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Contract of Indemnity vis -a -vis Insurance

The Study of Principle of Indemnity with respect to Insurance is of much importance as insurance is a Social security and Indemnity in insurance compensates the beneficiaries of the policies for their actual economic losses, up to the limiting amount of the insurance policy. Insurance is meant to protect men against uncertain events which may otherwise be of some disadvantage to them.

If it is an assurance that a sum of money will be paid to the person insured if a particular event happened. Insurance business and the need for the insurance cover are growing with the growing complexity of life, trade and commerce, and consequently, there is now bewildering variety of insurance covers. So it is essential that to know what are the essentials and exceptions attached to principle of Indemnity and insurance.

Insurance and Guarantee are the species of a same genus .i.e., indemnity or in other words the contract of insurance and the contract of Guarantee are the development on contract of indemnity. Similarly, the doctrine of Subrogation has been introduced to carry out the fundamental rule that of indemnity. Every contract of Insurance, except life assurance, is a contract of indemnity and no more than an indemnity.

Under English Law, the word indemnity carries a much wider meaning than given to it under the Indian Act. Under English law, a contract of insurance (other than life insurance) is a contract of indemnity. Life insurance contract is, however, not a contract of indemnity, because in such a contract different consideration apply.

A contract of life insurance, for instance, may provide the payment of a certain sum of money either on the death on a person or on the expiry of a stipulated period of time (even if the assured is still alive) Indian Contract Act does not specifically provide that there can be on implied contract of indemnity.

Meaning of Contract of Indemnity

Contract of indemnity meaning is a special kind of contract. The term indemnity literally means security or protection against a loss or compensation. According to Section 124 of the Indian Contract Act, 1872:
A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.

Example: P contracts to indemnify Q against the consequences of any proceedings which R may take against Q in respect of a certain sum of money.

Objective of Contract of Indemnity

The objective of entering into a contract of indemnity is to protect the promisee against unanticipated losses.

Parties To The Contract of Indemnity

A contract of indemnity has two parties.
  • The promisor or indemnifier
  • The promisee or the indemnified or indemnity-holder
  • The promisor or indemnifier: He is the person who promises to bear the loss.
  • The promisee or the indemnified or indemnity-holder: He is the person whose loss is covered or who are compensated.
In the above-stated example,

P is the indemnifier or promisor as he promises to bear the loss of Q.Q is the promisee or the indemnified or indemnity-holder as his loss is covered by P.

Essentials of Contract of Indemnity

Parties To A Contract:

There must be two parties, namely, promisor or indemnifier and the promisee or indemnified or indemnity-holder.

Protection of Loss:

A contract of indemnity is entered into for the purpose of protecting the promisee from the loss. The loss may be caused due to the conduct of the promisor or any other person.

Express Or Implied:

The contract of indemnity may be express (i.e. made by words spoken or written) or implied (i.e. inferred from the conduct of the parties or circumstances of the particular case).

Essentials of A Valid Contract:

A contract of indemnity is a special kind of contract. The principles of the general law of contract contained in Section 1 to 75 of the Indian Contract Act, 1872 are applicable to them. Therefore, it must possess all the essentials of a valid contract.
NUMBER OF CONTRACTS: In a contract of Indemnity, there is only one contract that is between the Indemnifier and the Indemnified

Rights of Promisee/ The Indemnified/Indemnity Holder

As per Section 125 of the Indian Contract Act, 1872 the following rights are available to the promisee/ the indemnified/ indemnity-holder against the promisor/ indemnifier, provided he has acted within the scope of his authority.

Right To Recover Damages Paid In A Suit [Section 125(1)]:

An indemnity-holder has the right to recover from the indemnifier all damages which he may be compelled to pay in any suit in respect of any matter to which the contract of indemnity applies.

Right To Recover Costs Incurred In Defending A Suit [Section 125(2)]

An indemnity-holder has the right to recover from the indemnifier all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit.

Right To Recover Sums Paid Under Compromise [Section 125(3)]

An indemnity-holder also has the right to recover from the indemnifier all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.

Commencement of Liability of Promisor/ Indemnifier

Indian Contract Act, 1872 does not provide the time of the commencement of the indemnifier’s liability under the contract of indemnity. But different High Courts in India have held the following rules in this regard:
  • Indemnifier is not liable until the indemnified has suffered the loss.
  • Indemnified can compel the indemnifier to make good his loss although he has not discharged his liability.
In the leading case of Gajanan Moreshwar vs. Moreshwar Madan, an observation was made by the judge that:
If the indemnified has incurred a liability and the liability is absolute, he is entitled to call upon the indemnifier to save him from the liability and pay it off.

