A project report

on
A study on Customer perception about life insurance policies
at
Zen Insurance Pvt Ltd .
Submitted in partial fulfillment of the
Requirements for the award of the Degree
of
MASTER OF BUSINESS ADMINISTRATION

Submitted By
Mahender Reddy
14BK1E00

Under the Guidance of

Mr. K.V.R. Satya Kumar
HOD & Assistant Professor

DEPARTMENT OF BUSINESS ADMINISTRATION

ST PETERS ENGINEERING COLLEGE
(Affiliated to Jawaharlal Nehru Technological University Hyderabad)
Hyderabad
2014 2016

INTRODUCTION TO THE STUDY

Everyone is exposed to various risks. Future is very uncertain, but there is way to protect
ones family and make ones childrens future safe. Life Insurance companies help us to
ensure that our familys future is not just secure but also prosperous.
Life Insurance is particularly important if you are the sole breadwinner for your family.
The loss of you and your income could devastate your family. Life insurance will ensure
that if anything happens to you, your loved ones will be able to manage financially. This
study titled Study of Consumers Perception about Life Insurance Policies enables the
Life Insurance Companies to understand how consumers perception differs from person
to person. How a consumer selects, organizes and interprets the service quality and the
product quality of different Life Insurance Policies, offered by various Life Insurance
Companies.
WHAT IS INSURANCE
It is a commonly acknowledged phenomenon that there are countless risks in every
sphere of life .for property, there are fire risk; for shipment of goods. There are perils of
sea; for human life there are risk of death or disability; and so on .the chances of
occurrences of the events causing losses are quite uncertain because these may or may
not take place. Therefore, with this view in mind, people facing common risks come
together and make their small contribution to the common fund. While it may not be
possible to tell in advance, which person will suffer the losses, it is possible to work out
how many persons on an average out of the group, may suffer losses. When risk occurs,
the loss is made good out of the common fund .in this way each and every one shares the
risk .in fact they share the loss by payment of premium, which is calculated on the
likelihood of loss .in olden time, the contribution make the above-stated notion of
insurance

DEFINITION OF INSURANCE

Insurance has been defined to be that in, which a sum of money as a premium is
paid by the insured in consideration of the insurers bearings the risk of paying a large
sum upon a given contingency. The insurance thus is a contract whereby:
a. Certain sum, termed as premium, is charged in consideration,
b. Against the said consideration, a large amount is guaranteed to be paid by
the insurer who received the premium,
c. The compensation will be made in certain definite sum, i.e., the loss or the
policy amount which ever may be, and
d. The payment is made only upon a contingency
More specifically, insurance may be defined as a contact between two parties, wherein
one party (the insurer) agrees to pay to the other party (the insured) or the beneficiary, a
certain sum upon a given contingency (the risk) against which insurance is required.
TYPES OF INSURANCE
Insurance occupies an important place in the modern world because of the risk, which
can be insured, in number and extent owing to the growing complexity of present day
economic system. The different type of insurance have come about by practice within
insurance companies, and by the influence of legislation controlling the transacting of
insurance business, broadly, insurance may be classified into the following categories:

1. Classification from business point of view

a) Life insurance, and
b) General insurance
2. Classification on the basis of nature of insurance
a) Life insurance
b) Fire insurance
c) Marine insurance
d) Social insurance, and
e) Miscellaneous insurance
3. Classification from risk point of view
a) Personal insurance
b) Property insurance
c) Liability insurance
d) Fidelity general insurance
 LITERATURE REVIEW

BACKGROUND OF THE STUDY

Life Insurance is a contract for payment of a sum of money to the person assured
on the happening of the event insured against. Usually the insurance contract provides
for the payment of an amount on the date of maturity or at specified dates at periodic
intervals or at unfortunate death if it occurs earlier. Obviously, there is a price to be paid
for this benefit. Among other things the contracts also provides for the payment of
premiums, by the assured.
Life Insurance is universally acknowledged as a tool to eliminate risk, substitute
certainty for uncertainty and ensure timely aid for the family in the unfortunate event of
the death of the breadwinner. In other words, it is the civilized worlds partial solution to
the problems caused by death. Life insurance helps in two ways dealing with premature
death, which leaves dependent families to fend for themselves and old age without visible
means of support. The most common types of life insurance are whole life insurance and
term life insurance. Whole life insurance provides a lifetime of protection as long as you
pay the premiums to keep the policy active. They also accrue a cash value and thus offer
a savings component. Term life insurance provides protection only during the term of the
policy and the policies are usually renewable at the end of the term
There are many Life Insurance Companies like
1. Life insurance corporation of India
2. Bajaj Allianz life insurance company
3. ICICI prudential life insurance
4. HDFC standard life insurance
5. Birla sunlife insurance
6. ING vysya life insurance
7. Metlife insurance
8. Tata AIG life insurance
9. Max newyork life insurance
10. Om kotak life insurance
INTRODUCTION

Insurance is the result of mans efforts to create financial security in the face of dangers
to his life, limbs and estate. The tension between his desire to form and develop his
estate, on the one hand, and the dangers threatening to destroy that desire on the other.
One of the most satisfactory general methods of creating financial security against risks is
that of spreading the risk among a number of persons all exposed to the same risk and all
prepared to make a relatively negligible contribution towards neutralizing the detrimental
effects of this risk which may materialize for any one or more of their number.

Insurance as precautionary measure against risk has several advantages, namely , it shifts
the greater part of the risk from the exposed person to others; it is relatively easy to
persuade individual to bind themselves to make a comparatively small contribution in
exchange for security; and insurance is applicable to a wide variety of situations.

INSURANCE AS A CONTRACT

Voluntary provision against risks by means of insurance takes the form of a contract
between an insurer and an insured person. The contract relates to the transfer of a
specific risk or risks in exchange for the payment of a consideration commonly known as
a premium. The nature and extent of the risk helps to determine the common of the
premium.

Contracts of insurance are based on considerations of individual interest and accordingly

the rules which govern them are not applicable to social insurance schemes which rest
on socio-economic considerations and are implemented by the state on a compulsory
basis e.g NSSA

HISTORICAL BACKGROUND

The modern insurance contract has its roots in two distinct lines of development i.e.

i) The practice of mutual financial assistance which eventually gave rise to

Mutual insurance, and

ii) Contract of risk spreading for consideration which developed into the
contract of insurance for profit or premium insurance in the narrow sense
of the word.
MUTUAL INSURANCE
Among the Romans, and even ancient Greece and Egypt, societies existed which afforded
members certain benefit such as proper burial risks or a financial contribution towards
buried costs. These societies can hardly be regard as insurer, but nevertheless they
represented the idea of mutual assistance in case of materialization of risks.

This idea gained prominence in the guilds or similar associations which existed in Europe
and England during the middle ages. The associations afforded members or their
dependant assistance in case of loss caused by perils such as fire, shipwreck, theft,
sickness or death.

The guilds developed into communities which were formed expressly to spread specific
risks amongst persons exposed to those risks by granting each member of the group a
legal right to assistance if the risk materialized. In exchange for this right members
undertook to pay regular contributions or premiums. In this way the concept of
community of similarly exposed persons become firmly entrenched as an element of the
concept of insurance.

INSURANCE FOR PROFIT

The idea underlying modern profit insurance was manifested in Babylonia almost 200
years before Christ in a contract of trading capital to traveling merchants. The contract
contained a clause that the risk of loss due to robbery in transit was borne by the party
providing the loan. In consideration for bearing this risk, the lender calculated interest on
the loan at an exceptionally high rate. Insurance for profit as an independent type of
contact developed from risk contained in maritime loans and certain contract of purchase
and sale. The central theme was transfer of risks in exchange for a consideration in
money. The profit motive provided an incentive for a careful calculation of both the risk
and premium.

The first clear records of contracts which provided for the undertaking of a risk in
exchange for money by an independent party not involved in the trade transaction from
which the risk and emanated would seem to be documents containing contracts for the
transfer of maritime risk gained currency towards the end of 14th century. Independent
risk bearing for consideration had by them developed in the form of marine insurance.
FURTHER DEVELOPMENT

For a considerable period up to the 19th century marine insurance was the dominant form
of insurance. In the course of time however, the various type of insurance as they exist
today developed from both mutual and profit insurance. For instance, life insurance
became an independent and acceptable contract of insurance towards the 16th or 17th
century while fire insurance contract gained currency especially from the 17 th century
onwards.

