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Principle of subrogation

The document outlines the principles of indemnity, subrogation, and proximate cause in insurance. Indemnity ensures that the insured is restored to their pre-loss financial position without profit, while subrogation allows insurers to recover costs from third parties. Proximate cause determines the direct link between a covered event and the insured loss, ensuring clarity in coverage and preventing moral hazard.

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21 views12 pages

Principle of subrogation

The document outlines the principles of indemnity, subrogation, and proximate cause in insurance. Indemnity ensures that the insured is restored to their pre-loss financial position without profit, while subrogation allows insurers to recover costs from third parties. Proximate cause determines the direct link between a covered event and the insured loss, ensuring clarity in coverage and preventing moral hazard.

Uploaded by

lakshmianilkumar220805
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PRINCIPLE OF

SUBROGATION,
IDEMNITY AND
PROXIMATE CAUSA
PRINCIPLE OF INDEMNITY 2

Indemnity is a principle that requires the


insurer to restore the insured to their pre-
loss financial position.

Reimbursement: Indemnity is a
principle that requires the insurer
to restore the insured to their pre-
loss financial position.

No Enrichment: The insured cannot


profit from a loss: the
reimbursement is limited to actual
losses.

Fairness and Equity: Indemnity


ensures fairness and equity in the
insurance system by preventing the
insured from gaining an unfair
advantage.
3

CONDITIONS TO BE
FULFILLED
1. Insured has to undertake that he will suffer
monetary loss from the insured matter on the
happening of the insured event
2. Maximum Amount indemnification is the
amount insured.
3. Insurer has the right to indemnify from third
party
4. Does not apply to personal insurance.
4

APPLICATION OF PRINCIPLE
OF INDEMNITY
• Property Insurance: In cases of property damage or loss, the
principle of indemnity is applied to compensate the insured for
the actual financial loss suffered, considering factors like repair
costs and depreciation.
• Liability Insurance: While liability insurance is not based on the
principle of indemnity, it still involves compensating the insured
for actual financial losses resulting from covered liability claims.
• Health Insurance: In health insurance, the principle of
indemnity is applied when reimbursing the insured for actual
medical expenses incurred, up to the policy limits.
• Motor Insurance: Following an accident, motor insurance
applies the principle of indemnity by compensating the insured
for the repair costs or the actual cash value of the damaged
vehicle.
5

EXCEPTIONS
• Life Insurance: Life insurance is not strictly based on the principle
of indemnity. The insurer pays a predetermined sum (the face
amount) upon the death of the insured, regardless of the actual
financial loss suffered.
• Personal Accident Insurance: Similar to life insurance, personal
accident insurance may pay a predetermined sum for specific
injuries or events, deviating from the strict application of the
principle of indemnity.
• Valued Policies: Some policies, such as valued policies, specify a
predetermined amount of compensation irrespective of the actual
loss. These are exceptions to the principle of indemnity.
• New-for-Old Policies: In certain policies, especially in marine
insurance, "new-for-old" clauses may allow for the replacement of
damaged or lost items with new ones, without considering
6

METHODS OF INDEMNIFYING

CASH PAYMENT

REPAIR

REPLACEMENT
PRINCIPLE OF 7

SUBROGATION
Subrogation is a legal principle that allows an
insurer to step into the shoes of the insured and
pursue claims against a third party. This helps to
ᶲInsurer's ᶲInsured's ᶲBenefits of
prevent double recovery.
Rights Obligations Subrogation
The insured must Subrogation
The insurer can cooperate with helps to ensure
sue the the insurer in that the insurer
responsible pursuing the is not
party for the claim against the left bearing
amount they responsible party. the cost of a
paid to the loss caused by a
insured third party.
• Insurer pays for the insured's car
repairs, then seeks recovery
CAR from the at-fault driver.
ACCIDEN
T
• Insurer pays for damage to a
building caused by a neighbor's
negligence, then pursues
.
PROPERTY
DAMAGE
recovery from the neighbor

PR • Insurer pays for injuries caused


OD by a defective product, then
UC seeks recovery from the
T manufacturer.
LIA
BILI
TY
PROXIMATE CAUSE
• Proximate cause is a legal concept that
determines whether a covered event is directly
linked to the insured loss. Proximate cause is
applied in situations where a chain of events leads
to a loss, such as a fire caused by a faulty
Covered
appliance. Proximate Insurance
Event Cause Coverage
• The policy • The covered • The insurer
covers event must will cover the
certain be the direct loss if the
events, such cause of the proximate
as fire, theft, loss, not a cause is a
or accidents. remote or covered
indirect event.
cause.
ᶲAn intervening event that may have
contributed to or aggravated the loss.
Foreseeable Consequence
ᶲThe loss must be a foreseeable consequence
of the direct cause.
• If a flood damages a
property, and the
flood was caused by a
hurricane, the
hurricane is
APPLICATION OF considered the
PROXIMATE proximate cause.
CAUSE • If a car accident
causes a fire that
damages a property,
the accident is
considered the
proximate cause.
11

ADVANTAGES OF PROXIMATE
CAUSE
1. Clarity in Coverage Interpretation: It helps policyholders understand the specific events
and perils covered under their policies, as well as any exclusions or limitations. This
transparency allows policyholders to make informed decisions when selecting coverage and
ensures that they have a clear understanding of the risks they are protected against.
2. Accurate Coverage Determination: The Principle of Causa Proxima enables insurers to
accurately determine the coverage applicable to a specific event. By identifying the
proximate cause, insurers can assess whether the event falls within the scope of coverage
outlined in the policy. This ensures that policyholders receive the appropriate compensation
for covered losses while minimizing the potential for fraudulent or unjust claims.
3. Prevention of Moral Hazard: The Principle of Causa Proxima acts as a deterrent against
moral hazard, which refers to the increased likelihood of policyholders taking risks or being
negligent if they believe they will be fully compensated regardless of their actions. By
assessing claims based on the proximate cause, insurers discourage policyholders from
engaging in risky behavior and promote responsible risk management practices.
THANKYOU!

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