Thus, Contract of Indemnity is a special contract in which one party to a contract (i.e. the indemnifier) promises to save the other (i.e. the indemnified) from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. Section 124 and 125 of the Indian Contract Act, 1872 are applicable to these types of contracts.

Historical Development of Principle of Indemnity

  1. Indemnity was restricted only to the loss occured by human agency only.
    In Gajanan Moreshwar vs. Moreshwar Madan. It is stated :This definition covers indemnity for loss caused by human agency ONLY. It does not deal with those classes of cases where the indemnity arises from loss caused by events or accidents which do not or may not depend upon the conduct of the indemnifier or any other person, or by reason of liability incurred by something done by the indemnified at the request of the indemnifier.

  2. Contractual document must state clearly the terms and conditions of indemnity.
    In State Bank of India and another vs. Mula Sahkari Sakhar Karkhana Ltd. It is stated : A document, as is well known, must be construed on the basis of the terms and conditions contained therein. It is also trite that while construing a document the court shall not supply any words which the author thereof did not use. The document in question is a commercial document.

    It does not on its face contain any ambiguity. The High Court itself said that ex facie the document appears to be a contract of indemnity. Surrounding circumstances are relevant for construction of a document only if any ambiguity exists therein and not otherwise.

    The said document as per Supreme Court, constitutes a document of indemnity and not a document of guarantee as is clear from the fact that by reason thereof the appellant was to indemnify the co-operative society against all loses, claims, damages, actions and costs which may be suffered by it.

    The document does not contain the usual words found in a bank guarantee furnished by a Bank as, for example, "unequivocal condition", "the co-operative society would be entitled to claim the damages without any delay or demur" or the guarantee was "unconditional andabsolute" as was held by the High Court. It is beyond any cavil that a bank guarantee must be construed on its own terms. It is considered to be a separate transaction.
 

Contract of Insurance

Insurance may be defined as a contract between two parties whereby one party called insurer undertakes, in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event. It means protection against loss.It is the process of safeguarding the interest of people from loss and uncertainity. It is based on the contract. It is a valid agreement that incorporates certain terms and conditions.

It may be describes as a Social device to reduce or eliminate a risk of loss to life and property. Insurance business and the need for the insurance cover are growing with the growing complexity of life, trade and commerce, and consequently, there is now bewildering variety of insurance covers.

But marine, fire, and life are the most common varieties of insurance. Whatever be the kind of the insurance or the risk insured against there are certain principles of insurance law so fundamental that they impinge upon every variety. Every contract of insurance, except life insurance is a contract of indemnity, every contract of insurance is a contract of absolute good faith and requires some insurable interest to support it, without which it will be a mere wager.

In order for an insurance contract to be legally binding, certain essential requisites must be stipulated in the contract. These elements are classified into two broad categories:

The elements of a general contract:

  • offer and acceptance
  • consideration
  • legal capacity
  • legal purpose.
  • Free Consent

The elements of a special contract in relation to insurance:

  • indemnity
  • insurable interest
  • utmost good faith
  • subrogation
  • assignment and nomination
  • warranties
  • proximate cause
  • return of premium.
The general elements of the contract can be further elaborated as follows
The insured makes an offer by submitting an application to insurance company. The insurer accepts and confirms the application and issues a policy. In Hindustan cooperative Insurance society V Shyam Sunder – after an oral understanding to insurance and the completion of the medical examination the company informed the proposer that if he submitted the proposal forum and deposited the half- yearly premium, his proposal would be accepted. He accordingly submitted a cheque but had not yet replied to him their acceptance of the proposal that the proposer died.

The question was whether by in cashing the cheque the company had accepted the proposal without there being any formal acceptance.
Harris C.J., referred to the English authorities and said: Mere mental assent to an offer does not conclude a contract either under the Indian Contract Act or in English Law. The offer or may, however, indicate the mode of communication acceptance either expressly or by implication both in India and English Law.

In the case before us it is clear from the facts that the deceased indicated clearly that of the appellant accepted his proposal. The cheque should be appropriated towards the first premium and that such appropriation would conclude the bargain. The cheque was received on that implied understanding.

Where on the other hand the insurer had received the proposed from along with the first premium and it was still awaiting acceptance when the proposed died, no liability to pay arose. It was immaterial that the groundwork for acceptance was the under preparation and the agent had assumed that the proposal would be accepted.

Consideration:

The premium payable by the insured to the insurer. It also includes the money paid out by insurance company when the insured files a claim.

Legal Capacity:

The insured must be legally competent before entering into an agreement with the insurer. The insurer must also be competent and licensed under prevailing laws to provide insurance. Whose behalf the goods were insured was a minor and allowed the minor to recover the insurance money.