SOURCES OF INSURANCE LAW

The common law of Zimbabwe is Roman-Dutch law and as such one would except to
find the Zimbabwean law of insurance in modern Legislation and in the writings of
Roman Dutch Jurists. However, Roman Dutch Law is not applied to many aspects of
insurance contracts.

Sections 3 & 4 of the General Law Amendment Act [Chapter 8:07] placed Zimbabwean
insurance law into the mainstream legal principles which are , by and large ,
homogeneous throughout the world. The sections provided that the English Law of fire,
life and marine insurance shall apply in Zimbabwe except statutes passed after 1879.

The significance of the date 1879 lies in the fact that the General Law Amendment Act
has its origin in the Cape Act 1879 and in terms of the said Cape Act, only pre 1879
Statutes are binding.

It is however, important to note that the GLAA was itself amended by section 13 of the
Insurance (Amendment) Act, No.3 of 2004 with the effect that English law does not
apply to contracts concluded after the commencement of Act No.3 of 2004.

The GLAA makes English law applicable only on questions of insurance, not on
questions of other branches of law that may arise in the course of an insurance dispute
Thus in Northern Assurance Co. Ltd v Methuen 1937 SR 103 English Law was held not
binding on a question relating to cesscession of right under a policy. In the same case,
Mcllwaine ACJ @ 108 applied the principle that if a clause in a policy was taken from
English policies, the meaning given to the clause by English law must govern.

It is not altogether clear whatever GLAA imports the English Law of insurance generally,
or the import is confined to fire, life and marine insurance.
In Horne v Newport Gwilt & South British Insurance Co. Limited 1961 R&N 751 @
772 (also reported in 1961(3) SA 342 @ 353) Maisels J assumed that the plain wording
of the Act should not be extended; in other words English law must apply only to fire, life
and marine insurance. Thus, for example, the inclusion in a motor policy of cover against
fire does not bring the whole policy under English law; but conversely, a claim on the fire
portion of a mixed policy will fall to be decided under English law.

The principle thus formulated seems clear enough but its application invariably involves
some difficulty in that while there are matters clearly peculiar to insurance e.g insurable
interest, risk, over/under-insurance etc, other matters are evidently not peculiar to
insurance e.g stipulations in favour of 3rd parties, trusts, interpretation of policies, offer
and acceptance and the like. Borderline cases often pause an agonizing challenge, for
instance, it has been held that warranties in insurance policies are governed by English
Law (see Morris v Northern Assurance Co. Ltd 1911 CPD 293 @ 304), yet one may
well ask whether a warranty in an insurance policy differs substantially from the concept
of a warranty in the law of contract. The applicability of English Law is thus open to
debate.

The South African Appellate Division has traced the origins of the South African Law of
insurance to the Lex mercatoria of the Middle Ages. In the ultimate analysis, therefore,
it is clear that the Roman-Dutch and English law of marine insurance stem from the same
original sources.

Since South Africa has taken a distinctively Roman-Dutch bias to insurance contracts
concluded after 1879, it is proper to conclude that Zimbabwes insurance law derives
from the pre-1879 English statutes as read together with the post 1879 Roman-Dutch
common law. Indeed this is the view that is crystalised by Amendment No.3 of 2004 in
specifically ousting English law in contracts concluded after the commencement of the
amendment.

CLASSIFICATION OF INSURANCE

The most important criteria for classifying insurance contracts are the nature of the
interest insured; whether the object of the risk has been valued or not ; the nature of the
event insured against; the possible duration of the contract; and the purpose of the
insurance.
INDEMNITY & NON-INDEMNITY INSURANCE

This is the most fundamental distinction between various insurance contracts.

- In indemnity insurance the contract between the parties provides that the insurer

will indemnify the insured for loss or damage actually suffered as the result of

the happening of the event insured against.

- The whole purpose of the contract is to restore the insured to his status quo
ante and the insured may not make any profit out of his loss
- In non-indemnity insurance, on the other hand, the insurer undertakes to pay a
specified amount or periodical amounts to the insured merely on the
happening of the event insured against e.g. upon the death or injury of
insured.
- It is apparent that the distinction between indemnity and non-indemnity has
been taken to lie in the nature of the interest insured
- In indemnity insurance the interest must be, of necessity of a proprietary
nature, otherwise no financial loss or damage can be caused through its
impairment.
- On the other hand, the interest which can be the object of a non-indemnity
contract of insurance must be regarded as non-proprietary in substance. Put
differently, non-indemnity insurance depends on an event which invariably
relates to the person of the insured or a third party.
- An important consequence attached to the distinction between indemnity and
non-indemnity insurance is that in non-indemnity insurance the insurers are
not entitled to the benefits of proportionate contribution or subrogation.

PROPERTY & LIABILITY INSURANCE

- Property insurance is concerned with the positive elements (assets) of the

insureds patrimony or estate, for instance ownership of his house or
expectation of future benefit.
 - Liability insurance is concerned with negative elements (liabilities) which
come into being as part of the insureds patrimony e.g third party motor
vehicle insurance.

CLASSIFICATION ACCORDING TO THE NATURE OF EVENT INSURED

AGAINST

- Examples include marine insurance, fire insurance and personal insurance. This
classification cuts across the fields of indemnity and non-indemnity insurance. In
personal insurance, we includes life insurance, personal accident insurance and
medical insurance. The event insured against operates on the person of the insured
or a third party.

- depending on the intention of the parties, personal insurance may either be

indemnity or non-indemnity insurance while non-personal insurance can only be
indemnity insurance and nothing else.

LONG TERM & SHORT TERM INSURANCE

-Long term insurance business is defined in the Insurance Act as:

-Short term insurance business is also defined in the Act as:

The difference between long term insurance and short term insurance appears to
lie in the fact that long term insurance is concerned only with life insurance
whereas short term insurance deals with forms of insurance which are usually of
short duration.

FEATURES OF INSURANCE
INSURANCE AS A CONTRACT

(i) Definition

- In Lake v Reinsurance Corporation Ltd 1967(3) SA 124 (W) the court

adopted the following definition of a contract of insurance:
- A contract between an insurer and an insured whereby the insurer
undertakes in return for the payment of a premium to render to the insured
a sum of money, or its equivalent, on the happening of a specified uncertain
event in which the insured has some interest
- this definition is important in that it elucidates the difference between wagers
and insurance contracts, namely, the existence of an insurable interest in the
case of an insurance contract proper.
From the definition cited above it is apparent that an insurance contract must
provide for:

(a) payment of a premium

(b) performance or an undertaking to perform in exchange for the premium
(c) the possibility of an uncertain event on the outcome of which the performance
of the insurer depends on the risk.
(d) An insurable interest in the uncertain event on the part of the insured.

(ii) ESSENTIAL INGREDIENTS OF A CONTRACT OF INSURANCE

(a) Premium
- In English Law the requirement of a premium for insurance is said to be an
application of the general requirement of valuable consideration in the sense
of a quid pro quo.
- Under South African Law the requirement of valuable consideration is not
recognized. It is against the background of the South African Law that a
premium would not seem to be a requirement for the validity of a contract of
insurance.
- It is important to note that essential for the existence of an insurance contract
is an undertaking by the insured to pay a premium for his insurance, and not
payment of the premium as such.
- However, it has become customary to include in a policy a term which makes
performance by the insurer subject to prior payment of the premium.
- The undertaking to make a monetary payment as a premium need not be for a
specific amount but it must at least be ascertainable in order to meet the
requirements relating to the validity of contracts in general.
 (b) Performance by insurer
- In indemnity insurance, performance by the insurer is meant to compensate
the insured for loss suffered by him. The usual means of performance by the
insurer is by payment of money i.e indirect compensation.
- The insurers performance may also be by way of direct or physical
compensation if the contract so stipulates, for example, reinstatement clauses
frequently encountered in insurance contracts, in terms of which the insurer is
given the option to restore the property affected by the peril to the condition in
which it was before the loss.
- In Department of Trade and Industry vs St. Christopher Motorists
Association Ltd 1974 (1) Lloyds Rep 17, the court came to the conclusion
that a contract in terms of which a person is entitled to claim a chauffer
service if he becomes incapable of driving his own car amounts to insurance.
- A contract which merely confers on a person a benefit not amounting to either
monetary or direct compensation cannot qualify as a contract of insurance e.g
a benefit that a claim to compensation will be considered at the sole discretion
of the insurer.
- An undertaking to compensate the insured in money usually involves not a
certain but merely an ascertainable performance.
- The performance of the insurer in non-indemnity insurance is usually in the
form of money. However, it does occur that in certain instances the insurer
undertakes to perform something other than pay money. The amount insured
may be specified or may be in periodic payments.
(c) Risk/uncertain event
-every true contract of insurance depends on an element of uncertainty or
contingency in the contract that the contract provides that the insurer will be
liable to perform if a specified but uncertain event occurs. This event is
dependant upon a peril or hazard and the possibility that the peril will cause
harm is known as the risk.

