LLM Group 2 Business Law Law of Insurance 2015 Question Paper with Solutions

For full marks, cover: a working legal definition of insurance rather than a business one, and the case that supplies it; the economic function that explains why the law tolerates a contract that looks like a wager; the four or five distinct needs insurance answers, each with an Indian illustration; the statutory classification, which is the one the examiner wants, taken from the Insurance Act, 1938 and not from a textbook list; then the analytical classifications that cut across it, indemnity against contingency and first party against third party; and a closing section on where Indian insurance actually stands, with the penetration figures and the reforms of 2025 and 2026.

The fourth mark, added by the later cases, is the pooling of risk. In Department of Trade and Industry v. St. Christopher Motorists Association Ltd., [1974] 1 WLR 99, an association promised members a chauffeur if they were disqualified from driving. The benefit was in kind, not money, yet Templeman J. held it was insurance, because the essence is the assumption of a risk by a person who spreads it over many. In Medical Defence Union Ltd. v. Department of Trade, [1980] Ch 82, by contrast, the member had no right to anything, only to have his request for assistance considered, and it was held not to be insurance for want of an enforceable benefit on a defined event.

The third need is the protection of third parties, and it is the reason insurance became compulsory. A victim run down by a lorry cannot be left to the solvency of the driver. Chapter XI of the Motor Vehicles Act, 1988 therefore makes third party cover compulsory by section 146, and section 150 imposes on the insurer a direct statutory duty to satisfy judgments obtained against the insured. The same logic produced the Public Liability Insurance Act, 1991, enacted after the Bhopal disaster and after M.C. Mehta v. Union of India, (1987) 1 SCC 395, the oleum gas leak case, in which the Supreme Court laid down absolute liability for hazardous enterprise and observed that the measure of compensation must be correlated to the magnitude and capacity of the enterprise.

The fourth need is social security in a country without a comprehensive welfare state. Life insurance and annuities substitute for a State pension; health insurance substitutes for a free health service. This is why the Life Insurance Corporation Act, 1956 nationalised life business with the object of spreading it to rural areas and to the socially and economically backward classes, and why the Government today runs Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana as mass low premium schemes.

Section 2(9) defines "insurer" and it is section 3 that requires registration. The scheme has always been that an insurer is registered class by class and that life and general business are kept apart, section 2C and the old section 3 preventing a composite. That segregation is now being dismantled. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 (Act 40 of 2025), which received assent on 20 December 2025 and came into force on 5 February 2026, amended section 6A(1) of the Insurance Act to replace the words "life insurance business or general insurance business or health insurance business or re-insurance business" with the single expression "insurance business", which is the enabling change for composite registration.

Reinsurance is a fifth statutory head and is insurance of the insurer. Section 11 of the Marine Insurance Act, 1963 recognises that the insurer under a contract of marine insurance has an insurable interest in his risk and may reinsure it, and section 101A of the Insurance Act, 1938 requires an Indian insurer to reinsure a prescribed percentage with the national reinsurer. The 2025 Act rewrote section 2C so that a foreign body corporate, including Lloyd's established under the Lloyd's Act, 1871 and any of its Members, may establish a branch in India for re-insurance exclusively, section 6(2) requiring a net owned fund of not less than one thousand crore rupees.

The indemnity distinction is the one that decides cases, and Dalby v. India and London Life Assurance Co., (1854) 15 CB 365, is where it was settled. An office had insured the life of the Duke of Cambridge, and by the time he died the interest that had supported the policy had ceased. The Court of Exchequer Chamber held the full sum payable, overruling Godsall v. Boldero, (1807) 9 East 72, and laying down that a life policy is not a contract of indemnity but a contract to pay a fixed sum on a defined event, so that interest need exist only at inception. The consequence runs through the whole subject: there is no subrogation and no contribution on a life policy, and a man may insure his own life for any sum he can pay for.

The compulsory class is where the policy yields to the statute, and the point is sharpest in motor insurance. In National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297, a three judge Bench held that a breach of the licensing condition does not automatically absolve the insurer as against the third party: the insurer must prove a wilful breach amounting to a fundamental breach, and even when it succeeds it must ordinarily pay the victim and recover from the insured. That "pay and recover" direction is the clearest demonstration that in the compulsory class the contract has been subordinated to a statutory scheme for the protection of strangers to it.

Two fiscal and structural changes since 2025 bear directly on the need for insurance. The 56th GST Council on 3 September 2025 exempted all individual life and health insurance premiums from goods and services tax, in force from 22 September 2025, removing the eighteen per cent charge that was widely blamed for suppressing retail demand, though group policies remain taxable. And the new section 3AA of the Insurance Act, 1938, inserted by the 2025 Act, permits foreign holdings in an Indian insurance company to extend to one hundred per cent of paid up equity capital, the last step in a progression from twenty six per cent in 1999 to forty nine in 2015 and seventy four in 2021.

