corrected
or the deficien
date on which . .

of the deficient . 1

any such return, the insurer shall be deemed to have comply with the failed to
provisions of section 15 or section 10 relating to the furnishing or returns.
(2) The Court may
on application of an insurer and after hearing the Superinten-
lt cancel any order made by the Superintendent under clause (o), (6) or (c) of sub-
lion (1) or may
direct the acceptance of any return which the Superintendent has
lined to accept, if the insurer satisfies the Court that thcaction of the Superintendent
s In the circumstances unreasonable.
G(Provided that no application under this sub-section shall be entertained unless it
nade before the expiration of four months from the time when the Superintendent
insurance made the order or declined to accept the return).
22. If it appears to the Superintendent of Insurance that an investigation or
6 (or an abstract of a valuation report furnished
nation to which section 13 refers
under clause (c) of sub-section (2) of section Ifl) does not
»ower of Superinten- properly indicate the condition of the affairs of the
at of Insurance to intncvalua-
‘
let revaluation. . -

investigation
1 valuation to be made
at the expense of the insurer by an actuary appointed by the
irer for this purpose and approved by the
Superintendent of Insuran ce. _ ——
each class oj
“57 These words brackets and figures were substituted for the words “/or
,

urance business carried on by him a revenue account, *»*«•

, „ ....
substituted for the words that ci^ofbusiuess,
2. These words ivere
Act, 1930 (11
.

a inserted by S. 7 of the Insurance ( Amendment )

These words acre
f 9.19.) . ,
4. This clause was substituted, tout. , . . ,
Amendment ) A> l. )oi1
1941 (
...
1 J rof,
This proviso was added by s. 14 of the Insurance (
1

6.

and figures were inserted by 3 . 15, ibid,

'Hi, These words, brackets, teller
386 INSURANCE.
INVESTMENT LOANS AND MANAGEMENT
27. ( 1 ) Every insurer incorporated or domiciled in British India shall, subject to
the provisions of sub-section (3), at all times invest and hold invested assets equivalent
to not less than fifty-five per cent, of the sum of the
Investment of assets amount of his liabilities to holders of life insurance
and restriction on loans, policies in India on account of matured claims and the
amount required to meet the liability on policies of life
insurance maturing for payment in India, less the amountof any deposit made under
section 71 (or section 98) by the insurer in respect of his life insurance business and less
any amount due to the insurer for 4loans granted by him on policies of life insurance 2
(maturing for payment in India and within their surrender values) in the manner follow-
ing, namely, twenty-five per cent of the said sum in Government securities and a further
.

sum equal to not less than thirty per cent, of the said sum in Government securities
or other approved securities or securities of or guaranteed as to principal and interest
by the Government of the United Kingdom.
Explanation : —
The provisions of this sub-section shall apply also to insurers
incorporated in or domiciled in the United Kingdom. -

(2) An insurer incorporated or domiciled elsewhere than in British India or the

United Kingdom shall, subject to the provisions of sub-section (3), at all times invest
and hold invested assets equivalent to notless than the sum of hislinbilities to holders of
life insurance policies in India on account of matured claims and the amount required
to meet the liability on policies of life insurance maturing for payment in India, less
1 he amount of any deposit made under section 7
3 (or section 08) by the insurer in respect
of his life insurance business and less any amount due to the insurer on loons granted
by him on policies of life insurance (maturing for payment in India and within their
surrender values) in the manner following, namely, thirty-three and one-third per cent,
of the said sum in Government securities and the balance in Government securities or
other approved securities or securities of or guaranteed as to principal and interest
by the Government of the United Kingdom.
(3) An insurer carrying on business at the commencement of this Act to whom sub-
section (1) or sub-section (2) applies shall before the expiry of four years from the com-
mencement of this Act invest the total amount required to be invested by those sub-
sections in the manner required thereby
Provided that of such total amount the insurer shall have invested not less than
one-fourth in securities of the nature specified in sub-section (1 ) before the expiry of one
year, not less than one-lialf before the expiry of two years, and not less than three-
fourths before the expiry of three years from the* (30tli day of June 1989).
(4) The assets required by this section to be held invested by an insurer to whom
sub-section (2) applies shall be held in trust for the discharge of claims of the nature
referred to in sub-section (2) and shall be vested in trustees resident in British India
and approved by the Central Government by an instrument of trust which shall be
executed by the insurer and approved by the Central Government and shall define the
manner in which alone the subject matter of the trust shall be dealt with.
—
Explanation : Sub-seelions (2) and (4) shall apply to an insurer incorporated in
British India whose share capital to the extent of one-third is owned by, or the members
of whose Governing Body to the extent of one- third consists of, individuals domiciled
elsewhere than in British India or the United Kingdom.
29. 8 [(1)] No insurer shall grant loans or temporary advances either on hypo-
thecation of property or on personal security or otherwise, except loans on life policies
issued by him within their surrender value, to any dlrec-
Prohibltlon of loans. tor, manager, managing agent, actuary, auditor or officer
of the insurer if a company, or where the insurer is a firm

1. These i cords, and figures were inserted by s. 10 of the Insurance ( Amendment ) Act,
1939 (11 of 1939).
2. These words icere inserted, ibid.
3. These words and figures were inserted by s. 10 of the Insurance (Amendment) Act,
1939 (11 of 1939).
4. These icords were inserted, ibid.
5. These words and figures were substituted for the words “Commencement of tins Act
by s. 3 of the Insurance ( Amendment ) Act, 1940 (20 of 1940). r
0. SeclionZDwasre-numberedas sub-section (1) of that section by s. 19 of the insu-
rance (Amendment) Act, 1941 (13 of 1941),
'
 t » j : y L r< c

