LLM Group 2 Business Law Law of Insurance 2019 Question Paper with Solutions

Risk, peril and hazard

Three terms must be kept apart. The peril is the cause of loss, fire, collision, theft, death. The hazard is the condition that raises the probability or severity of a peril, dividing into physical hazard, an attribute of the thing insured, and moral hazard, an attribute of the person insured, such as dishonesty, indifference, or a motive to bring the loss about. The risk is the resulting probability, and it is what the premium prices.

Five conditions make a risk insurable. The loss must be fortuitous, so certainties, wear and tear and inherent vice are excluded, which is why section 55(2)(c) of the Marine Insurance Act, 1963 puts them outside the cover. It must be measurable in money. There must be a large number of similar and independent exposures, so that the law of large numbers can make the aggregate predictable. It must not be catastrophic, in the sense of striking the whole pool at once, which is why earthquake and flood are reinsured. And it must not be speculative: the insured must stand only to lose by the event, never to gain, which is the doctrine of insurable interest and the line between insurance and a wager under section 30 of the Indian Contract Act, 1872 and section 6 of the Marine Insurance Act, 1963.

Third, risk is the limit of the cover, enforced through the description of the peril, the exclusions, the warranties and the rule of causation in section 55(1), under which the insurer is liable only for loss proximately caused by a peril insured against. Leyland Shipping Co. Ltd. v. Norwich Union Fire Insurance Society Ltd., [1918] AC 350, fixes "proximate" as dominant in efficiency rather than nearest in time: the Ikaria, torpedoed off Le Havre in January 1915, towed into port, then moved outside the breakwater where she grounded at each tide and broke her back, remained throughout in the grip of the war peril, so the war exclusion applied.

Those three roles produce one proposition, and it is the whole answer to the second half of the question: the insurer must be left running the risk it agreed to run.

Alteration in the nature of the risk

An alteration in nature substitutes a different risk for the one insured. The standard instances are a change of use, a dwelling converted to a factory or a godown to a store for inflammables; a change of trade or manufacture; a change of the location of the property; a change of the vessel named in a marine policy; and a change in the person bearing the interest.

The promissory warranty under section 35(3) of the Marine Insurance Act, 1963 is harsher: a warranty must be exactly complied with, whether it be material to the risk or not, and on breach the insurer is discharged from liability as from the date of the breach, without prejudice to liability already incurred. Section 36 excuses non compliance only where a change of circumstances makes the warranty inapplicable, or compliance becomes unlawful, and permits waiver. The important feature of this effect is that it is prospective: a loss before the alteration remains payable.

Effect three: the risk never attaches, so there was never any cover. This is peculiar to the marine statutory scheme and is regularly confused with discharge. Section 45: where the place of departure is specified and the ship sails from another place, the risk does not attach. Section 46: where the destination is specified and she sails for another, the risk does not attach. The consequence is a total failure of the consideration and a return of premium, not a discharge from a subsisting contract. Alongside them, section 44 implies a condition that the adventure be commenced within a reasonable time, breach of which entitles the insurer to avoid the contract, unless the delay was caused by circumstances known to the insurer before the contract or the condition was waived.

Alteration in the quantum of risk

An alteration in quantum is an increase in the degree of an unchanged risk: more stock in the same building, more of the same hazardous process, a higher value at risk. Three propositions govern it.

First, a mere increase in degree neither avoids nor discharges the policy. The insured does not guarantee that his risk will not worsen; he is bound only by the description, the warranties and the conditions. More goods in an insured godown, without a change of trade and without breach of a warranty, leaves the cover intact.

Second, what an increase in quantum usually engages is the condition of average. Where the value at risk has grown beyond the sum insured, the insured is treated as his own insurer for the difference and bears a rateable share of every partial loss; the rule is codified for marine insurance by section 81 of the Marine Insurance Act, 1963. So the consequence of under insurance through growth is a proportionate reduction rather than repudiation, and it is the commonest reason an Indian property claim is settled below the amount claimed.

National Insurance Co. Ltd. v. Nitin Khandelwal, (2008) 11 SCC 259: a vehicle insured for private use was being used as a taxi when it was stolen. The Supreme Court held the breach not germane, the manner of use having nothing to do with the theft, and directed settlement on a non standard basis at seventy five per cent. Amalendu Sahoo v. Oriental Insurance Co. Ltd., (2010) 4 SCC 536, applied the same reasoning and set out the schedule of non standard settlements.

In the compulsory third party field the alteration rules are displaced almost entirely. National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297, holds that even a proved breach of the licensing condition does not absolve the insurer as against the victim, that it must be wilful, and that the Tribunal may direct the insurer to pay and recover from the insured. Bajaj Alliance General Insurance Co. Ltd. v. Rambha Devi, 2024 INSC 840, decided 6 November 2024, a five judge Constitution Bench, held that a light motor vehicle licence authorises driving a transport vehicle of that class whose unladen weight does not exceed 7,500 kg, removing the most frequently alleged breach.

Conclusion.

Alteration in quantum is treated far more leniently: a mere increase in degree neither avoids nor discharges, and its usual consequence is the operation of average under section 81. To all of this the Indian courts have added a qualification of their own, in B.V. Nagaraju, Nitin Khandelwal and Amalendu Sahoo, that the breach relied on must be germane to the loss, failing which a non standard settlement rather than a repudiation is the proper outcome; and in the compulsory motor class Swaran Singh and Rambha Devi have removed the insurer's alteration defences against the victim almost entirely.

Before 1938: the market that produced a statute

Insurance came to India with the trading companies. The Oriental Life Insurance Company was established at Calcutta in 1818, and insured chiefly European lives; the Bombay Mutual Life Assurance Society of 1870 was the first Indian office to insure Indian lives on the same terms as European, ending the practice of loading Indian lives; the Oriental Life Assurance Company followed in 1874 and the National Insurance Company in 1906, which still trades. The swadeshi movement after 1905 produced a wave of Indian offices, and by the 1930s there were several hundred insurers of widely varying soundness.

The early legislation was piecemeal. The Indian Life Assurance Companies Act, 1912, was the first statute to regulate life business, requiring actuarial certification of premium rate tables and periodical valuation. The Indian Insurance Companies Act, 1928, empowered Government only to collect statistical information. Neither controlled how policyholders' funds were used, and the period saw repeated failures, the diversion of premium income into the promoters' other ventures, and offices whose reserves existed on paper.

Nationalisation: 1956 and 1972

Life insurance was nationalised in 1956 because prudential regulation had not stopped the abuse. Notwithstanding the Act of 1938, a number of offices failed or were mismanaged after independence, and the immediate trigger was a large scandal involving the misuse of policyholders' money. The Government took over management by ordinance in January 1956 and Parliament passed the Life Insurance Corporation Act, 1956, establishing the Life Insurance Corporation of India and transferring to it the controlled business of some 245 insurers and provident societies.

The objects were declared and they must be stated, because the whole later story is a judgment on them. They were to protect policyholders against the failure of private offices; to spread life insurance much more widely, and in particular to rural areas and to the socially and economically backward classes; to conduct the business with the utmost economy, the funds being held in trust for the policyholders; and to mobilise those savings for national development. Section 37 guarantees the sums assured and the bonuses declared by the Corporation with the full faith and credit of the Central Government, an assurance no other insurer in India can offer.

Privatisation: the Malhotra Committee and the Act of 1999

The turn came from the Committee on Reforms in the Insurance Sector, chaired by R.N. Malhotra, a former Governor of the Reserve Bank, which reported in 1994. Its recommendations were that the sector be opened to private companies; that foreign insurers be admitted only through joint ventures with Indian partners; that Government reduce its stake in the nationalised insurers; that the subsidiaries of the General Insurance Corporation be given autonomy; and that an autonomous regulator replace the Controller of Insurance, who was an officer of Government.

The last of those was the structural insight and it should be emphasised. Because Government owned every insurer, regulation and ownership were in one hand, and no private entrant could believe itself fairly supervised. Separating the two was the precondition of everything else.

The Act also amended the Insurance Act, 1938 to permit new registrations, with foreign equity capped at twenty six per cent. Registrations began in 2000, and the first private life and general insurers commenced business in 2000 and 2001. The General Insurance Business (Nationalisation) Amendment Act, 2002 delinked the four subsidiaries from the General Insurance Corporation, which became the national reinsurer. The Authority afterwards detariffed general insurance premium rates with effect from 1 January 2007, retaining tariffed wordings for a further period, which is the moment price competition actually began.

Globalisation: the cap, and what came with it

Globalisation in Indian insurance has been measured almost entirely by the foreign investment ceiling, and the progression is the spine of this part of the answer. Twenty six per cent from 1999. The Insurance Laws (Amendment) Act, 2015 raised it to forty nine per cent, subject to the company remaining Indian owned and controlled, and at the same time rewrote section 45 to create the three year contestability rule, rewrote sections 38 and 39 on assignment and beneficial nomination, raised the penalties, and permitted foreign reinsurers to open branches. The cap went to seventy four per cent in 2021 with the ownership and control requirement relaxed.

Section 2C was rewritten so that a body incorporated outside India and engaged in re insurance may establish an Indian branch for re insurance exclusively, expressly including Lloyd's under the Lloyd's Act, 1871 and any of its Members, with a net owned fund of not less than one thousand crore rupees under section 6(2). Section 2(13BC) for the first time defines "premium". And in the IRDA Act, section 4 now includes information technology among the fields of expertise, while section 5(1) as substituted gives the Chairperson and whole time members a term of five years or until the age of sixty five, whichever is earlier, with eligibility for reappointment, removing the earlier rule under which whole time members retired at sixty two.