- A contract can only be classified as an insurance contract if the bearing of

the risk by the one party is a substantial part of the contract.

(d) Insurable interest as a characteristic of insurance

Doctrine of interest

-the idea that the actual existence of an insurable interest is an essential

feature of an insurance contract forms part of one of the oldest and most
fundamental doctrines of the law of insurance, namely, the doctrine of
interest. This doctrine dates back to the Lex mercatoria of the Middle
Ages.

- The Doctrine lies at the root of the distinction between wagers and
insurance. The first prominent commentator on the doctrine was De
Casaregis, who argued that if the parties concluded a genuine contract of
insurance the insured would only be entitled to hold his insurer liable in
terms of the contract if the insured had an interest in the lost goods. This
liability of the insurer was limited to the value of the insureds interest..

Conversely, if the parties concluded a wager on the outcome of an event

liability would follow in spite of the fact that the value of any interest that
might exist was less than the amount claimed or even that no interest
whatsoever existed.

The foregoing view held by De Casaregis is fully in harmony with the

rules of English common law as it stood when wagers were legally
enforceable. The English common law provided that an insurance

contract was only enforceable if supported by an interest when the event

insured against occurred, while a wager was enforceable irrespective of
whether or not there was any insurable interest.

Whereas the requirement of interest started merely as explanatory of the

principle of indemnity, with time the idea developed that the actual
existence of an insurable interest was required for true insurance. Thus in
Prudential Insurance. Co. V Inland Revenue Commissioners 1904 KB
658 @ 663 it was stated that A contract which would otherwise be a
wager may become an insurance contract by reason of the assured
having an interest in the subject-matter- that is to say the uncertain
event which is necessary to make the contract amount to insurance must
be event which is prima facie adverse to the interest of the assured
 The position of Roman Dutch Law regarding the doctrine of interest is
more or less in harmony with the view of De Casareges and English
common law.

INSURANCE INTEREST AS A CHARACTERISTIC OF

INDEMINITY INSURANCE.

- Although the doctrine of insurable interest was originally conceived to

distinguish insurance from wagers, the rules of insurable interest are in fact
more suitable to determine who is entitled to claim on a contact of insurance
and what the extent of the claim is.
- In the case of the Saddlers Co v Bad Cock (1743) 2 Atk 554 it was decide
that for insurance purposes an insurable interest insurance purpose an
insurable interest must exist both upon the conclusion of the contact an at the
moment upon which the event insured against occurs.
- The more prevalent approach in English law appears to be that the interest
required for indemnity insurance contract need to exist only when the event
insured against takes place.
- In South Africa the doctrine of insurable interest has been applied by some
Courts in order to decide whether an insured has a claim for compensation.
However, it has not yet been clearly decided whether the existence of a
contract of insurance depends on proof that an insurable interest in fact exists.
When called upon to consider this aspect of the doctrine , the Transvaal court
in the case of Philips v General Accident Insurable Co. (SA) Ltd 1983 (4)
SA 652, took the view that insurable interest is a foreign doctrine and that
there is no justification for applying it in preference to the principles of
Roman Dutch law. In dealing with the distinction between insurance and
wager, the court came to the conclusion that the real inquiry should not be
whether the contract in question is, according to the intention of the parties, a
wager or not.
- The English law view that for true insurance an insurable interest must exist,
or that a person wishing to conclude a contact of insurance must at least
expect an interest has faced stiff resistance in South Africa, primarily on the
ground that a suitable alternative can be found in the principle of indemnity
 for which there is ample support South African and even European case
authorities.

INSURABLE INTEREST AS AN ELEMENT OF NON-INDEMINTY INSURANCE IN

ENGLISH LAW.

- In English Law life assurance was originally equated with indemnity

insurance, However, in the celebrated case of Dalby v India and London
Life Assurance Co. (1854) is Cb 365 this view was departed from. The Court
decided that a distinction must se drawn between indemnity insurance and life
assurance. In the case of life assurance an insurable interest must exist at the
time of conclusion of the contract although it needs not exist at the time when
the event insured against occurs.
- Since the interest required for non-indemnity insurance needs only to exist at
the time when the policy as taken out, it does not matter if the interest no
longer exists at the time the contract is enforced e.g as a result of divorce.
- A second possible function of the concept of insurable interest is to constitute
a requirement for the validity of the contract of insurance.
- Insurable interest serves a further function not only at the conclusion of the
contract i.e when the insured is called upon to perform its part of the bargain
it must be established whether the insured had an insurable interest, and if so
to what extent his insurable interest has been infringed.
- Also, the insurable interest of the insured is regarded as the object of the
insurance i.e it is interest as such that is insured.

INSURANCE AS A PRINCIPAL & INDEPENDENT CONTRACT

SIMILARITIES BETWEEN INSURANCE & SURETYSHIP

- Both are depended upon an uncertain event

- Both accomplish a mere indemnity to the exclusion of profit.
- Certain legal rules applicable to insurance have counterparts in the law of
suretyship e.g. the right to claim a contribution, the right to demand a cession of
action, and the right to be subrogated. The later right, which enables an insurer
 who has made good a loss (compensated an insured) to proceed against the party
who caused the loss, has given rise to the courts equating an insurer to a surety.

PURPOSE OF DISTINGUISHING
(1) A contract of suretyship must be in writing whereas a contract of insurance need
not be in writing.
(2) A surety is entitled to sue the debtor in his own name while an insurer is only
entitled to make use of the name of the insured in actions against 3rd parties.
The distinction is also of significance with regard to provisions of the
Insurance Act.
(3) The distinction is rather a fine one. Usually a contract of suretyship requires no
performance in favour of the person who stands surety whereas insurance is
reciprocal.
(4) The real distinction seems to be that a contract of insurance is a principal contract
An insured answers for its own obligations while a surety undertakes to fulfill the
obligation of another. Thus, if performance in terms of the contract is in effect
subject to the condition that a specific person does not perform his contract, it can
only be insurance if it is the intention of the parties that the insurer will indemnify
the insured for any loss caused by the event concerned, that is, non fulfillment
of a contract. If it is the intention the obligation as such must be fulfilled by the
other party, the contract amounts to suretyship.

FORMATION OF A CONTRACT OF INSURANCE

GENERAL PRINCIPLES
The basis of contractual liability where the parties do not misunderstand each other is
consensus ad idem amino contrahendi.

- In those cases where the parties misunderstand each other and apparent consent
exists, liability rests on the reasonable reliance by a contracting party on the
existence of consensus. This may be termed constructive consent. Alternatively a
party can rely on the doctrine of estoppel if they can satisfy the stringent
requirements of estoppel and wishes to avail himself of this remedy in order to
 hold a party bound by the appearance of consensus he created. However, for a
contract to exist as such actual or constructive consent must exist.
- A contract of insurance comes into existence as soon as the parties have agreed
upon every material term of the contract they wish to make such as the person or
property to be insured, the event insured against, the period of insurance and the
amount of premium. The parties need not necessarily agree on non essential
terms, just that they must agree on the essentials for insurance.
- As a rule, the parties to a contract of insurance do not apply their minds to each
specific term but rather contract on the basis of the insurers usual terms for the
particular type of risk to be insured against.
- The contract of insurance only comes into existence when consensus is reached.

