KSLU Solved Question Papers
Insurance Law
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 8
2014 Dec Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 8 Insurance Law 2014 Dec Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2014 Dec examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2014 Dec examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1Explain the basic principles of Insurance contracts.[16]
Answer
For full marks, cover: why insurance needs its own principles (pooling of risk; a promise against an uncertain loss); the seven fundamental principles, each with its rule, statute and case: utmost good faith (Carter v. Boehm; sections 19 and 20 of the Marine Insurance Act, 1963), insurable interest (Lucena v. Craufurd; section 30 of the Indian Contract Act, 1872), indemnity (Castellain v. Preston), subrogation (section 79; Burnand, Simpson v. Thomson), contribution (section 80; the fire policy's condition 11; IRDAI's health rule), proximate cause (section 55(1); Leyland Shipping), and loss minimisation (section 78(4); Canada Rice Mills); which principles apply to life and which to general insurance; a table.
Why insurance needs its own principles
Insurance works by pooling: many people facing the same risk pay premiums into a fund, and the few who suffer losses are paid from it. For this to be fair and to last, three things must be true. The insurer must know the risk it accepts. No one must be able to gain from a loss. And the insurer must pay only for the losses it agreed to cover. The fundamental principles of insurance secure these three things.
1. Utmost good faith (uberrima fides)
Each party must disclose every material fact it knows, because the insurer cannot see the risk for itself. Under section 19 of the Marine Insurance Act, 1963, marine insurance "is a contract based upon the utmost good faith", and either party may avoid it if the other breaks it. Under section 20(2), a fact is material if it "would influence the judgment of a prudent insurer".
In Carter v. Boehm, (1766) 3 Burr 1905, the Governor of Fort Marlborough insured the fort against capture by a foreign enemy, knowing it was weak. Lord Mansfield explained that the insurer relies on the insured, who alone knows the special facts. But a fact the insurer ought to know need not be disclosed. The danger of a French attack was public knowledge, so the Governor won.
2. Insurable interest
The insured must stand to lose by the event. Without such an interest, insurance is a wager, void under section 30 of the Indian Contract Act, 1872. In Lucena v. Craufurd, (1806) 2 B & P (NR) 269, Lawrence J. said a person is interested in a thing if its loss would leave him financially worse off. In life insurance the interest must exist when the policy is made. In property insurance it must also exist at the time of loss.
3. Indemnity
In property and liability insurance, the insurer restores the insured to the position he was in before the loss, no better and no worse. In Castellain v. Preston, (1883) 11 QBD 380, a fire insurer paid a vendor for damage to a house he had contracted to sell. When the buyer paid the full price, the insurer recovered its payment, because the vendor had lost nothing. Brett L.J. said the assured shall "never be more than fully indemnified". Life and fixed-sum accident policies are not indemnities.
4. Subrogation
After paying for a loss, the insurer steps into the shoes of the insured. It may use his rights against a wrongdoer to recover what it paid. Section 79 of the 1963 Act gives this right for marine insurance. The fire policy's condition 12 makes the insured help the insurer exercise it.
The right has limits. In Burnand v. Rodocanachi Sons & Co., (1882) 7 App Cas 333, insurers paid for cargo destroyed by a Confederate cruiser in the American Civil War. The United States later paid the owners compensation expressly for the uninsured part of their loss. The House of Lords held the insurers could not claim it. In Simpson v. Thomson, (1877) 3 App Cas 279, two ships of the same owner collided. The insurer that paid on one could not sue for the other's negligence. Subrogation lets it sue only in the insured's name, and the owner could not sue himself.
5. Contribution
Where two or more policies cover the same loss, the insurers share it rateably. The insured recovers the loss only once. Under section 80 of the 1963 Act, each insurer contributes in proportion to its liability. One that pays more than its share may recover the excess from the others. The fire policy's condition 11 limits each insurer to its rateable proportion. For health indemnity policies, IRDAI's 2024 circular lets the insured choose the primary insurer, which then coordinates with the others.
6. Proximate cause (causa proxima)
The insurer pays only where an insured peril is the proximate, meaning dominant and effective, cause of the loss. Under section 55(1) of the 1963 Act, the insurer is liable for loss "proximately caused by a peril insured against". In Leyland Shipping Co. Ltd. v. Norwich Union Fire Insurance Society Ltd., [1918] AC 350, the Ikaria was torpedoed in 1915, towed into Le Havre, moved outside the breakwater and later sank. Her policy excluded war risks. The House of Lords held the torpedo, not the sea, was the proximate cause, so the insurer was not liable.
7. Loss minimisation
An insured must act as a prudent uninsured person would to prevent or reduce a loss. Section 78(4) says it is the duty of the assured "in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss". Reasonable expenses are recoverable under the suing and labouring clause.
A reasonable act to protect against a peril does not break the chain of causation. In Canada Rice Mills Ltd. v. Union Marine and General Insurance Co. Ltd., [1941] AC 55, the crew closed the ventilators to keep out heavy seas, and the rice heated. The Privy Council held the loss was caused by perils of the sea, because closing them was a reasonable precaution forced by the storm.
The principles at work: one example
A trader insures a consignment of spices worth Rs. 10 lakh twice over. Each of two insurers covers it for the full Rs. 10 lakh. He tells both insurers every material fact, including how the goods are packed. A collision at sea, caused by another ship's negligence, ruins half the cargo.
- Good faith. The packing is material to a cargo insurer, and he disclosed it. So neither insurer can avoid its policy. Had he hidden poor packing, either could avoid it (section 19).
- Insurable interest. As owner of the goods at the time of loss, the trader has the interest needed.
- Proximate cause. The collision, a peril of the sea, is the dominant cause, so the loss is covered.
- Indemnity and contribution. The loss is Rs. 5 lakh. The trader is over-insured by double insurance, but he recovers Rs. 5 lakh only once, not Rs. 10 lakh. Each insurer is liable for the whole loss under its own policy, so they share it equally, Rs. 2.5 lakh each (section 80).
- Subrogation. Having paid, the insurers may sue the negligent ship's owner in the trader's name.
- Loss minimisation. The trader must save and sell what he can of the damaged spices, and may recover the reasonable cost.
Which principles apply where
- Life insurance. Utmost good faith and insurable interest apply. Indemnity, subrogation and contribution do not, because the policy pays a fixed sum. Proximate cause matters mainly for exclusions such as suicide or war.
- General insurance. All seven apply, since fire, marine, motor and liability policies are contracts of indemnity.
| Principle | Rule | Authority | Life? |
|---|---|---|---|
| Utmost good faith | Disclose material facts | Sections 19, 20; Carter v. Boehm | Yes |
| Insurable interest | Must stand to lose | Section 30 Contract Act; Lucena | Yes, at start |
| Indemnity | Actual loss, no profit | Castellain v. Preston | No |
| Subrogation | Insurer takes insured's rights | Section 79; Burnand; Simpson | No |
| Contribution | Insurers share rateably | Section 80; condition 11 | No |
| Proximate cause | Dominant cause decides | Section 55(1); Leyland | Limited |
| Loss minimisation | Act as if uninsured | Section 78(4); Canada Rice Mills | Limited |
Conclusion. The fundamental principles make insurance a fair system of shared risk rather than a gamble. Utmost good faith and insurable interest govern the making of the contract (Carter v. Boehm; Lucena). Indemnity, with its corollaries of subrogation and contribution, prevents profit from a loss (Castellain v. Preston; Burnand). Proximate cause and loss minimisation decide which losses are paid and require the insured to limit them (Leyland Shipping; Canada Rice Mills). All seven apply to general insurance; life insurance rests mainly on the first two.
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