A project report

on

A study on Customer perception about life insurance policies

at

Zen Insurance Pvt Ltd .

Submitted in partial fulfillment of the

Requirements for the award of the Degree

of

MASTER OF BUSINESS ADMINISTRATION

Submitted By

A. Sai krishna Reddy

14BK1E0004

Under the Guidance of

Mr. K.V.R. Satya Kumar

HOD & Assistant Professor

DEPARTMENT OF BUSINESS ADMINISTRATION

ST PETERS ENGINEERING COLLEGE

(Affiliated to Jawaharlal Nehru Technological University Hyderabad)

Hyderabad

2014 – 2016

INTRODUCTION TO THE STUDY

Everyone is exposed to various risks. Future is very uncertain, but there is way to protect

one’s family and make one’s children’s future safe. Life Insurance companies help us to

ensure that our family’s future is not just secure but also prosperous.

Life Insurance is particularly important if you are the sole breadwinner for your family.

The loss of you and your income could devastate your family. Life insurance will ensure

that if anything happens to you, your loved ones will be able to manage financially. This

study titled “Study of Consumers Perception about Life Insurance Policies” enables the

Life Insurance Companies to understand how consumer’s perception differs from person

to person. How a consumer selects, organizes and interprets the service quality and the

product quality of different Life Insurance Policies, offered by various Life Insurance

Companies.

WHAT IS INSURANCE

It is a commonly acknowledged phenomenon that there are countless risks in every

sphere of life .for property, there are fire risk; for shipment of goods. There are perils of

sea; for human life there are risk of death or disability; and so on .the chances of

occurrences of the events causing losses are quite uncertain because these may or may

not take place. Therefore, with this view in mind, people facing common risks come

together and make their small contribution to the common fund. While it may not be

possible to tell in advance, which person will suffer the losses, it is possible to work out

how many persons on an average out of the group, may suffer losses. When risk occurs,

the loss is made good out of the common fund .in this way each and every one shares the

risk .in fact they share the loss by payment of premium, which is calculated on the

likelihood of loss .in olden time, the contribution make the above-stated notion of

insurance

DEFINITION OF INSURANCE

Insurance has been defined to be that in, which a sum of money as a premium is

paid by the insured in consideration of the insurer’s bearings the risk of paying a large

sum upon a given contingency. The insurance thus is a contract whereby:

a. Certain sum, termed as premium, is charged in consideration,

b. Against the said consideration, a large amount is guaranteed to be paid by

the insurer who received the premium,

c. The compensation will be made in certain definite sum, i.e., the loss or the

policy amount which ever may be, and

d. The payment is made only upon a contingency

More specifically, insurance may be defined as a contact between two parties, wherein

one party (the insurer) agrees to pay to the other party (the insured) or the beneficiary, a

certain sum upon a given contingency (the risk) against which insurance is required.

TYPES OF INSURANCE

Insurance occupies an important place in the modern world because of the risk, which

can be insured, in number and extent owing to the growing complexity of present day

economic system. The different type of insurance have come about by practice within

insurance companies, and by the influence of legislation controlling the transacting of

insurance business, broadly, insurance may be classified into the following categories:

1. Classification from business point of view

a) Life insurance, and

b) General insurance

2. Classification on the basis of nature of insurance

a) Life insurance

b) Fire insurance

c) Marine insurance

d) Social insurance, and

e) Miscellaneous insurance

3. Classification from risk point of view

a) Personal insurance

b) Property insurance

c) Liability insurance

d) Fidelity general insurance

LITERATURE REVIEW

BACKGROUND OF THE STUDY

“Life Insurance is a contract for payment of a sum of money to the person assured

on the happening of the event insured against”. Usually the insurance contract provides

for the payment of an amount on the date of maturity or at specified dates at periodic

intervals or at unfortunate death if it occurs earlier. Obviously, there is a price to be paid

for this benefit. Among other things the contracts also provides for the payment of

premiums, by the assured.

Life Insurance is universally acknowledged as a tool to eliminate risk, substitute

certainty for uncertainty and ensure timely aid for the family in the unfortunate event of

the death of the breadwinner. In other words, it is the civilized world’s partial solution to

the problems caused by death. Life insurance helps in two ways dealing with premature

death, which leaves dependent families to fend for themselves and old age without visible

means of support. The most common types of life insurance are whole life insurance and

term life insurance. Whole life insurance provides a lifetime of protection as long as you

pay the premiums to keep the policy active. They also accrue a cash value and thus offer

a savings component. Term life insurance provides protection only during the term of the

policy and the policies are usually renewable at the end of the term

There are many Life Insurance Companies like

1. Life insurance corporation of India

2. Bajaj Allianz life insurance company

3. ICICI prudential life insurance

4. HDFC standard life insurance

5. Birla sunlife insurance

6. ING vysya life insurance

7. Metlife insurance

8. Tata AIG life insurance

9. Max newyork life insurance

10. Om kotak life insurance

INTRODUCTION

Insurance is the result of man’s efforts to create financial security in the face of dangers

to his life, limbs and estate. The tension between his desire to form and develop his

estate, on the one hand, and the dangers threatening to destroy that desire on the other.

One of the most satisfactory general methods of creating financial security against risks is

that of spreading the risk among a number of persons all exposed to the same risk and all

prepared to make a relatively negligible contribution towards neutralizing the detrimental

effects of this risk which may materialize for any one or more of their number.

Insurance as precautionary measure against risk has several advantages, namely , it shifts

the greater part of the risk from the exposed person to others; it is relatively easy to

persuade individual to bind themselves to make a comparatively small contribution in

exchange for security; and insurance is applicable to a wide variety of situations.

INSURANCE AS A CONTRACT

Voluntary provision against risks by means of insurance takes the form of a contract

between an insurer and an insured person. The contract relates to the transfer of a

specific risk or risks in exchange for the payment of a consideration commonly known as

a premium. The nature and extent of the risk helps to determine the common of the

premium.

Contracts of insurance are based on considerations of individual interest and accordingly

the rules which govern them are not applicable to social insurance schemes which rest

on socio-economic considerations and are implemented by the state on a compulsory

basis e.g NSSA

HISTORICAL BACKGROUND

The modern insurance contract has its roots in two distinct lines of development i.e.

i) The practice of mutual financial assistance which eventually gave rise to

Mutual insurance, and

ii) Contract of risk spreading for consideration which developed into the

contract of insurance for profit or premium insurance in the narrow sense

of the word.

MUTUAL INSURANCE

Among the Romans, and even ancient Greece and Egypt, societies existed which afforded

members certain benefit such as proper burial risks or a financial contribution towards

buried costs. These societies can hardly be regard as insurer, but nevertheless they

represented the idea of mutual assistance in case of materialization of risks.

This idea gained prominence in the guilds or similar associations which existed in Europe

and England during the middle ages. The associations afforded members or their

dependant assistance in case of loss caused by perils such as fire, shipwreck, theft,

sickness or death.

The guilds developed into communities which were formed expressly to spread specific

risks amongst persons exposed to those risks by granting each member of the group a

legal right to assistance if the risk materialized. In exchange for this right members

undertook to pay regular contributions or premiums. In this way the concept of

community of similarly exposed persons become firmly entrenched as an element of the

concept of insurance.

INSURANCE FOR PROFIT

The idea underlying modern profit insurance was manifested in Babylonia almost 200

years before Christ in a contract of trading capital to traveling merchants. The contract

contained a clause that the risk of loss due to robbery in transit was borne by the party

providing the loan. In consideration for bearing this risk, the lender calculated interest on

the loan at an exceptionally high rate. Insurance for profit as an independent type of

contact developed from risk contained in maritime loans and certain contract of purchase

and sale. The central theme was transfer of risks in exchange for a consideration in

money. The profit motive provided an incentive for a careful calculation of both the risk

and premium.

The first clear records of contracts which provided for the undertaking of a risk in

exchange for money by an independent party not involved in the trade transaction from

which the risk and emanated would seem to be documents containing contracts for the

transfer of maritime risk gained currency towards the end of 14 th century. Independent

risk bearing for consideration had by them developed in the form of marine insurance.

FURTHER DEVELOPMENT

For a considerable period up to the 19th century marine insurance was the dominant form

of insurance. In the course of time however, the various type of insurance as they exist

today developed from both mutual and profit insurance. For instance, life insurance

became an independent and acceptable contract of insurance towards the 16th or 17th

century while fire insurance contract gained currency especially from the 17 th century

onwards.

SOURCES OF INSURANCE LAW

The common law of Zimbabwe is Roman-Dutch law and as such one would except to

find the Zimbabwean law of insurance in modern Legislation and in the writings of

Roman Dutch Jurists. However, Roman Dutch Law is not applied to many aspects of

insurance contracts.