THE PARTIES
- The ordinary indemnity policies there are usually two parties i.e. the insurer and
the insured. The insured is the person who enjoys protection in terms of the policy
and he is first holder of the policy. Subsequent holders of the policy are in the
position of cessionaries.
- In terms of Part III Section 7 of the Insurance Act, an insurer must be a body
corporate registered in terms of the Act.
- There may also be a third party interested in a particular policy, viz, the
beneficiary in terms of a contract in favour of a 3rd party.
- The parties to a contract of insurance may be represented by agents.

OFFER
- In general insurers do not make binding offers to insure but rather invite the
parties to apply for insurance i.e. an invitation to treat.
- The actual offer is therefore made by the proposed insured by completing the
proposed form which, as formulated by insurers do not leave much room for
bargaining between the parties.
- Most of the terms of the proposed contact are not expressly stated, the intention
being to contract on the usual terms of the insurer. Once a reference to the usual
terms is included in the contract, the insured actually agrees to them and cannot
 afterwards be heard to say that he did not have the opportunity to ascertain the
exact content of such terms.
- In a case where the proposal by the insured to be is not acceptable to the insurer
as it stands but where the insurer is willing to contract on other terms, a counter
offer may be made by the insurer.

ACCEPTANCE
- This means an express or tacit statement of intention in which an offeree signifies
his unconditional assent to the offer.
- The insurer as offeree usually accepts the offer by sending the proposer a policy
accompanied by a covering letter communicating the acceptance. Usually the very
act of sending the policy is sufficient to communicate acceptance.
- A demand for the premium by the insurer may also operate as an acceptance.
- A firm acceptance may also be contained in a an interim cover note, albeit such
note is generally an acceptance of a proposal for temporary cover.
- If a policy which is dispatched to the proposer differs from the terms of the offer
but the insurer did not intend it to differ, the dispatch of the policy, subject to
rectification of the policy, is sufficient to signify the insurers acceptance.
Conversely, if the policy issued is intended to differ from the proposal received by
the insurer, the issuance of the policy can at most be a counter offer requiring
acceptance by the insured to be.

THE POLICY
- is the document expressing the terms of a contract of insurance . a contract of
insurance does not need to be in writing to be valid but it has become standard
practice to reduce the contracts to writing.
- The effect of reducing the contract to writing is that the document, by virtue of the
parol evidence rule, becomes the only record of the transaction between the
parties, provided the parties accept the written document as the sole memorial of
their transaction.
- While the traditional method of indicating acceptance of a document as the
embodiment of a contract is by affixing a signature thereto, the practice in
 insurance is that the policy is never signed by the insured but only by or on behalf
of the insurer.
- Where a particular policy is accepted as the sole memorial of the contract, the
terms of the contract cannot be sought outside the policy and its constituting parts
such as schedules, slips or endorsements. Other separate documents such as
proposal forms or prospectuses are not admissible as evidence of particular terms
(Parol evidence rule). However, if any such other document has been
incorporated, expressly or tacitly, by references, it is part and parcel of the policy.
This usually happens with proposal forms.

REQUIREMENTS FOR A VALID CONTRACT OF INSURANCE

A CONTRACTUAL CAPACITY

- The general rule that the parties to a contract must have contractual capacity for
the contract to be valid is subject to exceptions in the context of insurance.
B LAWFULNESS

- like any other contract a contract of insurance must be lawful. The common law
renders illegal all contracts which are contrary to public policy or good morals.
The prohibition of a contract by the law may relate to the conclusion or the
contract performance in terms of the contract, or the purpose of the contract.

- In line with the principle of sanctity of contracts and the rules of interpretations a
court, when called upon to decide whether an insurance contract is unlawful,
attempts to uphold the contract by establishing whether the objectionable
elements can be severed from the contract with the remainder being enforceable.
Unless the illegality appears ex facie the transaction sued upon, a litigant who
wishes to rely on a defence of illegality must plead and prove such illegality and
the circumstances upon which it is founded.
- The requirements of lawfulness of contracts are governed by the general
principles of the law of contract and there are no principles peculiar to insurance
contracts.
- The litmus test for legality in respect of certain contracts of insurance is to be
found in the provisions of the Insurance Act, for instance Part IX of the Act,
 Section 41 forbids insurers to insure lives of young children in excess of certain
amounts: Section 7 of the Act also prohibits persons from carrying on any class of
insurance business in Zimbabwe unless he is registered in terms of the Act as an
insurer in the class of insurance business carried on by him. Other prohibitions
relate to licensing and other related aspects.
- The Act does not expressly provide that a contract concluded in contravention of
its provisions is invalid. What the Act simply does is to provide for general
penalties for non compliance. The mere fact that conclusion of a contract is by
implication contrary to the provisions of a legislative intention to prohibit the
contract and thus render it unlawful. Such intention may be inferred according to
the general rule of interpretation, but each case must be dealt with in the light of
its own language, scope and object and considerations of justice and convenience.
(Metro Western Cape (Pvt) Ltd v Ross 1986 (3) SA 181)

PERFORMANCE MUST BE LAWFUL

- A contract of insurance is not often unlawful on account of performance since the
performance of both parties is normally of a monetary nature. However, if the
contract of insurance is to be performed in contravention of the exchange control
laws, it becomes illegal because of the illegality involved in the execution of the
contract.

PURPOSE OF CONTRACT MUST BE LAWFUL

- If the parties conclude an insurance contact to cover the insured where the crime
or civil wrong of is closely associated with it, the purpose of the agreement and
therefore the agreement itself is unlawful.
- In Richards v Guardian Assurance Co. 1907 TH 24 it was decided that an
agreement to insure a house which was being used as a brothel was unlawful. The
court explained that where the legislature has laid down that certain acts are
illegal, all acts which tend to facilitate or encourage such illegal acts must
themselves be regarded as illegal.
UNREASONBALE CONTRACTS
- If there is no ambiguity in the language of the contract and the ordinary sense of
the words does not lead to absurdity, repugnancy or inconsistency with the rest of
the contract, the contract as concluded by the parties is enforceable no matter how
unreasonable its effects may be.

CONSEQUENCES OF UNLAWFUL AGREEMENTS

- Normal effect is that they are null and void. The law allows no exceptions to this
rule, not even if the parties were totally unaware of the illegality.
- If performance has been rendered, such performance may be recovered with the
rei vindicatio where applicable or the enrichment action known as the condictio
ob turpen vel iniustam causam. Of course the recovering is subject to the par
delictum rule which bars recovery unless public policy will be better served by
allowing recovery of what has been performed.

PERFORMANCE MUST BE POSSIBLE & ASCERTAINABLE

- Since performance by the parties to an insurance contract invariably consists in
payment of money, an obligation to pay money is a generic obligation which
cannot be impossible.
- However, where an insurer agrees to have the object of the risk reinstated, the
requirement that performance must be possible becomes relevant. In this case if
reinstatement is initially impossible, the contract must provide for an alternative
performance, viz compensation in money.

PERFORMANCE MUST BE ASCERTAINABLE

- This requirement may operate in respect of the validity of an offer or as a separate
requirement for the validity of the contract.
- In line with the general principles of the law of contract the premium payable
need not be a specified amount, it suffices if the amount is merely ascertainable.
- Regarding performance by the insurer, the undertaking to compensate the insured
is sufficiently ascertained.
FORMALITIES
- No formalities required. Writing not required by the common law for the validity
of insurance contracts, nor has the Insurance Act introduced any such
requirement.
- Although no formal requirement is laid down by the law, the parties may agree
that no contract will materialize unless reduced to writing in the form of a policy
and unless such policy has been delivered to the insured.
- Further, albeit there is no rule requiring prior payment of the premium, the parties
frequently contract subject to a clause that no contract will come into being or that
the liability of the insurer will not commence until a premium is paid.