INSURANCE 387

to any partner therein, or to any other company or firm in which any such director,
manager, mauaging agent, actuary, officer or partner holds the position of a director,
manager, managing agent, actuary, officer or partner
Provided that nothing herein contained shall apply to loans made by an insurer to
a hanking company:
Provided further that every existing loan to any director, manager, managing
agent auditor, actuary, officer of partner, notwithstanding any contract to the contrary,
,

shall he repaid within one year from the commencement of this Act, and in ease of
default, such defaulting director, manager, managing agent, auditor, acluray, officer
or partner shall cease to hold office on the expiry of one year from the. commencement
of this Act 2
Provided further that nothing in this section shall prohibit a company from
g ninling such loans or advances to a subsidiary company or to any other company
of which the company granting the loan or advance is a subsidiary company.
i(g) The provisions of section 8GD of the Indian Companies Act, 1913, shall not
apply to a loan granted to a director of an insurer being n company, if the loan is one
granted on the security of a policy on which the insurer bears the risk and the policy
was issued to the director on Ids own life, and the loan is within the surrender value of
the jvoliey).

30. If by reason of a contravention of any of the provisions of section 27 or section

0 lrC 0r
s s ll 1h ‘ b
Liability of directors
etc. for loss due to con-
* j; .
holders every j
1
f? i
manager,
director,
l ,olIc >
managing agent . ^ ,
,

officer or partner who is

knowingly a party to such
traventions of sections 27
contravention shall, without prejudice to any other
and 29 penalty to which he may be liable under this Ad, be
jointly and severally liable to make good the amount equal to such loss.

31. None of the assets in British India of any insurer shall, except in the case of
deposits made with the Reserve Bank of India under section 7 2 (or section 98) or
in
so far as assets arc required to be vested in trustees
Assets of insurer bow by sub-section (4) of section 27, be kept otherwise
to be kept. than 3 (in the name of a public officer approved by the
Central Government, or) in the corporate name of the
undertaking, if a company, or in the name of the partners, if a firm, or in the name of
the proprietor, if an individual.
32. (I) No insurer shall, after the commencement of this Act, appoint a managing
agent for the conduct of his business.
(2) Where any insurer engaged in the business of insurance before the commence-
ment of this Act employs a managing agent for the conduct of his business, then,
notwithstanding anything to the contrary contained
Limitation on employ- in the Indian Companies Act, 1913, and notwithstanding
merit of managing agents anything to the contrary contained in the articles of the
and on the remuneration insurer, if a company, or in any agreement entered into 1
payable ii. : : aging agent shall cease to hold s

hrec years from the commence-

ment c 1
. . .

.tomanaging
.

him by
:

.s
the insurer by reason
agent.
only o* *

(3) After the commencement of this Act, notwithstanding anything contained

in the Indian Companies Act, 1913, and notwithstanding anything to the contrary
contained in any agreement entered into by an insurer or in the articles of association
\
t mrt jiKTnr^r shall nnv ton mannpinp agent and no nulling-

agent.

1. This sub-section tens ail,led by s. 10 of the Insurance (Amendment) Act, 1941 (1:1

^ 12 of the Insurance (Amendment) Act,

These words and figures were inserted by
o, ^ s.

lflaa"(’ll of 1939).
3, These words were inserted, ibid.
388 INSURANCE
ASSIGNMENT OR TRANSFER OF POLICIES AND NOMINATIONS.
33. (1) A transfer or assignment of a policy of life insurance, whether with or
without consideration may he made only by an endorsc-
Assignment and trans. mcnt upon the policy itself or by a separate instrument
fer of Insurance policies, signed in either ease by the transferer or by the assignor
or his duly authorised agent and attested by at. least one
witness, specifically setting forth the fact of trnnsfer or assignment.

(2) The transfer or assignment shall he complete and effectual upon the execution
of such endorsement or instrument duly attested but Kexccpt where the transfer or
assignment is in favour of the insurer) shall not be operative as against an insurer and
shall not confer upon the transferee or assignee or his legal representative, any right to
sue for the amount of such policy or the moneys secured thereby until a notice in writing
of the transfer or assignment 2 [(and) either the said endorsement or Instrument itself
or a copy thereof certified to be correct, by both transferor and transferee or their duly
authorised agents] 3 (havc been delivered ) to the insurer.
4* * * *S(Provided that where the insurer maintains one or more places of business
in British India, such notice shall be delivered only at the place in British India men-
tioned in the policy for the purpose or at Ills principal place of business in British India.)
(3) The date on which the uotiee referred to in sub-section (2) is delivered to the
insurer shall regulate the priority of all claims under a transfer or assignment as bet-
ween personsintereslcd in the poliev: and where there is more than one instrument of
transfer or assignment the priority of the claims under such instruments shall be gov-
erned by the order in which the notices referred to in sub-section (2) are delivered.
(4) Upon the receipt of the notice referred to in sub-section (2) the insurer shall
record the fact of such transfer or assignment together with the date thereof and the
name of the transferee or the assignee and shall, on the request of the person by whom
the notice was given, or of the transferee or assignee, on payment of a fee not exceeding
one rupee, grant a written acknowledgement of the receipt of such notice, and any such
acknowledgment shall be conclusive evidence against the insurer that he has duly
received the notice to which such acknowledgment relates.