Sections 3 & 4 of the General Law Amendment Act [Chapter 8:07] placed Zimbabwean

insurance law into the mainstream legal principles which are , by and large ,

homogeneous throughout the world. The sections provided that the English Law of fire,

life and marine insurance shall apply in Zimbabwe except statutes passed after 1879.

The significance of the date 1879 lies in the fact that the General Law Amendment Act

has its origin in the Cape Act 1879 and in terms of the said Cape Act, only pre 1879

Statutes are binding.

It is however, important to note that the GLAA was itself amended by section 13 of the

Insurance (Amendment) Act, No.3 of 2004 with the effect that English law does not

apply to contracts concluded after the commencement of Act No.3 of 2004.

The GLAA makes English law applicable only on questions of insurance, not on

questions of other branches of law that may arise in the course of an insurance dispute

Thus in Northern Assurance Co. Ltd v Methuen 1937 SR 103 English Law was held not

binding on a question relating to cesscession of right under a policy. In the same case,

Mcllwaine ACJ @ 108 applied the principle that if a clause in a policy was taken from

English policies, the meaning given to the clause by English law must govern.

It is not altogether clear whatever GLAA imports the English Law of insurance generally,

or the import is confined to fire, life and marine insurance.

In Horne v Newport Gwilt & South British Insurance Co. Limited 1961 R&N 751 @

772 (also reported in 1961(3) SA 342 @ 353) Maisels J assumed that the plain wording

of the Act should not be extended; in other words English law must apply only to fire, life

and marine insurance. Thus, for example, the inclusion in a motor policy of cover against

fire does not bring the whole policy under English law; but conversely, a claim on the fire

portion of a mixed policy will fall to be decided under English law.

The principle thus formulated seems clear enough but its application invariably involves

some difficulty in that while there are matters clearly peculiar to insurance e.g insurable

interest, risk, over/under-insurance etc, other matters are evidently not peculiar to

insurance e.g stipulations in favour of 3rd parties, trusts, interpretation of policies, offer

and acceptance and the like. Borderline cases often pause an agonizing challenge, for

instance, it has been held that warranties in insurance policies are governed by English

Law (see Morris v Northern Assurance Co. Ltd 1911 CPD 293 @ 304), yet one may

well ask whether a warranty in an insurance policy differs substantially from the concept

of a warranty in the law of contract. The applicability of English Law is thus open to

debate.

The South African Appellate Division has traced the origins of the South African Law of

insurance to the Lex mercatoria of the Middle Ages. In the ultimate analysis, therefore,

it is clear that the Roman-Dutch and English law of marine insurance stem from the same

original sources.

Since South Africa has taken a distinctively Roman-Dutch bias to insurance contracts

concluded after 1879, it is proper to conclude that Zimbabwe’s insurance law derives

from the pre-1879 English statutes as read together with the post 1879 Roman-Dutch

common law. Indeed this is the view that is crystalised by Amendment No.3 of 2004 in

specifically ousting English law in contracts concluded after the commencement of the

amendment.

CLASSIFICATION OF INSURANCE

The most important criteria for classifying insurance contracts are the nature of the

interest insured; whether the object of the risk has been valued or not ; the nature of the

event insured against; the possible duration of the contract; and the purpose of the

insurance.

INDEMNITY & NON-INDEMNITY INSURANCE

This is the most fundamental distinction between various insurance contracts.

- In indemnity insurance the contract between the parties provides that the insurer

will indemnify the insured for loss or damage actually suffered as the result of

the happening of the event insured against.

- The whole purpose of the contract is to restore the insured to his status quo

ante and the insured may not make any profit out of his loss

- In non-indemnity insurance, on the other hand, the insurer undertakes to pay a

specified amount or periodical amounts to the insured merely on the

happening of the event insured against e.g. upon the death or injury of

insured.

- It is apparent that the distinction between indemnity and non-indemnity has

been taken to lie in the nature of the interest insured’

- In indemnity insurance the interest must be, of necessity of a proprietary

nature, otherwise no financial loss or damage can be caused through its

impairment.

- On the other hand, the interest which can be the object of a non-indemnity

contract of insurance must be regarded as non-proprietary in substance. Put

differently, non-indemnity insurance depends on an event which invariably

relates to the person of the insured or a third party.

- An important consequence attached to the distinction between indemnity and

non-indemnity insurance is that in non-indemnity insurance the insurers are

not entitled to the benefits of proportionate contribution or subrogation.

PROPERTY & LIABILITY INSURANCE

- Property insurance is concerned with the positive elements (assets) of the

insured’s patrimony or estate, for instance ownership of his house or

expectation of future benefit.

- Liability insurance is concerned with negative elements (liabilities) which

come into being as part of the insured’s patrimony e.g third party motor

vehicle insurance.

CLASSIFICATION ACCORDING TO THE NATURE OF EVENT INSURED

AGAINST

- Examples include marine insurance, fire insurance and personal insurance. This

classification cuts across the fields of indemnity and non-indemnity insurance. In

personal insurance, we includes life insurance, personal accident insurance and

medical insurance. The event insured against operates on the person of the insured

or a third party.

- depending on the intention of the parties, personal insurance may either be

indemnity or non-indemnity insurance while non-personal insurance can only be

indemnity insurance and nothing else.

LONG TERM & SHORT TERM INSURANCE

-Long term insurance business is defined in the Insurance Act as:

-Short term insurance business is also defined in the Act as:

The difference between long term insurance and short term insurance appears to

lie in the fact that long term insurance is concerned only with life insurance

whereas short term insurance deals with forms of insurance which are usually of

short duration.

FEATURES OF INSURANCE

INSURANCE AS A CONTRACT

(i) Definition

- In Lake v Reinsurance Corporation Ltd 1967(3) SA 124 (W) the court

adopted the following definition of a contract of insurance:

- “ A contract between an insurer and an insured whereby the insurer

undertakes in return for the payment of a premium to render to the insured

a sum of money, or its equivalent, on the happening of a specified uncertain

event in which the insured has some interest”

- this definition is important in that it elucidates the difference between wagers

and insurance contracts, namely, the existence of an insurable interest in the

case of an insurance contract proper.

From the definition cited above it is apparent that an insurance contract must

provide for:

(a) payment of a premium

(b) performance or an undertaking to perform in exchange for the premium

(c) the possibility of an uncertain event on the outcome of which the performance

of the insurer depends on the risk.

(d) An insurable interest in the uncertain event on the part of the insured.

(ii) ESSENTIAL INGREDIENTS OF A CONTRACT OF INSURANCE

(a) Premium

- In English Law the requirement of a premium for insurance is said to be an

application of the general requirement of valuable consideration in the sense

of a quid pro quo.

- Under South African Law the requirement of valuable consideration is not

recognized. It is against the background of the South African Law that a

premium would not seem to be a requirement for the validity of a contract of

insurance.

- It is important to note that essential for the existence of an insurance contract

is an undertaking by the insured to pay a premium for his insurance, and not

payment of the premium as such.

- However, it has become customary to include in a policy a term which makes

performance by the insurer subject to prior payment of the premium.

- The undertaking to make a monetary payment as a premium need not be for a

specific amount but it must at least be ascertainable in order to meet the

requirements relating to the validity of contracts in general.

(b) Performance by insurer

- In indemnity insurance, performance by the insurer is meant to compensate

the insured for loss suffered by him. The usual means of performance by the

insurer is by payment of money i.e indirect compensation.

- The insurer’s performance may also be by way of direct or physical

compensation if the contract so stipulates, for example, reinstatement clauses

frequently encountered in insurance contracts, in terms of which the insurer is

given the option to restore the property affected by the peril to the condition in

which it was before the loss.

- In Department of Trade and Industry vs St. Christopher Motorists

Association Ltd 1974 (1) Lloyd’s Rep 17, the court came to the conclusion

that a contract in terms of which a person is entitled to claim a chauffer

service if he becomes incapable of driving his own car amounts to insurance.

- A contract which merely confers on a person a benefit not amounting to either

monetary or direct compensation cannot qualify as a contract of insurance e.g

a benefit that a claim to compensation will be considered at the sole discretion

of the insurer.

- An undertaking to compensate the insured in money usually involves not a

certain but merely an ascertainable performance.

- The performance of the insurer in non-indemnity insurance is usually in the

form of money. However, it does occur that in certain instances the insurer

undertakes to perform something other than pay money. The amount insured

may be specified or may be in periodic payments.

