INSURANCE LAW: INTERNAL ASSESSMENT I

By: Vaishnavi Venkatesan

PRN: 18010126163

BBA LLB (3rd Year)

Div B

Mobile No: 7021091672

 LEGAL ADVICE FOR THE COMPANY ATLAS (INSURED)

After obtaining all relevant information and facts, the legal advice rendered to Atlas would be as
follows. Firstly, one of the foremost principles, imperative for Atlas to take into consideration
before they can claim the insured amount is that of insurable interest:

1. Principle of Insurable Interest:

This forms the basis of any insurance policy had has been defined in the case of Lucena v
Craufurd1 to mean any advantage or prejudice that may be accorded to a person. The governing
principle behind the same rests on the idea that any interest must be an enforceable one. The
advantage or loss must depend on some right whether contractual or propriety which is
enforceable in courts. 2 Primarily, the subject matter for which an individual enters into a
contract must either lead to some financial gain or cause some financial loss, destruction or
damage to the Insured. 3 To claim the amount of insurance, the insured must be the owner of the
4
subject matter both at the time of entering the contract and at the time of the accident.

Illustration: The owner of a fruit cart would have an insurable interest in the cart as loss of the
cart would lead to financial detriment of the owner. 5

In the present case, the owner of Atlas took an insurance policy for meat processing plant against
perils of storm, fire etc. The subject matter of insurance, i.e. meat processing plant was capable
of and indeed caused a financial loss to the insured and therefore the condition of insurable
interest is being satisfied in the present case. The owner of Atlas has an insurable interest in the
meat processing plant.

2. Principle of Proximate Cause

Also known as ‘Causa Proxima’ or the nearest cause, this principle applies when the loss is the
result of two or more causes. 6 Proximate cause refers to the initial action that caused a loss. It is

1
Lucena v Craufurd, 1806 2 BOS and PNR 269 (HL)
2
E.R.HARDY IVAMY, GENERAL P RINCIPLES OF INSURANCE LAW, 6TH EDITION, Butterworths, London, p.406-409,
(1993).
3
Gadge v Royal Exchange (1956) 66 TLR 649
4
J M Feinman, The Regulation of Insurance Claim Practices, 5, U C IRVINE L REVIEW, 1319, 1321-23 (2015)
5
Quinta communication SA v. Warriangton Ltd. (1999) 2 All ER (Comm) 123
the starting point in the chain of events that led to a loss. 7 As far as the test for determining
proximate cause is considered, it is a well-established principle that Where perils are acting
consecutively in an unbroken sequence, that is, one peril is caused by and follows from another
peril, “where perils are acting consecutively in an unbroken consequence, that is one peril is
caused by and follows from or each cause in the sequence is the reasonable and probable
consequence, directly and naturally; Where the insured peril is the preceding cause, it becomes
necessary to consider if the last cause is so intimately connected either immediately or by
transmission through a chain of circumstances with the preceding cause that the loss which is the
effect of the loss cause is nonetheless the effect of the preceding cause. 8 In such a case it would
be covered by the policy. According to various judicial decisions like Leyland Shipping Co v
Norwich Fire Insurance Co9, the doctrine of proximate cause is to be taken as referring to the
most dominant or effective cost and not the one nearest in time to the disaster. 10

It has been well established that determining proximate cause of loss is simply an application of
common sense. 11 In Marsden v City and Country Insurance12 a shopkeeper insured his plate
glass against all perils except fire. His glass was destroyed due to riots as a result of a fire break.
In this case, it was held that it was the riot and not the fire which was led to the loss and therefore
insurance was recovered. Similarly, in the case of Winicofsky v. Army & Navy Insurance13, goods
were stolen from a building during an air raid. It was held that it was theft and not the air raid
which caused the loss, the latter merely facilitated it.