(3) "(Subject to the terms and conditions of the transfer or assignment, the insurer
shall, from the date of the receipt of the notice referred to in sub-section (2 j ) recognise
the transferee or assignee named in the notice as the only person entitled to benefit
under the policy, and such person shall be subject to all liabilities and equities to which
the transferor or assignor was subject at the date of the transfer or assignment and
may institute any proceedings in relation to the policy without obtaining the consent
of the transferor or assignor or making him a party to such proceedings.

(0) 7 (Any rights and remedies of an assignee or transferee of a policy of life insur-
ance under an assignment or transfer effected prior to the commencement of this Ac-
shall not be affected by the provisions of this section).

(7) Notwithstanding any law or custom having the force of law to the contrary,
an assignment in favour of a person made witli the condition that it shall be inoperative
or that the interest shall pass to some other person on the happening of a specified event
during the"(Ufetime of the person whose life is insured) and an assignment in favour (if
the survivor or survivors of a number of persons, shall be valid.

X. These words mere inserted by s. 14 of the Insurance (Amendment) Act, 1939 (11
of 1039).
2. This word was substituted for the words “ together with’’ by s. 25 of the Insurance
(Amendment) Act, 1941 (13 of 1911).
3. These icords were substituted for the words “has been delivered," ibid.
4. The words “ at his principal place of business in British India by or on behalf of
the transferor or transferee” were omitted by a. 14 of the Insurance ( Amendment ) Act,
1939 (11 0/1939).
5. This proviso was added, ibid.
0. These words, brackets and figures .were substituted for the words, brackets and
insurer
figure (from the date of the receipt of the notice referred to in sub-section (2), the
shall), by s. 14 of the Insurance ( Amendment ) Act, 1939 (11 of 193DA).
7. This subsection wa3 substituted, ibid.
8, These words were substituted for the words ‘‘life of the policy-holder” ibid,
,
 INSURANCE 389
39. (l) The holder of a policy of life insuinnce 1 (on his own life-****) may,
v . .
when effecting the policy or at any lime before the policy
°n P°‘ Icy matures for payment, nominate the person or persons
imu r
iioiaer.
•

to whom the money secured by the policy shall be paid

in the event of his death.

*
i
^*^ uy bUC 1 «oniin.Uioii in order to be effectual shall, unless it is incorporated
*

n the text of the policy itself, be made bv an endorsement on

to the insurer ami registered by him in the records relating to
nomination may at any time before the poliey matures for i
changed by an endorsement or a further endorsement or a will, as the ease may he 3
(but unless notice in writing of any such cancellation or change has been delivered to
Ihe insurer, the insurer shall not be liable for any payment under the policy made bona
Jide by liun to a nominee mentioned in the text of the policy or registered in the
records of the insurer).
4 (Tllc insurer shall furnish to the poliey
(3) holder a written acknowledgment of
having registered a nomination or a cancellation or change thereof, and may charge a
fee not exceeding one rupee for registering such cancellation or change).
( i) A transfer or assignment of a policy made in accordance with section 38 shall
automatically cancel a nomination :
5 (Provided thaL the assignment of a policy to the insurer who bears the rish on the
policy at the time of assignment in consideration of a loan granted by that insurer on
the security of the policy within its surrender value, or its re-assigument on repayment
of the loau shall not cancel a nomination, but shall affect the rights of the nominee
only to the extent of the insurer’s interest in the policy),
(3)
- Where the poliey matures for payment during the 8 (iifctimc of the person
whose life is iustirod), or where the nominee or, if there are more nominees than one, all
the nominees die before the policy matures for payment, the amount secured by the
poliey shall be payable to the policy-holder or his heirs or legal representatives or the
holder of a succession certificate, as the case may be.
(6) Where the nominee or, if there arc more than one, a nominee or nominees
survive the ^(person w’liosc life is insured), the amount secured by the policy shall be
payable to such survivor or survivors.
(7) The provisions of this section shall not apply to any poliey of life insurance
to which section U of the Married Women's Property Act, 1874, applies.

COMMISSION AND REBATES AND LICENSING OF AGENTS

49, (l) No person shall, after theexpiry of six months from the commence viail
of this Act, pay or contract to pay any remuneration
Prohibition of payment or reward, whether by way of commission or otherwise
by way of commission for soliciting or procuring insurance business in India
or otherwise for procur- to any person except an insurance agent 8 **** or a
ing business. preson acting on behalf of an insurer who for the pur-
poses of insurance business employs****** insurance
agents.
** ***slmll be paid or contract to be paid by way of
(2) No insurance agent 8
coimnission or as remuneration in any form an amount exceeding, in tbe case of life
insurance business, forty per cent, of the lirst year’s premium payable on any policy
or policies effected through him and five per cent, of a renewal premium, or, in the case
of business of any other class, fifteen per cent of the premium. .

1. These words were inserted by s. 15 of the 'Insurance XAnicndment) .let, 1939 (11
'
0/1039). „ , , „
.

2. The word3 "not being an absolute assignee of the benefits under the policy, acre
omitted by s. 20 of the Insurance ( Amendment ) Act , 1041 (13 of 10-11).
3, These t cords were added by s. 15 of the Insurance (Amendment) Act, JUJU ( 1 1 of
1009). , ,,
4, This subjection was substituted, ibid.
ojr
.