(c) Risk/uncertain event

-every true contract of insurance depends on an element of uncertainty or

contingency in the contract that the contract provides that the insurer will be

liable to perform if a specified but uncertain event occurs. This event is

dependant upon a peril or hazard and the possibility that the peril will cause

harm is known as the risk.

- A contract can only be classified as an insurance contract if the bearing of

the risk by the one party is a substantial part of the contract.

(d) Insurable interest as a characteristic of insurance

Doctrine of interest

-the idea that the actual existence of an insurable interest is an essential

feature of an insurance contract forms part of one of the oldest and most

fundamental doctrines of the law of insurance, namely, the doctrine of

interest. This doctrine dates back to the Lex mercatoria of the Middle

Ages.

- The Doctrine lies at the root of the distinction between wagers and

insurance. The first prominent commentator on the doctrine was De

Casaregis, who argued that if the parties concluded a genuine contract of

insurance the insured would only be entitled to hold his insurer liable in

terms of the contract if the insured had an interest in the lost goods. This

liability of the insurer was limited to the value of the insured’s interest..

Conversely, if the parties’ concluded a wager on the outcome of an event

liability would follow in spite of the fact that the value of any interest that

might exist was less than the amount claimed or even that no interest

whatsoever existed.

The foregoing view held by De Casaregis is fully in harmony with the

rules of English common law as it stood when wagers were legally

enforceable. The English common law provided that an insurance

contract was only enforceable if supported by an interest when the event

insured against occurred, while a wager was enforceable irrespective of

whether or not there was any insurable interest.

Whereas the requirement of interest started merely as explanatory of the

principle of indemnity, with time the idea developed that the actual

existence of an insurable interest was required for true insurance. Thus in

Prudential Insurance. Co. V Inland Revenue Commissioners 1904 KB

658 @ 663 it was stated that “A contract which would otherwise be a

wager may become an insurance contract by reason of the assured

having an interest in the subject-matter- that is to say the uncertain

event which is necessary to make the contract amount to insurance must

be event which is prima facie adverse to the interest of the assured”

The position of Roman Dutch Law regarding the doctrine of interest is

more or less in harmony with the view of De Casareges and English

common law.

INSURANCE INTEREST AS A CHARACTERISTIC OF

INDEMINITY INSURANCE.

- Although the doctrine of insurable interest was originally conceived to

distinguish insurance from wagers, the rules of insurable interest are in fact

more suitable to determine who is entitled to claim on a contact of insurance

and what the extent of the claim is.

- In the case of the Saddlers’ Co v Bad Cock (1743) 2 Atk 554 it was decide

that for insurance purposes an insurable interest insurance purpose an

insurable interest must exist both upon the conclusion of the contact an at the

moment upon which the event insured against occurs.

- The more prevalent approach in English law appears to be that the interest

required for indemnity insurance contract need to exist only when the event

insured against takes place.

- In South Africa the doctrine of insurable interest has been applied by some

Courts in order to decide whether an insured has a claim for compensation.

However, it has not yet been clearly decided whether the existence of a

contract of insurance depends on proof that an insurable interest in fact exists.

When called upon to consider this aspect of the doctrine , the Transvaal court

in the case of Philips v General Accident Insurable Co. (SA) Ltd 1983 (4)

SA 652, took the view that insurable interest is a foreign doctrine and that

there is no justification for applying it in preference to the principles of

Roman – Dutch law. In dealing with the distinction between insurance and

wager, the court came to the conclusion that the real inquiry should not be

whether the contract in question is, according to the intention of the parties, a

wager or not.

- The English law view that for true insurance an insurable interest must exist,

or that a person wishing to conclude a contact of insurance must at least

expect an interest has faced stiff resistance in South Africa, primarily on the

ground that a suitable alternative can be found in the principle of indemnity

for which there is ample support South African and even European case

authorities.

INSURABLE INTEREST AS AN ELEMENT OF NON-INDEMINTY INSURANCE IN

ENGLISH LAW.

- In English Law life assurance was originally equated with indemnity

insurance, However, in the celebrated case of Dalby v India and London

Life Assurance Co. (1854) is Cb 365 this view was departed from. The Court

decided that a distinction must se drawn between indemnity insurance and life

assurance. In the case of life assurance an insurable interest must exist at the

time of conclusion of the contract although it needs not exist at the time when

the event insured against occurs.

- Since the interest required for non-indemnity insurance needs only to exist at

the time when the policy as taken out, it does not matter if the interest no

longer exists at the time the contract is enforced e.g as a result of divorce.

- A second possible function of the concept of insurable interest is to

constitute a requirement for the validity of the contract of insurance.

- Insurable interest serves a further function not only at the conclusion of the

contract i.e when the insured is called upon to perform its part of the bargain

it must be established whether the insured had an insurable interest, and if so

to what extent his insurable interest has been infringed.

- Also, the insurable interest of the insured is regarded as the object of the

insurance i.e it is interest as such that is insured.

INSURANCE AS A PRINCIPAL & INDEPENDENT CONTRACT

SIMILARITIES BETWEEN INSURANCE & SURETYSHIP

- Both are depended upon an uncertain event

- Both accomplish a mere indemnity to the exclusion of profit.

- Certain legal rules applicable to insurance have counterparts in the law of

suretyship e.g. the right to claim a contribution, the right to demand a cession of

action, and the right to be subrogated. The later right, which enables an insurer

who has made good a loss (compensated an insured) to proceed against the party

who caused the loss, has given rise to the courts equating an insurer to a surety.

PURPOSE OF DISTINGUISHING

(1) A contract of suretyship must be in writing whereas a contract of insurance need

not be in writing.

(2) A surety is entitled to sue the debtor in his own name while an insurer is only

entitled to make use of the name of the insured in actions against 3rd parties.

The distinction is also of significance with regard to provisions of the

Insurance Act.

(3) The distinction is rather a fine one. Usually a contract of suretyship requires no

performance in favour of the person who stands surety whereas insurance is

reciprocal.

(4) The real distinction seems to be that a contract of insurance is a principal contract

An insured answers for its own obligations while a surety undertakes to fulfill the

obligation of another. Thus, if performance in terms of the contract is in effect

subject to the condition that a specific person does not perform his contract, it can

only be insurance if it is the intention of the parties that the insurer will indemnify

the insured for any loss caused by the event concerned, that is, non – fulfillment

of a contract. If it is the intention the obligation as such must be fulfilled by the

other party, the contract amounts to suretyship.

FORMATION OF A CONTRACT OF INSURANCE

GENERAL PRINCIPLES

The basis of contractual liability where the parties do not misunderstand each other is

consensus ad idem amino contrahendi.

- In those cases where the parties misunderstand each other and apparent consent

exists, liability rests on the reasonable reliance by a contracting party on the

existence of consensus. This may be termed constructive consent. Alternatively a

party can rely on the doctrine of estoppel if they can satisfy the stringent

requirements of estoppel and wishes to avail himself of this remedy in order to

hold a party bound by the appearance of consensus he created. However, for a

contract to exist as such actual or constructive consent must exist.

- A contract of insurance comes into existence as soon as the parties have agreed

upon every material term of the contract they wish to make such as the person or

property to be insured, the event insured against, the period of insurance and the

amount of premium. The parties need not necessarily agree on non – essential

terms, just that they must agree on the essentials for insurance.

- As a rule, the parties to a contract of insurance do not apply their minds to each

specific term but rather contract on the basis of the insurer’s usual terms for the

particular type of risk to be insured against.

- The contract of insurance only comes into existence when consensus is reached.

THE PARTIES

- The ordinary indemnity policies there are usually two parties i.e. the insurer and

the insured. The insured is the person who enjoys protection in terms of the policy

and he is first holder of the policy. Subsequent holders of the policy are in the

position of cessionaries.

- In terms of Part III Section 7 of the Insurance Act, an insurer must be a body

corporate registered in terms of the Act.

- There may also be a third party interested in a particular policy, viz, the

beneficiary in terms of a contract in favour of a 3rd party.

- The parties to a contract of insurance may be represented by agents.

OFFER

- In general insurers do not make binding offers to insure but rather invite the

parties to apply for insurance i.e. an invitation to treat.

- The actual offer is therefore made by the proposed insured by completing the

proposed form which, as formulated by insurers do not leave much room for

bargaining between the parties.

- Most of the terms of the proposed contact are not expressly stated, the intention

being to contract on the usual terms of the insurer. Once a reference to the usual

terms is included in the contract, the insured actually agrees to them and cannot

afterwards be heard to say that he did not have the opportunity to ascertain the

exact content of such terms.

- In a case where the proposal by the insured to be is not acceptable to the insurer

as it stands but where the insurer is willing to contract on other terms, a counter –

offer may be made by the insurer.