MISREPRESENTATION
GOOD FAITH

- All contracts are subject to good faith i.e they are bona fide.
- In modern case law and literature insurance contracts have been classified as
contracts uberimmae fidei. This is the prevailing classification in English Law.
- In South Africa, the Appellate Division in Mutual Insurance Co. Ltd v
Oudtshoorn Municipality 1985 (1) SA 419 (A) rejected the term uberimmae
fides as an alien expression adopted from English Law, vague and useless,
without any particular meaning other than bona fides.
The Appellate Division, however, did not set out the content of the requirement of
bona fides as it pertains to insurance; thus authority which dealt with the content
of uberimma fides is still persuasive although one must keep in mind that the duty
concerned is not one of exceptionally good faith but simply good faith.

- Generally contracts uberimmae fides impose a duty on the contracting parties to

display utmost good faith towards each other during negotiations leading to the
conclusion of the contract, and only exceptionally during the subsistence of the
contract itself.
- The duty of good faith applies to both the insurance proposer and the insurer.
- It has been said that in respect of principles of good faith is of limited duration
and applies during pre- contractual negotiations only. Once the contract has been
 concluded, it is generally said, no special duty of good faith attaches. (See
Pereira v Marine and Trade Insurance Co. Ltd 1975 (4) SA 745 (a)
- One consideration which has been raised and which may constitute a duty of good
faith attaching to an insured during the subsistence of the contract is the question
whether an insurer is entitled to avoid a policy if the insured brings a fraudulent
claim.
- The duty of good faith existing during the subsistence of the contract must not be
confused with the position of the parties upon renewal of a contract of insurance.
- The duty of good faith attaches to renewal of a contract of insurance as it did in
the conclusion of the original contract.
- Requiring uberimma fides instead of mere bona fides has been a way of
expressing the fact that in insurance contracts, a contracting partys conduct may
more readily be found to have infringed the right protecting the other party from
mala fide conduct during pre-contractual negotiations. It does not refer to a
principle of law distinct from liability for misrepresentation.
- Therefore reference outmost good faith does not indicate a distinct principle of
law; there are no degrees of good faith, such as little, more or utmost good faith
(See Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality @ 433)
- IN fact uberimmae fides has been called one of the indicia, rather than a
consequence of insurance See Iscor Pension Fund v Marine and Trade
Insurance Co Ltd 1961 (1) SA 178 (T)
- Therefore a party to an insurance contract who wishes to proceed on the basis of a
breach of the duty of good faith must place his claim within the four corners of
the requirements for misrepresentation.
- The principle underlying the requirement of good faith signifies that either party
may avoid a contract of insurance if the other party has positively misrepresented
a material fact.

- Although insurers rarely commit a breach of the duty of good faith, there are
certain instances where such breach may be committed; for instance, an
inaccurate statement of the nature of insurance offered or the extent of cover made
in the invitation to take out insurance , or the amount of premium payable by the
insured.
 - Generally, however, the duty of good faith relates to the right of the insurer to
receive correct and complete information about material facts relating to the risk.
- Accordingly the duty principally rests on the proposer and requires the proposer
to refrain from furnishing false information he possess concerning material facts.
- Put differently is it the proposers duty to be honest, straightforward, candid and
accurate in making positive statements about material facts and to make full
disclosure of such facts.

JUSTIFICATION OF THE DUTY OF GOOD FAITH

- An insurer who wishes to calculate the insurability of a specific risk must be able
to quantify the possibility of loss into a degree of probability. To this end the
insurer requires extensive information about and knowledge of the facts affecting
the risk. It is only after the insurer has been furnished with adequate information
that it can calculate the risk and come to a decision whether it is prepared to
accept the risk, the extent of the risk to be accepted and the terms of the contract
such as the amount of premium to be charged.
- Since decisions concerning the risk and premiums are included in the contract
they must be taken before the contract is concluded.
- In view of the fact that the requirements of good faith and the duty to disclose
material facts can obviously be classified as part of the law on misrepresentation
and not as some distinct and strict or principle, the position of the proposer is not
unduly aggravated by the existence of these duties.
The principles of misrepresentation and good faith apply to all types of insurance.

REQUIREMENTS FOR LIABILITY FOR MISREPRESENTATIO

- Misrepresentation is a delict and as such a party to a contract of insurance who

seeks relief on the ground of misrep must prove that the misrep meets all the
requirements for liability in delict, namely, an act (conduct) committed by the
wrongdoer, an element of wrongfulness attached to the act, a detrimental result
which was caused by the wrongful conduct, and (usually) a blameworthiness on
the part of the wrongdoer.
MISREPRESENTATION BY COMMISSION

- Is a positive act consisting in a pre-contractual statement of fact made by one of

the parties to a contract of insurance. The statement must be false or inaccurate
and wrongful, and may be accompanied by fault or may be innocent, and must
induce the other party to enter into the contract or to agree to specific terms in the
contract, contrary to what he would have done if he had not been misled.
ELEMENT OF MISREP BY COMMISSION

POSITIVE ACT OF COMMISSION

- The representation takes place by means of a positive act or commission in the

form of an actual statement and not through omission.
- The statement may be written or oral, it may comprise of an incorrect or
inaccurate answer given to a question by an insurance agent or in a proposal form.

STATEMENT OF FACT

- A misrepresentation give rise to liability only if it consists in a statement of fact. A

mere opinion does not suffice to incur liability on the party expressing it.

FALSE OR INACCURATE STATEMENT

- the statement must be wholly false or at least inaccurate.

- The accuracy of a settlement must be gauged by considering it within the context
in which it was made.
- It is sometimes said that a statement need not be correct in every detail, however
or substantially correct.

WONGFULLNESS

- A positive representation is only wrongful if it relates to material facts, if it is

false and if the party to whom it is addressed was actually misled in the sense that
he put his faith in the false representation.
MISREPRESENTATION BY OMMISSION

- A misrepresentation by omission is a wrongful omission by on of the parties to a

contract of insurance to disclose, during the course of pre-contractual negotiations
certain facts within his knowledge, thereby inducing the other party to enter into
the contract or to agree to specific terms in the contract, contrary to what he
would have done if the facts had been disclosed. The omission may be
accompanied by fault or may even be completely innocent.

OMMISSION

- although is can be typical as a settlement of fact, the act which creates a wrong
impression is not a positive one, but an omission, namely the failure to remove an
existing fact which would have done so. The omission may be a deliberate
concealment or an inadvertent non-disclosure.
(a) Duty to disclose
- An omission is wrongful if it is committed in breach of a duty, resting on a party
to act positively.
- A duty to act positively arises if the circumstances are such that the imposition of
a duty is reasonable according to the legal convictions of the community. A duty
to disclose exists with reference to facts, which are material to the contract in
question and if the representative has actually been mislead by the failure to
disclose.

- The duty to disclose has been said to be the correlative of a right of disclosure
which is a legal principle of the law of insurance: (see Mutual Federal
Insurance Company Limited v Oudtshoorn Municipality case)
- The reference to the duty of disclosure as being particularly related to the contract
of insurance must be understood as an expression of the fact that the
circumstances surrounding insurance contracts are typically circumstances giving
rise to a duty to disclose.
(b) Facts within knowledge of Representor
- In Joel v Law Union and Crown Insurance Co 1908 (20 KB 863 (LA) 884
Fletcher Moultin LJ said that the duty in point : is a duty to disclose, and you
 cannot disclose what you do not know. The obligation to disclose, therefore,
necessarily depends on the knowledge you possess
- Section 18 of the Marine Insurance Act of 1906 provides that an insured is
deemed to know every circumstances which, in the ordinary course of business,
ought to be known by him.
- Whereas some English authorities suggest that this principle of constructive
knowledge has general application, South African case law follows the view that a
duty only exists to disclose material facts within ones actual knowledge.
(c) Extent of duty of disclosure
- Although in principle the duty of disclosure attaches to all material facts, the
extent of the duty may be limited in certain instances. An insurer may either
expressly or tacitly limit or waiver the duty.
- Whether or not a waiver has taken place depends on the facts of each case.
- Ramsbottom J, in Whytes Estate v Dominion Insurance Company of SA Limited
1945 TPD 382 @ 404 said The fact that a question is put to elicit certain
information does not necessarily relieve the proposer from disclosing further facts
of a kindred nature. Further, an insurer may expressly limit the duty by stating
that no further information on a particular subject is required.
- The duty may also be extended by question in a proposal form.
- Certain categories of facts which are, in principle, material nevertheless fall
outside the ambit of the duty to disclose e. g. those facts which are actually known
to the other party such as those which are matters of common knowledge existing
in the public domain or those matters that live within the sphere of knowledge of
the ordinary professional insurer.
- A proposer need not disclose facts tending to diminish the risk although they are
material to the insurers decision on whether to undertake the risk and at what
premium
(d) Duration of duty of duty of disclosure.
- The duty seems to relate only yo negotiations preceding the contract. As Corbett
JA remarked in Pereira V Marine and Trade Insurance Company Limited
1975(4) SA 745 (A) 756A the purpose and rationale of the pre-contract
duty of disclosure could hardly apply after the conclusion of the contract.
 - Therefore the duty attaches to material facts that come to a partys attention
during negotiations. Once the contract comes into existence, a party needs no
disclose material facts coming into his knowledge.
- If a contract of insurance is renewed the duty of disclosure attaches just as
concluded. This means that a party is obliged to disclose all material facts
including those which have come to his knowledge since the conclusion of the
original contract.