G, This jnoviso was added by s. 2G of the Insurance (.Intendment) Act, lull (lo

These words were substituted for the words lifetime of the policy-holder" by s, 15
lt
0.
of the Insurance (Amendment) Act, 1939 (11 of 1939).
7. .
rticmholder" , ibid.
‘
. .
.jo” were omitted by s. 10, i out. .
8.
9. ll(V 1%-Vl U I »bt f I wv
 390 INSURANCE
Provided that insurers, in respect oflifc insurance business only, may pay, during
the brat ten years of their business, to their insurance agents fifty- five per cent, of the
first year’s premium payable on any policy or policies effected through them and six
per cent, of the renewal premiums.
(8)Nothing in this section shall prevent Lire payment under any contract existing
prior to the 27thday of January, 1937, of gratuities or renewal commission l(lo any
person whether an insurance agent within Lire meaning of this Act or not) or to his
representatives after his decease in respect of insurance business effected through him
before the said date.
41. (1) No person shall allow or offer to allow, cither directly or indirectly, as
an inducement to any person to 3 (lake out or renew or continue) an insurance in respect
of any kind of risk relating to lives or property in India
Prohibition of rebates, any rebate of the -whole or part of the commission payable
or any rebate of the premium shown on the policy, nor
shall any person taking out or renewing 3 (or continuing) a policy accept any rebate,
except such rebate as may be allowed in accordance with the published prospectuses
or tables of the insurer.
'(Provided that acceptance by an insurance agent of commission in connection with
a policy oflifc insurance taken out by himself on his own life shall not be deemed to he
acceptance of a rebate of premium within the meaning of this sub-section if at the time
of such acceptance the insurance agent satisfies the prescribed conditions establishing
that lie is a bona fide insurance agent employed by the insurer).
(2) Any person making default in complying with the provisions of this section
shall be punishable with fine which may extend to one hundred rupees, unless the defuult
is made by a person G( taking out or renewing
or continuing) a policy, in which case he
shall be punishable with fine which may extend to fifty rupees only.
42. (l) The Superintendent of Insurance or an officer authorised by Iiim
in this behalf shall, in the prescribed manner and on payment of the prescribed fee
which shall not be more than s( three rupees) issue
Licensing of insurance to any Individual 7 (making an applieation in the
agents. prescribed manner) and on suffering from any of the
disqualifications hereinafter mentioned a licence to
this aet as an insurance agent for the purpose of soliciting or procuring insurance
business.
(2) A licence issued uuderthis section shall entitle the holder to act as an insur-
ance agent for any registered insurer.

mouths
(ji)
<
V
.
'

•' '
'
in force for a period of twelve
. . .

cant does not suffer from any

of the d - id from year to year on pay-
‘

ment of ! ....
. . hrec rupees, and an additional
•„

fee of a prescribed amount not exceeding one rupee by way of penalty if the application
for renewal of theliccuce docs not reach the issuing authority before the date on which
the licence ceases to remain in force).
l»(Provided that when any licence is issued or renewed within the year beginning
on the day on which the Insurance (Amendment) Act, 1910, came into operation, the

1. These words ivcrc substituted for the words “an insurance agent” by s. IG of the
Insurance (Amendment) Act, 1039 (11 of 1939).
2. These words were substituted for the words “effect or renew” by s. 27 of the Insur-
ance [Amendment) Act, 1941 (13o/1941).
3. These words were inserted, ibid.
4. This proviso was added, ibid.
5. These words were substituted for the words “ effecting or renewing ” by s. 27 of the
'
i ! of 1041). i .

'
or the words “one rupee” by s. 28, ibid.
‘
.

'
: - /or the words “making an application under tins
section”, ibid.
8. These words ivere substituted for the words, figures and letters, “shall expire on the
31st day of March in each year” by s. 9 of the Insurance (Amendment) Act, 1910 (20 of
1940). „ . „
9. These words were substituted for the words “a fee of one rupee ” by s. -8 oj me
Insurance {Amendment) Act, 1941 (13o/1941).
10. These provisos were inserted by s. 0 of the Insurance {Amendment) .let, u io
20 of 1010).
 ; )

INSURANCE 391
m
Super t cudcu t of Insurance may specify the dale, not being earlier than one
year nor
later than two years from the date of iv»uc orrcuewal,
on which the licence sliall cease
to be in force.

Provided further that the Central Government, may, by nuliUealion in the Official
t»azclte, make provision in reflect of licences in force at the comm
cjj cement of iho
insurance (Amendment) Act, VJtQ, extending the period for which they arc to remain
in force by a term of from one to eleven mouths),

(0 The disqualifications above referred to shall be the following

(a) that the person is a minor
W fouud to be of unsound mind by a Court of competent jurisdiction
|*
c is
(c) that he lias been found guilty of criminal misappropriation or
criminal breach
;

of trust or cheating *{or forgery or an abetment of or attempt to commit any

such offence) by a Court of competent jurisdiction ;

a (Provided that,
where at least five years have elapsed since the completion of the
sentence imposed on any person in respect of any such offence, the Superintendent
of Insurance shall ordinarily declare in respect of such person that his conviction shall
cease to operate as a disqualification under this clause
;