ACCEPTANCE

- This means an express or tacit statement of intention in which an offeree signifies

his unconditional assent to the offer.

- The insurer as offeree usually accepts the offer by sending the proposer a policy

accompanied by a covering letter communicating the acceptance. Usually the very

act of sending the policy is sufficient to communicate acceptance.

- A demand for the premium by the insurer may also operate as an acceptance.

- A firm acceptance may also be contained in a an interim cover note, albeit such

note is generally an acceptance of a proposal for temporary cover.

- If a policy which is dispatched to the proposer differs from the terms of the offer

but the insurer did not intend it to differ, the dispatch of the policy, subject to

rectification of the policy, is sufficient to signify the insurer’s acceptance.

Conversely, if the policy issued is intended to differ from the proposal received by

the insurer, the issuance of the policy can at most be a counter offer requiring

acceptance by the insured to be.

THE POLICY

- is the document expressing the terms of a contract of insurance . a contract of

insurance does not need to be in writing to be valid but it has become standard

practice to reduce the contracts to writing.

- The effect of reducing the contract to writing is that the document, by virtue of the

parol evidence rule, becomes the only record of the transaction between the

parties, provided the parties accept the written document as the sole memorial of

their transaction.

- While the traditional method of indicating acceptance of a document as the

embodiment of a contract is by affixing a signature thereto, the practice in

insurance is that the policy is never signed by the insured but only by or on behalf

of the insurer.

- Where a particular policy is accepted as the sole memorial of the contract, the

terms of the contract cannot be sought outside the policy and its constituting parts

such as schedules, slips or endorsements. Other separate documents such as

proposal forms or prospectuses are not admissible as evidence of particular terms

(Parol evidence rule). However, if any such other document has been

incorporated, expressly or tacitly, by references, it is part and parcel of the policy.

This usually happens with proposal forms.

REQUIREMENTS FOR A VALID CONTRACT OF INSURANCE

A CONTRACTUAL CAPACITY

- The general rule that the parties to a contract must have contractual capacity for

the contract to be valid is subject to exceptions in the context of insurance.

B LAWFULNESS

- like any other contract a contract of insurance must be lawful. The common law

renders illegal all contracts which are contrary to public policy or good morals.

The prohibition of a contract by the law may relate to the conclusion or the

contract performance in terms of the contract, or the purpose of the contract.

- In line with the principle of sanctity of contracts and the rules of interpretations a

court, when called upon to decide whether an insurance contract is unlawful,

attempts to uphold the contract by establishing whether the objectionable

elements can be severed from the contract with the remainder being enforceable.

Unless the illegality appears ex facie the transaction sued upon, a litigant who

wishes to rely on a defence of illegality must plead and prove such illegality and

the circumstances upon which it is founded.

- The requirements of lawfulness of contracts are governed by the general

principles of the law of contract and there are no principles peculiar to insurance

contracts.

- The litmus test for legality in respect of certain contracts of insurance is to be

found in the provisions of the Insurance Act, for instance Part IX of the Act,

Section 41 forbids insurers to insure lives of young children in excess of certain

amounts: Section 7 of the Act also prohibits persons from carrying on any class of

insurance business in Zimbabwe unless he is registered in terms of the Act as an

insurer in the class of insurance business carried on by him. Other prohibitions

relate to licensing and other related aspects.

- The Act does not expressly provide that a contract concluded in contravention of

its provisions is invalid. What the Act simply does is to provide for general

penalties for non – compliance. The mere fact that conclusion of a contract is by

implication contrary to the provisions of a legislative intention to prohibit the

contract and thus render it unlawful. Such intention may be inferred according to

the general rule of interpretation, but each case must be dealt with in the light of

its own language, scope and object and considerations of justice and convenience.

(Metro Western Cape (Pvt) Ltd v Ross 1986 (3) SA 181)

PERFORMANCE MUST BE LAWFUL

- A contract of insurance is not often unlawful on account of performance since the

performance of both parties is normally of a monetary nature. However, if the

contract of insurance is to be performed in contravention of the exchange control

laws, it becomes illegal because of the illegality involved in the execution of the

contract.

PURPOSE OF CONTRACT MUST BE LAWFUL

- If the parties conclude an insurance contact to cover the insured where the crime

or civil wrong of is closely associated with it, the purpose of the agreement and

therefore the agreement itself is unlawful.

- In Richards v Guardian Assurance Co. 1907 TH 24 it was decided that an

agreement to insure a house which was being used as a brothel was unlawful. The

court explained that where the legislature has laid down that certain acts are

illegal, all acts which tend to facilitate or encourage such illegal acts must

themselves be regarded as illegal.

UNREASONBALE CONTRACTS

- If there is no ambiguity in the language of the contract and the ordinary sense of

the words does not lead to absurdity, repugnancy or inconsistency with the rest of

the contract, the contract as concluded by the parties is enforceable no matter how

unreasonable its effects may be.

CONSEQUENCES OF UNLAWFUL AGREEMENTS

- Normal effect is that they are null and void. The law allows no exceptions to this

rule, not even if the parties were totally unaware of the illegality.

- If performance has been rendered, such performance may be recovered with the

rei vindicatio where applicable or the enrichment action known as the condictio

ob turpen vel iniustam causam. Of course the recovering is subject to the par

delictum rule which bars recovery unless public policy will be better served by

allowing recovery of what has been performed.

PERFORMANCE MUST BE POSSIBLE & ASCERTAINABLE

- Since performance by the parties to an insurance contract invariably consists in

payment of money, an obligation to pay money is a generic obligation which

cannot be impossible.

- However, where an insurer agrees to have the object of the risk reinstated, the

requirement that performance must be possible becomes relevant. In this case if

reinstatement is initially impossible, the contract must provide for an alternative

performance, viz compensation in money.

PERFORMANCE MUST BE ASCERTAINABLE

- This requirement may operate in respect of the validity of an offer or as a separate

requirement for the validity of the contract.

- In line with the general principles of the law of contract the premium payable

need not be a specified amount, it suffices if the amount is merely ascertainable.

- Regarding performance by the insurer, the undertaking to compensate the insured

is sufficiently ascertained.

FORMALITIES

- No formalities required. Writing not required by the common law for the validity

of insurance contracts, nor has the Insurance Act introduced any such

requirement.

- Although no formal requirement is laid down by the law, the parties may agree

that no contract will materialize unless reduced to writing in the form of a policy

and unless such policy has been delivered to the insured.

- Further, albeit there is no rule requiring prior payment of the premium, the parties

frequently contract subject to a clause that no contract will come into being or that

the liability of the insurer will not commence until a premium is paid.

MISREPRESENTATION

GOOD FAITH

- All contracts are subject to good faith i.e they are bona fide.

- In modern case law and literature insurance contracts have been classified as

contracts uberimmae fidei. This is the prevailing classification in English Law.

- In South Africa, the Appellate Division in Mutual Insurance Co. Ltd v

Oudtshoorn Municipality 1985 (1) SA 419 (A) rejected the term “uberimmae

fides” as an alien expression adopted from English Law, vague and useless,

without any particular meaning other than bona fides.

The Appellate Division, however, did not set out the content of the requirement of

bona fides as it pertains to insurance; thus authority which dealt with the content

of uberimma fides is still persuasive although one must keep in mind that the duty

concerned is not one of exceptionally good faith but simply good faith.

- Generally contracts uberimmae fides impose a duty on the contracting parties to

display utmost good faith towards each other during negotiations leading to the

conclusion of the contract, and only exceptionally during the subsistence of the

contract itself.

- The duty of good faith applies to both the insurance proposer and the insurer.

- It has been said that in respect of principles of good faith is of limited duration

and applies during pre- contractual negotiations only. Once the contract has been

concluded, it is generally said, no special duty of good faith attaches. (See Pereira

v Marine and Trade Insurance Co. Ltd 1975 (4) SA 745 (a)

- One consideration which has been raised and which may constitute a duty of good

faith attaching to an insured during the subsistence of the contract is the question

whether an insurer is entitled to avoid a policy if the insured brings a fraudulent

claim.

- The duty of good faith existing during the subsistence of the contract must not be

confused with the position of the parties upon renewal of a contract of insurance.

- The duty of good faith attaches to renewal of a contract of insurance as it did in

the conclusion of the original contract.

- Requiring uberimma fides instead of mere bona fides has been a way of

expressing the fact that in insurance contracts, a contracting party’s conduct may

more readily be found to have infringed the right protecting the other party from

mala fide conduct during pre-contractual negotiations. It does not refer to a

principle of law distinct from liability for misrepresentation.