A minor is allowed to enforce a contract which of some benefit to him and under which he is required A person who is not competent to enter in to a contract by reason of the provision in section 11 of the Contract Act 1872, can still be a beneficiary under a contract of insurance. A minor's property may be insured by persons competent to act for him.

He would be entitled to recover the insurance money. The court rejected the defense of the insurance company that the person on to bear obligation.2 The insurer has to be qualified for the job under the Life Insurance Act, 1956, the Life insurance business in India. The general insurance was privileged of the carrying on the life insurance business in India.

The general insurance was the exclusive monopoly of the General Insurance Corporation under the General Insurance Business (nationalization) Act,1972. But Development Authority Act, 1999. The Authority can grant a license for insurance business to now this exclusive monopoly has been ended under the Insurance Regulatory and others also.

Legal Purpose:

The purpose for issuance of the insurance policy must fall within legal frameworks. An insurance contract encouraging an illegal activity is invalid. Section 23 of the Contract Act, 1872 prescribes the requirement that the consideration for and the object of the agreement must be lawful. It has been held that there is nothing unlawful in a vehicle insurance policy providing that no compensation would be payable if the vehicle was being driven at the time of the accident by an unlicensed person or by a learning license holder.5 Section 64-B of the Insurance Act 1938 prohibits the insurance from entering in to a contract - unless the premium is paid in the advance.

The Court said that such a condition could be waived.6 Law does not help a person to recover anything under his own crime. The fruit of a crime are irrecoverable . No person is allowed to benefit from his own crime. It is on this principle that a person is not permitted to participate in a succession which he has brought about through murder.

An insured person committed suicide to enable -his representatives to get the insurance money, but they were not allow to recover. It was an attempt to confer a benefit through his own crime. This brought about an undeserved punishment of the representatives. This position was therefore, changed by the Suicide Act, 1961 [English]. The principle was again applied to prevent a person, who had taken out a policy in respect of liability for bodily injury caused by accident, from recovering but as a result of an unlawful and violent attack. Criticizing such results

Free Consent

Where the consent of one party or the other has been induced by coercion, undue influence, misrepresentation or fraud or where both parties were consenting under a mistake of about an essential fact, the resulting contract would be voidable at the option - of the insurer under section 45 of the Insurance Act 1938 within the limits provided in the said section.

Where a 56 years old man got himself insured and died within 2 years of heart ailment. The life insurance corporation refused to pay on the ground that he suffered from diabetes and he did not disclose it, but the family doctor produced by the LIC as a witness could not give any information about the family, it was held that fraud was not proved. The court said that the insurance of a man of that age carried its own risks and the LIC had accepted with its eyes wide open.3

Where a motor vehicle insurance policy was issued after due verification about the ownership of the vehicle, the company was not allowed, after an accident take place, the plea that the policy was obtained by a misrepresentation and that the claimant was not the owner of the vehicle.

Where false answers as to the state of health were given in a proposed for life insurance, the policy was held to be voidable and it was not material that the medical officer of the corporation had certified the life assured as good.4 Where a person got his motor vehicle insured in the evening of the day on the morning of which the vehicle had met with an accident, the policy was held to be enforce, the duty of the insurer to check the vehicle notwithstanding.

Insurable Interest

For an insurance contract to be valid, the insured must possess an insurable interest in the subject matter of insurance.
The insurable interest is the pecuniary interest whereby the policy-holder is benefited by the existence of the subject-matter and is prejudiced death or damage of the subject- matter.

The essentials of a valid insurable interest are the following:

  • There must be a subject-matter to be insured.
  • The policy-holder should have a monetary relationship with the subject-matter.
  • The relationship between the policy-holders and the subject-matter should be recognized by law. In other words, there should not be any illegal relationship between the policy-holder and the subject-matter to be insured.
  • The financial relationship between the policy-holder and subject-matter should be such that the policy-holder is economically benefited by the survival or existence of the subject-matter and or will suffer economic loss at the death or existence of the subject matter.
  • The subject-matter is life in the life insurance, property, and goods in property insurance, liability, and adventure in general insurance.
Insurable interest is essentially a pecuniary interest, i.e., the loss caused by fire happening of the insured risk must be capable of financial valuation. No emotional or sentimental loss, as an expectation or anxiety, would be the ground of the insurable interest. The event insured should be one that if it happens, the party suffers financially and if it does not happen, the party is benefited by the existence.

But a mere hope or expectation, which may be frustrated by the happening to some extent, is not an insurable interest.