Conclusion.

Insurance is needed because loss is certain in the aggregate and unpredictable in the individual case, and the law's contribution is to make the transfer of that risk enforceable. The need is not one need but five, running from the transfer of an unbearable loss through credit, the protection of third parties, social security and the mobilisation of long term savings, and the statute answers each of them differently. That is why the classification that matters is the statutory one in sections 2(6A), 2(6B), 2(6C), 2(11), 2(13A) and 2(13B) of the Insurance Act, 1938, which decides who may write what, rather than the textbook list of products.

For full marks, cover: the statutory home of each principle, because both are codified in the Marine Insurance Act, 1963 and an answer that treats them as judge made rules alone is incomplete; for causa proxima, that proximate means dominant and not nearest in time, and the case that established it; the excluded losses in section 55(2), which are where the doctrine actually bites; for uberrima fides, Lord Mansfield's reason for the rule and the modern test of materiality; the three way division of non disclosure, misrepresentation and warranty; the three year bar in section 45 of the Insurance Act, 1938 and the shift of the burden onto the insurer; and the 2025 decision that limits the doctrine.

"Proximate" means dominant or effective, not nearest in time, and the case that settled it is Leyland Shipping Co. Ltd. v. Norwich Union Fire Insurance Society Ltd., [1918] AC 350. The Ikaria was torpedoed by a German submarine off Le Havre in January 1915. She was towed into the outer harbour, and the port authorities, fearing she would sink at the quay and block the berth, ordered her to a berth outside the breakwater, where she took the ground at each ebb tide, broke her back and sank. The policy covered perils of the sea but excluded all consequences of hostilities. The insured argued that the proximate cause was the ranging of the seas at the outer berth. The House of Lords held that the torpedo remained the dominant and efficient cause throughout: the ship never ceased to be in the grip of the casualty. Lord Shaw's speech is the classic passage, that causation is not a chain but a net, and that the proximate cause is the one that is proximate in efficiency.

Where the doctrine actually bites: section 55(2)

The excluded losses in section 55(2) of the Marine Insurance Act, 1963 are where causa proxima decides real disputes, and they should be reproduced accurately. Clause (a) provides that the insurer is not liable for any loss attributable to the wilful misconduct of the assured, but that, unless the policy otherwise provides, he is liable for a loss proximately caused by a peril insured against even though the loss would not have happened but for the misconduct or negligence of the master or crew. That single clause contains the whole doctrine: the negligence of the crew is a "but for" cause and is disregarded; the peril of the sea is the proximate cause and is paid.

Clause (b) excludes any loss proximately caused by delay, although the delay be caused by a peril insured against, which is the statutory form of Pink v. Fleming. Clause (c) excludes ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter, loss proximately caused by rats or vermin, and injury to machinery not proximately caused by maritime perils.

Uberrima fides: the statutory rule and its reason

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. The words "by either party" matter and are usually missed: the duty is mutual, and an insurer who conceals a material fact, or who repudiates without disclosing his grounds, is himself in breach.

The reason for the rule was given by Lord Mansfield in Carter v. Boehm, (1766) 3 Burr 1905, and it is a reason about information and not about morality. The Governor of Fort Marlborough in Sumatra insured the fort against its being taken by a foreign enemy. He knew, and the London underwriter could not know, that the fort was weak and that a French attack was likely.

Section 20 supplies the test. The assured must disclose, before the contract is concluded, every material circumstance known to him, and is deemed to know every circumstance which in the ordinary course of business ought to be known to him. Section 20(2): a circumstance is material if it would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk. Section 20(3) lists what need not be disclosed in the absence of inquiry: a circumstance which diminishes the risk; one known or presumed known to the insurer, who is presumed to know matters of common notoriety and matters an insurer ought to know in the ordinary course of his business; one as to which information is waived; and one superfluous by reason of an express or implied warranty. Section 20(4): materiality is in each case a question of fact.

Life Insurance Corporation of India v. Asha Goel, (2001) 2 SCC 160, is the case that keeps the doctrine from swallowing the contract. The Supreme Court held that a repudiation cannot be sustained merely by pointing to an inaccurate answer: the insurer must establish that the statement was on a material matter or suppressed material facts, that it was fraudulently made, and that the assured knew it to be false. Where the alleged non disclosure is of a trivial or unconnected ailment, repudiation fails.