Second, the 56th GST Council on 3 September 2025 exempted all individual life and health insurance premiums from goods and services tax with effect from 22 September 2025, removing the eighteen per cent charge widely blamed for suppressing retail demand, though group policies remain taxable. Third, the capital opening under section 3AA is itself intended to fund the distribution reach that the market has not built out of retained earnings.

What the courts made of nationalisation, and why it matters here

The three phases are usually narrated as policy, but each produced litigation that shows what it meant in law, and two decisions should be given.

Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248, decided on 10 February 1970, is the case that marks the limit of the nationalisation power. The Government nationalised fourteen major private banks by an Ordinance of 19 July 1969, afterwards replaced by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969. Cooper, a director of one bank and a shareholder in others, challenged it. The Supreme Court struck the Act down, holding that it impaired the shareholders' rights under Article 19(1)(g) and Article 31 and that the compensation provided was not just.

Life Insurance Corporation of India v. Consumer Education and Research Centre, (1995) 5 SCC 482, decided on 10 May 1995, shows what nationalisation meant for the policyholder, and it is the single best case for this question. The Corporation's Table 58 was its cheapest life policy, but it was offered only to persons employed in Government or quasi Government organisations or in a reputed commercial firm, which excluded almost everyone in the informal economy, that is to say the very people the Act of 1956 had been passed to reach. The Gujarat High Court struck the restriction down and the Supreme Court, Ramaswamy, Ahmadi and Punchhi JJ., dismissed the Corporation's appeal. It held that the Corporation is subject to the discipline of the Constitution, that the exclusionary condition was arbitrary and violative of Articles 14 and 21, and that a statutory insurer must frame its terms so as to widen and not narrow access.

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. The insured manufactured high tension insulators and took an All Risk policy for fifty lakh rupees on the erection of a kiln, covering loss during storage, erection, trial and testing. The kiln furniture collapsed during the trial and a claim of about ₹5.73 lakh was made, the surveyors assessing the damage at about ₹4.67 lakh. The insurer relied on an exclusion providing that in the case of second hand or used property the insurance should cease immediately on the commencement of the test. The insured had been supplied only with the cover note and the schedule, and the branch manager's own letter confirmed it. The Supreme Court held that because the standard terms containing the exclusion were neither part of the contract nor disclosed to the insured, the insurer could not claim the benefit of it.

The case is worth citing because it is the sharpest statement of the difference between a nationalised insurer and a private one. A private insurer may select its market; a statutory Corporation, being State for constitutional purposes, may not, and its policy conditions are open to review on Article 14 grounds in a way a private policy is not. That is both the strength of the 1956 model and the reason its failure to reach the rural and informal population was a legal grievance and not merely a commercial disappointment. It also frames the present question: the reforms of 2015, 2021 and 2026 have transferred the burden of extending cover from a corporation answerable under Article 14 to a competitive market answerable to a regulator, and whether that succeeds is measured only by penetration.

Conclusion.

The verdict has to be given on penetration, because that is the object every phase has claimed. On that measure India remains at roughly four per cent of gross domestic product, the same order as twenty years ago, which is why the present programme is not about ownership at all but about distribution and price, through Bima Sugam, Bima Vistaar and Bima Vahak and through the removal of goods and services tax from individual life and health premiums in September 2025.

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 limitations are built into the words and both matter. The warranty attaches only at the commencement of the voyage, so a ship that becomes unseaworthy afterwards is not in breach; and the standard is relative to the particular adventure, so a vessel fit for a coastal run in fair weather may be unseaworthy for a winter ocean passage with the same cargo.

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 deliberately lower, the perils of a port being less than those of the sea.

Section 41(5) draws the line between voyage and time policies and is the most examinable provision in the section. 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 consequences follow. The insurer must prove privity, meaning the assured's own knowledge or blind eye knowledge, not the master's. The policy is not avoided; only that claim is lost. And the loss must be attributable to the condition, so an unseaworthy ship sunk by a torpedo is still covered.

The reason for the difference between the two kinds of policy is structural and should be given. A shipowner cannot honestly warrant that his vessel will be fit throughout a whole year, so the law substitutes a privity test that asks whether he knowingly sent her out unfit. In a voyage policy the state of the ship at a single moment can be warranted, so it is.

Seaworthiness must finally be distinguished from perils of the sea, because the two are the insurer's and the insured's rival explanations of the same casualty. Rule 7 of the Schedule confines "perils of the seas" to fortuitous accidents or casualties of the seas and excludes the ordinary action of the winds and waves. So where water entered because the vessel was worn and weak, the loss is unseaworthiness and uninsured; where it entered through a fortuitous casualty, it is a peril of the sea, as in Hamilton, Fraser & Co. v. Pandorf & Co., (1887) 12 App Cas 518, where rats gnawed a pipe, sea water entered and damaged a rice cargo, and the incursion of sea water was held to be the proximate cause.

(b) Express and implied warranties in marine insurance

The note must open on the inversion, because it is the commonest error in this subject. Under the Sale of Goods Act, 1930, a condition is a stipulation essential to the main purpose whose breach permits repudiation, and a warranty is collateral, sounding only in damages. In marine insurance the meanings are reversed: a warranty is the fundamental term whose breach discharges the insurer altogether, while a term the policy labels a "condition" is often merely descriptive or procedural. A candidate who carries over the sale of goods vocabulary states the law backwards.

Section 36 provides the only escapes and they are narrow. Non compliance with a warranty is excused when, by reason of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract, or when compliance is rendered unlawful by any subsequent law; and sub section (2) provides that a breach of warranty may be waived by the insurer. There is no general excuse of impossibility, and no defence that the breach was trivial.

Section 37 governs express warranties. An express warranty may be in any form of words from which an intention to warrant is to be inferred; it must be included in or written upon the policy, or contained in some document incorporated by reference into it; and it does not exclude an implied warranty unless it is inconsistent with it. Express warranties in the Indian and London markets typically concern the date of sailing; the classification of the vessel with a recognised society and its maintenance; trading limits, so that the vessel does not enter named waters or ice bound areas; the carriage or non carriage of deck cargo; the terms on which towage or salvage contracts may be accepted; and, in cargo, the manner of packing or the mode of stowage.

The implied warranties are five, and each has its own section.

Two negative provisions belong with them and are often forgotten. Section 39: there is no implied warranty as to the nationality of a ship, or that her nationality shall not be changed during the risk. Section 42(1): there is no implied warranty that the goods or other movables are seaworthy.

Finally, what the policy calls a "condition" falls into three classes and only construction can tell which. Conditions precedent to the attachment of the risk, such as the implied condition in section 44 that the adventure be commenced within a reasonable time, breach of which entitles the insurer to avoid the contract; conditions precedent to liability, such as a requirement of notice of loss within a stated period; and descriptive or procedural conditions, breach of which does not discharge the insurer unless it has been prejudiced. The label in the document is not decisive, and Indian courts read the policy as a whole: United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, (2004) 8 SCC 644, holds that the terms are construed as they are and nothing may be added, while M/s Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Co. Ltd., 2022 INSC 1184, holds that a term never communicated to the insured cannot be enforced at all.

Seaworthiness is the sharpest of the implied warranties, and section 41 states it in five distinct rules: the warranty attaches at the commencement of the voyage, is relative to the particular adventure, revives at each stage of a staged voyage, sets a standard of reasonable fitness in all respects to encounter the ordinary perils of the seas, and does not apply to a time policy at all except where the assured is privy to sending the ship to sea unfit, and then only for a loss attributable to that state. Section 42(2) adds cargoworthiness for a voyage policy on goods, and Clan Line shows that unseaworthiness includes a competent ship in the hands of a master who has not been told what he needs to know.

For full marks, cover: this question names the Tribunal and then asks specifically about third party insurance, so the second half must be a real treatment of the insurer's statutory position and not an afterthought; give the compulsory insurance scheme in Chapter XI first, then constitution and qualification under section 165, jurisdiction and forum under section 166, procedure under section 169, the two routes to compensation with the 2019 renumbering, quantum under section 168 with Sarla Verma and Pranay Sethi, then the insurer's duty under section 150, its statutory defences under section 150(2), the pay and recover jurisdiction, and appeal.

Two provisions turn that scheme into a right the victim can enforce. Section 150 imposes on the insurer a direct statutory duty to satisfy judgments and awards against persons insured in respect of third party risks. Section 149, in the numbering introduced by the Motor Vehicles (Amendment) Act, 2019, provides for the settlement of a claim: an officer designated by the insurer may make an offer of settlement to the claimant before the Tribunal within thirty days, and on acceptance the Tribunal records the settlement, which is deemed settled by consent, with payment within thirty days. Candidates should note the renumbering, because pre 2019 authorities cite section 149 for the duty to satisfy judgments and for the insurer's defences, and those are now section 150 and section 150(2).

Composition

Section 165(1) empowers the State Government, by notification in the Official Gazette, to constitute one or more Motor Accidents Claims Tribunals for such area as may be specified, for the purpose of adjudicating upon claims for compensation in respect of accidents involving the death of, or bodily injury to, persons arising out of the use of motor vehicles, or damage to any property of a third party so arising, or both.

Jurisdiction, forum and the initiation of a claim

Section 166(1) identifies who may apply: the person who has sustained the injury; the owner of the property; where death has resulted, all or any of the legal representatives of the deceased; or an agent duly authorised by such person or legal representatives. Where all the legal representatives have not joined, the application must be made on behalf of or for the benefit of all, and those not joined must be impleaded as respondents.