Utmost Good Faith

  • The doctrine of disclosing all material facts is embodied in the important principle utmost good faith which applies to all forms of insurance.
  • Both parties to the insurance contract must agree (ad idem) at the time of the contract. There should not be any misrepresentation, non-disclosure or fraud concerning the material.
  • In case of insurance contract the legal maxim Caveat Emptor (let the buyer beware) docs not prevail, where it is the regard of the buyer to satisfy himself of the genuineness of the subject-matter and the seller is under no obligation to supply information about it.
  • But in the insurance contract, the seller, i.e., the insurer will also have to disclose all the material facts.
  • An insurance contract is a contract of uberrimae fidei, i.e., of absolute good faith both parties to the contract must disclose all the material facts and fully.

Principle of Indemnity

As a rule, all insurance contracts except personal insurance are contracts of indemnity.

According to this principle, the insurer undertakes to put the insured, in the event of loss, in the same position that he occupied immediately before the happening of the event insured against, in a certain form of insurance, the principle of indemnity is modified to apply.

For example: in marine or fire insurance, sometimes, a certain profit margin which would have earned in the absence of the event, is also included in the loss. In a true sense of the indemnity, the insured is not entitled to make a profit from his loss.

To discourse over insurance the principle of indemnifying it an essential feature of an insurance contract, in the absence of which this industry would have the hue of gambling, and the insured would tend to affect over-insurance and then intentionally cause a loss to occur so that a financial gain could be achieved.

So, to avoid this international loss, only the actual loss becomes payable and not the assured sum (which is higher in over-insurance). If the property is under-insured, i.e., the insured amount is less than the actual value of the property insured, the insured is regarded his insurer for the amount if under insurance and in case of loss one shall share the loss himself.

To avoid an Anti-social Act; if the assured is allowed to gain more than the actual loss, which is against the principle of indemnity, he will be tempted to gain by the destruction of his property after getting it insured against risk. He will be under constant temptation to destroy the property.

Thus, the whole society will be doing only anti-social acts, i.e., the persons would be interested in gaining after the destruction of the property. So, the principle of indemnity has been applied where only the cash-value of his loss and nothing more than this, though he might have insured for a greater amount, will be compensated.

To maintain the Premium at Low-level; if the principle of indemnity is not applied, the larger amount will be paid for a smaller loss, and this will increase the cost of insurance, and the premium of insurance will have to be raised. If the premium is raised two things may happen first, persons may not be inclined to ensure and second, unscrupulous persons would get insurance to destroy the property to gain from such an act. Both things would defeat the purpose of insurance. So, a principle of indemnity is here to help them because such temptation’ is eliminated when only actual loss and not more than the actual financial loss is compensated provided there is insurance up to that amount.

Conditions For Indemnity Principle

The following conditions should be fulfilled in full application of the principle of indemnity.
  • The insured has to prove that he will suffer a loss on the insured matter at the time of happening the event and the loss is an actual monetary loss.
  • The amount of compensation will be the amount of insurance. Indemnification cannot be more than the amount insured.
  • If the insured gets more amount than the actual loss, the insurer has the right to get the extra amount back.
  • If the insured gets some amount from the third party after being fully indemnified by the insurer, the insurer will have the right to receive alt the amount paid by the third party.
  • The principle of indemnity does not apply to personal insurance because the amount of loss is not easily calculable there.

Doctrine of Subrogation

The doctrine of subrogation refers to the right of the insurer to stand in the place of the insured, after the settlement of a claim, in so far as the insured’s right of recovery from an alternative source is involved.

If the insured is in a position to recover the loss in full or in part from a third party due to whose negligence the loss may have been precipitated, his right of recovery is subrogated to the insurer on the settlement of the claim.

The insurers, after that, recover the claim from the third party. The right of subrogation may be exercised by the insurer before payment of loss.

Essentials of Doctrine of Subrogation

A corollary to the Principle of Indemnity
The doctrine of subrogation is the supplementary principle of indemnity.
The latter doctrine says that only the actual value of the loss of the property is compensated, so the former follows that if the damaged property has any value left or any right against a third party the insurer can subrogate the left property or right of the property because if the insured is allowed to retain, he shall have realized more than the actual loss, which is contrary to principle of indemnity.

Subrogation is the Substitution
The insurer, according to this principle, becomes entitled to all the rights of insured subject matter after payment because he has paid the actual loss of the property.
He is substituted in place of other persons who act on the right and claim of the property, insured.

Subrogation only up to the amount, of payment
The insurer is subrogated all the rights, claims, remedies and securities’ of the damaged insured property after indemnification, but he is entitled to gel these benefits only to the extent of his payment.