(d) that in the course of any judicial proceeding relating to any policy of
insurance or the winding up of an insurance company or in the course
of an investigation of the affairs of an insurer it has been found that lie has
been guilty of or lias knowingly participated in or connived at any fraud,
dishonesty or misrepresentation a (against an insurer or an insured).
If it be found that an insurance agent suffers from any of the foregoing dis-
(J5)
qualifications, without prejudice to any other penalty to which he may be liable, the
bupermteudent of Insurance shall, and if the agent has knowingly contravened any
provision of this Act may, cancel the licence issued to the agent under this section.
*1(6) T* 1C authority which issued any licence under this section may issue a
duplicate licence lo replace u licence lost, destroyed or mutilated on payment of the
prescribed fee which shall not be more lhau one rupee.]
43. (1) Lvery insurer and every person who acting on behalf of an insurer
employs 5 **"* insurance agents shall maintain a register
Register of insurance showing the name and address of every 5 **** insurance
agents. agent appointed by him and the date on which his
appointment began and the date, if any, on which his
appointment ceased.
(‘2) Any individual not holding a licence issued under section 12 who acts as an
insurance agent shall be punishable with fine which may extend to fifty rupees and any
insurer who, or any person acting on behalf of an insurer who, appoints as an insurance
agent any individual not so licensed, or transacts any insurance business in India
through any such individual, shall be punishable with fine which may extend to one
hundred rupees.
(3) The provisions of sub-section (2) shall not take effect until the expiry of six
mouths from the commencement of this Act.
Nowitlistanding anythiug
44. _ lo the contrary in a contract between any person
and an insurance agents***** forfeiting or stopping payment of renewal commission
Prohibition of cesen to such insurance agent, no sueli person shall in respect
*
of life insurance business done in India refuse pay-
uon'TSl'i,!';;;®'
or payments ui com.
meut t„ au insurance agent, of commission on renewal
mission. premiums due to him under the agreement by reason
only of the termination of bis agreement except for fraud :
Provided that such agent has- served such person continually and exclusively for
'

at least ten years, and provided further that, after his ceasing to act as agent, be docs
not directly or indirectly solicit or procure insurance business for any other person.

1. Tltac wards were inserted by s. 28 of the Insurance (Amendment) Act, 10-11 (> :1

of 1011). .

J. This proviso teas added, ibid.

or an assured ,
;j. These words were substituted for the words ‘-against an insurer
1
by 28 if the Insurance (.intendment) Atl, 1011
"['-l, This sub-section leas lidded s.

< 13 10
°a. Thc word “licensed" was omitted by >. 29, ibid.
0. The words "licensed under section 12” were omitted by s. M, ibid.
392 INSURANCE.
SPECIAL PROVISIONS OF LAVf
45. No policy o£ life insurance effected before the commencement of this Act
shall after the expiry of two years from the 2date of commencement of this Act and no
policy of life insurance effected after the coming into force of this Act shall, after the
expiry of two years from the date on which itwas effected,
Policy not to be called
in question on ground of
^
ea (j e<j j n q Ues ii 0 n by an insurer on the ground that
misstatement after two report a statement made in the proposal for insurance or in any
of a medical officer, or referee or friend of the in-
years.
sured, or in any other document leading to the issue of the
policy, was inaccurate or false, unless the insurer shows that sueli statement i( was on a
material m
liter or suppressed facts which it was material to disclose and that it was
fraudulently made) by the policy-holder and that the policy-holder knew at the lime
of making it that the statement was false (or that it suppressed facts which it was
material to disclose).
3 (l’rovided that nothing in this section shall prevent the insurer front. calling for
proof of age at any time if he is entitled to do so, and no policy shall be deemed to' be
called in question merely because the terms of. the policy are adjusted on subsequent
proof that the age of the life insured was incorrectly stated in the proposal).
47. (1) Where in respect of any policy of life insurance maturing for payment an
iusurcr is of opinion that by reason of conflicting claims to or insufficiency of proof of
title to the amount secured thereby or for any other adequate reason if it is impossible
otherwise for the insurer to obtain a satisfactory dis-
Payment of money charge for the payment of such amouul, 1 ( t lie insurer
into Court. may) before the expiry of nine months from the date of
the maturing the policy, s (or, where the circumstances
are such that the insurer cannot be immediately aware of such maturing, from the date
on which notice of such maturing is given to the insurer), apply to pay the amount into
the Court within the jurisdiction of which is situated the place at which such amount
is payable under the terms of the policy or otherwise.

(2) A receipt granted by the Court for any such payment shall be a satisfactory
discharge to the insurer for the payment of such amount.
(:i) Auapplieatiouforpermissiontomakeapaymentiulo Court under this section
shallbe made by a petition verified by an affidavit signed by a principal ofliecr pjf the
insurer setting forth the following jiartioulars, namely,
(u) name of the insured jierson and his address;
(6) if the insured person is deceased, the date and place of his death ;
(c) the nature of the policy and the amount secured by it
(d) the name and address of each claimant so far as is known to the insurer with
details of every notice of claim received
(c) why in the opinion of the insurer a satisfactory discharge cannot
the reasons
he obtained for the payment of the amouul ; and
(/) the address at which the insurer may be served with notice of any proceeding
relating to disposal of the amount paid into Court
(4) An application under this section shall not be entertained by the Court if the
application is made before the expiry of six months 6 (from the maturing of the-policy
by survival, or from the date of receipt of notice by the insurer of the death of the insur-
ed, as the case may be). 1

(6) If it appears to the Court that

a satisfactory discharge for the payment of the
amount cannot otherwise be obtained by the insurer i t shall allow tl^e amount to be pajd
into Court and shall invest the amouiit ni Government securities pending its disposal.

