KSLU Solved Question Papers
Insurance Law
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 8
2019 Jun Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 8 Insurance Law 2019 Jun 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 2019 Jun examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2019 Jun 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.
Q1Define contract of insurance and discuss the nature and scope of contract of insurance.[16]
Answer
For full marks, cover: the definitions (Explanation to section 2(6D) of the Insurance Act, 1938, from 5 February 2026; Channell J. in Prudential; the illustration to section 31 of the Indian Contract Act, 1872); the nature of the contract, feature by feature: a valid contract (section 10), contingent (sections 31 and 32), aleatory, utmost good faith, insurable interest, indemnity or fixed benefit, premium in advance (section 64VB; Deddappa), personal (Rayner v. Preston), a standard form read strictly but fairly (Harchand Rai, Texco Marketing), and a regulated contract; the scope of insurance: the statutory classes, the subjects insured, credit and financial risks (Export Credit Guarantee Corporation), social insurance, and the 2026 power to notify new forms; what lies outside (wagers; Medical Defence Union); a table.
Definition
The statutory definition. Since 5 February 2026, the Explanation to section 2(6D) of the Insurance Act, 1938 defines an "insurance contract". It is "the contract whereby the insurer, on payment of premium, undertakes to assume risk and to pay to the insured person an agreed compensation for loss, damage or liability arising from a contingent event". The terms, conditions and limits are as agreed.
The judicial definition. In Prudential Insurance Co. v. Commissioners of Inland Revenue, [1904] 2 KB 658, the court had to decide, for stamp duty, whether certain documents were policies. Channell J. said a contract of insurance has three marks. There is a payment of money or a benefit on an event. The event involves uncertainty. And it is adverse to the interest of the insured.
The Contract Act's illustration. Section 31 of the Indian Contract Act, 1872 gives insurance as its example of a contingent contract: "A contracts to pay B Rs. 10,000 if B's house is burnt."
Nature of the contract
- A valid contract. It needs offer and acceptance, free consent, competent parties, lawful consideration and a lawful object (section 10). The proposal is usually the offer; the premium is the consideration.
- Contingent. The insurer's promise depends on an uncertain event, and can be enforced only after it happens (sections 31 and 32).
- Aleatory. The values exchanged are unequal by design. One insured may pay a small premium and receive a large sum, another may pay for years and receive nothing. Pooling makes this fair across the whole group.
- Utmost good faith. Each party must disclose all material facts it knows. The proposer knows most about the risk, so the duty presses hardest on him.
- Insurable interest. The insured must stand to lose by the event. Otherwise the agreement is a wager, void under section 30 of the Contract Act.
- Indemnity or fixed benefit. Property and liability insurance repays the actual loss and no more. Life and fixed-sum accident policies pay an agreed sum.
- Premium in advance. No insurer may assume a risk until the premium is received (section 64VB of the Insurance Act).
- Personal. The contract insures a person, not a thing.
- A standard form. The insurer drafts the terms and the customer can only take or leave them.
- A regulated contract. Only a registered insurer may offer it (section 3), and the regulator controls its products and terms.
Premium in advance in practice. In Deddappa v. Branch Manager, National Insurance Co. Ltd., (2008) 2 SCC 595, the owner's premium cheque bounced. The insurer cancelled the policy and told the owner and the transport office before the accident. The Supreme Court held the insurer not liable on the policy. Without premium there is no cover.
Personal, not attached to property. In Rayner v. Preston, (1881) 18 Ch D 1, a house was damaged by fire after a contract of sale, and the vendor's insurer paid him. The Court of Appeal held, James L.J. dissenting, that the buyer had no claim to that money. The policy was the vendor's personal contract.
A standard form, read strictly but fairly. In United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, (2004) 8 SCC 644, a burglary policy defined burglary as entry by force or violence. Bags of gwar were stolen from a godown without force. The Supreme Court held the loss outside the policy: a court may not add to or subtract from its words. But in M/s Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Co. Ltd., 2022 INSC 1184, the Court called the policy a contract of adhesion. An insurer that knowingly insured a basement shop could not use a basement exclusion to defeat the very risk it had accepted.
Scope of insurance
- The statutory classes. Life, general (fire, marine and miscellaneous), health and re-insurance business (section 2(5A)), with registration class by class.
- The subjects insured. The person (life, health, accident), property (fire, marine, motor, burglary, engineering, crops and cattle) and liability (motor third party, public liability, professional indemnity).
- Financial risks. Credit, guarantee and export risks are also insurable.
- Social insurance. The State uses insurance for welfare, through crop insurance, accident and life schemes, and employees' state insurance.
- New forms. Since 2026, section 2(6D) lets the Central Government notify other forms of contract as insurance business, in consultation with the Authority.
Export Credit Guarantee Corporation v. Garg Sons International, (2014) 1 SCC 686, shows insurance reaching a purely financial risk. An exporter's policy covered default by its United Kingdom buyer. The policy required overdue payments to be declared by a fixed date each month, and the exporter declared late. The Supreme Court enforced the condition strictly and allowed only the two claims declared in time. Even in credit insurance, the scope of cover is the scope the terms define.
What lies outside. A bet on an event in which one has no interest is a wager, not insurance. A mere discretion to help is not insurance either. In Medical Defence Union Ltd. v. Department of Trade, [1980] Ch 82, members could only ask for help if sued, and the Union could refuse. Without an enforceable right to a benefit, there was no contract of insurance. Nor is a promise to pay for a loss that is certain to happen, such as ordinary wear and tear, insurance. There is no uncertainty, so there is no risk to transfer.
Limits on the insurer's freedom
The nature of the contract also limits the insurer. Three limits stand out.
- Life policies become unquestionable. Under section 45 of the Insurance Act, 1938, no life policy can be called in question "on any ground whatsoever" after three years. The three years run from the date of the policy, commencement of risk, revival or rider, whichever is later. Within three years the insurer may question it only for fraud or for a material misstatement, and must give its grounds in writing.
- Good faith binds the insurer too. It must explain its terms, settle claims fairly and not rely on a term it never disclosed (Texco Marketing).
- Policyholder protection by regulation. The Authority fixes free look periods, claim timelines and interest for delay. So much of the modern insurance contract is shaped by regulation rather than by bargaining alone.
These limits show that insurance, though a private contract, carries public duties. The insured is usually the weaker party, and the law corrects the balance.
| Feature | Ordinary contract | Contract of insurance |
|---|---|---|
| Disclosure | No general duty | Utmost good faith |
| Interest | Not required | Insurable interest, or a void wager |
| Performance | When agreed | Only on the contingent event |
| Measure | What was promised | Actual loss, or the agreed sum in life |
| Form | Negotiated | Standard form drafted by the insurer |
| Payment | May be on credit | Premium in advance (section 64VB) |
Conclusion. A contract of insurance is one by which the insurer, for a premium, assumes a risk (section 2(6D); Prudential). It agrees to compensate loss, damage or liability from a contingent event. In nature it is a contingent, aleatory, personal contract of utmost good faith, needing insurable interest and premium in advance. Its standard terms are enforced as written but read fairly (Harchand Rai; Texco Marketing). Its scope spans life, property, liability, health, credit and social insurance (Export Credit Guarantee Corporation), and since 2026 any further form the Government notifies.
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