That approach was applied to health cover in Satwant Kaur Sandhu v. New India Assurance Co. Ltd., (2009) 8 SCC 316. A mediclaim proposal did not disclose that the insured suffered from chronic diabetes and renal failure; he died of renal failure. The Supreme Court upheld repudiation, holding that the proposal form is the basis of the contract, that "material fact" means any fact which would influence the judgment of a prudent insurer, and that in a contract uberrima fides the duty is on the proposer to disclose without being asked.

The statutory limit on the doctrine in life insurance is section 45 of the Insurance Act, 1938, as substituted by the Insurance Laws (Amendment) Act, 2015. No life policy may be called in question on any ground whatsoever after three years from the date of the policy, the date of commencement of risk, the date of revival or the date of a rider, whichever is later. Within three years it may be called in question on the ground of fraud, or of a misstatement or suppression of a material fact, and only if the insurer communicates in writing the grounds and materials on which the decision is based. Crucially, no insurer may repudiate for fraud if the beneficiary proves that the misstatement was true to the best of the insured's knowledge and belief or that there was no deliberate intention to suppress, and the section places the burden on the insurer.

Conclusion.

For full marks, cover: the statutory definition in section 2(11) of the Insurance Act, 1938, which is wider than "insurance on death"; the single proposition that governs the whole subject, that a life policy is not a contract of indemnity, and the case that decided it; the consequences that follow from it, on insurable interest, subrogation, contribution and valuation; the principles one by one, each with authority; the scope, meaning the kinds of policy and the statutory machinery of assignment, nomination and revival; the objects, distinguishing the individual's objects from the State's; and the current position after the 2015, 2021 and 2025 changes.

The proposition that governs everything else is that a contract of life insurance is not a contract of indemnity, and Dalby v. India and London Life Assurance Co., (1854) 15 CB 365, is where it was settled. The Anchor Life Assurance Company had granted four policies on the life of the Duke of Cambridge, totalling £3,000, to a Reverend Wright, and had reinsured £1,000 of that risk with the defendants; Wright's policies were afterwards cancelled, so Anchor's own interest in the Duke's life ceased, yet Anchor kept up the reinsurance premium until the Duke died, and Dalby sued on the reinsurance as Anchor's public officer.

The Court of Exchequer Chamber held the whole sum payable, overruling Godsall v. Boldero, (1807) 9 East 72, in which creditors of William Pitt had insured his life and, the debt having been paid by his executors, Lord Ellenborough had held the policy to be a contract of indemnity so that nothing was recoverable, and holding that the policy is a contract to pay a fixed sum on a defined event in consideration of premiums, so that once interest exists at the outset the contract is good and its later cessation is irrelevant.

The principles

The first principle is insurable interest, and its Indian content is largely judge made because the Insurance Act, 1938 does not define it. The classic definition is Lawrence J.'s in Lucena v. Craufurd, (1806) 2 B & P (NR) 269: an interest is a right in property, or a right derivable out of some contract about property, in either case losing which the party may be damnified. In life insurance the categories are settled by presumption and by proof. A person has an unlimited interest in his own life, and a spouse in the life of the other spouse; those are presumed. Beyond that the interest must be pecuniary and proved, as in the case of a creditor in the life of his debtor, limited to the amount of the debt with interest and premiums, or an employer in the life of a key employee.

The third principle is proximate cause, and in life insurance it operates only on the exclusions, because the ordinary life policy insures death from any cause. It matters for the suicide clause and for accident riders, where the question becomes whether death was proximately caused by an accident within Etherington v. Lancashire and Yorkshire Accident Insurance Co., [1909] 1 KB 591, in which a rider fell from his horse, lay in wet grass, contracted pneumonia and died, and the Court of Appeal held the accident was the proximate cause and the insurer liable.

The fourth principle is that the premium must be received before the risk attaches. Section 64VB of the Insurance Act, 1938 provides that no insurer shall assume any risk in India unless and until the premium payable is received or is guaranteed to be paid in the prescribed manner. It is the reason a proposal accompanied by a cheque that is dishonoured leaves the insurer off risk, and it is a statutory rule with no common law equivalent.

The statutory machinery that gives a life policy its commercial character is in sections 38, 39 and 45. Section 38 governs assignment or transfer, which since the 2015 amendment must be by endorsement or by a separate instrument, must be signed and attested, must state the reason, and takes effect against the insurer only from the date the notice is received; the insurer may decline to act on an assignment made otherwise than in good faith or not in the interest of the policyholder, and must record its reasons within thirty days. Section 39 governs nomination, and the amended section made the important change that a nomination in favour of a parent, spouse, child or their heirs vests the amount beneficially in the nominee, so the nominee takes as owner and not merely as a receiver for the estate.

The distinction between the two is examinable and is often confused. An assignment transfers title to the policy and takes effect at once; a nomination transfers nothing during the life of the policyholder, is revocable, and only designates who may receive the money. An assignment automatically cancels a nomination, except an assignment to the insurer itself for a loan against the policy.