- Therefore reference outmost good faith does not indicate a distinct principle of

law; there are no degrees of good faith, such as little, more or utmost good faith

(See Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality @ 433)

- IN fact uberimmae fides has been called “one of the indicia, rather than a

consequence of insurance” See Iscor Pension Fund v Marine and Trade

Insurance Co Ltd 1961 (1) SA 178 (T)

- Therefore a party to an insurance contract who wishes to proceed on the basis of a

breach of the duty of good faith must place his claim within the four corners of

the requirements for misrepresentation.

- The principle underlying the requirement of good faith signifies that either party

may avoid a contract of insurance if the other party has positively misrepresented

a material fact.

- Although insurers rarely commit a breach of the duty of good faith, there are

certain instances where such breach may be committed; for instance, an

inaccurate statement of the nature of insurance offered or the extent of cover

made in the invitation to take out insurance , or the amount of premium payable

by the insured.

- Generally, however, the duty of good faith relates to the right of the insurer to

receive correct and complete information about material facts relating to the risk.

- Accordingly the duty principally rests on the proposer and requires the proposer

to refrain from furnishing false information he possess concerning material facts.

- Put differently is it the proposer’s duty to be honest, straightforward, candid and

accurate in making positive statements about material facts and to make full

disclosure of such facts.

JUSTIFICATION OF THE DUTY OF GOOD FAITH

- An insurer who wishes to calculate the insurability of a specific risk must be able

to quantify the possibility of loss into a degree of probability. To this end the

insurer requires extensive information about and knowledge of the facts affecting

the risk. It is only after the insurer has been furnished with adequate information

that it can calculate the risk and come to a decision whether it is prepared to

accept the risk, the extent of the risk to be accepted and the terms of the contract

such as the amount of premium to be charged.

- Since decisions concerning the risk and premiums are included in the contract

they must be taken before the contract is concluded.

- In view of the fact that the requirements of good faith and the duty to disclose

material facts can obviously be classified as part of the law on misrepresentation

and not as some distinct and strict or principle, the position of the proposer is not

unduly aggravated by the existence of these duties.

The principles of misrepresentation and good faith apply to all types of insurance.

REQUIREMENTS FOR LIABILITY FOR MISREPRESENTATIO

- Misrepresentation is a delict and as such a party to a contract of insurance who

seeks relief on the ground of misrep must prove that the misrep meets all the

requirements for liability in delict, namely, an act (conduct) committed by the

wrongdoer, an element of wrongfulness attached to the act, a detrimental result

which was caused by the wrongful conduct, and (usually) a blameworthiness on

the part of the wrongdoer.

MISREPRESENTATION BY COMMISSION

- Is a positive act consisting in a pre-contractual statement of fact made by one of

the parties to a contract of insurance. The statement must be false or inaccurate

and wrongful, and may be accompanied by fault or may be innocent, and must

induce the other party to enter into the contract or to agree to specific terms in the

contract, contrary to what he would have done if he had not been misled.

ELEMENT OF MISREP BY COMMISSION

POSITIVE ACT OF COMMISSION

- The representation takes place by means of a positive act or commission in the

form of an actual statement and not through omission.

- The statement may be written or oral, it may comprise of an incorrect or

inaccurate answer given to a question by an insurance agent or in a proposal form.

STATEMENT OF FACT

- A misrepresentation give rise to liability only if it consists in a statement of fact.

A mere opinion does not suffice to incur liability on the party expressing it.

FALSE OR INACCURATE STATEMENT

- the statement must be wholly false or at least inaccurate.

- The accuracy of a settlement must be gauged by considering it within the context

in which it was made.

- It is sometimes said that a statement need not be correct in every detail, however

or substantially correct.

WONGFULLNESS

- A positive representation is only wrongful if it relates to material facts, if it is

false and if the party to whom it is addressed was actually misled in the sense that

he put his faith in the false representation.

MISREPRESENTATION BY OMMISSION

- A misrepresentation by omission is a wrongful omission by on of the parties to a

contract of insurance to disclose, during the course of pre-contractual negotiations

certain facts within his knowledge, thereby inducing the other party to enter into

the contract or to agree to specific terms in the contract, contrary to what he

would have done if the facts had been disclosed. The omission may be

accompanied by fault or may even be completely innocent.

OMMISSION

- although is can be typical as a settlement of fact, the act which creates a wrong

impression is not a positive one, but an omission, namely the failure to remove an

existing fact which would have done so. The omission may be a deliberate

concealment or an inadvertent non-disclosure.

(a) Duty to disclose

- An omission is wrongful if it is committed in breach of a duty, resting on a party

to act positively.

- A duty to act positively arises if the circumstances are such that the imposition of

a duty is reasonable according to the legal convictions of the community. A duty

to disclose exists with reference to facts, which are material to the contract in

question and if the representative has actually been mislead by the failure to

disclose.

- The duty to disclose has been said to be “the correlative of a right of disclosure

which is a legal principle of the law of insurance: (see Mutual Federal

Insurance Company Limited v Oudtshoorn Municipality case)

- The reference to the duty of disclosure as being particularly related to the contract

of insurance must be understood as an expression of the fact that the

circumstances surrounding insurance contracts are typically circumstances giving

rise to a duty to disclose.

(b) Facts within knowledge of Representor

- In Joel v Law Union and Crown Insurance Co 1908 (20 KB 863 (LA) 884

Fletcher Moultin LJ said that the duty in point : “is a duty to disclose, and you

cannot disclose what you do not know. The obligation to disclose, therefore,

necessarily depends on the knowledge you possess”

- Section 18 of the Marine Insurance Act of 1906 provides that an insured “is

deemed to know every circumstances which, in the ordinary course of business,

ought to be known by him”.

- Whereas some English authorities suggest that this principle of constructive

knowledge has general application, South African case law follows the view that

a duty only exists to disclose material facts within one’s actual knowledge.

(c) Extent of duty of disclosure

- Although in principle the duty of disclosure attaches to all material facts, the

extent of the duty may be limited in certain instances. An insurer may either

expressly or tacitly limit or waiver the duty.

- Whether or not a waiver has taken place depends on the facts of each case.

- Ramsbottom J, in Whytes Estate v Dominion Insurance Company of SA Limited

1945 TPD 382 @ 404 said “The fact that a question is put to elicit certain

information does not necessarily relieve the proposer from disclosing further facts

of a kindred nature”. Further, an insurer may expressly limit the duty by stating

that no further information on a particular subject is required.

- The duty may also be extended by question in a proposal form.

- Certain categories of facts which are, in principle, material nevertheless fall

outside the ambit of the duty to disclose e. g. those facts which are actually known

to the other party such as those which are matters of common knowledge existing

in the public domain or those matters that live within the sphere of knowledge of

the ordinary professional insurer.

- A proposer need not disclose facts tending to diminish the risk although they are

material to the insurer’s decision on whether to undertake the risk and at what

premium

(d) Duration of duty of duty of disclosure.

- The duty seems to relate only yo negotiations preceding the contract. As Corbett

JA remarked in Pereira V Marine and Trade Insurance Company Limited

1975(4) SA 745 (A) 756A “the purpose and rationale of the pre-contract

duty of disclosure could hardly apply after the conclusion of the contract.

- Therefore the duty attaches to material facts that come to a party’s attention

during negotiations. Once the contract comes into existence, a party needs no

disclose material facts coming into his knowledge.

- If a contract of insurance is renewed the duty of disclosure attaches just as

concluded. This means that a party is obliged to disclose all material facts

including those which have come to his knowledge since the conclusion of the

original contract.

Materiality of non – disclosure

- The courts limited the actionability of false representations to those relating to

insurance matter are concerned.

See Stumbles V New Zealand Insurance Co. Ltd 1963 (2) SA 44 (SR),

Kelly v Pickering 1980 ZLR also reported in 1980(Z) JA 758 (R),

Pickering V Standard General Insurance Co Limited 1980 (4) SA 326 (ZA) @

331

Mutual and Federeal Insurance Co Limited V Oudtshoom Mnicipality 1985 (4)

(SA) 419 (A).

- The courts expressly refer not to a comprehensive duty to disclose facts in

general, but a duty to disclose material facts only. For instance in Colonial

Industries Ltd v Provincial Insurance Co Ltd 1922 AD 33 the court was

concerned with a “duty to make a full disclosure of all material facts”

- In Pereira v Marine and Trade Insurance Co. Ltd where, with reference to an

alleged duty to disclose facts stante contractu, it was said that “any such

supposed duty of disclosure …would, of necessity, be limited to material facts or

circumstances”

The concept of materiality is primarily used as a requirement for liability distinct

from the element of inducement

(e) The test for materiality

- The test for materiality is objective facts are material if they are of such a nature

that knowledge of the facts would probably influence the representative in

deciding whether influence the representee in deciding whether to conclude the

contract and on to conclude the contract and on what terms (see Karroo and

Eastern Board of Executors & Trust Co v Farr 1921 Ad 413)

- The difficulty that arises is what criteria is used to determine the probable

influence on the mind of the representative.