The insurer is, thus, subrogated to the alternative rights and remedies of the insured, only up to the amount of his payment to the insured.
In the same way, if die insured is compensated for his loss from another party after he has been indemnified by his insurer he is liable to part with the compensation up to the extent that the insurer is entitled to.

In one U.S. case it was made clear if the insurer, having paid the claim to the insured, recovers from the defaulting third party in excess of the amount paid under the policy, he has to pay this excess to the insured though he may charge the insured his share of reasonable expenses incurred in collecting.

The Subrogation may be applied before Payment
If the assured got certain compensation, from the third party before being fully indemnified by the insurer, the insurer could pay only the balance of the loss.

Personal Insurance

The doctrine of subrogation does riot apply to personal insurance because the doctrine of indemnity does not apply to such insurance. The insurers have no right of action against the third party in respect of the damage.

For example, if an insured dies due to. the negligence of a third party his dependent has the right to recover the amount of the loss from the third party along with the policy amount No amount of the policy would be subrogated by the insurer.

Warranties

There are certain conditions and promises in the insurance contract which are called warranties.

According to Marine Insurance Act, A warranty is that by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.

Warranties that are mentioned in the policy are called express warranties. Certain warranties are not mentioned in the policy.

These warranties are called implied warranties. Warranties which are answers to the question arc called affirmative warranties. The warranties fulfilling certain conditions or promises are called promissory warranties.

Warranty is a very important condition in the insurance contract which is to be fulfilled by the insured. On the breach of warranty, the insurer becomes free from his liability.
Therefore insured must have to fulfill the conditions and promises of the insurance contract whether it is important or not in connection with the risk. The contract can continue only when warranties are fulfilled.

If warranties are riot followed, the contract may be canceled by the other party whether the risk has occurred or not or the loss has occurred due to other reasons than the waiving of warranties.

However, when the warrant is declared illegal, and there is no reverse effect on the contract, the warranty can be waived.

Proximate Cause

The rule; is that immediate and not the remote cause is to be regarded. The maxim is sed causa proximo non-remold-spectator; see the proximate cause and not, the distant cause.
The real cause must be seen while payment of the loss. If the real cause of loss is insured, the insurer is liable to compensate for the loss; otherwise, the insurer may not be responsible for a loss.

Proximate cause is not a device to avoid the trouble of discovering the real ease or the common sense cause.

Proximate cause means the actual efficient cause that sets in motion a train of events which brings about result, without the intervention of any force started and worked actively from a new and independent source.

The determination of real cause depends upon the working and practice of insurance and circumstances to losses. A loss may not be occasioned merely by one event.

There may be concurrent causes or chain of causes. They may occur in a sequence or broken chain. Sometimes, certain causes arc excepted by (the insurance contract and the insurer is not liable for the accepted peril.

The efficient cause of a loss is called the proximate cause of the loss.

For the policy to cover the loss must have an insured peril as the proximate cause of the loss or also the insured peril must occur in the chain of causation that links the proximate cause with the loss.

The proximate cause is not necessarily, the cause that was nearest to the damage either in time or place but is rather the cause that was responsible for the loss.

Determination of Proximate Cause

If there is a single cause of the loss, the cause will be the proximate cause, and further, if the peril (cause of loss) was insured, the insurer will have to repay the loss.If there are concurrent causes, the insured perils and excepted perils have to be segregated. The concurrent causes may be first, separable and second, inseparable. Separable causes are those which can be separated from each other. The loss occurred due to a particular cause may be distinguishing known. In such a case if any cause, is excepted peril, the insurer will have to pay up to the extent of loss which occurred due to insured perils. If the circumstances are such that the perils are inseparable, then the insurers are not liable at all when there exists any excepted peril.
If the causes occurred in the form of the chain, they have to be observed seriously.

If there is an unbroken chain, the excepted and insured peril has to be separated. If an excepted peril precedes the operation of the insured peril so that the loss caused by the latter is the direct and natural consequence of the excepted peril, there is no liability. If the insured peril is followed by an excepted peril, there is a valid liability.

If there is a broken chain of events with no excepted peril involved, it is possible to separate the losses. The insurer is liable only for that loss caused by an insured peril; where there is an excepted peril, the subsequent loss caused by an insured peril will be a new and indirect cause because of the interruption in the chain of events. The insurer will be liable for the loss caused by insured peril which can be easily segregated. Similarly, if the loss occurs by an insured peril and there is, subsequently loss by an excepted peril, the insurer will be liable for loss occurred due to the insured peril.