1. These' words were substituted for the words “was on 0. material matter and fraudu~
tenth/’ made by s. 31 of the Insurance (Amendment) Act, IU tl (13 of 1041).
2. These words were added, ibid.
3. This proviso was added, ibid.
4. These words were substituted for the words “the insurer shall” by s. 32 of the
Insurance ( Amendment ) Act, 11)41 (13 of 1041).
G. These words were inserted by s. 16 of the Insurance (. Intendment) Act, 1030 (11 of
1039).
0. These words were substituted for the words “from the death of the insured, or the
maturing of the policy by survival" by s. IS of the Insurance (Amendment) Act, 1930 (11 oj
1039).
 INSURANCE ays

(0) Tile insurer shall transmit to the Court every notice of claim received after the
making of the application under sub-section (3), and any payment required by the Court
as costs of the proccedingsor otherwise in connection with the disposal of the amount
paid into Court shall as to the costs of the application under sub-section (3) be borne
by the insurer and as to any other costs be in the discretion of the Court.
(7) The Court shall cause notice to be given to every ascertained claimant of the
fact that the amount has been paid into Court, and shall cause notice at the cost of any
claimant applying to withdraw the amount to he given in every oilier ascertained
claimant.
(8) The Court shall decide all questions relating to the disposal of claims to the
-amount paid into Court.
50. An insurer shall ^(before the expiry of three months from the date on which
the premiums in respect of a policy of life insurance
Notice of options av- were payable but not paid), give notice to the policy-
tillable to the assure on;
holder informing him of the options available to him
the lapsing of a policy. 2(tmless these arc set forth in the policy).
51. Every insurer shall, on application by a policy-holder and oil payment
of 11 fee not exceeding one rupee, supply to the policy -
PP_«. L/l mnrUral holder certified copies of the questions put lo him and
proposals an liis answers thereto contained in his proposal for insurance
reports
and in the medical report supplied in connection there-
with.
 BIBLIOGRAPHY

Aiyar P. 11. <£ Ayer S. K. : The Workmen’s Compensation

Act, 1923; ,

Basu N. D : The Principles of Insurance Law in British

India.
Batten A. G. M. and Dinsilale IF. A. •, Third Party Insur-
ance.
Bisgooil J. J. : The Successful Insurance Agent,
Cornell F. IF. > The Principles and Finance of Fire Insur-
ance. •

DinsilaleIF, A. r Principles and Practice of Accident

Insurance (Two Parts).
Dougharly II. : The Advantages and Use of a Life Policy,
Dougharty II. : Life Assurance Simplified.
Elderton IF. P. ; The Impossibility of War Risk Insurance,
Freeman II. N. : Life Assurance from Proposal to Policy,
Ghosh M. K. and Agarwala A. N. : Insurance Principles,
Practice and Legislation,
Godwin F. and Woods K. C. ; Principles- and Practice of
Fire Insurance.
Government of India The Indian Insurance Year Book
(Several Years).
Holland 11. IF, Pitman’s Commercial Self-Educator
Part III.
Keate H. : Guide to Marine Insurance.
Leigh S. G. : Guide to Life Assurance,
Macken A. G. •.
Profits Insurance.
Maclean J. B. : Life Insurance*
Magee J. II. : General Insurance.
Magee J. H. : Life Insurance.
Mitra J. C. •,
Guide to Marine, Fire and Accident Insurance/
Morgan T. IF, : Porter’s Law of Insurance,
Mowbray A. II. v Insurance.
 :

mnuooiJAPnY 39.0

National Planning Committee Series : Insurance.

Poole F. II'..?.: The Marine Insurance of Goods.
Ray R. M. Lii'e Insurance in India.
Ray ncs II. E : Insurance Companies Investments.
Riegcl, 22. and Roman II. J. ; Insurance Principles and
Practice.
Smith T. 72. : Fire Insurance Theory and Practice.
Tarn A IF. The Student’s guide to life Assurance.
.

Templemen P. and Grecnacrc C, T. : Marine Insurance Its

Principles and Practices.
Turner II. A. The Principles of Marine Insurance.
:

Wclson J. B. : Personal Accident Diseases and Sickness

Insurance.
Wclson ,T. B. : Workmen’s Compensation Insurance.
Winter IF. D. : Marine Insurance.
Young A. and Bacon P. D.
II. : Principles and Practice of
Life Assurance. .

I oung T. E . ; Insurance.

Ilis Majesty’s Stationery Office, London : Social Insurance

(Two Parts).
The Indian Fatal Accidents Act, 1855.
The Insurance Act, 1938.
The Motor Vehicles Act, 1939.
The Employees’ State Insurance Act, 1948.
The Workmen’s Compensation Act, 1923.
 INDEX
A bonus 40, 78.
bonus loading 80.
acceptance letter 95, 9S, 99. bottomry bond 209, 210.
accident insurance 22. burglary insurance 21, 354, 355.
act policy 290. business premises insurance 355.
actual total loss 186-188.
additional assurance 101.
adjustable policy 240. C (

aggregate table 67.

all insurance policy 243. .cancellation of policies 231.
alteration in policy 100. cargo insurance 139.
American Experience Table, of cargoworthiness 146.
Mortality 63, 68. cash in transit insurance 359. -

annuitant 50, 52-54. cash refund annuity 52.

