Principal of insurance
• Insurable interest: this is the financial or monetary or pecuniary interest which is at stake or danger if the subject matter is uninsured. It is the interest which a person has in subject matter, which he stands to loose in the event of attachment of risk. A person is deemed to have an insurable interest if he stands to gain by its existence and stands to suffer prejudice in the event of attachment of risk. There must be a direct relationship between the insured and the subject matter and the insured bears any loss arising.
• Indemnity: means that when loss occurs it is the duty of the insurer to restore the insured to the position he was before the loss. It means that the insured should be restored to the position he was before the loss. It means that there should be no more and no less than restitution integrum. This principle is only applicable to property insurance.
• Subrogation: means that after indemnity, the insurer is put into the shoes of the insured. Put in alternative, it means that after indemnity, the insurer becomes entitled to all legal and equitable rights respecting the subject matter previously exercisable by the insured. It is a latent and inherent characteristic of all contract of indemnity. It operates after full indemnity. It facilitates indemnity.
• Salvage: this is the recovery by the insurer of the remains of the subject matter after indemnity. It is an integral part of subrogation and facilitates indemnity.
• Utmost good faith: this is the principle of non-disclosure oruberrimae fidei. The insurance contract is one of the utmost good faith. Both parties are required to disclose material facts known to them (Carter V. Boehm). The duty of disclose is voluntary and exists throughout the negotiation period. Failure to disclose renders the contract voidable at the option of the innocent party.
• Contribution and Apportionment: This twin principle of insurance is applicable where the insured has taken out more than one policy on the same subject matter and risk with different insurers. If risk attaches the insured can claim from all the insurers simultaneously whereby they share the loss between themselves i.e. apportionment. If the loss is made good by one insurer, he pays more than his lawful share of the loss and is entitled to contribution from the other insurers.
• Abandonment: this is the unconditional surrender by the insured of the remains of the subject matter for indemnity in case of partial loss. It entails the giving up of the rest by the insured for indemnity. The insured surrender all documents of title to the insurer. The insured must notify the insurer of his intention of abandon and the insurer may accept the same or treat it as partial loss.