In brief, if the happening of an excepted peril is followed by the occurrence of an insured peril, as a new and independent cause there is a valid claim. If an insured peril is followed by the happening of an excepted peril, as a new and independent cause, there is a claim excluding loss or damage; caused by the excepted peril.

Assignment Or Transfer of Interest

It is necessary to distinguish between the assignment of (a) the subject-matter of insurance, (b) the policy, and (c) the policy money when payable.Marine and life policies can be freely assigned but assignments under fire and accident policies, are not valid without the prior consent of the insurers—except changes of interest by will or operation of law.

Moreover, assignments under fire and accident policies must be made before tine insured parts with his, interest. Once he has lost interest, the policy is void and cannot be assigned.
The life policies can be assigned whether the assignee has an insurable interest or not.

Life policies are frequently charged, assigned or otherwise dealt with, for they are valuable securities. The marine policy is freely assignable unless it contains terms expressly prohibiting assignment.

It assigned either before or after a loss. A marine policy may be assigned by endorsement thereon or in another customary manner.

In practice, a marine cargo policy is frequently endorsed in blank and becomes in effect a quasi-negotiable instrument.

Thus, it will be appreciated, adds considerably to the convenience of mercantile transactions as the policy can be negotiated through a bank along with other documents of title.

Assignment in fire insurance cannot be recognized without the prior consent of the insurer, change of interest in fire policies (unless by will or operation of law) are not valid unless and until the consent of the insurer has been given.

The fire policies are not like an assignment nor intended to be assigned from one person to another without the consent of the insurer. Assignment in fire insurance constitutes a new contract.

Return of Premium
Ordinarily, the premium once paid cannot be refunded. However, in the following cases, the refund is allowed.By Agreement in the Policy
The assured may pay a full premium while affecting the insurance but it may be agreed to return it wholly or partly in the happening of certain events. For example, special packing may reduce risk.

For Reasons of Equity
Non-attachment of risk: Where the subject-matter insured or part thereof, has never ten imperiled, for example, term insurance with returnable premium where the premium is returned to the policy-holder if death does not occur during the period of insurance.

The undeclared balance of on open policy: The policy may be canceled and premium may be returned for short interest allowed provided there was no further interest in the policy.
The payment of Premium is apportionable. The apportioned part of -the consideration is refundable when a part of policy interest is not involved. For example, insurance may be taken for a voyage in stages, each stage being rated separately. In such a case if some stages are not completed the premium relating to the incomplete stage is returnable.

Where the assured has no insurable interest throughout the currency of the risk, the premium is returnable provided the policy was not attached by way of wagering.
Unreasonable delay in commencing the voyage may also entitle the insurer to cancel the insurance by returning the premium.
Where the assured has over-insured under an unvalued policy a proportionate part of the premium is returnable.

Over-insurance by Double Insurance
If there is over-insurance by double insurance, a proportionate part of the several premiums is returnable provided that if the policies are taken at different times and any earlier policy has at any time born the entire risk or if a claim has been paid.On the policy in respect of the foil insured thereby, no premium is returnable in respect of that policy and when double insurance is affected knowingly by the assured no premium is returnable.

Relationship between Contract of Indemnity and Contract of Insurance.
Indemnity in insurance compensates the beneficiaries of the policies for their actual economic losses, up to the limiting amount of the insurance policy. It generally requires the insured to prove the amount of its loss before it can recover.

Recovery is limited to the amount of the provable loss even if the face amount of the policy is higher. This is in contrast to, for example, life insurance, where the amount of the beneficiary's economic loss is irrelevant. The death of the person whose life is insured for reasons not excluded from the policy obligate the insurer to pay the entire policy amount to the beneficiary.

Most business interruption insurance policies contain an Extended Period of Indemnity Endorsement, which extends coverage beyond the time that it takes to physically restore the property. This provision covers additional expenses that allow the business to return to prosperity and help the business restore revenues to pre-loss levels.

Position in India-
It has been noted above that section-124 recognizes only such contract as a contract of indemnity where there is a promise to save another person from loss which may be caused by the conduct of the promisor himself or by conduct of any other person. It does not cover a promise to compensate for loss not arising due to human agency. Therefore, a contract of insurance is not covered by the definition of section-124.

Thus, if under a contract of insurance, an insurer promises to pay compensation in the event of loss by fire, such a contract does not come within the purview of section-124. Such contracts are valid contracts, as being contingent contracts as defined in section-31.

In United India Insurance Co. vs. M/s. Aman Singh Munshilal. The cover note stipulated delivery to the consigner. Moreover, on its way to the destination the goods were to be stored ina godown and thereafter to be carried to the destination. While the goods were in the godown, the goods were destroyed by fire. It was held that the goods were destroyed during transit, and the insurer was liable as per the insurance contract.