annuities vith guaranteed pay- cash surrender value 108.
ments 53. caveat emptor 22.
annuity 50-54. certificate of insurance 295.
ante-dating 99. change of voyage 164, 165.
arbitration 262, 344, 346. charter party 139.
arbitration clause 301, 328. classification 265.
assessment plan 59. closing slip 140.
assignment 96, 102, 103, 160, 232, co-insurance clause 270, 271.
233, 250. collision clause 182.
assignment clause 159, 233. combined risks 268.
‘at and from’ clause 101. commencement of risk 98, 99, 228,
automatic non-forfeiture 110. commercial insurance 353.
automobile association 303. comprehensive policy 242, 290,
average adjuster 201. 292.
average clause 219, 232, 236,, 237, consequential loss insurance 350,
258, 259, 269. 357.
average policy 236. consequential loss policy 243. •

aviation insurance 359. constructive total loss 187-189.

aviation risk 89. contingency reserve 78.
contingent survivor assurance 4S.
B continuation clause 182.
continued term assurance 110.
bad debts insurance policy 18. contract insurance 353.
baggage insurance 359. contract of affreightment 139, 183,
barratry 175. 196.
basis of insurance 11. contract of insurance 20.
beneficiary 44, 46, 49, 52, 53, 106. convertible term assurance 47.
bill or lading 139, 172, 182, 189, cost price premium 09.
193. counter life 49.
blanket policy 151, 152, 243. cover note 229, 295.
block policy 153. . craft, etc., clause 102.
boiler insurance 359. credit insurance 21, 353.

396
 INDEX
crop insurance 35S. fidelity insurance 21, 352.
currency policy lot. first losspolicy 238, 259.
fleet insurance policy 152.
D floating policy 151, 237.
free pob'ey 112.
days of grace 98, 107, 280. freight insurance 140.
debenture insurance 354. frustration clause 180.
5% debenture policy 43. f. s. r. &
c. c. clause ISO.
declaration policy 151, 238-240. functions of fire insurance 215.
decreasing term assurance 48, 49. fund 108.
deferred annuity 52. • furlough concessions 290.
deferred bonus 84. s
deficit 78.
delay 1G4, 1GG.
G
deviation 1G5, 1GG.
General Average Bond 201.
deviation and/or change of voyane
General Average Deposit 201.
clause 16G.
general average loss 179, 190, 196-
discounted bonus 83.
198, 201, 204.
discrimination 2G5, 2GG.
general average loss on sale 203.
dividend 78.
general table GG.
doctrine of causa proxima 183.
doctrine of subrogation 25. 5% gold bond policy 43.
good faith 22, 32, 103, 142, 143,
double-edged entity 272.
161, 220, 221, 358, 354.
double endowment assurance 4G, goods in transit 859.
47.
gross premium 70.
double insurance 2G, 208, 209, 301. gross surplus 78.
5% guaranteed income policy 43,
E guarantee insurance 21, 352, 35-1.

early-reduced premium policy 42.'

Employees’ State Insurance Act H
18, 3G2.
employers’ liability insurance 321, Hague Rules, 182.
hail insurance 21, 359.
350.
endowment policy 39, 100. halving agreement 299.
hazards of occupation 87.
excess policy 145.
hazards of residence 87.
ex gratia payment 2G4.
health insurance 21
express warranty 145.
extended term assurance 110.- honour policies 154.
hull insurance 139, 171.

F
I
facultative re-insurance 273, 274.
family income policy 49. immediate life annuity 51.
family protection assurance 49. impaired risks- 92.
family safeguard policy 49. implied warranties 145.
Fatal Accidents Act, 1855, 290, importune of life assurance 55.
321, 326. incontestable clause 103.
F. C. & S. Clause 180. indemnity 24, 148, 217-220, 222,
flat extra premium 94. 223,234, 235.
increasing rate policy 43.
f. g. a. clause 181.
 .

398 INSURANCE
Indian Contract Act 20, 20, 141, life assurance contract 31.
142, 370. lifefund 71.
Indian Life Assurance Offices As- lightning insurance 21.
sociation 307. limited non-forfeiture 111.
Indian Insurance Act 33, 74. 104 limited premium payment policy
100 . 40.
Indian Stamp Act 20, 141. livestock insurance 21, 358.
initial expenses 90. Llyods 138, 233.
instalment life assurance 44. Uoyd.s Association 17.
interim bonus 84. Lloyd’s List 13S. >
1

interim protection note 229. Lloyd’s News 138.. :•>!'

Institute Cargo Clauses 104, 180. loading 70, 71, 7.9, 83. --

insurable interest 23, 33-35, 37, Lombards 137, 138.

144, 145, 154, 155, 222-225 247. loss of profits insurance 350. t

insurable value 149, 153, 171, 180. loss of profits policy 243. •

191. lost or not lost 100.

insurance and assurance 14. lost policies 101. -

insurance of debts 354.

insurance of women 89.
insurance organisation 13.
M
insured value 149, 153, 171, 180, malpractice insurance 359.
191. maiine clause 251.
interest policies 154. maritime perils 142.
investment element 37, 38, 41, maximum value with discount
224. policy 241.
investment of b.nd 70-77. mean method 25S.
investment period 43. medical examination 85, 101, 107.
memorandum clause 178,179, 193,
J 195.
men-of-warl73.
Janson Clause 195. mixed companies 17. :

jettison 174, 197. mixed policy 151 . . .

<
•

joint and survival life assurance mixed table 07, 08.