A similar logic derived from the above mentioned precedents can be applied to the present case.
Here, even though loss of electricity was responsible for deterioration of meat stocks, the loss of
electricity was in the first place caused due to cyclone and heavy rains, which was a peril for
which Atlast had insured themselves. By Applying the doctrine of proximate cause in light of the
above mentioned precedents, it can be well established that in the present case too, it was the

6
Leyland’s Shipping Co. v. Norwich Fire Insurance Co., (1918) AC 350
7
JOHN BIRDS, MODERN INSURANCE LAW, SWEET AND MAXWELL, London (4th Ed.) (1997)
8
MH SRINIVASAN, PRINCIPLES OF INSURANCE LAW, LEXIS NEXIS, 226-227 (2017)
9
Leyland Shipping Co v Norwich Fire Insurance Co , 34 TLR 221: (1918) AC 350; [1918-19] All ER Rep 443 (HL)
10
Lee Co v London and Lanchanshire fire Insurance Co, (1908) Welford Fire (3rd Ed) 498
11
John Lowry, Proximate Causation in Insurance Law, 5, MODERN LAW REVIEW, 228-229 (2017).
12
Marsden v City and Country Insurance, (1865) LR 1 CP 232.
13
Winicofsky v. Army & Navy Insurance ,(1882) 7 App.Cas. 670
Cyclone and not the loss of electricity which led to the loss and therefore, the insured company
(Atlas) would be entitled to claim the loss amount by way of the said insurance policy.

3. Principle of Contribution

This principle comes into play when an insured takes up more than one insurance policy for the
same subject matter. It is an extension of the principle of indemnity and rests on the principle
that the insured cannot claim extra profits by claiming the loss of a single subject matter from
different policies or companies. 14 The right of contribution is not based on contract but what is
said to be the plainest equity on which burdens should be shared equally. 15 As far as the
conditions for contribution are concerned, the following needs to be fulfilled i.e.

 The subject matter should be common to all policies. In the present case, the subject
matter i.e. meat processing plant was subjected to all the policies of alpha, beta and
omega involved.
 The peril that causes the loss must be common. In the present case, the peril i.e. a super
cyclone and heavy rains was responsible for the power failure which subsequently led to
the loss, therefore, the perils are common in all policies.
 All policies must be effected by the same insured, which in the present case was done by
the owner of atlas.

In the case of Legal and General Assurance society Ltd v. Drake Insurance Co16 ltd, the plantiff
sought contribution from the defendant when they found out that the insured had taken up two
insurance policies. The plaintiff was granted the claimed amount from the other company on the
principles of equity. Therefore, all essentials of contribution has been met in the policy by Atlas.

Therefore, based on the above mentioned principles of insurance law, precedents established and
factual analysis of the present case, Atlas can claim the said amount from either Alpha who can
pay the entire amount and later divide it proportionately or Atlas can claim the amount in the
said proportion at the time of claim itself from both Alpha and Beta as per the insurance policy.

14
Mathie v The Argonaut Marine Insurance Co Ltd (1925) 21 QB 627
15
Shana Jain, Importance of Insurable Interest in Law, Legal Services India (17 th Aug.)
http://www.legalservicesindia.com/article/1924/Insurable-Interest-in-insurance-contract.html
16
Legal and General Assurance society Ltd v. Drake Insurance Co, (1919) 88 L.J.K.B. 1128.
 LEGAL ADVICE FOR THE INSURANCE COMPANIES

After due consideration and taking into consideration all relevant facts, the following would be
the legal advice rendered to all the insurance companies involved. In the present case, all the
companies are at the forefront, bound by the principle of indemnity. This principle rests on the
idea that insurance is done only for the coverage of the loss; hence insured should not make any
profit from the insurance contract. 17 Simply Put, the insured should be compensated the amount
equal to the actual loss and not the amount exceeding the loss. 18 The purpose of the indemnity
principle is to set back the insured at the same financial position as he was before the loss
occurred.19 In the case of Castellain v. Preston 20, it was established that a person should always
receive the full indemnity but never more. All principles of insurance law are adapted in
consonance with this fundamental rule. In the present case, the owner of Atlast has insured the
subject matter to an extent of 14L from Alpha and 6L from Beta. Since the loss faced is of 7L,
the principle of indemnity warrants that no company should pay more than what they had
warranted for and therefore, Alpha and Beta would only be liable to the extent of their liability in
a proportional manner, which is 4.9L from Alpha (further reduced to 1.96L due to reinsurance),
2.1L from Beta and 2.94L which Omega would be liable to pay to Alpha as is further explained
in the below mentioned calculations.