"Legal representative" is construed widely and Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai, (1987) 3 SCC 234, is the authority. A brother of the deceased claimed compensation. The Supreme Court held that the Act is a beneficial piece of social legislation and is not confined to the dependants named in the Fatal Accidents Act, 1855, and that any person who suffers loss by the death and would be entitled to succeed to the estate may claim as a legal representative, expressly including a brother or sister.

Procedure, powers and the standard of proof

Section 169 provides that in holding an inquiry the Tribunal may, subject to any rules, follow such summary procedure as it thinks fit; that it shall have all the powers of a civil court for the purpose of taking evidence on oath, enforcing the attendance of witnesses and compelling the discovery and production of documents and material objects; and that it shall be deemed a civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973, now the corresponding provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023, in force from 1 July 2024. Sub sections (2) and (3) permit the Tribunal to require an officer of a State to furnish information and to appoint a person of special knowledge to assist it.

The standard of proof is the preponderance of probabilities and Bimla Devi v. Himachal Road Transport Corporation, (2009) 13 SCC 530, states it. In a claim under section 166 the Tribunal must not apply the strict principles of the criminal law or insist on proof beyond reasonable doubt, and a claim may succeed although the prosecution of the driver has failed. That rule matters greatly in practice, because motor accident evidence is usually thin.

No fault liability was rewritten in 2019 and the section numbers matter. The old scheme had section 140, paying fifty thousand rupees for death and twenty five thousand for permanent disablement, and section 163A, paying on a structured formula in the Second Schedule. The Motor Vehicles (Amendment) Act, 2019 omitted section 163A and its formula and substituted section 164, under which the owner of the motor vehicle or the authorised insurer is liable to pay five lakh rupees in the case of death and two lakh fifty thousand rupees in the case of grievous hurt, and in such a claim the claimant is not required to plead or establish that the death or hurt was due to any wrongful act, neglect or default. Section 164A empowers a scheme of interim relief and section 164B constitutes a Motor Vehicle Accident Fund for the treatment of accident victims and compensation in hit and run cases.

National Insurance Co. Ltd. v. Pranay Sethi, (2017) 16 SCC 680, a Constitution Bench of five judges, settled the residue. On future prospects: for a deceased in permanent employment, add fifty per cent of actual salary if below forty, thirty per cent between forty and fifty, fifteen per cent between fifty and sixty; for the self employed or those on a fixed wage, forty, twenty five and ten per cent on the same bands. On the conventional heads: loss of estate fifteen thousand rupees, funeral expenses fifteen thousand, loss of consortium forty thousand, each to be enhanced by ten per cent every three years. Magma General Insurance Co. Ltd. v. Nanu Ram, (2018) 18 SCC 130, held that consortium extends beyond the spouse to parental and filial consortium, so parents and children have separate claims under that head.

National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297, a three judge Bench, is the leading case. It held that a breach of the licensing condition does not automatically absolve the insurer as against a third party; that the insurer must establish a wilful breach on the part of the insured, mere absence of a licence in the driver's hands not being enough where the owner had taken reasonable care; and that even where the insurer succeeds, the Tribunal may direct it to pay the victim and recover the amount from the insured. Earlier decisions to the same effect are Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan, (1987) 2 SCC 654, and Sohan Lal Passi v. P. Sesh Reddy, (1996) 5 SCC 21, both holding that a breach must be with the owner's knowledge or connivance.

Appeal lies under section 173 to the High Court within ninety days, no appeal lying where the amount in dispute is less than one lakh rupees; and where the appeal is by the person required to pay the award, it is not to be entertained unless he has deposited twenty five thousand rupees or fifty per cent of the amount awarded, whichever is less.

Conclusion.

The Motor Accidents Claims Tribunal is a specialised judicial forum constituted by a State Government under section 165 of the Motor Vehicles Act, 1988, manned by a serving or former High Court Judge or District Judge or a person qualified to be one, with jurisdiction exclusive of the civil courts by section 165(3), and reachable through any of the three forums section 166(2) allows or by a police report treated as an application under section 166(4). Its procedure under section 169 is summary while carrying a civil court's powers of compulsion, and Bimla Devi fixes the standard of proof at the preponderance of probabilities.

For full marks, cover: the definition and its statutory form; the three reasons the requirement exists, since a question that says "analyse" wants the rationale and not only the rule; then the three classes in turn, and for each the two questions that matter, who has the interest and at what date it must exist, because the answer differs in each class and the divergence is the point of the question; a comparative table; and the one doctrine that explains the divergence, which is whether the contract is one of indemnity.

The statutory form is section 7 of the Marine Insurance Act, 1963, which is the only Indian codification and is applied by analogy in the other classes: 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. Sections 9 to 17 recognise particular interests: defeasible or contingent interest, partial interest, reinsurance, bottomry, masters' and seamen's wages, advance freight, charges of insurance, quantum of interest and the assignment of interest.

Why the requirement exists

There are three reasons and all three should be given, because they explain the differences between the classes.

The third is that in a contract of indemnity the interest measures the recovery. The insured recovers his loss, and his loss is the value of the interest he had. It follows that where the contract is not an indemnity, this third reason drops away, and with it the requirement that the interest continue to exist at the date of the loss. That single observation explains the whole of the comparative part of this answer.

Life insurance

In life insurance the interest is either presumed or must be proved. It is presumed and unlimited in one's own life, so a person may insure himself for any sum he can pay for; and it is presumed between spouses. Beyond those two cases the interest must be pecuniary and proved. A creditor has an interest in the life of his debtor, limited to the amount of the debt with interest and the premiums paid. An employer has an interest in the life of a key employee to the extent of the loss the business would suffer. A partner has an interest in the life of a co partner to the extent of the firm's exposure. A parent has no presumed interest in the life of an adult child, nor a child in a parent's, absent proof of dependence, and Indian textbooks frequently blur this.

Three consequences follow for the life class and they should be stated. There is no subrogation, so the insurer paying a life claim has no right against a wrongdoer who caused the death. There is no contribution, so a person holding several policies on his own life recovers on every one, which is why the insurer in Mahaveer Sharma v. Exide Life Insurance Co. Ltd., 2025 INSC 268, had to argue non disclosure of the other policies rather than double insurance, and lost on the ground that the disclosure made was substantial and that the burden of proving suppression lay on the insurer. And there is no measure of loss: the sum assured is payable in full regardless of the beneficiary's actual dependence.

Fire insurance

In fire and other property insurance the interest need not be ownership, and the categories are wide. A bailee, a carrier, a warehouseman, a mortgagee, a lessee under a repairing covenant, a trustee, an unpaid vendor and a shareholder in respect of his shares but not the company's assets all have insurable interests, because each may be prejudiced by the loss or may incur liability in respect of it.

The date at which the interest must exist in this class is both inception and loss, because the contract is one of indemnity. Two consequences follow. A person who sells the insured property ceases to have an interest and cannot recover, unless the policy has been assigned with the insurer's consent, since a fire policy is a personal contract insuring the insured's interest and not the property, and does not run with the land. And Castellain v. Preston, (1883) 11 QBD 380, shows the corollary: the vendor of a house who recovered on his fire policy and then received the full purchase price from the purchaser had to repay the insurer, because as between insurer and assured the contract is one of indemnity and of indemnity only, and the assured shall never be more than fully indemnified.

A third consequence is that subrogation, contribution and average all apply in this class, being corollaries of indemnity, codified for marine insurance in sections 79, 80 and 81 of the Marine Insurance Act, 1963 and applied to fire insurance by analogy.

Marine insurance also recognises three interests that the other classes do not. Section 11: the insurer under a contract of marine insurance has an insurable interest in his risk and may reinsure it, though unless the policy otherwise provides the original assured has no right or interest in the reinsurance. Section 14: advance freight is insurable, so a shipper who has prepaid freight may insure it, and so may a carrier who stands to lose freight payable on delivery. Section 74: where the assured has incurred, or may incur, liability to a third party by reason of an insured peril, that liability is an insurable interest, which is the statutory foundation of the protection and indemnity clubs.

Because marine insurance is an indemnity, subrogation, contribution and average apply, and are codified in sections 79, 80 and 81. But section 29 admits the valued policy, in which the parties agree the insurable value and, absent fraud, the valuation is conclusive whether the loss be total or partial. The assured may therefore recover more or less than his actual loss, which is a departure from strict indemnity that the statute deliberately permits because valuing a cargo on the sea bed is impossible.

The three classes compared

Conclusion.

Insurable interest is the requirement that the insured stand in a legal or equitable relation to the subject matter such that he benefits by its safety and is prejudiced by its loss, and it is defined by Lucena v. Craufurd and codified in section 7 of the Marine Insurance Act, 1963. It exists for three reasons: to keep insurance out of section 30 of the Indian Contract Act, 1872 and section 6 of the Marine Insurance Act, 1963; to remove the moral hazard that a person who profits by a loss will cause it; and, where the contract is an indemnity, to measure the recovery.

For full marks, cover: in (a) be honest about the wording the paper uses, since the lettered forms belong to the pre 2001 Indian tariff and are no longer issued; give the technical definition of fire and the three conditions, then the perils that are and are not covered under the wording that replaced them, and the 2021 change; in (b) the statutory text of sections 34 and 80 of the Marine Insurance Act, 1963, the four conditions for contribution, the two methods of apportionment with a worked figure, and the point that neither doctrine touches life or personal accident insurance.