The current position must close the answer. Foreign direct investment was raised from twenty six to forty nine per cent in 2015, to seventy four in 2021, and by the new section 3AA of the Insurance Act, 1938, inserted by the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 and in force from 5 February 2026, may now extend to one hundred per cent. The 56th GST Council exempted individual life premiums from tax with effect from 22 September 2025. Both changes are directed at the same problem: life insurance penetration in India remains around three per cent of gross domestic product, and a large part of what is sold is savings rather than protection.

Conclusion.

The nature of life insurance is fixed by one proposition, that it is not a contract of indemnity, and Dalby v. India and London Life Assurance Co. is the authority. Everything distinctive about the subject follows from it: insurable interest is required at inception only, there is no subrogation, there is no contribution, and the sum assured is payable in full whatever the beneficiary's actual loss. The principles of insurable interest, utmost good faith, proximate cause and prepayment of premium then operate within that frame, modified in each case by statute, and section 45 in particular has converted the common law duty of disclosure into a three year contestability rule with the burden on the insurer.

For full marks, cover: the statutory definition and the point that marine insurance is the oldest branch and the one that was codified first, so that the general principles of insurance law are found in this Act; the four subject matters and the kinds of policy under section 27; the principles as the Act states them, with section numbers; then seaworthiness in full, which is half the question, taking section 41 sub section by sub section, the doctrine of stages, the difference between a voyage and a time policy, and the privity rule; and the leading cases on what unseaworthiness means.

The nature of marine insurance

Section 3 of the Marine Insurance Act, 1963 defines a contract of marine insurance as one whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure. Section 4 extends it to mixed sea and land risks, so that a policy may cover the inland leg of a transit, and section 2(e) defines "marine adventure" to include the exposure of insurable property to maritime perils.

The kinds of policy and the subject matter

Section 27 divides policies by duration. Where the contract is to insure the subject matter "at and from", or from one place to another or others, the policy is a voyage policy; where it is to insure for a definite period of time, it is a time policy; and a contract for both voyage and time may be included in the same policy. Section 27(2) provides that a time policy made for any time exceeding twelve months is invalid, a limit peculiar to marine insurance and worth stating because it is frequently forgotten.

Section 29 and section 30 divide policies by valuation, into valued and unvalued; section 31 provides for the floating policy, which describes the insurance in general terms and leaves the name of the ship and other particulars to be defined by subsequent declaration, the mechanism by which a regular shipper covers a stream of cargoes. To these the market adds the open cover, the time and voyage combination and the fleet policy.

The principles, as the Act states them

Insurable interest is defined in section 7: a person has an insurable interest where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or be prejudiced by its loss, damage or detention, or may incur liability in respect thereof. Section 6 avoids wagering contracts, including a policy made "interest or no interest" or "without further proof of interest than the policy itself". Section 8 fixes the time: the assured must be interested at the time of the loss, though he need not be interested when the insurance is effected, which is the opposite of the life insurance rule and follows from marine insurance being an indemnity.

Utmost good faith is in sections 19 to 22, with section 19 making the duty mutual, section 20 defining materiality by reference to the judgment of a prudent insurer and listing the four circumstances that need not be disclosed absent inquiry, section 21 dealing with disclosure by an agent effecting the insurance, and section 22 with representations pending negotiation.

Section 41(1): in a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured. Two limits are built into the words. The warranty attaches at the commencement of the voyage and not throughout it, so a ship that becomes unseaworthy after sailing is not in breach. And seaworthiness is relative to the particular adventure: a vessel fit for a coastal run in fair weather may be unseaworthy for a winter North Atlantic crossing.

Section 41(2): where the policy attaches while the ship is in port, there is also an implied warranty that she shall, at the commencement of the risk, be reasonably fit to encounter the ordinary perils of the port. This is the "at and from" case, and the standard is lower, because the perils of a port are less than the perils of the sea.

Section 41(5) draws the crucial line between voyage and time policies. In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness. Three points follow. The insurer must prove privity, meaning knowledge or blind eye knowledge on the part of the assured personally, not the master. The consequence is not avoidance of the policy but the loss of that particular claim. And the loss must be attributable to the unseaworthiness, so an unseaworthy ship sunk by a torpedo is still covered.

Section 42 deals with goods. Sub section (1) provides that in a policy on goods or other movables there is no implied warranty that the goods are seaworthy. Sub section (2) provides that in a voyage policy on goods there is an implied warranty that at the commencement of the voyage the ship is not only seaworthy as a ship but also that she is reasonably fit to carry the goods to the destination contemplated, which is the warranty of cargoworthiness.