According to section 124 of the Indian Contract Act, a contract of indemnity means, a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person.

A contract where one party promises to save other from loss which may be caused, either
  1. By the conduct of promisor himself
  2. Or by the conduct of any other person
Definition given in Sec. 124 is very narrow. It includes only:
  1. express promises to indemnify, and
  2. the loss caused by the conduct of the promisor or any other person.
However, it does not include:
  1. implied promises to indemnify, and
  2. loss caused by accidents and events not dependent upon the conduct of the promisor or any other person.
Section 124 does not cover a promise to compensate for loss not arising due to human agency [Gajanan Moreswar vs. Moreswar Madan]. Therefore, strictly speaking, contracts of insurance cannot be included in the definition.

In the case of New India Assurance Company Ltd. Vs Kusumanchi Kameshwra Rao & Others, 1997, court held that a Contract of indemnity is a direct engagement between two parties thereby one promises to save the other harm. It does not deal with those classes of cases where the indemnity arises from loss caused by events or accidents which do not or may not depend on the conduct of indemnifier or any other person.

Thus, if under a contract for insurance, an insurer promises to pay compensation in the event of loss by fire, such a contract does not come within the purview of section 124. Such a contract is valid contract as being contingent contract as defined in section 31.

However, it was not the intention of the legislature, as it has been held by Justice M.C. Chagla that:
Sections 124 and 125 of the Contract Act are not exhaustive of the law of indemnity and the Courts here would apply the same equitable principles that the Courts in England do." Ganjanan Moreshwar v. Moreshwar Madan

Position in England
Under English law, the word indemnity carries a much wider meaning than given to it under the Indian Contract Act. It includes a contract to save the promise from a loss, whether it be caused by human agency or any other event like an accident and fire. English Law has given a comprehensive definition which is as follows: "A promise to save another harmless from loss caused as a result of a transaction entered into at the instance of the promisor."

Under English law, a contract of insurance (other than life insurance) is a contract of indemnity. Life Insurance contract is, however, not a contract of indemnity, because in such a contract different considerations apply.

A contract of life insurance, for instance, may provide the payment of a certain sum of money either on the death of a person, or on the expiry of a stipulated period of time (even if the assured is still alive). In such a case, the question of amount of loss suffered by the assured, or indemnity for the same, does not arise. Moreover, even if a certain sum is payable in the event of death, since, unlike property, the life of a person cannot be valued, the whole of the amount assured becomes payable. For that reason also, it is not a contract of indemnity.

From the above definition it would be seen that it covers the loss caused by accidents and events not depending upon the conduct of any person. Thus it is much wider in its scope and as such, Indian Courts apply and definition given by England Law to Indian cases.

Conclusion
Indian Contract Act does not specifically provide that there can be an implied contract of indemnity. The Privy Council has, however, recognized an implied contract of indemnity also Secretary of State vs. The Bank of India Ltd.

The Law Commission of India in its Report (13th Report, 1958, on Indian Contract Act, 1872) has recommended the amendment of section 124. According to its recommendation, the definition of the Contract of Indemnity in section 124 be expanded to include cases of loss caused by events which may or may not depend upon the conduct of any person. It should also provide clearly that the promise may also be implied.

To conclude, logically it is also true that indemnity has been embedded in the concept of insurance and as well as concept of guarantee. Insurance and Guarantee are the species of a same genus .i.e., indemnity or in other words the contract of insurance and the contract of Guarantee are the development on contract of indemnity.

As Brett LJ Observed:
Every contract of marine or fire insurance is a contract of indemnity and of indemnity only, the meaning of which is that the assured in case of a loss is to receive a full indemnity, but is never to receive more. Every rule of insurance law is adopted in order to carry out this fundamental rule, and if any proposition is brought forward, the effect of which is opposed to this fundamental rule, it will found to be wrong.

There are many propositions bearing o the question, and many rules may be glanced at which are well known as insurance law. The doctrine in marine insurance law of constructive total loss is adopted solely in order to carry out the fundamental rule.

It is a doctrine which is in favour of the assured, because where the loss is not an actual total loss, this rule is adopted to carry out the fundamental doctrine came cover the doctrine of abandonment, which is only applicable in favour of the underwriters, so that they may have these two doctrines were introduced in order to carry out the two limits at the fundamental doctrine, namely, that the assured shall get a full indemnity, and that he shall get a full indemnity, and that he shall not get no more. Every contract of Insurance, except life assurance, is a contract of indemnity and no more than an indemnity.