- The difficulty arises in relation to misrep made by a proposer towards an insurer

where the facts are regarded as material if they will probably influence the

decision of the insurer whether to accept the risk, and if so, at what premium.

- The criterion for determining the influence on the insurer’s decision is the

“reasonable man test” (See Fine v The General Accident, Fire and Life

Assurance Corp Limited, Colonial Industries v Provincial Insurance Co,

Pereira V Marine and Trade Insurance, Mutual & Federal Insurance v

Oudtshoorn Municipality.

- According to the Appellate Division this test is applied to determine, whether or

not, from the point of view of the average prudent person, the undisclosed

information or facts are reasonably relative to the risk or the assessment of the

premium.

- A number of decisions suggest that the criterion is the judgment of a prudent and

experienced insurer, which means the facts are material if they will influence the

mind of a prudent and experienced insurer in relation to the risk and its premium

(See such cases as Colonial Industries v Provincial Insurance Co, Whytes

Estate v Dominion Insurance Co of Mutual & Federeal Insurance Co v

Oudsthoorn Municipality).

- Other decisions hold that the criterion is whether a reasonable man in the position

of the insured would have regarded the particular facts as relevant to the decision

of an insurer concerning the risk and the premium.

- It has been said that the two schools of thought represent two separate test for

materiality. However, prevailing authority has suggested that it is not necessary to

separate completely the criteria of the reasonable proposer and the prudent

insurer. Reference to the test of the reasonable proposer is simply an attempt to

limit the scope and strictness of the test of the prudent and experienced insurer

without discharging it.

- A hybrid test for materiality would be whether, according to the opinion of a

reasonable man in the position of the particular proposer, the facts in point are

likely to influence the decision a prudent and experienced insurer regarding the

risk and its premium. (See Anglo – African Merchants Ltd v Bailey 1970 (1) QB

311 @ 319.

- The reasonable man test as formulated in the Mutual and Federal Insurance Co

Ltd case reflects an attempt to do justice to the interests of both the insured and

the insurer.

The test is said to be objective and the court personifies the hypothetical diligens

paterfamilias to which the test applies.

- For the sake of clarity, the test of materiality formulated in the Mutual and

Federal case is best expressed as referring to those facts which are reasonably related

to the insurer’s decision when all the circumstances of the case are taken into account.

EXAMPLE OF CATEGORIES OF FACTS THAT HAVE BEEN HELD TO BE

MATERIAL

- Facts indicative of exceptional exposure to risk such as a dangerous occupational

or hobby, characteristics or attributes making the person or object exposed to the

risk particularly vulnerable.

- The insurance record, for instance the fact that was cancelled (Colonial

Industries).

- Subjective circumstances affecting the risk such as the proposer’s financial or

business integrity, circumstances indicating that motive for insurance may be

illegal or dishonest, or the fact that the proposer is prone to cause the risk to

materialize. An example is where an insured fails to disclose that he is an

unrehabilitated insolvent (See Steyn v A Ounderlinge 1985(4) SA 7 (T) or failure

to disclose that the premises covered by a fire insurance contract are used as a

brothel (See Richards v Guardian Assurance Co 1907 TH 24) or the fact that the

proposer previously suffered loss in a manner indicating carelessness on his part

(Israel Bros v Northern Assurance Co and the Union Assurance Society (1892)

4 SAR 175).

- The rule is that facts which reflect on the character of the insured or of those

persons of objects exposed to the risk must be disclosed (Malcher & Malcomes

and Trust Co (1883) 3 EDC 271 279 – 289)

- The proposer’s interest in the subject matter does not normally affect the risk and

is therefore not material. However where it does affect the risk it becomes

material.

THE DOCTRINE OF SUBROGATION

In the context insurance subrogation embraces a set of rules providing a right of

recourse for an insurer which has indemnified its insured

It means that a contract of insurance creates a personal right for an insurer against its

insured it terms of which it is entitled to recoup itself out of the proceeds of any rights

the insured may have against 3rd parties in respect of the loss.

The right for reimbursement cannot be for more than the amount paid out the insurer

as indemnity to the insured.

Subrogation is concerned exclusively with the mutual rights and liabilities of the

parties to the contract of insurance, it confers no rights and imposes no liabilities on

third parties.

Because the insurer is, as against its insured entitled to be reimbursed out of the

proceed of the insured’s remedies against 3rd parties, the insured may not actively deal

with his rights against 3rd parties to the detriments of the insurer, for instance by

releasing the 3rd party from liability.

In support of its right to reimbursement, an insurer is also entitled to its insured’s

consent to bringing an action against a third party in the name of the insured. This

latter right is known as the insurer’s secondary right only arises where the insured has

lost all interest in the outcome of the proceedings in that he has received full

compensation for all losses caused by the event insured against. The insurer then

becomes the dominus litis although the action proceeds in the name of the insured.

The advantage for the insurer is that it can ensure that an action is brought against the

3rd party and that the proceedings are properly conducted.

THE PURPOSE OF SUBROGATION

It purpose is to prevent the insured from retaining an indemnity from both the insurer

and a third party.

Further, through subrogation the insurer is recompensed for the amount it has paid to

the basis of the insured. This right of redress is the basis of the insured’s duty not to

prejudice the insurer’s position.

By affording the insurer a right of redress, the cost of insurance to the public is kept

low, since the insurer is enabled to recoup its loss from a source other than premium

income.

On a social level the doctrine serves to safeguard the principles that a person who has

caused loss to another by his unlawful conduct must bear that loss since a wrongful

cannot hide behind insurance.

The doctrine of subrogation also strengthens the position of an insurer by creating a

trust in favour of the insurer. In Ackerman v Boubser 1908 OPD 31 the court referred

to an insured who had recovered compensation from a third party as a trustee for the

insurer.

THE BASIS FOR THE DOCTRINE

The insurer’s right of subrogation rests on contract. It is by virtue of the terms of the

contract that the insurer is entitled to benefit from the proceeds of the insured’s

remedies against third parties in respect of the loss.

Likewise, it is in terms of the contract that the insurer is entitled to consent of the

insured to bring an action against a third party in the name of the insured.

The terms giving rise to the personal rights and duties in the context of subrogation

may be express, but more often then not they are implied by operation of law.

SCOPE OF THE DOCTRINE

Since one of the justifications of the doctrine of subrogation is to prevent the insured

from receiving double indemnity, subrogation applies to all forms of indemnity

insurance. However, it has no application in non indemnity insurance unless the

parties have expressly agreed to grant the insurer rights of subrogation.

The locus classics on subrogation is Castellain v Preston (1883) 11 QBD 380 (CA)

wherein the court considered the scope of the doctrine and expressed itself as follows

“As between the underwriter and the assured the underwriter is entitled to the

advantage of every right of the assured the underwriter is entitled to the advantage of

every right is entitled to the advantage of every right of the assured, whether such

right consists in contract, fulfilled or unfulfilled, in remedy for tort capable of being

insisted on or already insisted on, or in any other right, whether by way of condition

or otherwise, legal or equitable, which can be, or has been exercised or has accrued,

and whether such right could or could not be enforced by the insurer in the name of

the assured by the exercise or acquiring of which right or condition the loss against

which the loss is insured can be or has been diminished”

The insurer is therefore not only entitled to the advantages of the insured remedies

against 3rd parties who are contractually, delictually or otherwise liable for

compensation for the loss, but also to the advantage of every other right, provided it

serves as a total or a partial substitute for the insured interest, such as the proceeds of

a sale of an insured asset or compensation upon expropriation.

Subrogation applies also to rights received by the insured even though no right to

receive such gifts existed when the loss occurred.

REQUIREMENTS FOR THE OPERATION OF THE DOCTRINE

(a) Valid contract of indemnity Insurance.

(b) Since the insurer’s right to subrogation is derived from the contract of insurance,

no subrogation can take place where it has paid for a loss in terms of an invalid

contract of insurance.

(c) However where an insurer pays a claim in terms of a contract which is voidable

(eg a contract induced by fraud) payment is effected in terms of a valid and

existing contact and therefore the insurer’s right to subrogation is beyond doubt.

(d) Insurer must have been indemnified.

(e) Although the right vests upon the insurer at the conclusion of the contract, it

becomes enforceable only when the insured has been fully indemnified. This

means that the insurer must both admit and pay everything due by it in respect of

the particular claim of the insured.