Materiality of non disclosure

- The courts limited the actionability of false representations to those relating to

insurance matter are concerned.

See Stumbles V New Zealand Insurance Co. Ltd 1963 (2) SA 44 (SR),

Kelly v Pickering 1980 ZLR also reported in 1980(Z) JA 758 (R),

Pickering V Standard General Insurance Co Limited 1980 (4) SA 326 (ZA) @

331

Mutual and Federeal Insurance Co Limited V Oudtshoom Mnicipality 1985 (4)

(SA) 419 (A).

- The courts expressly refer not to a comprehensive duty to disclose facts in

general, but a duty to disclose material facts only. For instance in Colonial
Industries Ltd v Provincial Insurance Co Ltd 1922 AD 33 the court was
concerned with a duty to make a full disclosure of all material facts

- In Pereira v Marine and Trade Insurance Co. Ltd where, with reference to an
alleged duty to disclose facts stante contractu, it was said that any such
supposed duty of disclosure would, of necessity, be limited to material facts or
circumstances

The concept of materiality is primarily used as a requirement for liability distinct

from the element of inducement

(e) The test for materiality

- The test for materiality is objective facts are material if they are of such a nature
that knowledge of the facts would probably influence the representative in
deciding whether influence the representee in deciding whether to conclude the
contract and on to conclude the contract and on what terms (see Karroo and
Eastern Board of Executors & Trust Co v Farr 1921 Ad 413)

- The difficulty that arises is what criteria is used to determine the probable
influence on the mind of the representative.

- The difficulty arises in relation to misrep made by a proposer towards an insurer

where the facts are regarded as material if they will probably influence the
decision of the insurer whether to accept the risk, and if so, at what premium.

- The criterion for determining the influence on the insurers decision is the
reasonable man test (See Fine v The General Accident, Fire and Life
Assurance Corp Limited, Colonial Industries v Provincial Insurance Co,
Pereira V Marine and Trade Insurance, Mutual & Federal Insurance v
Oudtshoorn Municipality.

- According to the Appellate Division this test is applied to determine, whether or

not, from the point of view of the average prudent person, the undisclosed
information or facts are reasonably relative to the risk or the assessment of the
premium.

- A number of decisions suggest that the criterion is the judgment of a prudent and
experienced insurer, which means the facts are material if they will influence the
mind of a prudent and experienced insurer in relation to the risk and its premium
(See such cases as Colonial Industries v Provincial Insurance Co, Whytes
Estate v Dominion Insurance Co of Mutual & Federeal Insurance Co v
Oudsthoorn Municipality).

- Other decisions hold that the criterion is whether a reasonable man in the position
of the insured would have regarded the particular facts as relevant to the decision
of an insurer concerning the risk and the premium.
 - It has been said that the two schools of thought represent two separate test for
materiality. However, prevailing authority has suggested that it is not necessary to
separate completely the criteria of the reasonable proposer and the prudent
insurer. Reference to the test of the reasonable proposer is simply an attempt to
limit the scope and strictness of the test of the prudent and experienced insurer
without discharging it.

- A hybrid test for materiality would be whether, according to the opinion of a

reasonable man in the position of the particular proposer, the facts in point are
likely to influence the decision a prudent and experienced insurer regarding the
risk and its premium. (See Anglo African Merchants Ltd v Bailey 1970 (1) QB
311 @ 319.

- The reasonable man test as formulated in the Mutual and Federal Insurance Co
Ltd case reflects an attempt to do justice to the interests of both the insured and
the insurer.

The test is said to be objective and the court personifies the hypothetical diligens
paterfamilias to which the test applies.

- For the sake of clarity, the test of materiality formulated in the Mutual and
Federal case is best expressed as referring to those facts which are reasonably related
to the insurers decision when all the circumstances of the case are taken into account.

EXAMPLE OF CATEGORIES OF FACTS THAT HAVE BEEN HELD TO BE

MATERIAL

- Facts indicative of exceptional exposure to risk such as a dangerous occupational

or hobby, characteristics or attributes making the person or object exposed to the
risk particularly vulnerable.

- The insurance record, for instance the fact that was cancelled (Colonial
Industries).

- Subjective circumstances affecting the risk such as the proposers financial or

business integrity, circumstances indicating that motive for insurance may be
illegal or dishonest, or the fact that the proposer is prone to cause the risk to
materialize. An example is where an insured fails to disclose that he is an
 unrehabilitated insolvent (See Steyn v A Ounderlinge 1985(4) SA 7 (T) or failure
to disclose that the premises covered by a fire insurance contract are used as a
brothel (See Richards v Guardian Assurance Co 1907 TH 24) or the fact that the
proposer previously suffered loss in a manner indicating carelessness on his part
(Israel Bros v Northern Assurance Co and the Union Assurance Society (1892)
4 SAR 175).

- The rule is that facts which reflect on the character of the insured or of those
persons of objects exposed to the risk must be disclosed (Malcher & Malcomes
and Trust Co (1883) 3 EDC 271 279 289)

- The proposers interest in the subject matter does not normally affect the risk and
is therefore not material. However where it does affect the risk it becomes
material.

THE DOCTRINE OF SUBROGATION

In the context insurance subrogation embraces a set of rules providing a right of

recourse for an insurer which has indemnified its insured

It means that a contract of insurance creates a personal right for an insurer against its
insured it terms of which it is entitled to recoup itself out of the proceeds of any rights
the insured may have against 3rd parties in respect of the loss.

The right for reimbursement cannot be for more than the amount paid out the insurer
as indemnity to the insured.

Subrogation is concerned exclusively with the mutual rights and liabilities of the
parties to the contract of insurance, it confers no rights and imposes no liabilities on
third parties.

Because the insurer is, as against its insured entitled to be reimbursed out of the
proceed of the insureds remedies against 3rd parties, the insured may not actively deal
with his rights against 3rd parties to the detriments of the insurer, for instance by
releasing the 3rd party from liability.

In support of its right to reimbursement, an insurer is also entitled to its insureds

consent to bringing an action against a third party in the name of the insured. This
 latter right is known as the insurers secondary right only arises where the insured has
lost all interest in the outcome of the proceedings in that he has received full
compensation for all losses caused by the event insured against. The insurer then
becomes the dominus litis although the action proceeds in the name of the insured.
The advantage for the insurer is that it can ensure that an action is brought against the
3rd party and that the proceedings are properly conducted.

THE PURPOSE OF SUBROGATION

It purpose is to prevent the insured from retaining an indemnity from both the insurer
and a third party.

Further, through subrogation the insurer is recompensed for the amount it has paid to
the basis of the insured. This right of redress is the basis of the insureds duty not to
prejudice the insurers position.

By affording the insurer a right of redress, the cost of insurance to the public is kept
low, since the insurer is enabled to recoup its loss from a source other than premium
income.

On a social level the doctrine serves to safeguard the principles that a person who has
caused loss to another by his unlawful conduct must bear that loss since a wrongful
cannot hide behind insurance.