The technical meaning of "fire" is the first thing to give, because it governs whichever form is in issue. Three conditions must coincide: actual ignition, that is combustion with flame or glow; fortuity, so far as the insured is concerned; and that the thing burnt was something that ought not to have been on fire. Austin v. Drewe, (1815) 6 Taunt 436: a sugar refinery's flue damper was left closed, so heat and smoke descended into the building and spoiled the sugar, nothing igniting outside the flue; held, no fire, because heat without ignition is not fire. Harris v. Poland, [1941] 1 KB 462: the insured hid jewellery in the grate, forgot it and lit the fire; held, fire, Atkinson J. reasoning that the test is whether the insured property was accidentally exposed to fire and not whether the fire itself was in an unintended place.

Damage caused by fire without being caused by burning is recoverable on ordinary proximate cause principles, so the cover extends to damage by smoke and scorching, by water or chemicals used in extinguishing, by the collapse of walls, by the acts of the fire brigade including the demolition of adjoining property to arrest the spread, and to property removed to safety and lost or damaged in the removal. Section 2(6A) of the Insurance Act, 1938 supports this by defining the class as insurance against loss by or incidental to fire.

What is expressly excluded should also be given, because it defines the cover. War and warlike operations and nuclear perils, which are excluded market wide; loss by the insured's own wilful act or with his connivance; spontaneous combustion and loss to property undergoing a process involving the application of heat; theft during or after a fire; and, in the base wording, consequential loss of any kind, so that loss of profit and standing charges require a separate business interruption section.

Since 1 April 2021 the wording has changed again for the retail and smaller commercial segments and an up to date answer must say so. 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, where the total value at risk does not exceed five crore rupees; and Bharat Laghu Udyam Suraksha, where it exceeds five crore and is up to fifty crore rupees. Two features distinguish them and both favour the policyholder: earthquake and flood are inside the base cover instead of being add ons, and Bharat Griha Raksha carries an automatic waiver of underinsurance on the building, so the condition of average does not cut the claim. Larger risks continue on the Standard Fire and Special Perils wording.

Double insurance is lawful. What the law forbids is not the taking of several policies but the recovery of more than the loss, and section 34(2) works that out in four limbs. The assured may, unless the policy otherwise provides, claim payment from the insurers in such order as he thinks fit, provided he is not entitled to receive any sum in excess of the indemnity allowed. Where the policy under which he claims is a valued policy, he must give credit, as against the valuation, for any sum received under any other policy, without regard to the actual value of the subject matter. Where it is an unvalued policy, he must give credit against the full insurable value. And where he receives any sum in excess of the indemnity allowed, he is deemed to hold that sum in trust for the insurers according to their right of contribution among themselves.

Two neighbours must be distinguished. Reinsurance is not double insurance: it is a contract between the insurer and a reinsurer, and by section 11 the original assured has no right or interest in it unless the policy otherwise provides. Co insurance is not double insurance either: several insurers agree at the outset to carry stated shares of one risk, each liable for its share alone, so there is no over insurance and no occasion for contribution.

Four conditions must coincide before contribution arises and they should be listed as conditions. The policies must cover the same subject matter. They must cover the same interest in it, so that the interests of a mortgagor and a mortgagee, or of a bailee and the owner of the goods, do not attract contribution even though the same property is covered twice. They must cover the same peril, the one that caused the loss. And all the policies must be in force and enforceable at the time of the loss, so a policy avoided for non disclosure or discharged for breach of warranty contributes nothing, and the burden falls on the remaining insurers.

There are two methods of apportionment and the difference matters where limits are uneven. Under the maximum liability method, each insurer contributes in the ratio of the sum it insured to the total of the sums insured. Under the independent liability method, the amount each insurer would have paid had it alone been on risk is computed first, and the loss is then shared in the ratio of those independent liabilities; this is the fairer method where the policies carry different limits or different average conditions, and it is the one generally adopted in practice.

The paper's reference to "Standard Fire Policies A and B" is to lettered standard forms of the pre 2001 Indian tariff, which are no longer issued, and the honest course is to say so rather than to invent their contents. What governs is the technical meaning of fire, requiring actual ignition, fortuity and that the thing burnt ought not to have been on fire, with Austin v. Drewe and Harris v. Poland marking the two edges; the base perils of the Standard Fire and Special Perils policy under the All India Fire Tariff, 2001, in which earthquake was an add on and the STFI and RSMD groups could be deleted for a reduced rate; and, since 1 April 2021, the three standard products, Bharat Griha Raksha, Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha, in which earthquake and flood sit inside the base cover and underinsurance is waived on a dwelling.

For full marks, cover: three notes of about eight marks each; for mediclaim, the statutory definition, the five features of the Indian product, the recurring litigation on pre existing disease with the decisions both ways, and the 2025 tax change; for the second, a genuine comparison in a table with the Indian case that decides which has happened; for fire, the nature as an indemnity and personal contract and the scope as the perils and the measure of recovery, avoiding repetition of the general conditions.

Five features of the Indian product carry marks. Waiting periods, an initial period in which no claim lies except for accident, with longer periods for specified diseases and for maternity. The pre existing disease exclusion, now standardised by the regulator so that a pre existing condition must be covered after a maximum waiting period. Sub limits and co payment, capping room rent or particular procedures and requiring the insured to bear a share of each claim. Cashless settlement through third party administrators and network hospitals, which is what most policyholders actually buy. And portability with lifelong renewability, which the regulator has required so that an insured does not forfeit accrued waiting period credit by changing insurers.

The recurring legal problem is non disclosure of a pre existing condition, and the decisions run in both directions. Satwant Kaur Sandhu v. New India Assurance Co. Ltd., (2009) 8 SCC 316, is the strict authority: a mediclaim proposal did not disclose chronic diabetes and renal failure, the insured died of renal failure, and the Supreme Court upheld repudiation, holding the proposal form to be the basis of the contract and "material fact" to mean any fact which would influence the judgment of a prudent insurer, the duty in a contract uberrima fides being to disclose without being asked.

Three statutory and regulatory developments complete the note. Section 21(4) of the Mental Healthcare Act, 2017 requires every insurer to make provision for medical insurance for the treatment of mental illness on the same basis as is available for physical illness. The regulator has required a standard individual health product, Arogya Sanjeevani, so that a comparable minimum cover is available from every insurer, and has restricted the grounds on which cover may be denied to persons with disabilities or HIV. And the 56th GST Council on 3 September 2025 exempted all individual health insurance premiums, including family floaters, from goods and services tax with effect from 22 September 2025, removing the eighteen per cent charge; group policies remain taxable at eighteen per cent.

One policy point is worth a closing line. India's out of pocket health expenditure remains among the highest in the world; government schemes, principally Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, cover the bottom of the distribution and commercial insurance the top, leaving a large uncovered middle. Bima Vistaar, the bundled rural product under the regulator's "Insurance for All by 2047" programme, is aimed at exactly that gap.

Assignment of the right of action is a different thing in kind: it is a transfer of the chose in action to the insurer by act of the parties, resting on agreement rather than on the indemnity principle, and usually effected by an instrument taken at settlement.

The practical lesson is that the heading of the document does not determine its character; the substance does, and an insurer that wishes to sue in its own name must take, and plead, a genuine assignment. Two further limits are worth stating. By Burnand v. Rodocanachi Sons & Co., (1882) 7 App Cas 333, a receipt by the assured which is expressly a gift and not an indemnity for the insured loss need not be accounted for to the insurer, because subrogation reaches only what diminishes the loss the insurer has paid. And the insured owes a duty not to prejudice the right, so an insured who releases the wrongdoer or lets the claim become time barred is liable to the insurer for the value of what he destroyed.

(c) Nature and scope of fire insurance

Section 2(6A) of the Insurance Act, 1938 defines fire insurance business 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. Two phrases do the work: "incidental to" brings in water damage caused in extinguishing a fire, and "customarily included" explains how storm, flood, riot and impact came to be written in a policy called a fire policy.

The scope is defined second by the perils actually written. Under the All India Fire Tariff, 2001, the Standard Fire and Special Perils policy 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 and pipes; missile testing operations; leakage from automatic sprinkler installations; and bush fire, with earthquake as an add on at extra premium and the STFI and RSMD groups deletable for a lower rate.

Since 1 April 2021 the regulator has required three standard products for the retail and smaller commercial segments, Bharat Griha Raksha for the home and its contents, Bharat Sookshma Udyam Suraksha for a value at risk up to five crore rupees and Bharat Laghu Udyam Suraksha for five to fifty crore, in which earthquake and flood are inside the base cover and Bharat Griha Raksha waives underinsurance on the building.

Two rules of construction bound the whole class. United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, (2004) 8 SCC 644, holds that the policy terms are construed as they are and that nothing may be added or subtracted, restated in Suraj Mal Ram Niwas Oil Mills v. United India Insurance, (2010) 10 SCC 567, and Export Credit Guarantee Corporation v. Garg Sons International, (2014) 1 SCC 686. M/s Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Co. Ltd., 2022 INSC 1184, holds that an exclusion never communicated to the insured cannot be enforced, that case having concerned a Standard Fire and Special Perils policy on a basement shop where the basement exclusion had never been disclosed.

Conclusion.

Fire insurance is a contract of indemnity, of utmost good faith and personal in character, insuring the insured's interest and not the property, so it does not run with the land. Its scope is fixed by the technical definition of fire, requiring actual ignition of something that ought not to be on fire; by the list of perils, which moved from the Standard Fire and Special Perils wording of the 2001 tariff to the three Bharat products from 1 April 2021; and by the measure of recovery, which is market value unless reinstatement value is bought, always subject to average and never extending to consequential loss without a separate section.