(f) The insured remains the dominus litis until the insurer has effected payment

unless the parties have agreed otherwise in the policy.

(g) Insured’s loss must have been fully compensated

(h) Where the insurance contract does not provide full cover in respect of the loss,

(for example the insured is under – insured or insured is bound to bear a portion

of the loss by virtue of an excess clause} the insured remains dominus litis unless

the parties have agreed otherwise.

(i) In the case of a consequential loss, i.e loss which is not insured but which is

caused by the event insured against, the insured also remains dominus litis.

(j) Right of action against third party must exist – subrogation can only operate if the

insured in fact has a remedy against a third party (See Ackerman vs Louber 1918

OPD 31 @ 37)

RIGHTS OF THIRD PARTIES

Although it is usually the contracting parties who enjoy the benefit of a policy, a third

party may become entitled to claim under the policy by virtue of a transfer of right to

him or by virtue of a novation in his favour.

Yet another way in which a person may become entitled to claim in terms of a policy

concluded by another in his own name, is accepting a benefit conferred upon him in

the policy.

The notation of a third party’s interest in a policy has certain consequences.

1. CESSION

(a) Ordinary cession of insured’s rights.

(b) The insured can effect a transfer of his right(s) by way of cession.

(c) Cession by definition is an agreement which provides that the cedent transfers a

right to the cessionary.

(d) Cession depends on consensus in the sense that cedent must have the intention to

transfer the right to cessionary and that the cessionary must have a corresponding

intention to receive the right.

(e) An insured can cede his claim in either indemnity or no – indemnity insurance

whether before of after the materialization of the risk insured against.

(f) Although in principle rights under insurance policies may be freely ceded without

the consent of the insurer, policies frequently contains clauses prohibiting or

regulating transfer. Thus a policy may contain an out and out prohibition on

alienation requiring the consent of the insurer to be obtained for a valid cession.

However, such a clause must be shown to serve a useful purpose otherwise it

cannot be enforced. (See Northern Assurance Co. Ltd v Methuen 1937 SR 103,

Fouche v The Corp of London Assurance 1931 WLD 145 @ 157, Gowie v

Provident Insurance Co (1885) 4 SC 118 @ 122) (See also Section 75 of the Act)

(g) Another type pf clause requires the insured to give notice of an intended cession

and states that the cession will take effect only upon registration by the insurer.

(h) The effect of a cession is that the claim vests in the cessionary and nothing

remains with the cedent. The cessionary is the creditor and a such is the only

person who can sue for or receive payment. Thus of the insured cedes his

conditional right to indemnification if the cessionary who can claim and receive

payment should a loss occur to the insured thereafter.

(i) The right which is transferred to the cessionary is the right which the cedent had,

thus if the right which has been ceded is the insured conditional right to

indemnification, the cessionary can upon occurrence of a loss, sue only for the

loss suffered by the insured and not for any loss the cessionary himself may have

suffered.

(j) Further, the right is transferred subject to all defects and limitations attached to it

in the hands of the cedent including the payment of premiums, observance of

warranties and the following of proper claims procedure. It is important to note

that cession of the insured’s rights does not transfer the insured’s duties as such,

but non – fulfillment never the less provides the insurer with a defence.

(k) Having ceded his right, the insured remains liable to the insurer.

(l) A valid cession of a claim under a policy can be defeated by a subsequent

agreement canceling the cession and amounting to a re-transfer of the right.

(m)Cession in security for debt.

(n) Right under both indemnity and non-indemnity policies are frequently employed

to secure a debt.

(o) In some older insurance cases, the court adopted the view that a cession in

security in security for debt is tantamount to the granting of a pledge. This line of

thought culminated in the case of National band of South Africa Ltd v Cohan’s

Trustee 1911 AD 235, wherein the Appellate Division held that a trustee of an

insolvent estate was entitled to claim and administer the amount payable under a

fire policy which had been ceded by the insolvent as security for debt.

(p) Another school of thought a cession in security for debt is a complete cession of

the right subject only to a fiduciary pact. The cedent is completely divested of his

right but in terms of the pactum adiectum the cessionary may retain the right so

ceded for security purposes. Moreover, this right must be re-ceded to the cedent

as soon as the secured debt has been redeemed.

(q) The reasonable conclusion seems to be that the so-called cession in securitatem

debiti can take one of two forms. It can be an out and out cession subject to a

fiduciary pact or it can be tantamount to the granting of a pledge.

(r) The question whether an ordinary cession with no strings attached, a cession in

securitatem debiti sensu stricto or a transaction in the nature of a pledge has

occurred depends on the intention of the parties and not on the parties and not on

the outward form of the transaction.

(s) It has been decided that where a policy has been employed as security, the holder

of the policy can cede his right to the balance of the proceeds of the policy as

security for yet another debt.

(t) A person who has taken a policy as security may not deal with the policy in

disregard of the insured’s rights, for example by compromising a claim.

2. SUBSTITUTION

(a) Voluntary substitution of insured

(b) A contract of insurance is a personal contract and in principle does not follow a

transfer of the interest which is the object of the insurance. The consent of the

insurer must be obtained is a voluntary substitution of the insured is desired, for

instance upon a sale and transfer of the insured property.

(c) A distinction and a cession of the insured’s rights under the policy. A valid

substitution means that another person takes the place of the original insured; i.e.

assumes the obligations and rights of the initial insured.

(d) Substitution of the insured requires a novation of the policy.

(e) Substitution of the insured by operation of the the law

(f) Takes place upon death, marriage in community of property and sequestration.

3. INSURANCE FOR THE BENEFIT OF THIRD PARTIES

Is founded on the basis of the conventional contracts for the benefit of third parties

commonly known as stipulatio alteri. A contract in favour of a third party is contract

in terms of which one party, the promittens, agrees with another, the stipulates, that

he will perform something for the benefit of a third party. The stipulates does not act

in the name of third party but in his own name although for the benefit of the third

party.

In the case of Wallach’s Trustee v Wallach 1914 AD 202, the Appellate Division

stated that a contract for the benefit of a third party is not simply a contract to benefit

a third person, but a contract between two persons which is designed to enable a third

person to step in as a party to a contract with one of those two. A typical making the

proceeds of the policy making the proceeds of the policy payable to a third person or

a stipulation in an indemnity policy extending indemnification to persons other than

the policy holder.

The courts have held that a third party does not acquire any right from an agreement

in his favour unless he accepts. Upon acceptance by the third party a legal tie is

created between the promittens and the third party.

The third party who is to benefit from a policy must be described in such a way that

he can be identified. It is not necessary to name a specific beneficiary, a class of

beneficiaries may be designated provided that it is done in clear terms.

Whether the third party must possess an insurable interest depends on the terms of

the policy. If the third party is merely to receive the proceeds of the policy, the policy

is supported by the insurable interest of the policy holder. Consequently, the third

party need not have an insurable interest. If, on the other hand, according to the terms

of the policy the third party can claim indemnification for damage sustained by him,

he will have to prove damage and therefore cannot claim if he has no interest.

(a) Life Assurance

In life assurance policies contracts for the benefit of third persons take the form of a

stipulation requiring the insurer to pay the proceeds to the third person. The nominee

may be an identified or identifiable person; the nomination may be unconditional or

conditional; and it may be revocable or irrevocable.

A contract for the benefit of a third person by way of nomination in a policy in favour

of a beneficiary can exist in isolation. Often, however, it is intertwined with another

transaction when it is employed as a mechanism to carry out an obligationary

agreement in favour of the beneficiary.

In Curtis Estate v Gronmingster 1942 CPD 511 the insured took out a heritage

policy.

DOUBLE INSURANCE

Occurs when the same interest is insured by or on behalf of the same insured against

the same risk with two or more independent insurers. Insurance in favour of a third

party may also result in double insurance.

The concept is important for two reasons

if and double insurance amounts to over-insurance (i.e the total of all insurances is

more than the total value of the insured’s interest) an insurer who pays more than its

proportionate share of the loss has a right to contribution against each of the other

insurers.

policies often contain – provisions that the insured must disclose other insurances

which subsist at the time the policy is issued or which are contracted subsequently

and that in the event of double insurance the insurer will only be bound to pay the

insured its proportionate share of the loss.

REQUIREMENTS

(a) The policies must overlap as to the event insured. It is necessary that the policies

cover exactly the same risks but they must have a particular event in common

before they amount to double insurance in respect of that risk.

(b) The policy must relate to the same interest

They policies may each cover a variety of interest but all must cover the interest,

which eventually suffers

(c) The policies must relate to the same object of risk, otherwise the insurance cannot

be in respect of the same interest.

