LLM Group 2 Business Law Law of Insurance 2024-25 Question Paper with Solutions

For full marks, cover: treat each principle as a decision procedure, that is, as a sequence of questions a court actually asks, which is what "analyse in detail" invites and what distinguishes this from a definition; for causa proxima the questions are what caused the loss, is that cause insured, is any concurrent cause excluded, and who must prove what; for uberrima fides they are was there a duty, was the fact material, does an exception apply, what is the remedy, and who bears the burden; give worked authorities at each step and close on the direction Indian law has taken.

Causa proxima as a decision procedure

The rule is statutory. Section 55(1) of the Marine Insurance Act, 1963 provides that, subject to the Act and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but is not liable for any loss which is not proximately caused by a peril insured against. Indian courts apply the rule to fire, accident and liability policies as well, because it is a rule of construction of the words "caused by" wherever they appear.

The test cuts both ways and two contrasting cases show it. Reischer v. Borwick, [1894] 2 QB 548: a vessel insured against collision but not against perils of the sea struck a snag and was holed; the hole was plugged and she was taken in tow, and while under tow the motion of the water washed out the plug and she sank. The Court of Appeal held the collision to be the proximate cause of the sinking, since the vessel had never ceased to be in the condition the collision produced. Pink v. Fleming, (1890) 25 QBD 396: fruit deteriorated after a collision because of the handling and delay involved in discharging and repairing, and the loss was held to be caused by delay, which the policy excluded, and not by the collision.

Question two: is the cause an insured peril? For marine cover this is answered by Rule 7 of the Schedule, which confines "perils of the seas" to fortuitous accidents or casualties of the seas and excludes the ordinary action of the winds and waves. Two decisions of 1887 mark the boundary and should always be given together. Hamilton, Fraser & Co. v. Pandorf & Co., (1887) 12 App Cas 518: rats gnawed a lead pipe on board, sea water entered and damaged a cargo of rice; the House of Lords held the incursion of sea water the proximate cause, the rats being merely remote, and the insurer liable.

Question three: is any concurrent cause excluded? Where two causes operate together and one is insured while the other is merely unmentioned, the insurer is liable. Where one is expressly excluded, the exclusion prevails: Wayne Tank and Pump Co. Ltd. v. Employers Liability Assurance Corporation Ltd., [1974] QB 57, a factory fire caused both by defective equipment supplied by the insured, within an exclusion, and by an employee leaving the plant switched on overnight, the Court of Appeal holding the insurer discharged.

Question four: does section 55(2) put the loss outside the cover in any event? Clause (a): the insurer is not liable for loss attributable to the wilful misconduct of the assured, but is liable for a loss proximately caused by an insured peril even though it would not have happened but for the misconduct or negligence of the master or crew, which is the whole doctrine in a sentence. Clause (b): not liable for loss proximately caused by delay, although the delay be caused by an insured peril. Clause (c): not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice, loss proximately caused by rats or vermin, or injury to machinery not proximately caused by maritime perils.

Uberrima fides as a decision procedure

The rule is again statutory. Section 19 of the Marine Insurance Act, 1963 provides that a contract of marine insurance is a contract based upon the utmost good faith, and that if the utmost good faith be not observed by either party, the contract may be avoided by the other party. The words "by either party" make the duty mutual, and Indian courts have begun to enforce the insurer's half of it: M/s Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Co. Ltd., 2022 INSC 1184, held an exclusion that would have swallowed the entire cover, and had never been shown to the insured, unenforceable and its sale an unfair trade practice. The Indian ancestor of that rule, and the case Texco builds on, is Modern Insulators Ltd. v. Oriental Insurance Co. Ltd., (2000) 2 SCC 734, decided on 22 February 2000.

Question one: why is there a duty at all? Because of the asymmetry of information, and the classic explanation is Lord Mansfield's in Carter v. Boehm, (1766) 3 Burr 1905. The Governor of Fort Marlborough in Sumatra insured the fort against being taken by a foreign enemy, knowing that it was built against native rather than European attack and that a French assault was expected. Lord Mansfield explained that insurance is a contract upon speculation; that the special facts on which the contingent chance is to be computed lie most commonly in the knowledge of the insured only; and that the underwriter trusts to his representation and proceeds on the confidence that he does not keep back any circumstance in his knowledge. The assured nevertheless succeeded, the London underwriter being taken to know the general state of colonial defences, and saying so shows that the case established a principle it did not apply.

Question four: what is the remedy? Avoidance, not damages. The duty is not a contractual promise, so its breach founds no action for damages; it entitles the innocent party to rescind, the contract being treated as never having existed and the premium ordinarily returned. Section 21 extends the duty to an agent effecting the insurance and section 22 governs representations, requiring a material representation to be substantially correct and treating a representation of expectation or belief as true if made in good faith.

Question five: who bears the burden, and this is where Indian law has moved. The starting point is Mithoolal Nayak v. Life Insurance Corporation of India, AIR 1962 SC 814, where the assured had been treated for a serious illness shortly before the proposal, denied it and died within months; repudiation was upheld, the Court requiring three conditions together, a statement on a material matter or a suppression of material facts, a suppression fraudulently made, and knowledge by the policyholder that it was false. Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175, is the high point of the strict view, holding the proposal form the foundation of the contract, the duty undiluted because an agent filled it in, and a specific question itself notice of materiality.

And Mahaveer Sharma v. Exide Life Insurance Co. Ltd., 2025 INSC 268, decided on 25 February 2025, is the decision to lead with for currency. The insured took a twenty five lakh rupee term policy on 9 June 2014 and died in an accident on 19 August 2015. The insurer repudiated because three subsisting Life Insurance Corporation policies had not been disclosed, only an Aviva policy having been mentioned and that recorded in the proposal as four lakh rupees when it in truth assured forty lakh. The Supreme Court, Nagarathna and Satish Chandra Sharma JJ., allowed the appeal and directed the insurer to release all benefits, holding that disclosure of the far larger Aviva policy was substantial disclosure, that the omission of smaller policies is not material where the insurer already has enough to gauge its risk, and that the burden of proving suppression of a material fact lies on the insurer.

Two practical differences follow and are worth stating. A causation defence requires the insurer to prove that the loss falls within an exception, once the insured has proved a loss by an insured peril; a non disclosure defence requires the insurer to prove materiality, knowledge and, in life insurance, fraud, and after three years section 45 forecloses it altogether. And a causation defence can never be waived, since it defines the cover, whereas a non disclosure may be waived by affirmation, and by section 20(3)(c) even the duty of disclosure may be waived by the insurer's own conduct in not asking.

Conclusion.

Causa proxima answers the question whether the loss that occurred is the loss insured, and section 55(1) of the Marine Insurance Act, 1963 confines the insurer to loss proximately caused by an insured peril. "Proximate" means dominant in efficiency and not nearest in time, as Leyland Shipping holds; Reischer v. Borwick and Pink v. Fleming show how fine the line is; Wayne Tank decides the case of concurrent causes by giving effect to an express exclusion; section 55(2) supplies the exclusions in which the doctrine actually decides disputes; and Gaunt fixes the burden of proof, which under an all risks policy requires the insured to prove only a fortuitous casualty.