SYNOPSIS

EXTENT OF INDEMNITY IN INSURANCE CLAIMS

Submitted by

Submitted to

Abhishrut Singh

Mr. Mritunjay Mayank

Roll No. 486

Section A

National University of Study and Research in Law

Ranchi, Jharkhand

EXTENT OF INDEMNITY IN INSURANCE CLAIMS

Indemnity in protection repays the recipients of the approaches for their real monetary
misfortunes, up to the restricting measure of the protection strategy. It by and large requires
the protected to demonstrate the measure of its misfortune before it can recuperate.
Recuperation is constrained to the measure of the provable misfortune regardless of the fact
that the face measure of the approach is higher. This is as opposed to, for instance, extra
security, where the measure of the recipient's financial misfortune is superfluous. The demise
of the individual whose life is protected for reasons not prohibited from the approach commit
the back-up plan to pay the whole arrangement add up to the recipient.
Most business intrusion protection approaches contain an Extended Period of Indemnity
Endorsement, which augments scope past the time that it takes to physically re-establish the
property. This procurement covers extra costs that permit the business to come back to
thriving and help the business re-establish incomes to pre-misfortune levels.
Meaning of Insurance
In law and economics, insurance is a form of risk management primarily used to hedge
against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer
of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a
company selling the insurance; an insured, or policyholder, is the person or entity buying the
insurance policy. The insurance rate is a factor used to determine the amount to be charged
for a certain amount of insurance coverage, called the premium. Risk management, the
practice of appraising and controlling risk, has evolved as a discrete field of study and
practice. The transaction involves the insured assuming a guaranteed and known relatively
small loss in the form of payment to the insurer in exchange for the insurer's promise to
compensate (indemnify) the insured in the case of a loss. The insured receives a contract,
called the insurance policy, which details the conditions and circumstances under which the
insured will be compensated1.
Historical Development of principle of indemnity
1. Indemnity was restricted only to the loss occurred by human agency only.

1 Insurance Fundamentals by Dr. B.S. Bodla, edition-2004

In Gajanan Moreshwar vs. Moreshwar Madan2. It is stated: This definition covers indemnity
for loss caused by human agency only. It does not deal with those classes of cases where the
indemnity arises from loss caused by events or accidents which do not or may not depend
upon the conduct of the indemnifier or any other person, or by reason of liability incurred by
something done by the indemnified at the request of the indemnifier.
2. Contractual document must state clearly the terms and conditions of indemnity.
In State Bank of India and another vs. Mula Sahkari Sakhar Karkhana Ltd3, It is stated: A
document, as is well known, must be construed on the basis of the terms and conditions
contained therein. It is also trite that while construing a document the court shall not supply
any words which the author thereof did not use. The document in question is a commercial
document. It does not on its face contain any ambiguity. The High Court itself said that ex
facie the document appears to be a contract of indemnity. Surrounding circumstances are
relevant for construction of a document only if any ambiguity exists therein and not
otherwise. The said document as per Supreme Court, constitutes a document of indemnity
and not a document of guarantee as is clear from the fact that by reason thereof the appellant
was to indemnify the co-operative society against all loses, claims, damages, actions and
costs which may be suffered by it. The document does not contain the usual words found in a
bank guarantee furnished by a Bank as, for example, "unequivocal condition", "the cooperative society would be entitled to claim the damages without any delay or demur" or the
guarantee was "unconditional and absolute" as was held by the High Court. It is beyond any
cavil that a bank guarantee must be construed on its own terms. It is considered to be a
separate transaction.
Relation between Indemnity and Insurance
It has been noted above that section-124 recognizes only such contract as a contract of
indemnity where there is a promise to save another person from loss which may be caused by
the conduct of the promisor himself or by conduct of any other person. It does not cover a
promise to compensate for loss not arising due to human agency. Therefore, a contract of
insurance is not covered by the definition of section-124. Thus, if under a contract of
insurance, an insurer promises to pay compensation in the event of loss by fire, such a
2 A.I.R. 1942 Bom. 302, at p.303
3 2006 (3) SCCD 1662

contract does not come within the purview of section-124. Such contracts are valid contracts,
as being contingent contracts as defined in section-31.
In United India Insurance Co. vs. M/s. Aman Singh Munshilal4. The cover note stipulated
delivery to the consigner. Moreover, on its way to the destination the goods were to be stored
in a godown and thereafter to be carried to the destination. While the goods were in the
godown, the goods were destroyed by fire. It was held that the goods were destroyed during
transit, and the insurer was liable as per the insurance contract.
Conclusion
Indian Contract Act does not specifically provide that there can be an implied contract of
indemnity. The Privy Council has, however, recognized an implied contract of indemnity also
(Secretary of State vs. The Bank of India Ltd.)5 The Law Commission of India in its Report
(13th Report, 1958, on Indian Contract Act, 1872) has recommended the amendment of
section 124. According to its recommendation, the definition of the Contract of Indemnity
in section 124 be expanded to include cases of loss caused by events which may or may not
depend upon the conduct of any person. It should also provide clearly that the promise may
also be implied.

4 A.I.R. 1994 P. & H. 206.

5 A.I.R. 1938 P.C. 191