The decided cases a marine answer must carry

A marine answer that cites only the sections is incomplete, because the content of every one of them has been fixed by decision, and four cases carry most of the work.

Thames and Mersey Marine Insurance Co. v. Hamilton, Fraser & Co., (1887) 12 App Cas 484, the Inchmaree case, fixes what a marine peril is not. The air chamber of a donkey engine pump split because a valve had accidentally been closed and the water could not escape. The House of Lords held this was no peril of the sea, since the accident could have happened equally ashore and nothing of the sea contributed to it. The market's response was to write the Inchmaree clause into hull policies, which is a useful illustration that where the common law produced a gap the underwriters drafted round it rather than reopening the law.

Hamilton, Fraser & Co. v. Pandorf & Co., (1887) 12 App Cas 518, decided in the same year, fixes what it is. Rats gnawed a lead pipe on board, sea water entered and damaged a cargo of rice. The House of Lords held the proximate cause to be the incursion of sea water, the rats being only the remote cause, and the insurer was liable. Taken with the Inchmaree, the pair shows that the question is always whether the sea itself did the damage.

Against any such claim the insurer will run one of three statutory answers, and each has to be met: unseaworthiness under section 41, subject in a time policy to proof of the assured's privity under section 41(5); inherent vice under section 55(2)(c); and delay under section 55(2)(b), which excludes a loss proximately caused by delay even where the delay was itself caused by an insured peril, the rule that decided Pink v. Fleming, (1890) 25 QBD 396.

Conclusion.

Marine insurance is the branch in which Indian insurance law is written down, and that is the reason it is set in every paper of this folder. The Marine Insurance Act, 1963 supplies the definition of the contract in section 3, of insurable interest in sections 6 to 8, of utmost good faith in sections 19 to 22, of warranty in sections 35 to 37, of proximate cause in section 55, of subrogation in section 79 and of contribution in section 80. Its scope covers hull, cargo, freight and, by section 74, liability to third parties, and section 27 divides the policies into voyage and time, with a time policy for more than twelve months invalid.

For full marks, cover: what "property insurance" means as a class and where it sits in the statutory scheme; for (a), the meaning of "accidental" in an insurance policy, which is a term of art, the distinction between accidental loss and accidental damage, the "all risks" form and where its limits lie, and the burden of proof; for (b), that earthquake and flood are catastrophe perils with distinctive features, how they are written in India, the difference between a named peril and an all risks approach, and the standard products that replaced the old fire tariff; and throughout, the Indian rule that policy terms are construed strictly, with the cases.

Two rules govern the construction of every such policy in India. The first is that the words are given their plain meaning and the court will not rewrite the bargain. In United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, (2004) 8 SCC 644, a burglary policy covered loss by "burglary and or housebreaking" which the policy defined as theft involving entry into or exit from the premises by forcible and violent means. Goods were stolen from a truck in transit without any such forcible entry. The Supreme Court held the claim outside the cover, saying that the terms of the policy have to be construed as they are, that nothing can be added or subtracted, and that the court cannot go beyond the terms even to do what looks like justice. Suraj Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co. Ltd., (2010) 10 SCC 567, and Export Credit Guarantee Corporation of India Ltd. v. Garg Sons International, (2014) 1 SCC 686, restate the rule.

The second rule is the counterweight, and it is that a term the insured was never shown cannot be enforced against him. In M/s Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Co. Ltd., 2022 INSC 1184, decided on 9 November 2022, the insured took a Standard Fire and Special Perils policy on a shop situated in a basement. An exclusion clause excluded basements. A fire occurred, the insurer's surveyor inspected and the insured was asked to refurnish the premises so that the loss could be evaluated, and the claim was then repudiated under the exclusion.

The concurrent finding of the District Forum and the State Commission was that the exclusion had never been communicated to the insured. The Supreme Court held that an exclusion clause not brought to the notice of the insured cannot be relied upon, that such a clause defeats the very object of the contract and is unfair and unenforceable from inception, and that offering the policy while knowing the exclusion would swallow the entire cover was an unfair trade practice. Read together, Harchand Rai and Texco mark the two boundaries: the words bind, but only if the insured was given them. 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.

(a) Policies covering accidental loss and damage to property

"Accidental" in an insurance policy is a term of art and does not mean merely unintended. The settled meaning is a fortuitous event, one that is unexpected and unintended from the point of view of the insured, as opposed to something that occurs in the ordinary course. The classical formulation comes from Fenton v. J. Thorley & Co. Ltd., [1903] AC 443, where Lord Macnaghten said that "accident" is used in the popular and ordinary sense as denoting an unlooked for mishap or an untoward event which is not expected or designed. The consequence for property cover is that wear and tear, gradual deterioration, inherent vice and the ordinary consequences of use are not accidental, and every all risks policy excludes them expressly, in the same terms as section 55(2)(c) of the Marine Insurance Act, 1963.