(d) The policies must be in force at the same time and they must be valid and

effective.

(g) The existence of other insurance policies is usually not a material fact which

requires disclose by the insured but then policies frequently require the insured to

notify the insure of such existence. Such clauses usually provide the unless

timorous notice is given, the policy will be forfeited .The Courts have decide that

whole the decide that whole specify the time within which the notice must be

given, the notice must be given within a reasonable time. What constitutes

reasonable time determined on the special facts circumstances of each case.

Clause limiting or excluding liability on the basis of double insurance. Policies

often contain clause either limiting liability or excluding liability altogether. Such

clause are valid at law but if liability is excluded on account of double insurance

and it appears that the other policy also contains a similar clause, the two clauses

are deemed to cancel each other.

(h) A clause limiting liability saves the insurer the inconvenience of having to claim a

contribution from a co-insurer.

The nature and basis of the right to contribution.

The insured in a case of double insurance is free to decide how much of his loss he

wishes to claim from a particular insurer but in full amount of his loss. If the insurer

has paid more than its ratable proportion of the loss, it is entitled to claim to

proportion of the loss, it is entitled to claim, in its own name, from the other insurers

that they each contribute proportionately.

The right is one of recourse by one insurer against another insurer which has also

insured the same loss.

This right is one of recourse by one insurer against another insurer which has also

insured the same loss.

This right substitutes any right to subrogation which the paying insurer could possibly

have had to the proceeds of the insured’s rights against other insurers.

A right to contribution is s natural consequence of a contract of insurance.

It is one of the legal consequences of the contract of insurance that an insurer which

has paid more than its pro rata proportion of the loss succeeds to the rights of the

insured against the other insurer’s subject to the qualification that only the pro rata

proportion may be recovered from each insurer.

Contribution is restricted to indemnity insurance.

Requirements for the right of contribution

(a) The insurer claiming contribution must have discharged its liability to the insured.

(b) It must have paid more than its prorata proportion of the loss

(c) The payment must have been in respect of an interest which is the subject of

double insurance..

The calculation of the proportionate share of each insurer is often simple. Where the

various policies are identical in all material respects, such as the amount of cover, the

loss is apportioned equally between or among the various insurers.

If the policies only differ as to the amounts insured, all amounts insured must be

added up and compared with the amount of the loss. Each insurer then becomes liable

for such a proportion of the loss as the amount underwritten by it bears to the

aggregate amount insured by all the policies.

In practice the issue of apportioned is a matter of negotiation between the parties.

OVER – INSURANCE

Over – insurance occurs when the sum insured is more than the total value of the

insured’s interest.

In indemnity insurance the sum insured is usually described as the limit of liability.

There is no objection to a policy containing a limit of liability which is more than the

value of the insured’s interest but the insured cannot recover more than his actual

loss.

UNDER – INSURANCE

Occurs where the sum insured is less than the value of the insured’s interest.

A person under – insured his interest is in the event of a loss entitled to recover up to

the sum of the amount insured or the amount of the loss whichever is the lesser. In

marine insurance, however, if a person insured for less than the insurable value, he is

deemed to be his own insurer for the insured balance.

In order to discourage under – insurance certain clauses have been developed such as

the condition of average.

COMPULSORY THIRD PARTY MOTOR INSURANCE

(i) This is governed by Part IV and Part 5A of the Road Traffic Act [Chapter 13:11}

(j) Section 22 of the Act makes it compulsory for one to have a policy of insurance

or a security in respect of 3rd party risks. Failure to comply with the provisions of

this section attracts a criminal penalty.

(k) The requirements for a statutory policy of insurance are provided in Section 23 of

the Act and these include

(i) a statutory policy shall be issued by a person who is approved by the Minister

as an insurer. In other words the statutory policy ought to be a valid policy

issued by a registered insurer.

(ii) A statutory policy shall insure such persons or classes of persons as may be

specified in the policy in respect of any liability which may be incurred by

them in respect of -

(a) death of or bodily injury to, any person ; and

(b) the destruction of, or damage to, any property. caused by or arising out of

the use of the motor vehicle or trailer concerned on a road.

Section 24A (introduced by the Road Traffic Amendment Act No 3/2000)

provided for a certificate of insurance or security issued by the insurer or by

the Minister as the case may be.

Section 38A Part VA provides for Compulsory No Fault Insurance for

Passenger public service vehicles.

The part defines a passenger in very broad terms but excludes persons employed

or engaged by the owner of the vehicle.

(l) Section 38B makes it compulsory for Passenger service vehicle to carry no fault

insurance cover.

CRITICISM OF THE AMENDMENT ACT

(m)Whereas the amendment Act can be applauded for recognizing the need to protect

3rd parties who suffer loss of life or injury or loss of property the question that

begs attention id the amount of cover afforded by the Act.

(n) Section 23 (3) provides that a statutory policy shall not be required to cover –

(i) any contractual liability; or

(ii) liability in respect of death, or bodily injury, persons who were being carried

in or entering or getting on to or alighting from the vehicle or trailer

concerned when the event out of which

Research Gap

1) The deeper the understanding of consumer’s needs and perception, the earlier

the product is introduced ahead of competitors, the expected contribution

margin will be greater .Hence the study is very important.

2) Consumer markets and consumer buying behavior can be understood before sound product and marketing plans are developed

3) This study will help companies to customize the service and product, according to the consumer’s need.

4) This study will also help the companies to understand the experience and expectations of the existing customers.

5) Apart from creating, manufacturing and distribution capabilities for life

insurance products, an in depth study of the consumers, their preferences and

demand for their product is very necessary for setting up an efficient

marketing network.

STATEMENT OF THE PROBLEM

This Study will help us to understand the consumer’s perception about life

insurance companies. This study will help the companies to understand, how a

consumer selects, organizes and interprets the Quality of service and product

offered by life insurance companies.

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Objective of the Study

1. Ascertain the profile and characteristics of potential buyers.

2. To have an insight into the attitudes and behaviors of customers.

3. To find out the differences among perceived service and expected service

4. To produce an executive service report to upgrade service characteristics of life insurance companies.

5. To access the degree of satisfaction of the consumers with their current brand of Insurance products.

HYPOTHESIS

HYPOTHESIS – 1

H0:- There is no effect of advertisement for the life insurance policies

H1:- There is an effect of advertisement for the life insurance policies

HYPOTHESIS – 2

H0:- There is no impact of the perceived services and expected services

H1:- There is an impact of the perceived services and expected services

HYPOTHESIS – 3

H0:- There is no impact of the coordination of the investment advisor with the clients of the life

insurance

H1:- There is an impact of the coordination of the investment advisor with the clients of the life

insurance

HYPOTHESIS – 4

H0:- There is no impact of the attitudes of the customers on the life insurance policies

H1:- There is an impact of the attitudes of the customers on the life insurance policies

HYPOTHESIS – 5

H0:- There is no effect of the perception of the customers on the insurance policies

H1:- There is an effect of the perception of the customers on the insurance policies

SCOPE OF THE STUDY

This study is limited to the consumers within the limit of Hyderabad city.

The study will be able to reveal the preferences, needs, perception of the customers

regarding the life insurance products, It also help the insurance companies to know

whether the existing products are really satisfying the customers’ needs .

The following are the limitation of this study

The study is conducted in short period, due to which the study may not be detailed all

aspect.

Lack of time on performing the project in detail study.

The scrip chosen for analysis is from Questionnaire

The data collected is completely restricted to the investors of Zen insurance

Period of the study

The duration of the project is 45 days

RESEARCH AND METHODOLOGY:

A. Type of research is descriptive research by survey method.

B. Primary data is collected from the Investors and secondary data from company profile,

brochures.

C. Sample Size: 50 investors. Collection Method: personal.

D. Tool: a structural questionnaire was prepared to collect information pertaining to the

study. The questionnaire was administered to the company

DATA SOURCES:

a) Primary Data:

The data will be collected though holding discussions with the employees of the company

and discussing the questionnaires with existing customers of the company.

b) Secondary Data:

The present study is based on Secondary data. The various source of secondary data include Internet Information provided by the company Magazines

RESEARCH DESIGN:

The research is primarily both explanatory as well as descriptive in nature. A well-structured

questionnaire was prepared and personal interviews were conducted to collect the customer’s

requirements, through this questionnaire.

SAMPLING METHODOLOGY:

a) Sampling Technique:

Random sample method.

b) Sampling size:

Sample size refers to number of elements to be included in the study.

Sample size is 50 investors of “Zen Insurance”

DATA ANALYSIS TECHNIQUE:

a. Percentages & b. Bar – diagrams