B.A. LL.B. (Five Years) Sem 8 Insurance Law 2013 Jun Question Paper with Solutions

For full marks, cover: the definition, judicial (Prudential) and statutory (Explanation to section 2(6D) of the Insurance Act, 1938, from 5 February 2026); Part I, the elements every contract needs (section 10 of the Indian Contract Act, 1872): agreement by proposal and acceptance (Vasireddy Komalavalli Kamba), consideration in the premium (section 64VB; Seema Malhotra), competent parties (section 11; a registered insurer, sections 2C and 3), free consent, lawful object and not a wager (sections 23, 30); Part II, the elements special to insurance: an insured risk, uncertain and adverse; insurable interest (Lucena v. Craufurd); utmost good faith (Mithoolal Nayak); indemnity, except in life (Castellain v. Preston), with subrogation and contribution; proximate cause (Leyland Shipping); the policy as written evidence; a table.

1. Agreement: proposal and acceptance

The proposal form is usually the offer, and the insurer's acceptance must be signified. In Life Insurance Corporation of India v. Raja Vasireddy Komalavalli Kamba, (1984) 2 SCC 719, the question was whether a life proposal had been accepted before the proposer died. The Supreme Court held that in insurance, silence does not mean consent. The insurer's keeping of the premium, or the preparation of a policy, is not acceptance. A binding contract arises only when acceptance is signified.

2. Consideration: the premium

The insured's consideration is the premium. The insurer's is its promise to pay. No insurer may assume any risk in India until the premium is received (section 64VB).

In National Insurance Co. Ltd. v. Seema Malhotra, (2001) 3 SCC 151, a premium cheque was dishonoured. The Supreme Court treated the contract as one of reciprocal promises. When the cheque is dishonoured, the insurer need not perform its promise, because an agreement without consideration is void.

6. An insured risk

There must be a risk: an event that is uncertain, either as to whether it will happen or when. It must be adverse to the insured (Prudential). A certain loss, such as ordinary wear and tear, cannot be insured.

7. Insurable interest

The insured must stand to gain from the safety of the subject and lose by its loss. In Lucena v. Craufurd, (1806) 2 B & P (NR) 269, statutory commissioners had insured Dutch ships captured at sea before they were condemned as prize. Lawrence J. defined insurable interest as a right in the property, or a right derived from a contract about it. Its loss must be capable of harming the holder. In property insurance the interest must exist at the time of loss. In life insurance it must exist when the policy is made.

10. Proximate cause

The insurer is liable only for loss whose dominant, effective cause is an insured peril. In Leyland Shipping Co. Ltd. v. Norwich Union Fire Insurance Society Ltd., [1918] AC 350, a torpedoed ship later sank outside Le Havre harbour. The House of Lords held the torpedo, an excluded war peril, to be the proximate cause, not the sea.

11. Mitigation of loss

Once a peril strikes, the insured must act as a prudent uninsured owner would, to avert or reduce the loss. Section 78(4) of the Marine Insurance Act, 1963 states the duty for marine insurance, and the same principle runs through property insurance. The reasonable cost of such steps is generally borne by the insurer.

12. A written policy

The terms are recorded in a policy, which is the evidence of the contract. A marine contract cannot even be admitted in evidence unless embodied in a policy (section 24 of the Marine Insurance Act, 1963).

Conclusion. A contract of insurance is an agreement by which the insurer, for a premium, assumes a risk (section 2(6D)). It promises compensation on an uncertain, adverse event (Prudential). As a contract it needs signified acceptance and premium as consideration (Vasireddy Komalavalli Kamba; Seema Malhotra). It also needs competent parties, free consent and a lawful object (sections 10, 23, 30). As insurance it also needs an insured risk, insurable interest and utmost good faith (Lucena v. Craufurd; Mithoolal Nayak). In property insurance it is indemnity, with subrogation and contribution (Castellain v. Preston). Losses are judged by their proximate cause (Leyland Shipping), and the terms are recorded in a policy.