The doctrine of subrogation also strengthens the position of an insurer by creating a

trust in favour of the insurer. In Ackerman v Boubser 1908 OPD 31 the court referred
to an insured who had recovered compensation from a third party as a trustee for the
insurer.

THE BASIS FOR THE DOCTRINE

The insurers right of subrogation rests on contract. It is by virtue of the terms of the
contract that the insurer is entitled to benefit from the proceeds of the insureds
remedies against third parties in respect of the loss.

Likewise, it is in terms of the contract that the insurer is entitled to consent of the
insured to bring an action against a third party in the name of the insured.
 The terms giving rise to the personal rights and duties in the context of subrogation
may be express, but more often then not they are implied by operation of law.

SCOPE OF THE DOCTRINE

Since one of the justifications of the doctrine of subrogation is to prevent the insured
from receiving double indemnity, subrogation applies to all forms of indemnity
insurance. However, it has no application in non indemnity insurance unless the
parties have expressly agreed to grant the insurer rights of subrogation.

The locus classics on subrogation is Castellain v Preston (1883) 11 QBD 380 (CA)
wherein the court considered the scope of the doctrine and expressed itself as follows
As between the underwriter and the assured the underwriter is entitled to the
advantage of every right of the assured the underwriter is entitled to the advantage of
every right is entitled to the advantage of every right of the assured, whether such
right consists in contract, fulfilled or unfulfilled, in remedy for tort capable of being
insisted on or already insisted on, or in any other right, whether by way of condition
or otherwise, legal or equitable, which can be, or has been exercised or has accrued,
and whether such right could or could not be enforced by the insurer in the name of
the assured by the exercise or acquiring of which right or condition the loss against
which the loss is insured can be or has been diminished

The insurer is therefore not only entitled to the advantages of the insured remedies
against 3rd parties who are contractually, delictually or otherwise liable for
compensation for the loss, but also to the advantage of every other right, provided it
serves as a total or a partial substitute for the insured interest, such as the proceeds of
a sale of an insured asset or compensation upon expropriation.

Subrogation applies also to rights received by the insured even though no right to
receive such gifts existed when the loss occurred.

REQUIREMENTS FOR THE OPERATION OF THE DOCTRINE

(a) Valid contract of indemnity Insurance.
 (b) Since the insurers right to subrogation is derived from the contract of insurance,
no subrogation can take place where it has paid for a loss in terms of an invalid
contract of insurance.
(c) However where an insurer pays a claim in terms of a contract which is voidable
(eg a contract induced by fraud) payment is effected in terms of a valid and
existing contact and therefore the insurers right to subrogation is beyond doubt.
(d) Insurer must have been indemnified.
(e) Although the right vests upon the insurer at the conclusion of the contract, it
becomes enforceable only when the insured has been fully indemnified. This
means that the insurer must both admit and pay everything due by it in respect of
the particular claim of the insured.
(f) The insured remains the dominus litis until the insurer has effected payment
unless the parties have agreed otherwise in the policy.
(g) Insureds loss must have been fully compensated
(h) Where the insurance contract does not provide full cover in respect of the loss,
(for example the insured is under insured or insured is bound to bear a portion
of the loss by virtue of an excess clause} the insured remains dominus litis unless
the parties have agreed otherwise.
(i) In the case of a consequential loss, i.e loss which is not insured but which is
caused by the event insured against, the insured also remains dominus litis.
(j) Right of action against third party must exist subrogation can only operate if the
insured in fact has a remedy against a third party (See Ackerman vs Louber 1918
OPD 31 @ 37)

RIGHTS OF THIRD PARTIES

Although it is usually the contracting parties who enjoy the benefit of a policy, a third
party may become entitled to claim under the policy by virtue of a transfer of right to
him or by virtue of a novation in his favour.

Yet another way in which a person may become entitled to claim in terms of a policy
concluded by another in his own name, is accepting a benefit conferred upon him in
the policy.

The notation of a third partys interest in a policy has certain consequences.

1. CESSION

(a) Ordinary cession of insureds rights.

(b) The insured can effect a transfer of his right(s) by way of cession.
(c) Cession by definition is an agreement which provides that the cedent transfers a
right to the cessionary.
(d) Cession depends on consensus in the sense that cedent must have the intention to
transfer the right to cessionary and that the cessionary must have a corresponding
intention to receive the right.
(e) An insured can cede his claim in either indemnity or no indemnity insurance
whether before of after the materialization of the risk insured against.
(f) Although in principle rights under insurance policies may be freely ceded without
the consent of the insurer, policies frequently contains clauses prohibiting or
regulating transfer. Thus a policy may contain an out and out prohibition on
alienation requiring the consent of the insurer to be obtained for a valid cession.
However, such a clause must be shown to serve a useful purpose otherwise it
cannot be enforced. (See Northern Assurance Co. Ltd v Methuen 1937 SR 103,
Fouche v The Corp of London Assurance 1931 WLD 145 @ 157, Gowie v
Provident Insurance Co (1885) 4 SC 118 @ 122) (See also Section 75 of the Act)
(g) Another type pf clause requires the insured to give notice of an intended cession
and states that the cession will take effect only upon registration by the insurer.
(h) The effect of a cession is that the claim vests in the cessionary and nothing
remains with the cedent. The cessionary is the creditor and a such is the only
person who can sue for or receive payment. Thus of the insured cedes his
conditional right to indemnification if the cessionary who can claim and receive
payment should a loss occur to the insured thereafter.
(i) The right which is transferred to the cessionary is the right which the cedent had,
thus if the right which has been ceded is the insured conditional right to
indemnification, the cessionary can upon occurrence of a loss, sue only for the
loss suffered by the insured and not for any loss the cessionary himself may have
suffered.
(j) Further, the right is transferred subject to all defects and limitations attached to it
in the hands of the cedent including the payment of premiums, observance of
 warranties and the following of proper claims procedure. It is important to note
that cession of the insureds rights does not transfer the insureds duties as such,
but non fulfillment never the less provides the insurer with a defence.
(k) Having ceded his right, the insured remains liable to the insurer.
(l) A valid cession of a claim under a policy can be defeated by a subsequent
agreement canceling the cession and amounting to a re-transfer of the right.
(m)Cession in security for debt.
(n) Right under both indemnity and non-indemnity policies are frequently employed
to secure a debt.
(o) In some older insurance cases, the court adopted the view that a cession in
security in security for debt is tantamount to the granting of a pledge. This line of
thought culminated in the case of National band of South Africa Ltd v Cohans
Trustee 1911 AD 235, wherein the Appellate Division held that a trustee of an
insolvent estate was entitled to claim and administer the amount payable under a
fire policy which had been ceded by the insolvent as security for debt.
(p) Another school of thought a cession in security for debt is a complete cession of
the right subject only to a fiduciary pact. The cedent is completely divested of his
right but in terms of the pactum adiectum the cessionary may retain the right so
ceded for security purposes. Moreover, this right must be re-ceded to the cedent as
soon as the secured debt has been redeemed.
(q) The reasonable conclusion seems to be that the so-called cession in securitatem
debiti can take one of two forms. It can be an out and out cession subject to a
fiduciary pact or it can be tantamount to the granting of a pledge.
(r) The question whether an ordinary cession with no strings attached, a cession in
securitatem debiti sensu stricto or a transaction in the nature of a pledge has
occurred depends on the intention of the parties and not on the parties and not on
the outward form of the transaction.
(s) It has been decided that where a policy has been employed as security, the holder
of the policy can cede his right to the balance of the proceeds of the policy as
security for yet another debt.
(t) A person who has taken a policy as security may not deal with the policy in
disregard of the insureds rights, for example by compromising a claim.
 2. SUBSTITUTION

(a) Voluntary substitution of insured

(b) A contract of insurance is a personal contract and in principle does not follow a
transfer of the interest which is the object of the insurance. The consent of the
insurer must be obtained is a voluntary substitution of the insured is desired, for
instance upon a sale and transfer of the insured property.
(c) A distinction and a cession of the insureds rights under the policy. A valid
substitution means that another person takes the place of the original insured; i.e.
assumes the obligations and rights of the initial insured.
(d) Substitution of the insured requires a novation of the policy.
(e) Substitution of the insured by operation of the the law
(f) Takes place upon death, marriage in community of property and sequestration.