For full marks, cover: four heads are asked and then a fifth, and the fifth is the unusual one, so plan the time accordingly; give the need in terms of the distinct economic and legal functions insurance serves; the nature through the case law definition and the characteristics that follow; the types through the statutory classification and not a textbook list; the importance separately from the need, meaning what insurance does for the economy rather than for the individual; and then a real treatment of consideration, which requires the Contract Act, the point that the insurer's consideration is the assumption of risk and not the payment of a claim, and section 64VB.

The need for insurance

Insurance answers five distinct needs and they should be given as five, because a general statement about "protection" is worth very little at this level.

The fourth is social security in a country without a comprehensive welfare state. Life insurance and annuities substitute for a State pension and health insurance for a free health service, which is why the Life Insurance Corporation Act, 1956 declared the spreading of cover to rural areas and to the socially and economically backward classes among its objects.

The fifth is the mobilisation of long term savings. Life funds are the largest pool of contractual long term money in the economy, and sections 27 to 27B of the Insurance Act, 1938 direct how they must be invested.

The nature of the contract

The working legal definition is Channell J.'s in Prudential Insurance Co. v. Commissioners of Inland Revenue, [1904] 2 KB 658, a stamp duty case: a contract of insurance has three marks, a benefit on the happening of an event, an event involving uncertainty whether of occurrence or of timing, and an event adverse to the interest of the insured, the premium being the consideration.

Five characteristics follow, each with a legal consequence. The contract is aleatory, so the exchange is unequal in the individual case and equal only across the pool, which is why the premium is not returnable merely because no claim arose. It is uberrima fides, displacing caveat emptor and importing the disclosure duty of sections 19 and 20 of the Marine Insurance Act, 1963. It is executory on the insurer's side throughout the period. It is personal, insuring the insured's interest and not the thing, so a fire policy does not run with the land. And it is a contract of adhesion, drafted by the insurer, which is why M/s Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Co. Ltd., 2022 INSC 1184, holds that an exclusion never communicated to the insured cannot be enforced against him.

The types

The classification that carries marks is the statutory one, because it decides who may write what. Section 2(11) of the Insurance Act, 1938 defines life insurance business; section 2(6B) defines general insurance business as fire, marine or miscellaneous business, singly or in combination; section 2(6A) fire; section 2(13A) marine; section 2(13B) miscellaneous, the residue and now the largest head, holding motor, health, liability, engineering, aviation, crop and credit insurance; and section 2(6C) health insurance business. Reinsurance is a further head under section 11 of the Marine Insurance Act, 1963 and section 101A of the Insurance Act, 1938.

The segregation of those heads has begun to give way. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, in force from 5 February 2026, amended section 6A(1) to replace the enumeration of classes with the single expression "insurance business", the enabling change for composite registration.

To the economy it performs three functions. It is the principal source of long term domestic capital, since life funds are contractual savings with a horizon no bank deposit matches. It reduces the fiscal burden of dependency, sickness and old age that would otherwise fall on the State. And it prices risk, so that safer conduct is cheaper, which is a regulatory function performed by a market rather than by a regulator. Against those functions must be set the fact that Indian insurance penetration remains around four per cent of gross domestic product, against a global average nearer seven, with general insurance close to one, which is the gap the regulator's "Insurance for All by 2047" programme and the tax exemption of individual life and health premiums from 22 September 2025 are addressed to.

The primary form is the payment of money, and in India its timing is regulated by statute. Section 64VB of the Insurance Act, 1938 provides that no insurer shall assume any risk in India in respect of any insurance business unless and until the premium payable is received by him, or is guaranteed to be paid in the prescribed manner, or a deposit is made in advance in the prescribed manner. Payment is therefore a condition precedent to the attachment of the risk and not merely a term of the contract, which is why a proposal accepted against a cheque afterwards dishonoured leaves the insurer off risk. The section also permits payment by an authorised person on the insured's behalf and prescribes the manner of remittance by agents.

The premium may be a single premium, level annual or periodic premiums, or a variable premium adjusted at the end of the period, as in a marine open cover or a declaration policy where the final premium is computed on the values actually declared. It may be paid in money or, exceptionally, by an agreed adjustment in account. In a valued or agreed value policy it is calculated on the agreed value rather than on the true value.

Second, where the risk never attaches at all there is a total failure of consideration and the premium is returnable. The Marine Insurance Act, 1963 codifies this: section 82 provides for enforcement of the return; section 83 for return by agreement; and section 84 for return for failure of consideration, under which, where the consideration for the payment of the premium totally fails and there has been no fraud or illegality on the part of the assured, the premium is returnable, and where the consideration is apportionable and there is a total failure of an apportionable part, a proportionate part is returnable. Sections 45 and 46, under which the risk does not attach where the ship sails from another place or for another destination, are the standard illustrations.

Third, the insurer's consideration may take a form other than money even at the claim stage. The insurer's standard option to reinstate or replace instead of paying, and the cashless settlement through a network hospital in health insurance, are both performance in kind, and St. Christopher Motorists establishes that a benefit in kind is no less insurance for that reason.

Its types are the statutory heads in sections 2(6A), 2(6B), 2(6C), 2(11), 2(13A) and 2(13B) of the Insurance Act, 1938 together with reinsurance, a segregation that has begun to give way with the amendment of section 6A(1) from 5 February 2026, cut across by the divisions between indemnity and benefit, first party and third party, voluntary and compulsory.

On consideration the answer turns on one proposition: the insurer's consideration is the assumption of the risk, not the payment of a claim. The insured's consideration is the premium, whose timing is governed by section 64VB of the Insurance Act, 1938 and which is a condition precedent to the risk attaching, together with his promises of disclosure, warranty and cooperation. Because the insurer's promise is performed from the moment the risk attaches, the premium is earned whether or not a loss occurs; and because the consideration fails entirely where the risk never attaches, sections 82 to 84 of the Marine Insurance Act, 1963 provide for its return.

Section 3 of the Insurance Regulatory and Development Authority Act, 1999 establishes the Authority as a body corporate by the name of the Insurance Regulatory and Development Authority of India, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, to contract, and to sue and be sued.

Section 4 fixes the composition: the Authority shall consist of a Chairperson, not more than five whole time members and not more than four part time members, appointed by the Central Government from amongst persons of ability, integrity and standing who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which would in the opinion of the Central Government be useful. The maximum strength is therefore ten. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, in force from 5 February 2026, inserted "information technology" into that list, which reflects the supervision of a market whose distribution has moved online and whose regulator now operates an electronic marketplace of its own.

The duty

Section 14(1) states the duty and contains the tension that defines the institution: subject to the provisions of the Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure the orderly growth of the insurance business and re insurance business.

Two things should be said about it. The first is that regulation and promotion pull against each other: a body charged with growing the industry it polices has an inbuilt conflict, and the Authority's name records the choice Parliament made, since it is a Regulatory and Development Authority and not a pure conduct regulator. The second is that the duty is expressed as a duty, not a power, so it is mandatory and its exercise is amenable to judicial review for failure to act as much as for acting wrongly.

The powers and functions

Section 14(2) provides that, without prejudice to the generality of the duty, the powers and functions of the Authority shall include the following, and they group naturally under five heads.

Prudential and financial regulation. To specify the form and manner in which books of account shall be maintained and statements of account rendered by insurers and intermediaries; to regulate investment of funds by insurance companies; to regulate maintenance of the margin of solvency; to levy fees and other charges; and to call for information from, undertake inspection of, conduct enquiries and investigations including audit of insurers, intermediaries and other organisations connected with the business.

Three changes made in 2025 alter that list and should be given. In the rate control clause, the words limiting the power to business "not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938" were omitted, so the power is no longer qualified by reference to that Committee. The penalty clause was substituted so that the Authority may impose such penalty as specified in section 102 of the Insurance Act, 1938 for any violation of the Act or of rules or regulations made under it. And a new section 14A was inserted, empowering the Authority, for the efficient discharge of its functions and to regulate and develop the insurance business, to collect information relating to policies and claims from any insurer or other regulated entity.

How the powers are exercised in practice

Three examples show the three faces of the Authority and should be given, because a statutory list alone is a thin answer.

As a prudential regulator it administers registration, minimum capital, the valuation of assets and liabilities under sections 64V and 64VA of the Insurance Act, 1938, the solvency margin, and the investment norms in sections 27 to 27B.

Regulations, accountability and the limits of autonomy

The Authority acts principally through regulations. Section 26 empowers it, by notification, to make regulations consistent with the Act and the rules to carry out its purposes, and section 27 requires every rule made by the Central Government under section 24 and every regulation made by the Authority to be laid before each House of Parliament. Section 16 constitutes the Insurance Regulatory and Development Authority Fund, and section 20 requires the Authority to furnish returns and reports to the Central Government, including an annual report which is laid before Parliament.

Two provisions qualify its autonomy and any honest answer must name them. Section 18 empowers the Central Government to issue directions on questions of policy, and provides that the Government's decision as to whether a question is one of policy is final. Section 19 empowers the Central Government to supersede the Authority where it is unable to discharge its functions, has persistently defaulted, or where circumstances of public interest exist, on such supersession the powers being exercised by the Central Government. Together with the fact that all members are appointed and removable by the Central Government, these make the Authority's independence a matter of practice as much as of law.

First, the Authority's regulations are subordinate legislation and are open to challenge on the ordinary grounds. Indian Express Newspapers (Bombay) Private Ltd. v. Union of India, (1985) 1 SCC 641, holds that subordinate legislation does not enjoy the same immunity from challenge as an Act of Parliament, and may be questioned on the ground that it is manifestly arbitrary or unreasonable, that the delegate has exceeded the standard laid down by the parent statute, or that it was made on irrelevant considerations. Applied here, a regulation under section 26 may be attacked as ultra vires the duty in section 14(1) or the enumerated powers in section 14(2), or as arbitrary under Article 14.

