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90 BUSINESS  STUDIES risk being proposed and the insurer to (iii)  Indemnity: All insurance make clear all the terms and conditions contracts of fire or marine insurance in the insurance contract. Thus, it is are contracts of indemnity. According binding on the proposer to disclose all to it, the insurer undertakes to put material facts about the subject matter the insured, in the event of loss, in of the proposed insurance. Any fact, the same position that he occupied which is likely to affect the mind of a immediately before the happening of the event insured against. In other prudent insurer in deciding to accept the proposal of insurance or in fixing words the insurer undertakes to the rate of premium is material for thiscompensate the insured for the loss purpose. Failure to make disclosure of caused to him/her due to damage or material facts by the insured makes destruction of property insured. The compensation payable and the loss the contract of insurance voidable at the discretion of the insurer. suffered are to be measured in terms (ii) Insurable Interest: The insured of money. The principle of indemnity is must have an insurable interest in not applicable to life insurance. the subject matter of insurance. One (iv) Proximate Cause: According to this principle, an insurance policy is fundamental fact of this principle is that ‘it is not the house, ship, designed to provide compensation only machinery, potential liability of life for such losses as are caused by the that is insured, but it is the pecuniaryperils which are stated in the policy. interest of the insured in them, When the loss is the result of two or more causes, the proximate cause which is insured.’ Insurable interest means the direct, the most dominant means some pecuniary interest in the subject matter of the insurance and most effective cause of which contract. The insured must have an the loss is the natural consequence. interest in the preservation of the In case of loss arising out of any mishap, the most proximate cause thing or life insured, so that he/she of the mishap should be taken into will suffer financially on the happening of the event against which he/she consideration. is insured. In case of insurance of (v) Subrogation: It refers to the right property, insurable interest of the of the insurer to stand in the place of the insured, after settlement of a insured in the subject matter of the claim, as far as the right of insured in insurance must exist at the time of happening of the event. In order to respect of recovery from an alternative name insurable interest however, it is source is involved. After the insured is not necessary that one should be the compensated for the loss or damage to the property insured by him/her the owner of the property. For example, right of ownership of such property a trustee holding property on behalf of others has an insurable interest in passes on to the insurer. This is the property. because the insured should not be Reprint 2026-27