As a corollary to the principle of indemnity, the principles of subrogation and contribution also
play a vital role. Contribution is particularly relevant to the present case as it is a case of double
insurance, with the involvement of both Alpha and Beta and further reinsurance from Omega. In
the case of M Venkatachalapathy v. United India Insurance Company Limited 21, the defendant
had undertaken double insurance but claimed the amount from only one policy. It was held that
the other policy holder was entitled to claim the excessive amount paid from the other insurer,
provided it was not voluntary. In the present case too Alpha is only liable to pay the maximum
amount in proportion to the amount covered by Beta. The same principle also applies for Beta

17
Kaisa Grinders, Insurance Law and the Principle of Indemnity in light of Insurance Policies, INTERNATIONAL
LAW REVIEW, 235-253, 4, (2009).
18
Lisa Ray, Doctrine of Indemnity and Insurance, 3, SPINGER, 554-556 (2011).
19
Rene, Ntoko Ntonga, The Doctrine of Indemnity and Fire, Marine and General Insurance Policy, 4, CAMEROON,
221-229 (2020).
20
Castellain v. Preston , (1883) 11 QBD 280.
21
M Venkatachalapathy v. United India Insurance Company Limited,(2005) ACC 640 2007 ACJ 94.
and in case, one company due to urgency, at the time of claim ends up paying more, they can
indemnify these charges from the other company.

The principle of proximate cause also becomes highly relevant to the present case. Even though
at the face of it, it might seem like the insurance could avoid paying the amount since the super
cyclone was not an immediate cause of loss, however the principle of proximate cause would
prove otherwise. Where the expected and insured period are concurrent to each other and the
excepted peril follows an insured peril; the insurer is not liable if the loss caused by each is
undistinguishable. 22 For instance, in Lawrence v. Accident Insurance Co.23 Wherein it was held
that the death of a person falling from a railway platform in a fit and being killed by a passing
train is not proximately caused by the fit. This would be applicable if the loss and the peril are
indistinguishable from each other, however, in the present case the super cyclone and heavy rains
led to electricity failure, which was a direct consequence of defoliation of the meet stock and the
loss caused. Furthermore, the principle also adopts a common sense approach for deciphering
confusions problems like the present case. In the case of Yorkshire Dale SS Co v. Minister of
War Transport 24, it was held that Choice of the real or efficient cause from out of the whole
complex of the facts must be made by applying commonsense standards. Causation is to be
understood as the man in the street, and not as either scientist or the metaphysician would
understand it.

Therefore, in the present case too since the loss caused was a direct result of the insured peril and
the chain of causation was not broken in any manner, the legal principle of proximate cause will
apply in the present case. In light of this, both the insurance companies i.e. Alpha and Beta
would be liable to pay Atlas the requisite amounts.

As far as Alpha and Omega is concerned, the principle of reinsurance would also apply. The
liability of reinsurer arises upon the happening of a loss covered by the original policy and they
are called upon to indemnify the original company upon them undertaking such a loss.25 In the
present case, since Alpha further insured 40% of the risk with Insurance Company Omega, and it

22
J Leon, Tests of Proximate Cause, 5, JOURNAL OF MODERN LAW REVIEW, 116-118 (2011).
23
Lawrence v. Accident Insurance Co, (1881) 7 QBD 216
24
Yorkshire Dale SS Co v. Minister of War Transport,(1942) 73 Ll.L.Rep. 1.
25
Chippendale v. Holt (1895) 1 Com Case 197
has been established that all the principles have been followed, Omega will be required to pay
the said amount as per the policy.

The amount payable by all the companies is subject to the principle of ‘utmost good faith’ they
must provide clear and concise information related to the terms and conditions of the contract
and also expect the same from Atlas.

Lastly, the principle of loss minimization also becomes particularly relevant in the present case.
The principle does not allow the owner to be irresponsible or negligent just because the subject
matter is insured. In the present case, even though the facts does not state explicitly, but if later
found that Atlas did not take any measures or necessary steps to minimize the loss to the insured
property i.e. installing generator backup considering they knew that power failure could destroy
the meet in usual course of business or made arrangements for backup in case of electricity
failure, the insurance companies might not be necessarily liable. However, if the veracity of the
insured peril i.e. the cyclone was so strong that back up supply like generators and other
arrangements also failed, then the companies would be liable to pay.

Therefore, overall based on the above mentioned principles with a special focus on proximate
cause, the companies might have to pay the said amount in the policy subject to other conditions.

CALCULATION OF THE INSURANCE AMOUNTS

The ‘Maximum Liability’ method has been used in the present case to calculate the insurance
amount payable by each of the insurers.