Second, a statutory insurer is itself subject to the Constitution, and the leading case is the strongest illustration of what the Authority's policyholder protection mandate is for. Life Insurance Corporation of India v. Consumer Education and Research Centre, (1995) 5 SCC 482, decided 10 May 1995, concerned the Corporation's Table 58, its cheapest life policy, which was offered only to persons employed in Government or quasi Government organisations or in a reputed commercial firm.

The Authority is a body corporate established by section 3 of the IRDA Act, 1999, composed under section 4 of a Chairperson, not more than five whole time and not more than four part time members drawn from named disciplines, to which information technology was added with effect from 5 February 2026, holding office under the substituted section 5(1) for five years or until sixty five, whichever is earlier, with eligibility for reappointment, and removable only on the grounds in section 6 and, on the discretionary grounds, only after a hearing.

Its duty is single and is stated in section 14(1), to regulate, promote and ensure the orderly growth of insurance and re insurance business. Its powers and functions under section 14(2) group into entry control, protection of policyholders in the specific matters enumerated, regulation of intermediaries and surveyors, prudential control of accounts, investments and solvency, and market and developmental regulation including rate control and the rural and social sector obligations, all exercised through regulations made under section 26 and laid before Parliament under section 27, and supplemented since 2026 by the information gathering power in section 14A.

For full marks, cover: four heads and then a detailed note, so budget the time; the nature through section 3 and the point that this is the only codified branch; the principles with section numbers, since a marine question without section numbers is a weak answer; the scope through section 27 and the four subject matters; the importance, which is a separate head and is about the branch's place in trade and in the law generally; then perils of the sea at length, taking Rule 7 of the Schedule as the definition, its two requirements, the leading cases on each side of the line, and the three rival explanations the insurer will offer.

Principles

Insurable interest. Section 7 defines it as standing in any legal or equitable relation to the adventure or to insurable property at risk, in consequence of which the person may benefit by its safety or due arrival, be prejudiced by its loss, damage or detention, or incur liability in respect of it. Section 6 avoids wagering contracts, including a policy "interest or no interest", "without further proof of interest than the policy itself" or "without benefit of salvage to the insurer". Section 8 provides that the assured must be interested at the time of the loss though not necessarily when the insurance is effected, which is the reverse of the fire rule and is what makes the floating policy under section 31 possible. Sections 9 to 17 recognise defeasible or contingent interest, partial interest, reinsurance, bottomry, masters' and seamen's wages, advance freight, charges of insurance and quantum of interest.

Proximate cause. Section 55(1) makes the insurer liable only for loss proximately caused by a peril insured against; section 55(2) excludes wilful misconduct of the assured while preserving cover notwithstanding the negligence of master or crew, excludes loss proximately caused by delay even where the delay was caused by an insured peril, and excludes wear and tear, ordinary leakage and breakage, inherent vice, rats and vermin, and injury to machinery not proximately caused by maritime perils.

Indemnity and its corollaries. Section 67 fixes the extent of liability and sections 68 to 73 the measure for total and partial losses of ship, freight and goods; section 79 gives subrogation; section 80 gives contribution; section 81 makes an under insured assured his own insurer for the balance; and section 78, the suing and labouring clause, allows expenses properly incurred to avert or minimise a loss to be recovered in addition to the loss.

The scope also extends to the law of loss, which is more developed here than anywhere else in insurance. Section 56 divides loss into partial and total and total into actual and constructive; section 57 defines actual total loss and section 58 permits a missing ship to be presumed one; section 60 defines constructive total loss; section 62 requires notice of abandonment; sections 64 to 66 deal with particular average, salvage charges and general average, the last being an extraordinary sacrifice or expenditure voluntarily and reasonably made in a time of peril to preserve the property imperilled in the common adventure, with section 73 allowing the contribution to be recovered from the insurer.

Importance

The importance of marine insurance is of three kinds and they should be distinguished.

Commercially, it is the precondition of seaborne trade. No cargo of value moves uninsured and no bank finances a shipment that is not covered, and the international sale terms, FOB, CFR and CIF, are in substance allocations of the duty to insure. India moves the overwhelming share of its trade by sea, so the class underwrites the country's external commerce.

Perils of the sea

The definition is statutory and it is deliberately narrow. Rule 7 of the Rules for Construction of Policy in the Schedule to the Marine Insurance Act, 1963 provides that the term "perils of the seas" refers only to fortuitous accidents or casualties of the seas, and that it does not include the ordinary action of the winds and waves.

Two requirements follow and each has its own line of cases.

The first requirement is fortuity. A loss that is the certain or the ordinary consequence of the voyage is not a peril of the sea, which is why section 55(2)(c) excludes ordinary wear and tear, ordinary leakage and breakage and inherent vice. A vessel that simply works loose in ordinary weather and admits water has not suffered a casualty; she was worn out or unfit.

Wilson, Sons & Co. v. Owners of Cargo per the Xantho, (1887) 12 App Cas 503, supplies the definitional formula and a further distinction. A vessel sank after a collision in fog. The House of Lords held a collision to be a peril of the sea, Lord Herschell explaining that the expression does not cover every accident happening at sea but does cover damage of a marine character caused by the violent action of the elements, as distinguished from the natural and inevitable action of wind and wave. He added that the words mean something narrower in a policy, where they define the cover, than in a bill of lading, where they operate as an exception to a carrier's strict liability, so a case decided on a bill of lading is not automatically authority on a policy.

Canada Rice Mills Ltd. v. Union Marine and General Insurance Co. Ltd., [1941] AC 55, extends the concept to precautions taken against the sea. A cargo of rice was damaged by heating after the ventilators were closed to keep out heavy seas during a storm. The Privy Council held that where the closing of the ventilators was a reasonable precaution rendered necessary by perils of the sea, the resulting damage was proximately caused by those perils and was covered. The importance of the case is that a deliberate human act taken in response to an insured peril does not break the chain of causation.

The neighbouring perils are defined by the same Schedule and are worth naming. Rule 8: "pirates" includes passengers who mutiny and rioters who attack the ship from the shore. Rule 9: "thieves" does not cover clandestine theft or theft by any of the ship's company, whether crew or passengers. Rule 10: "arrests, restraints and detainments of kings, princes and people" refers to political or executive acts and does not include loss caused by riot or by ordinary judicial process. Rule 11: barratry includes every wrongful act wilfully committed by the master or crew to the prejudice of the owner or charterer. Rule 12: "all other perils" includes only perils similar in kind to those specifically mentioned, an express statutory adoption of the ejusdem generis rule.

Conclusion.

Marine insurance is defined by section 3 of the Marine Insurance Act, 1963 as an indemnity against losses incident to marine adventure, its principles are codified in that Act alone among Indian insurance statutes, its scope covers ship, goods, freight under section 14 and liability under section 74 on voyage or time policies under section 27, and its importance is commercial, legal and historical: it underwrites seaborne trade, it supplies the statutory language of the whole subject, and it is the branch from which every other developed.

For full marks, cover: three notes of about eight marks each, and the order the paper gives is the logical one, because the first note supplies the concept the other two apply; define the two liabilities as terms of art and explain why a liability policy insures one and excludes the other; then public liability, with the tort background and the Public Liability Insurance Act, 1991 in detail; then professional negligence, with the standard of care, the claims made trigger and the Indian consumer law position.

The reason is a reason of underwriting and should be stated. An insurer can price the general law, because the general law is knowable, is the same for every person in the insured's position, and changes only by legislation or by decision. It cannot price whatever obligations its insured may choose to accept in contracts it has never seen and will never see. A construction contractor who signs a hold harmless clause in favour of an employer may have assumed a liability many times greater than negligence would have imposed, and the premium was not calculated for it.

Second, the tort background explains why legal liability is insurable at all. Rylands v. Fletcher, (1868) LR 3 HL 330, imposed strict liability on a person who for his own purposes brings on his land and collects and keeps there anything likely to do mischief if it escapes, subject to the recognised exceptions of act of God, act of a stranger, the plaintiff's own default, statutory authority and consent. M.C. Mehta v. Union of India, (1987) 1 SCC 395, went further and is the Indian development that matters: an enterprise engaged in a hazardous or inherently dangerous activity owes an absolute and non delegable duty to the community, subject to none of the exceptions to Rylands, and the measure of compensation must be correlated to the magnitude and capacity of the enterprise so that it has a deterrent effect.

Third, in the compulsory motor class the statute supplies the legal liability and the contract cannot cut it down. Section 147 of the Motor Vehicles Act, 1988 prescribes the statutory minimum cover and section 150 obliges the insurer to satisfy awards within it notwithstanding any right to avoid the policy. In National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297, the insurer's contractual defences against its own insured did not defeat the victim's statutory claim, the Tribunal being entitled to direct it to pay and recover.

Section 3(1) imposes the liability: where death or injury to any person, other than a workman, or damage to any property has resulted from an accident, the owner shall be liable to give the relief specified in the Schedule. Section 3(2) makes it a no fault liability: in a claim under sub section (1) the claimant shall not be required to plead and establish that the death, injury or damage was due to any wrongful act, neglect or default of any person.

Section 4(1) imposes the insurance obligation: every owner shall, before he starts handling any hazardous substance, take out one or more insurance policies providing for contracts of insurance whereby he is insured against liability to give relief under section 3(1). The cover must be for an amount not less than the paid up capital of the undertaking, subject to a ceiling of fifty crore rupees. Section 4(2C) requires the owner to pay, together with the premium, an equal amount to the Environment Relief Fund, and section 7A constitutes that Fund, out of which relief awarded by the Collector may be paid.

