ESSENTIALS OF INSURANCE CONTRACT
Section 10 of the Law of Contract says a contract to be valid must have the
Agreement (offer and acceptance)
Parties competent to contract
A contract of insurance is a legal agreement between two or more parties and has to comply with all elements of the law of contract Act.
Insurance contract is the contract between the insurer and insured, in consideration of a sum to make good financial loss of the insured, subject to the limit of the insured specific property against peril and during the stated period.
All insurance contracts must have five elements of a valid contract as follows:-
1. Offer and acceptance. The person who want to take the cover against a particular peril offers his risk through the proposal form to the insurance company.
The insurance company may or may not accept the risk. Therefore, offer come from the insured person.
2. Legal consideration. The promise (insurer) promise to pay a fixed sum of money at a given contingency. So the insurer must have something in return for his promise. The premium paid is the consideration given by the insured to the insurer.
3. Parties must have capacity to enter into contract. Every person is competent to contract who has attained the age of majority and of sound mind as well as not disqualified by the law from contracting.
4. Free consent. Both parties must make decision to enter into contract without any influence in their decision making. The consent must not be caused by fraud, undue influence, mistake and misrepresentation.
5. Legal object. The purpose for which the contract is entered must be legally lawful. The contract should not be against the public interest.
PRINCIPLES OF INSURANCE
1. The principle of utmost good faith Insurance contract is said to be the contract of utmost good faith, in which the highest standard of honest is imposed on the parties than as imposed under the ordinary contract.
The principle require parties to disclose all relevant material fact relevant to in making decision. It
is the duty of the insurer to disclose all relevant fact about the insurance policy conditions and benefits. However, there some information which are not necessary to be disclosed such as the fact
which are very common to the public, facts which reduce the level of
risk, facts which have already surveyed by the insurer.
2. The principle of insurable interest The insured (proposer) should give all data about the subject matter to the insured.
This information include the information relating to the relationship between the proposer with the person or property insured
i.e the subject matter of the insurance. This relationship is known as insurable interest. The principle of insurable interest is important during indemnification because the insured must be made good the
loss that he has actually suffered.
This help to prevent the insurance from becoming a gabling contract.
3. Principle of indemnity Indemnity means to make good the loss. An insurance contract relate
to the making of payment for the happening of loss by the insured peril and not otherwise. The happening of the insured peril must be contingent.
4. The principle of proximate cause This is the principle require that the causes of the loss must be
connected with the insured peril. It provide that there is no need to go further after proving the effect of the cause. The law is concerns with the immediate causes of the insured peril/event and not remote cause of the insured event.
5. Principle of contribution.
This principle refers to the sharing of loss between the co-insurers. Sometime the insured take insurance of policy from more than one insurance company against one loss and one interest in property. This
is quite legal.
Essential elements of this principles:-
The insured should be the same for all contract
The policies should cover the same peril
All protect the same interest of the same insured
All policies should be in place when loss occur