In United India Insurance co. v M/S Aman Singh Munshilal, the cover note stipulated delivery to the consigner. Moreover, on its way to the destination the goods were to be stored in a godown and therefore to be carried to the destination. While the goods were in the godown, the goods were destroyed by fire. It was held that the goods were destroyed during transit and the insurer was liable as per the insurance contract.

Under English Law, the word indemnity carries a much wider meaning than given to it under the Indian Contract Act. It includes a contract to save the promise from a loss, whether it be caused human agency or any other event like an accident and fire. Under English law, a contract of insurance (other than life insurance) is a contract of indemnity. Life insurance contract is, however, not a contract of indemnity, because in such a contract different consideration apply.

A contract of life insurance, for instance, may provide the payment of a certain sum of money either on the death on a person or on the expiry of a stipulated period of time (even if the assured is still alive). In such a case, the question of amount of loss -suffered by the assured or indemnity for the same, does not arise. Moreover even if a certain sum is payable in the event of death, since, unlike property, the life of a person cannot be valued, the whole of the amount assured becomes payable. For that reason also, it is not a contract of indemnity.

Suggestion
Indian Contract Act does not specifically provide that there can be on implied contract of indemnity. The Privy Council has, however, recognized an implied contract of indemnity also (Secretary of State v The Bank of India Ltd.) The Law Commission of India in its report (13th report, 1958, on Indian Contract Act, 1872) has recommended, the amendment of the section, 124. According to its recommendation, the definition of the contract of indemnity in Section 124 be expended to include cases of loss caused by events which may or may not depend upon the conduct of any person.

It should also provide clearly that the promise may also be implied. of the law of contract to be applied by the Courts in India or even any particular sub-division thereof. The Act of 1872 does not profess to be a complete code dealing with the law relating to contracts.

The legislature, while enacting this Act, did not intend to exclusively codify the whole Thus, it has been held that section 124 and 125 of the Act do not lay down the whole of law of indemnity. As a result, on all matters on which it is silent, the courts have had to resort to title rules of English Common Law, as principles of justice, equity and good conscience. I am of the opinion that this reliance on the principles of English law to supply the deficiencies of an Indian enactment is not conducive to certain or simplicity of the law.

I think it is preferable to add to the Act the English Common law principles which have been applied by our Courts for nearly a century, so that it may not be necessary to refer to the English Law in many cases.The formulation of these Principles is thus one of the objects of the revision undertaken by me.

List of Cases:
  • Gajanan Moreshwar Parelkar vs Moreshwar Madan Mantri on 1 April, 1942.Equivalent citations: (1942) 44 BOMLR 703.
  • State Bank of India and another vs. Mula Sahkari Sakhar Karkhana Ltd CASE NO.: Appeal (civil) 2801 of 2006
  • Hindustan cooperative Insurance society V Shyam Sunder AIR 1952 Cal 691, 56 CWN 418
  • United India Insurance Co. vs. M/s. Aman Singh Munshilal AIR 1994 P H 206, 1996 85 CompCas 644 P H, (1994) 107 PLR 293
  • New India Assurance Company Ltd. Vs Kusumanchi Kameshwra Rao & Others Date of Judgement 28 November, 1996
  • Secretary of State vs. The Bank of India Ltd. A.I.R. 1938 P.C. 191
Bibliography
List of Books
  • Bangia R.K , Indian Contract Act 1872, Edition-2009 Allahabad law Agency
  • Myneni S.R, Law Of Insurance, Edition-2010 Asia Law House
List of Journal
  • Ram Gopal, Contract Of Insurance And Contract Of Indemnity: A Study In Indian Scenario ,International Research Journal Of Management Sociology & Humanity ( IRJMSH ), Vol 7 Issue 5 [Year 2016] ISSN 2277 – 9809
List of Websites And Articles:
  • Relation between Indemnity and Insurance whether insurance contracts are contracts of indemnity By npradhan at legalserviceindia.com
  • Insurance Contract: Elements and Clauses Insurance Contract available at https://iedunote.com/insurance-contract
  • Contract of Indemnity - Meaning, Objective and Essentials available at https://legodesk.com/legopedia/contract-of-indemnity/
  • Essentials or features of a contract of indemnity available at http://bmc-notes.blogspot.com/2009/05/essentials-or-features-of-contract-of.html
  • Notes on Essential Elements and Principles of Insurance Available at https://www.kullabs.com/classes/subjects/units/lessons/notes/note-detail/4332
  • Extent of Indemnity in Insurance Claims By praveen kumar at legalservicesindia.com
  • Insuranceopedia - What are the Elements of an Insurance Contract? – Available at https://www.insuranceopedia.com/definition/1679/elements-of-an-insurance-contract

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