The adjudicatory machinery changed twice and the current position must be stated correctly. The National Environment Tribunal Act, 1995 was enacted to create a tribunal for compensation claims arising from hazardous accidents but was never brought into force; the National Environment Appellate Authority Act, 1997 created a narrower appellate body; and both were repealed by the National Green Tribunal Act, 2010. The National Green Tribunal now has jurisdiction under section 14 over civil cases raising a substantial question relating to the environment arising out of the enactments in Schedule I, which includes the Public Liability Insurance Act, 1991, and power under section 15 to award compensation to victims of pollution and other environmental damage and for restitution of property and of the environment, applying by section 20 the principles of sustainable development, the precautionary principle and the polluter pays principle.

The voluntary policy sits alongside the scheme. It is written on an occurrence basis with an any one accident limit and an aggregate limit, and excludes liability to employees, which belongs to employees' compensation cover; liability for products after they have left the insured's custody, which belongs to product liability cover; contractual liability, as discussed in the first note; deliberate acts; and pollution other than sudden and accidental.

India received it and qualified it in Jacob Mathew v. State of Punjab, (2005) 6 SCC 1. A patient suffering from cancer died after the oxygen cylinder attached to his mask was found to be empty, and the doctors were prosecuted for criminal negligence. A three judge Bench held that the Bolam test governs civil negligence in India; that for criminal liability under section 304A of the Indian Penal Code the negligence must be of a very high degree, "gross" or "reckless", mere lack of necessary care not sufficing; and it laid down a procedural safeguard, that before prosecuting a doctor the investigating officer should obtain an independent and competent medical opinion, preferably from a doctor in government service. Kusum Sharma v. Batra Hospital and Medical Research Centre, (2010) 3 SCC 480, restated the principles and warned against an approach that would drive practitioners to defensive medicine.

The claims made basis is the defining feature. Unlike a fire or motor policy, which responds to an event occurring during the period, a professional indemnity policy responds to a claim first made against the insured and notified to the insurer during the policy period, whenever the negligent act occurred. The reason is the long tail: a design fault, a misdiagnosis or a defective opinion may not surface for years. Two consequences follow. A retroactive date is fixed, before which negligent acts are excluded, so a professional changing insurers must negotiate to preserve it. And on retirement he must buy run off cover, because with no policy in force a later claim has nothing to attach to.

The limits are the second feature. The policy carries a limit any one claim and a limit in the aggregate for the period, together with an excess, and defence costs may be within or in addition to the limit, which matters greatly in a long professional negligence trial.

The three notes run from the concept to two applications of it. The distinction between legal and contractual liability separates liability the law imposes from liability the insured has assumed by agreement, and a liability policy insures the first while excluding the second except to the extent it would have attached anyway. The reason is that an insurer can price the general law and cannot price a contract it has never seen.

Public liability insurance is the only compulsory liability cover in India outside motor insurance, and it exists because of M.C. Mehta, which replaced the qualified strict liability of Rylands v. Fletcher with an absolute liability admitting of no exceptions and measured by the capacity of the enterprise. The Public Liability Insurance Act, 1991 imposes no fault liability by section 3, requires cover of not less than paid up capital up to fifty crore rupees by section 4, funds an Environment Relief Fund by sections 4(2C) and 7A, gives interim relief through the Collector under sections 6 and 7, and by section 8 preserves every other remedy; jurisdiction over such compensation now lies with the National Green Tribunal under sections 14 and 15 of the Act of 2010.

For full marks, cover: this stem asks for nature, principles and scope as well as calculation and contributory negligence, so use those words as the structure rather than importing another plan; nature means benefit against indemnity; principles means the requirements the cover imposes, accident, external means, proximate cause and the exclusions; scope means the kinds of accident policy and what each covers; then the process of calculation, which must be given as an actual process, step by step, for both families; and then contributory negligence with its history, the Indian position and its differential effect.

Nature

"Accidental policies" covers two contracts of opposite legal character and the nature of each must be given.

A third arrangement lies between them, the statutory no fault scheme. Section 164 of the Motor Vehicles Act, 1988, substituted by the Motor Vehicles (Amendment) Act, 2019 in place of the omitted section 163A and its Second Schedule structured formula, makes the owner or the authorised insurer liable to pay five lakh rupees for death and two lakh fifty thousand rupees for grievous hurt, the claimant being not required to plead or establish wrongful act, neglect or default. Section 3 of the Public Liability Insurance Act, 1991 does the same for hazardous substances. These are liability schemes in form and behave like benefit schemes in operation, because the sum is fixed and fault is irrelevant.

The second principle is that the means must be accidental, violent, external and visible, and the courts have read this generously. Winspear v. Accident Insurance Co. Ltd., (1880) 6 QBD 42: the insured suffered an epileptic fit while crossing a stream and was drowned; held, death by accidental external means, the fit being the remote and the drowning the proximate cause. Lawrence v. Accidental Insurance Co. Ltd., (1881) 7 QBD 216: the insured suffered a fit on a railway platform, fell onto the line and was run over; held again that the external event, the train, was the proximate cause. The principle is that a natural or internal condition which merely exposes the insured to an external accident does not displace the accident as the cause.

The fourth principle is that the exclusions define the cover, and the standard Indian list should be given: intentional self injury, suicide or attempted suicide; injury while under the influence of intoxicating liquor or drugs; injury arising out of a breach of law with criminal intent; venereal disease and insanity; pregnancy and childbirth; participation in hazardous sports, racing, or aviation otherwise than as a fare paying passenger on a licensed aircraft; and war and nuclear risks. The third of those must be read narrowly: ordinary carelessness, even gross carelessness, is not a breach of law with criminal intent, and that is the reason a claimant's negligence does not by itself defeat a personal accident claim.

A fifth principle governs the enforceability of any of those exclusions. M/s Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Co. Ltd., 2022 INSC 1184, holds that an exclusion never brought to the notice of the insured cannot be relied on at all, and that offering cover subject to an exclusion which would swallow it is an unfair trade practice.

Scope

The scope of accident cover in India runs across five products and each is worth naming.

The process of calculating compensation and liability

The calculation differs completely between the two families and should be set out as two processes.

Under a benefit policy the process has three steps and no valuation. Step one, establish that the injury was caused by accidental, violent, external and visible means and falls within no exclusion. Step two, classify the injury on the policy's scale: the capital sum insured for death and for permanent total disablement, defined by reference to the loss of both eyes, both limbs, or one eye and one limb; a stated percentage for permanent partial disablement, commonly fifty per cent for one eye or one limb and descending percentages for lesser losses; and a weekly benefit for temporary total disablement, capped both as a percentage of income and as a number of weeks. Step three, add any bought extensions such as medical expenses. There is no deduction for the claimant's fault and no reduction for other insurance.

Under a liability policy the process is the assessment of damages, and section 168 of the Motor Vehicles Act, 1988 requires the Tribunal to determine what is just.

For an injury claim the heads are pecuniary and non pecuniary. The pecuniary heads are medical, hospital and nursing expenses actually and reasonably incurred; prosthetics, aids and future treatment; loss of earnings during incapacity; loss of future earning capacity, computed on the multiplier by reference to the percentage of functional disability, which is assessed against the claimant's occupation and is not the same as physical disability; attendant care; and special expenses. The non pecuniary heads are pain and suffering, loss of amenities, disfigurement and loss of expectation of life. The governing principle is restitutio in integrum.

Two procedural points complete the process. Interest runs under section 171 from the date of the application, and under section 149, in the 2019 numbering, the insurer's designated officer may make an offer of settlement before the Tribunal within thirty days, which on acceptance is recorded and paid within thirty days.

Contributory negligence

Contributory negligence is the claimant's own failure to take reasonable care for his safety which contributes to the damage he suffers, and its history explains the modern rule.

Apportionment replaced both. In England the Law Reform (Contributory Negligence) Act, 1945 provides that a claim is not defeated by the claimant's own fault but that damages are reduced to such extent as the court thinks just and equitable having regard to his share in the responsibility. India has no such statute, and apportionment was received judicially. Municipal Corporation of Greater Bombay v. Laxman Iyer, (2003) 8 SCC 731, is the leading authority: a cyclist was struck by a Corporation bus, and the Supreme Court held that where both parties are negligent the damages are reduced in proportion to the claimant's share of responsibility. Pramodkumar Rasikbhai Jhaveri v. Karmasey Kunvargi Tak, (2002) 6 SCC 455, applies the same approach and cautions against a mechanical use of the last opportunity rule.

The effect on the two families of accident policy is completely different, and this is the point the question is testing.

In the compulsory motor class even the insured's breaches have been largely neutralised as against the victim. National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297, requires a wilful breach and permits a pay and recover direction. National Insurance Co. Ltd. v. Nitin Khandelwal, (2008) 11 SCC 259, and Amalendu Sahoo v. Oriental Insurance Co. Ltd., (2010) 4 SCC 536, established the non standard settlement where the breach is not germane to the loss. And Bajaj Alliance General Insurance Co. Ltd. v. Rambha Devi, 2024 INSC 840, decided 6 November 2024, a five judge Constitution Bench, held that a light motor vehicle licence authorises the driving of a transport vehicle of that class up to 7,500 kg unladen weight.

Conclusion.

Contributory negligence has ceased to be a complete defence and now reduces the award in proportion to the claimant's share of responsibility, apportionment having displaced Butterfield v. Forrester and the Davies v. Mann patch, and India having adopted it judicially in Laxman Iyer without any statute of its own. Its effect falls on the liability family only: against a personal accident policy the claimant's carelessness is legally irrelevant and only an express exclusion can defeat the claim.