The all risks form is the widest property cover and its limits are well settled. The phrase does not mean every risk; it means every fortuitous risk that is not expressly excluded. In British and Foreign Marine Insurance Co. Ltd. v. Gaunt, [1921] 2 AC 41, bales of wool were insured against all risks from sheep station to port, and arrived damaged by water; the insured could not show precisely when or how the wetting occurred. The House of Lords held that under an all risks policy the insured need only prove a loss by some fortuitous casualty and need not prove the exact cause; the burden then shifts to the insurer to bring the loss within an exception. That allocation of the burden is the practical value of the all risks form and is the single most useful point in this part of the question.

(b) Policies covering the risk of earthquake and flood

Earthquake and flood belong to a separate family of perils, the catastrophe or "act of God" perils, and three features distinguish them. They are low frequency and high severity, so the law of large numbers works badly and the insurer relies on reinsurance and on catastrophe modelling rather than on its own experience. They are highly correlated, in that a single event damages thousands of insured properties at once, which is the opposite of the independence that ordinary rating assumes. And they are geographically concentrated, so the risk can be mapped: the Bureau of Indian Standards seismic zoning in IS 1893 divides the country into zones II to V, and flood risk follows river basins and coastal plains.

The tariff has been replaced for the retail and small business segments and an up to date answer must say so. With effect from 1 April 2021 the Insurance Regulatory and Development Authority of India required insurers to offer three standard products in place of the Standard Fire and Special Perils policy for these segments: Bharat Griha Raksha, for the home building and its contents; Bharat Sookshma Udyam Suraksha, for enterprises whose total value at risk does not exceed five crore rupees; and Bharat Laghu Udyam Suraksha, for enterprises where the value at risk exceeds five crore and is up to fifty crore rupees. Their significance for this question is that earthquake and flood are inside the base cover in these products rather than being add ons, and Bharat Griha Raksha carries automatic waiver of underinsurance for the building and an automatic ten per cent addition for loss of rent or alternative accommodation.

The policy problem worth naming in an LL.M. answer is that catastrophe cover in India is bought by almost nobody who needs it. After each major event, the Bhuj earthquake of 2001, the Mumbai floods of 2005, the Kerala floods of 2018 and the Chennai floods, the insured share of the economic loss has been reported in low single digit percentages, and the loss falls on the State through ex gratia relief and the disaster response funds. That is the argument for a mandatory or a pooled catastrophe scheme on the model of the Turkish or New Zealand pools, and it connects this question to the social insurance question set on the 2025-2026 paper.

Conclusion.

The two limbs of this question test opposite drafting techniques. An accidental loss or damage policy is written by exclusion: it insures every fortuitous event and then carves out wear and tear, inherent vice, wilful acts and consequential loss, and the practical consequence, settled in Gaunt, is that the insured need prove only a fortuitous casualty while the insurer must bring the loss within an exception. An earthquake and flood policy is written by naming: the peril must be found within the enumerated list, and everything turns on whether the event answers the definition, so the burden sits on the insured throughout.

For full marks, cover: the definition of "accident", which is the whole battleground, with the cases on both sides of the line; the two families of accident policy, benefit and liability, and why the assessment differs completely between them; the scale of benefits in a personal accident policy; the assessment of liability in the motor context, which is where Indian law is fullest, with Sarla Verma and Pranay Sethi; then contributory negligence properly, its history from Butterfield v. Forrester through the last opportunity rule to apportionment, the Indian position, and the separate question of what it does to a benefit policy as against a liability policy.

The requirement of "external and visible means" excludes internal causes, and the line is fine. In Lawrence v. Accidental Insurance Co. Ltd., (1881) 7 QBD 216, the insured suffered a fit while standing on a railway platform, fell onto the line and was run over. The insurer argued the proximate cause was the fit, a natural cause. The court held that the death was caused by accidental, external and visible means: the fit was the remote cause, the train the proximate one. Winspear v. Accident Insurance Co. Ltd., (1880) 6 QBD 42, is to the same effect, the insured having suffered a fit while crossing a stream and drowned.

In India the standard exclusions from a personal accident policy are worth listing, because they show what the cover is not: intentional self injury, suicide or attempted suicide; injury while under the influence of intoxicating liquor or drugs; injury arising from breach of law with criminal intent; venereal disease and insanity; pregnancy and childbirth; participation in hazardous sports, aviation other than as a fare paying passenger, and racing; and war and nuclear risks.