Insurance Policy from Alpha = 14 Lakh

Insurance Policy from Beta = 6 Lakh

Loss suffered by Atlas due to the peril= 7 Lakh

 1. Principle of Contribution to Calculate amounts owed by Alpha and Beta using the
maximum liability method (In Proportion)

Proportion of amount due by Alpha: Proportion of amount due by Beta

14, 00,000: 6, 00,000 i.e. 7: 3

Amount payable by Alpha = 7, 00,000/ 10, 00,000 x 7, 00,000 = 4, 90,000

Amount payable by Beta = 3, 00,000/10, 00,000 x 7, 00,000 = 2, 10,000

2. Reinsurance By Alpha to Omega

Since Alpha has further insured 40% of the risk with Omega, Omega would be liable to pay 40%
of the amount payable by Alpha i.e.:

40% of 4,90,000 = 40/ 100 x 4,90,000 = 1,96,000 Lakh

Therefore the amount Payable by Omega= 1.96 Lakh

Overall, after employing the principles of Contribution and Reinsurance the final amounts to be
payable by the insurance companies are as follows:

Alpha= 2.94 Lakh

Beta= 2.1 Lakh

Omega= 1.96 Lakh

 REFRENCES AND BIBLIOGRAPHY

CASES

 Lucena v Craufurd, 1806 2 BOS and PNR 269 (HL)

 Gadge v Royal Exchange (1956) 66 TLR 649
 Quinta communication SA v. Warriangton Ltd. (1999) 2 All ER (Comm) 123
 Leyland’s Shipping Co. v. Norwich Fire Insurance Co., (1918) AC 350
 Lee Co v London and Lanchanshire fire Insurance Co, (1908) Welford Fire (3 rd Ed) 498
 Marsden v City and Country Insurance, (1865) LR 1 CP 232.
 Winicofsky v. Army & Navy Insurance ,(1882) 7 App.Cas. 670

 Mathie v The Argonaut Marine Insurance Co Ltd (1925) 21 QB 627

 Legal and General Assurance society Ltd v. Drake Insurance Co, (1919) 88 L.J.K.B.
1128.

 Castellain v. Preston , (1883) 11 QBD 280.

 M Venkatachalapathy v. United India Insurance Company Limited,(2005) ACC 640 2007

ACJ 94.

 Lawrence v. Accident Insurance Co, (1881) 7 QBD 216

 Yorkshire Dale SS Co v. Minister of War Transport,(1942) 73 Ll.L.Rep. 1.

 Chippendale v. Holt (1895) 1 Com Case 197

JOURNALS

 J M Feinman, The Regulation of Insurance Claim Practices, 5, U C IRVINE L R EVIEW,

1319, 1321-23 (2015)
 John Lowry, Proximate Causation in Insurance Law, 5, MODERN LAW REVIEW, 228-229
(2017).

 Kaisa Grinders, Insurance Law and the Principle of Indemnity in light of Insurance
Policies, INTERNATIONAL LAW REVIEW, 235-253, 4, (2009).
 Lisa Ray, Doctrine of Indemnity and Insurance, 3, SPINGER, 554-556 (2011).
 Rene, Ntoko Ntonga, The Doctrine of Indemnity and Fire, Marine and General
Insurance Policy, 4, CAMEROON , 221-229 (2020).

 Leon, Tests of Proximate Cause, 5, JOURNAL OF MODERN LAW REVIEW, 116-118 (2011).


INTERNET ARTICLES

 Shana Jain, Importance of Insurable Interest in Law, Legal Services India (17 th Aug.)
http://www.legalservicesindia.com/article/1924/Insurable-Interest-in-insurance-
contract.html

BOOKS

 E.R.HARDY IVAMY, GENERAL PRINCIPLES OF INSURANCE LAW, 6TH EDITION,

Butterworths, London, p.406-409, (1993).

 JOHN BIRDS, MODERN INSURANCE LAW, SWEET AND MAXWELL, London (4th Ed.)
(1997)
 MH SRINIVASAN, PRINCIPLES OF INSURANCE LAW, LEXIS NEXIS, 226-227 (2017)

ONLINE SOURCES

 Manupatra
 SccOnLine
 Jstor
 HeinOnline
 WestLaw
 Others