(a) Causa proxima

The maxim is causa proxima non remota spectatur, and in Indian marine insurance it is a statutory rule and not merely a maxim. 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 same rule to fire, accident and liability policies, because it is a rule of construction of the words "caused by" wherever they appear.

Where two causes operate concurrently, the rule turns on whether one is expressly excluded. If one is insured and the other merely unmentioned, the insurer is liable. If 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 on overnight, and the Court of Appeal held the insurer discharged.

Section 55(2) is where the doctrine does its real work and it should be given clause by 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. (b) He is not liable for loss proximately caused by delay, although the delay be caused by a peril insured against. (c) He is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter, loss proximately caused by rats or vermin, or injury to machinery not proximately caused by maritime perils.

(b) Uberrima fides

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 "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 had never been shown to the insured unenforceable and its sale an unfair trade practice.

The rationale is informational and comes from Lord Mansfield 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 it was weak against European attack and that the French were expected. Lord Mansfield explained that insurance is a contract upon speculation, that the special facts on which the contingent chance is computed lie most commonly in the knowledge of the insured only, and that the underwriter trusts to his representation. The assured nevertheless won, the London underwriter being taken to know the general state of colonial defences.

Limiting: LIC v. Asha Goel, (2001) 2 SCC 160; Sulbha Prakash Motegaonkar v. LIC, (2015) 9 SCC 596, where the suppressed ailment was unconnected with the cause of death; Manmohan Nanda v. United India Assurance Co. Ltd., (2022) 4 SCC 582, holding that an insurer which issues a policy on the disclosures made cannot reopen them at the claim stage; and Mahaveer Sharma v. Exide Life Insurance Co. Ltd., 2025 INSC 268, decided 25 February 2025, in which a twenty five lakh rupee term policy was repudiated for non disclosure of three Life Insurance Corporation policies, only an Aviva policy having been disclosed and recorded as four lakh when it in fact assured forty lakh: the Supreme Court allowed the claim, holding this substantial disclosure and placing the burden of proving suppression on the insurer.

The statutory long stop is section 45 of the Insurance Act, 1938 as substituted in 2015: no life policy may be called in question on any ground whatsoever after three years; within three years only for fraud or material misstatement and only on written grounds and materials; and no repudiation for fraud if the beneficiary proves the statement was true to the best of the insured's knowledge and belief or that there was no deliberate intention to suppress.

Section 79 of the Marine Insurance Act, 1963 codifies it, and its two sub sections state different rules. (1) On payment of a total loss, the insurer becomes entitled to take over the interest of the assured in whatever may remain of the subject matter and is subrogated to all his rights and remedies as from the time of the casualty causing the loss. (2) On payment of a partial loss, the insurer acquires no title to the subject matter, but is subrogated to those rights and remedies in so far as the assured has been indemnified.

Four rules follow. It attaches to indemnity contracts only. It arises on payment, and carries the salvage on a total loss but not on a partial one. It is enforced in the insured's name, Simpson v. Thomson, (1877) 3 App Cas 279, establishing that the insurer has no independent right of action in its own name, so it takes the claim subject to every defence available against the insured, including limitation, contributory negligence and any exemption clause in the insured's own contract with the wrongdoer. And recovery is limited to what the insurer paid, Burnand v. Rodocanachi Sons & Co., (1882) 7 App Cas 333, holding that a payment made to the assured expressly as a gift rather than as an indemnity for the insured loss need not be accounted for.

Subrogation should finally be distinguished from its two neighbours. Contribution under section 80 is the parallel corollary of indemnity operating between insurers rather than against a wrongdoer, each insurer contributing rateably on over insurance by double insurance and an insurer who overpays having the remedies of a surety. And abandonment under sections 62 and 63 is what passes the property to the insurer where a constructive total loss is claimed, which is why section 79(1) speaks of taking over the interest in what remains.

Conclusion.

The three doctrines operate at three different moments and together they define the shape of an insurance contract. Uberrima fides governs formation: sections 19 and 20 of the Marine Insurance Act, 1963 impose a mutual duty, define materiality by the prudent insurer test, and allow avoidance as the remedy, with the Indian courts moving steadily from Mithoolal Nayak to Mahaveer Sharma towards requiring the insurer to prove materiality, knowledge and fraud, and section 45 of the Insurance Act, 1938 barring the question altogether after three years.

For full marks, cover: three notes of about eight marks each; the first must be confined to life insurance and must turn on the single proposition that a life policy is not an indemnity, from which the timing rule and everything else follows; the second on reinsurance needs the statutory anchors, the four functions, the forms and the 2026 change; the third must open on the inversion of the sale of goods meaning and then give section 35, section 36, section 37 and the five implied warranties.

The interest is presumed in two cases and must be proved in the rest. It is presumed and unlimited in a person's own life, so a man may insure himself for any sum he can pay for; and it is presumed between spouses. Beyond those it must be pecuniary and proved: a creditor in the life of his debtor, limited to the debt with interest and the premiums paid; an employer in the life of a key employee to the extent of the loss the business would suffer; a partner in the life of a co partner to the extent of the firm's exposure; and a surety in the life of his principal debtor. A parent has no presumed interest in the life of an adult child, nor a child in a parent's, absent proof of dependence, and this is regularly stated wrongly.

Three consequences follow and they are the substance of the note. There is no subrogation: an insurer paying a life claim acquires no right against the person who caused the death. There is no contribution: several policies on the same life are all payable in full, which is why the insurer in Mahaveer Sharma v. Exide Life Insurance Co. Ltd., 2025 INSC 268, on discovering three undisclosed policies had to argue non disclosure rather than double insurance, and lost, the Supreme Court holding the disclosure made to be substantial and the burden of proving suppression to lie on the insurer. And there is no measure of loss: the sum assured is payable whatever the beneficiary's actual dependence.

The negative rule is illustrated by Macaura v. Northern Assurance Co. Ltd., [1925] AC 619, a property case whose principle applies here: economic dependence on an asset owned by another legal person is not an insurable interest, since neither a shareholder nor a creditor has any legal or equitable interest in a company's property. The test is legal, not economic.

Four functions justify it. Capacity, allowing an insurer to write risks larger than its own capital would permit. Stability, smoothing results across years and limiting the accumulation of catastrophe losses, which is why earthquake and flood exposures are almost entirely reinsured. Capital relief, since the solvency margin under section 64VA of the Insurance Act, 1938 is computed net of reinsurance. And the transfer of expertise, the reinsurer's underwriting and pricing knowledge coming with the treaty, which matters most in new or specialised classes.

The forms divide first into facultative and treaty. Facultative reinsurance is negotiated risk by risk, the cedant offering each and the reinsurer free to decline; flexible but administratively costly. Treaty reinsurance covers a whole class or portfolio in advance, obliging the cedant to cede and the reinsurer to accept every risk within its terms. Treaties divide again into proportional forms, quota share, where a fixed proportion of every risk is ceded, and surplus, where the cedant retains a line and cedes the balance; and non proportional forms, excess of loss, where the reinsurer pays above a retention per loss or per event, and stop loss, where it pays above an aggregate loss ratio for the year.

Two doctrines govern the reinsurance contract itself. Utmost good faith applies in full between cedant and reinsurer under section 19 of the Marine Insurance Act, 1963, the reinsurer being wholly dependent on the cedant's description of the portfolio it is accepting. And the "follow the fortunes" or "follow the settlements" clause binds the reinsurer to the cedant's bona fide settlements of the original claims, which is what makes treaty reinsurance administratively workable; without it, every underlying claim would have to be relitigated between insurer and reinsurer.

(c) Warranties with respect to marine insurance

The note must open on the inversion, because it is the commonest error in the subject. Under the Sale of Goods Act, 1930, a condition is a stipulation essential to the main purpose whose breach permits repudiation, while a warranty is collateral and sounds only in damages. In marine insurance the meanings are reversed: a warranty is the fundamental term whose breach discharges the insurer altogether, while a term the policy labels a "condition" is often merely descriptive or procedural.

Section 36 gives the only escapes and they are narrow. Non compliance is excused when, by reason of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract, or when compliance is rendered unlawful by any subsequent law; and sub section (2) allows a breach to be waived by the insurer. There is no general defence of impossibility and none of triviality.

Section 37 governs express warranties. An express warranty may be in any form of words from which an intention to warrant is to be inferred; it must be included in or written upon the policy, or contained in a document incorporated by reference; and it does not exclude an implied warranty unless inconsistent with it. Typical express warranties concern the date of sailing, the classification of the vessel and its maintenance, trading limits, the carriage or non carriage of deck cargo, the terms of any towage contract, and in cargo the manner of packing.

The implied warranties are five.

Finally, what the policy calls a "condition" falls into three classes and only construction can tell which: conditions precedent to the attachment of the risk, such as the implied condition in section 44 that the adventure be commenced within a reasonable time, breach of which entitles the insurer to avoid; conditions precedent to liability, such as a requirement of notice within a stated period; and descriptive or procedural conditions, breach of which does not discharge the insurer unless it has been prejudiced.

Conclusion.

The three notes are linked by the idea that insurance law fixes the moment at which a requirement must be satisfied, and that the moment differs with the character of the contract.

Insurable interest in life insurance need exist only at inception, because a life policy is not a contract of indemnity, Dalby having overruled Godsall v. Boldero on precisely that point. It is presumed and unlimited in one's own life and between spouses, must otherwise be pecuniary and proved, and carries no subrogation, no contribution and no measure of loss with it.