Assessment under a benefit policy

Under a personal accident policy the assessment is mechanical, because the policy fixes the amounts, and this is the direct consequence of its not being a contract of indemnity. The standard Indian table pays the capital sum insured on death and on permanent total disablement, which typically includes loss of both eyes, both limbs, or one eye and one limb; a specified percentage of the capital sum for permanent partial disablement, for example fifty per cent for loss of one eye or one limb and smaller percentages down the scale; and a weekly benefit for temporary total disablement, usually capped at a percentage of income and at a number of weeks. Medical expenses are covered only if the policy adds that extension.

Compensation in a fatal claim is calculated by the multiplier method, and Sarla Verma v. Delhi Transport Corporation, (2009) 6 SCC 121, standardised it. The Supreme Court held that the deceased's income must be established, an addition made for future prospects, a deduction made for personal and living expenses at one third where the dependants are two or three, one fourth where four to six, and one fifth where more than six, and one half where the deceased was a bachelor with no dependants of his own, and the balance multiplied by a multiplier fixed by reference to a table keyed to the age of the deceased, running from 18 at ages 15 to 20 down to 5 at ages 65 to 70. The purpose was to end the wide divergence between Tribunals.

Where the claim is for injury rather than death, the heads are pecuniary and non pecuniary. The pecuniary heads are medical expenses actually and reasonably incurred, loss of earnings during the period of incapacity, loss of future earning capacity computed on the multiplier method by reference to the percentage of functional disability, and special expenses such as attendant care and transport. The non pecuniary heads are pain and suffering, loss of amenities and loss of expectation of life. The controlling principle is restitutio in integrum, that the victim is to be placed so far as money can do it in the position he would have occupied but for the accident.

The insurer's obligation in this class is statutory and not merely contractual. Section 146 of the Motor Vehicles Act, 1988 makes third party cover compulsory; section 150 imposes the duty to satisfy judgments and awards against persons insured in respect of third party risks; and section 149, in the numbering introduced by the Motor Vehicles (Amendment) Act, 2019 in force from 1 September 2019, now provides for settlement of a claim by an offer from the insurer's designated officer within thirty days. Candidates should note the renumbering: the pre 2019 authorities cite section 149 for the duty to satisfy judgments and for the insurer's statutory defences, and those are now in section 150 and section 150(2).

The harshness of that rule produced the "last opportunity" doctrine in Davies v. Mann, (1842) 10 M & W 546. The plaintiff had fettered his donkey and left it on the highway; the defendant's wagon, driven too fast, ran into it. Although the plaintiff was at fault in leaving the animal there, the defendant had the last opportunity of avoiding the accident and was held liable in full. British Columbia Electric Railway Co. Ltd. v. Loach, [1916] 1 AC 719, extended it to the case where the defendant would have had the last opportunity but for his own earlier negligence, defective brakes on a tram, the so called constructive last opportunity.

The doctrine was an unsatisfactory patch, and it was replaced by apportionment. In England the Law Reform (Contributory Negligence) Act, 1945 provided that where a person suffers damage partly through his own fault and partly through the fault of another, the claim shall not be defeated, but the damages shall be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage. India has no such statute, and apportionment has been received by judicial decision.

Assessment depends on which family the policy belongs to, and the answer must keep them apart. A personal accident policy is a contingency contract, and the amount is fixed by the scale of benefits, with no subrogation, no contribution and no reduction for the claimant's own carelessness. A liability policy indemnifies the insured against his legal liability, so the assessment is the ordinary assessment of damages, and in the motor field that means the multiplier method as standardised in Sarla Verma and completed by Pranay Sethi on future prospects and the conventional heads, with the no fault floor of five lakh and two and a half lakh rupees under the substituted section 164 of the Motor Vehicles Act, 1988.

Contributory negligence bites on the second family only. It ceased to be a complete defence when apportionment displaced Butterfield v. Forrester and the last opportunity patch of Davies v. Mann, and in India, which has no equivalent of the Law Reform (Contributory Negligence) Act, 1945, apportionment rests on decisions such as Laxman Iyer, under which the award is reduced in proportion to the victim's share of responsibility. Against a benefit policy it has no effect at all unless the policy has excluded the conduct in terms.

(a) Fire insurance

Fire insurance is defined by section 2(6A) of the Insurance Act, 1938 as the business of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies. It is a contract of indemnity, so the insured recovers his actual loss up to the sum insured and no more, insurable interest must exist both at inception and at the date of the loss, and subrogation and contribution apply.

"Fire" in a policy is a term of art and three conditions must all be satisfied. There must be actual ignition, that is combustion accompanied by flame or glow; the ignition must be fortuitous, not deliberately caused by the insured; and the thing burnt must be something that ought not to be on fire. The third condition is what excludes the article deliberately placed in the flames.