54'. modified life policy 42.
joint endowment life assurance 45.' moral hazard 24, 214, 224.
joint life annuity 54. mortality table 02, 03, 00, ,09.
joint life assurance 44. motor car insurance 21.
joint whole life assurance 44 . motor insurance 287, 302.
judicial insurance 354. motor risks 287.
mutual companies 10.
L
N
lapsing of a policy 107.
last survivor annuity 5-4. named policies 152.
last survivor assurance 45. natural premium plan 50-G1. 1

law of averages 00. net liability 73, 78.

legality of venture 140, 148. net premium 09.
level premium plan 37, Gl, 71 108.
, net premium reserve 71.
liability insurance 21, 350, 351. „• net surplus 78.
license insurance 359. •

no-claim bonus 301, 302.

liens 94. nomination 90, 103.
 .

INDEX gyy

nominee 50. Q
non-participating policy 45, 40,
quota treaty 274.
80.
non-tariff offices 280.
normal plus extra 207.
R
notice of abandonment 177, 187- rain insurance 21, 358.
100 .
rating 205, 200, 294, 325.
rating up 94.
reduced paid-up insurance 111.
O reduction of premium bonus 88,
refund annuity 52.
office premium 70.
regular premium policy 40.
optional memorandum 250.
reinstatement 241, 354.
optional modes of settlement 100.
reinstatement by redating 108.
ordinary life annuity 51. .

re-insurance 20, 35, 272-275.

ordinary policy 80,
renewable term assurance 48.
Oriental Mortality Tabic OS.
renewal of insurance 343. .

origin of lire insurance 210.

renewal of policies 230.
origin of insurance 12.
reserve 71, 73, 10S.
over-insurance 25, 20, 00, 20S.
reserve value 108-116.
respondentia bond 209, 210.
P retention 91, 271, 272, 274, 275.
retirement annuity 53.
paid-up insurance 112. retrospective method 73.
partial loss 185, 18G, 100, 20G, 298. return of premium 207.
participating policy 45, 80, 88. reversionary annuity 53.
particular average loss 185, 190- reversionary bonus 81, 83.
194, 200. revival of lapsed policies 107,
particular charges 185, 195. running down clause 182.
perfect protection policy 49.
perils of the seas 178, S
permanent sickness insurance 845.
personal accident insurance 202, salvage award 205,_
839-841. salvage charges 18a. -Oo--
salvage loss 188, 189.
personal insurance 21, 309, li."
seaworthiness 140, 14<, 109,
physical hazard 213. 214. Clause
seaworthiness Admitted
plate glass insurance 857.
148.
policy loans 112.
self-insurance 18.
policy proof of interest 154,
, elect
mortality table 0 03. < ,

postal insurance scheme 18. -JO, .,-3,

ictUcment of claim, 101,
post-mortem bonus 81.
premium clause 178. 21, 340, 314.
sickness insurance
private residence insurance 355. annuity al.
single life
profits insurance 350. 44.
single life policy
property insurance 21.
singt premium P 0 ^'}
' *

proof of age 90. policy la-

singfi. vessel
prospective method 73.
protection element 37, 38, 41, 224.; 360 , yol.
social insurance
purchase money 50. insurance 3 a4 .
solvency
purchaser’s interest clause 203. of average -.0.
speeial condition .
pure endowment assurance 40, 47 specific pliey
2-ja.
pure premium 09.
 .

UK) INSURANCE
specilie re-insurance 274. undcr-average risks 92.
sprinkler leakage policy 243. under-insurance 25, 218, 230, 5
standard mortality table 60. 237, 239, 258, 259, 268-271, i
state insurance 17. unemployment insurance 361.
status 50, 54. unlimited non-forfeiture 111.
stock insurance 15. !
unrepaired damage 200;
straight life annuity 51. unvalued policy 153, 171, 191.
subrogation 25, 260, 340.
substandard risks 01-93. ,v
substituted expenses 203.
successive losses 206. valuation 72, 84.
sue and labour clause 170, 195. valuation by series 1 93.
suicide 101. valued policy 152, 171, 191, 5

surplus 78. 234, 235.

surplus treaty 274, 275. voyage policy 150. >

surrender value 89, 96, 108-112,

224.
survivorship annuity 53.
. W
T wagering contract 20, 27, 35.
wagering policy 154.
tariff association 233, 2S9, 294, • waiting period 322.
325; waiver clause 177, 181
tariff offices 289. warehouse to warehouse' chi
temporary assurance policy 47. 163.
term assurance 47, 48. Warranty 145, 146, 261.
termination of risk 162. war risk insurance 340-348.
third party insurance 21, 22, 349, water damage insurance 359.
350. weather insurance 359.
third party policy 290. whole-life policy 39, 51, 100.
three-faCtor contribution system windstorm insurance 359.
83. with-profit policy 45.
time and voyage policy 151. without-prolit policy 45.
time policy 150. Workmen’s Compensation .

title insurance 353, 354. b’90, 320, 321, 320, 362.

288,
total loss 1S5, 186, 189, 197, 200, workmen’s compensation ins
298. ance 21,321, 320.
touch and stay 108. '^Worldwide policies 87.
treaty re-insurance 273, 274.

U Y
uberrimae fidei 22. yearly renewable term plan 00,
ultimate mortality table OS. York-Antwcrp Rules 202.
ERRATA
Page line incomcl cirrccl Page line incorrect corra
3!) 29 and an
assurance 91 0 furnish furoisi
57 27 assurence
may decrease
.

60 23 59 i 64 93 14 may incre
75 20 media mean 103 18 absence in absen

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