The perils actually written in India were fixed by the All India Fire Tariff, 2001, and its Standard Fire and Special Perils policy, which covered fire; lightning; explosion and implosion; aircraft damage; riot, strike and malicious damage; storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation; impact damage; subsidence and landslide including rockslide; bursting or overflowing of water tanks, apparatus and pipes; missile testing operations; leakage from automatic sprinkler installations; and bush fire. Earthquake was an add on cover at extra premium, not part of the base.

With effect from 1 April 2021 the regulator replaced that policy for homes and smaller enterprises with three standard products: Bharat Griha Raksha for the home building and contents, Bharat Sookshma Udyam Suraksha where the total value at risk is up to five crore rupees, and Bharat Laghu Udyam Suraksha where it exceeds five crore and is up to fifty crore. Earthquake and flood are inside the base cover of these products, and Bharat Griha Raksha waives underinsurance on the building.

(b) Differences between subrogation and assignment of right to the insurer

Subrogation is the right of an insurer, on paying an indemnity, to stand in the shoes of the insured and enforce the insured's rights and remedies against the person responsible for the loss. It is codified for marine insurance in section 79 of the Marine Insurance Act, 1963, sub section (1) providing that on payment of a total loss the insurer takes over the interest of the assured in whatever remains and is subrogated to all rights and remedies as from the time of the casualty causing the loss, and sub section (2) providing that on payment of a partial loss the insurer acquires no title to the subject matter but is subrogated to the assured's rights in so far as the assured has been indemnified.

A three judge Bench overruled Oberai, holding that a document described as a letter of subrogation cum assignment is in substance a subrogation, that the insurer is entitled to pursue the claim in the name of the assured, and that a complaint filed by the assured, or jointly by the assured and the insurer, is maintainable. The Court also held that where there is a pure assignment the assignee steps into the shoes of the assignor but the complaint must be framed accordingly.

The practical lesson, and the reason the distinction is examinable, is that the label on the document does not decide its character; the substance does. An insurer who wants to sue in its own name must take a genuine assignment and must plead it as such, and an insurer relying on subrogation must sue in the insured's name and can recover no more than it has paid.

(c) Privatization and globalization of the insurance sector in India

The story runs in three phases and each has its statute. Before 1956 insurance in India was private and largely unregulated beyond the Insurance Act, 1938, which had itself been passed to control a market disfigured by failures and by the misuse of policyholders' funds.

The second phase is liberalisation, and it begins with the Malhotra Committee. The Committee on Reforms in the Insurance Sector, chaired by R.N. Malhotra, reported in 1994 and recommended that the sector be opened to private participation, that foreign companies be allowed to enter through joint ventures with Indian partners, and that an autonomous regulator be established. Its recommendations produced the Insurance Regulatory and Development Authority Act, 1999, which constituted the Authority by section 3, gave it the duty in section 14(1) to regulate, promote and ensure the orderly growth of insurance and re insurance business, listed its powers in section 14(2), and amended the Insurance Act, 1938 to allow registration of new insurers with foreign equity capped at twenty six per cent. The General Insurance Business (Nationalisation) Amendment Act, 2002 delinked the four subsidiaries from the General Insurance Corporation, which became the national reinsurer.

The 2025 Act does three other things that belong in this note. It amended section 6A(1) to replace the enumeration of classes with the single expression "insurance business", the enabling change for composite registration; it rewrote section 2C so that a foreign body engaged in re insurance, including Lloyd's and its Members, may establish a branch in India for re insurance exclusively, with a net owned fund of not less than one thousand crore rupees under section 6(2); and it substituted section 5(1) of the IRDA Act, 1999 so that the Chairperson and whole time members hold office for five years or until the age of sixty five, whichever is earlier, and are eligible for reappointment, removing the earlier distinction under which whole time members retired at sixty two.

The three notes are linked by the idea of indemnity and by the shift from State monopoly to a regulated market. Fire insurance is the paradigm indemnity contract, and its law turns on a technical definition of fire requiring actual ignition of something that ought not to be on fire, Austin v. Drewe and Harris v. Poland marking the two edges, with the market wording having moved from the Standard Fire and Special Perils policy to the three Bharat products from 1 April 2021.

Subrogation and assignment are the two ways an insurer reaches the wrongdoer, and they are not interchangeable. Subrogation arises by law from the principle of indemnity stated in Castellain v. Preston and codified in section 79 of the Marine Insurance Act, 1963, is limited to the amount paid, and is enforced in the insured's name; assignment arises by agreement, transfers the whole claim, and is enforced in the insurer's own name. Economic Transport Organisation v. Charan Spinning Mills settles that the substance of the document governs and that a subrogation does not destroy the assured's standing to complain.