3. INSURANCE FOR THE BENEFIT OF THIRD PARTIES

Is founded on the basis of the conventional contracts for the benefit of third parties
commonly known as stipulatio alteri. A contract in favour of a third party is contract
in terms of which one party, the promittens, agrees with another, the stipulates, that he
will perform something for the benefit of a third party. The stipulates does not act in
the name of third party but in his own name although for the benefit of the third party.

In the case of Wallachs Trustee v Wallach 1914 AD 202, the Appellate Division
stated that a contract for the benefit of a third party is not simply a contract to benefit
a third person, but a contract between two persons which is designed to enable a third
person to step in as a party to a contract with one of those two. A typical making the
proceeds of the policy making the proceeds of the policy payable to a third person or
a stipulation in an indemnity policy extending indemnification to persons other than
the policy holder.

The courts have held that a third party does not acquire any right from an agreement
in his favour unless he accepts. Upon acceptance by the third party a legal tie is
created between the promittens and the third party.
The third party who is to benefit from a policy must be described in such a way that
he can be identified. It is not necessary to name a specific beneficiary, a class of
beneficiaries may be designated provided that it is done in clear terms.

Whether the third party must possess an insurable interest depends on the terms of
the policy. If the third party is merely to receive the proceeds of the policy, the policy
is supported by the insurable interest of the policy holder. Consequently, the third
party need not have an insurable interest. If, on the other hand, according to the terms
of the policy the third party can claim indemnification for damage sustained by him,
he will have to prove damage and therefore cannot claim if he has no interest.

(a) Life Assurance

In life assurance policies contracts for the benefit of third persons take the form of a
stipulation requiring the insurer to pay the proceeds to the third person. The nominee
may be an identified or identifiable person; the nomination may be unconditional or
conditional; and it may be revocable or irrevocable.

A contract for the benefit of a third person by way of nomination in a policy in favour
of a beneficiary can exist in isolation. Often, however, it is intertwined with another
transaction when it is employed as a mechanism to carry out an obligationary
agreement in favour of the beneficiary.

In Curtis Estate v Gronmingster 1942 CPD 511 the insured took out a heritage
policy.

DOUBLE INSURANCE

Occurs when the same interest is insured by or on behalf of the same insured against
the same risk with two or more independent insurers. Insurance in favour of a third
party may also result in double insurance.

The concept is important for two reasons

if and double insurance amounts to over-insurance (i.e the total of all insurances is
more than the total value of the insureds interest) an insurer who pays more than its
proportionate share of the loss has a right to contribution against each of the other
insurers.
policies often contain provisions that the insured must disclose other insurances
which subsist at the time the policy is issued or which are contracted subsequently
and that in the event of double insurance the insurer will only be bound to pay the
insured its proportionate share of the loss.

REQUIREMENTS

(a) The policies must overlap as to the event insured. It is necessary that the policies
cover exactly the same risks but they must have a particular event in common
before they amount to double insurance in respect of that risk.
(b) The policy must relate to the same interest
They policies may each cover a variety of interest but all must cover the interest,
which eventually suffers

(c) The policies must relate to the same object of risk, otherwise the insurance cannot
be in respect of the same interest.
(d) The policies must be in force at the same time and they must be valid and
effective.
(g) The existence of other insurance policies is usually not a material fact which
requires disclose by the insured but then policies frequently require the insured to
notify the insure of such existence. Such clauses usually provide the unless
timorous notice is given, the policy will be forfeited .The Courts have decide that
whole the decide that whole specify the time within which the notice must be
given, the notice must be given within a reasonable time. What constitutes
reasonable time determined on the special facts circumstances of each case.
Clause limiting or excluding liability on the basis of double insurance. Policies
often contain clause either limiting liability or excluding liability altogether. Such
clause are valid at law but if liability is excluded on account of double insurance
and it appears that the other policy also contains a similar clause, the two clauses
are deemed to cancel each other.
(h) A clause limiting liability saves the insurer the inconvenience of having to claim a
contribution from a co-insurer.
The nature and basis of the right to contribution.
 The insured in a case of double insurance is free to decide how much of his loss he
wishes to claim from a particular insurer but in full amount of his loss. If the insurer
has paid more than its ratable proportion of the loss, it is entitled to claim to
proportion of the loss, it is entitled to claim, in its own name, from the other insurers
that they each contribute proportionately.

The right is one of recourse by one insurer against another insurer which has also
insured the same loss.

This right is one of recourse by one insurer against another insurer which has also
insured the same loss.

This right substitutes any right to subrogation which the paying insurer could possibly
have had to the proceeds of the insureds rights against other insurers.

A right to contribution is s natural consequence of a contract of insurance.

It is one of the legal consequences of the contract of insurance that an insurer which
has paid more than its pro rata proportion of the loss succeeds to the rights of the
insured against the other insurers subject to the qualification that only the pro rata
proportion may be recovered from each insurer.

Contribution is restricted to indemnity insurance.

Requirements for the right of contribution

(a) The insurer claiming contribution must have discharged its liability to the insured.
(b) It must have paid more than its prorata proportion of the loss
(c) The payment must have been in respect of an interest which is the subject of
double insurance..
The calculation of the proportionate share of each insurer is often simple. Where the
various policies are identical in all material respects, such as the amount of cover, the
loss is apportioned equally between or among the various insurers.
 If the policies only differ as to the amounts insured, all amounts insured must be
added up and compared with the amount of the loss. Each insurer then becomes liable
for such a proportion of the loss as the amount underwritten by it bears to the
aggregate amount insured by all the policies.

In practice the issue of apportioned is a matter of negotiation between the parties.

OVER INSURANCE

Over insurance occurs when the sum insured is more than the total value of the
insureds interest.

In indemnity insurance the sum insured is usually described as the limit of liability.
There is no objection to a policy containing a limit of liability which is more than the
value of the insureds interest but the insured cannot recover more than his actual
loss.

UNDER INSURANCE

Occurs where the sum insured is less than the value of the insureds interest.

A person under insured his interest is in the event of a loss entitled to recover up to
the sum of the amount insured or the amount of the loss whichever is the lesser. In
marine insurance, however, if a person insured for less than the insurable value, he is
deemed to be his own insurer for the insured balance.

In order to discourage under insurance certain clauses have been developed such as
the condition of average.

COMPULSORY THIRD PARTY MOTOR INSURANCE

(i) This is governed by Part IV and Part 5A of the Road Traffic Act [Chapter 13:11}
(j) Section 22 of the Act makes it compulsory for one to have a policy of insurance or
a security in respect of 3rd party risks. Failure to comply with the provisions of
this section attracts a criminal penalty.
(k) The requirements for a statutory policy of insurance are provided in Section 23 of
the Act and these include
 (i) a statutory policy shall be issued by a person who is approved by the Minister
as an insurer. In other words the statutory policy ought to be a valid policy
issued by a registered insurer.
(ii) A statutory policy shall insure such persons or classes of persons as may be
specified in the policy in respect of any liability which may be incurred by
them in respect of -
(a) death of or bodily injury to, any person ; and
(b) the destruction of, or damage to, any property. caused by or arising out of
the use of the motor vehicle or trailer concerned on a road.
Section 24A (introduced by the Road Traffic Amendment Act No 3/2000)
provided for a certificate of insurance or security issued by the insurer or by
the Minister as the case may be.

Section 38A Part VA provides for Compulsory No Fault Insurance for

Passenger public service vehicles.

The part defines a passenger in very broad terms but excludes persons employed
or engaged by the owner of the vehicle.

(l) Section 38B makes it compulsory for Passenger service vehicle to carry no fault
insurance cover.

CRITICISM OF THE AMENDMENT ACT

(m)Whereas the amendment Act can be applauded for recognizing the need to protect
3rd parties who suffer loss of life or injury or loss of property the question that
begs attention id the amount of cover afforded by the Act.
(n) Section 23 (3) provides that a statutory policy shall not be required to cover
(i) any contractual liability; or
(ii) liability in respect of death, or bodily injury, persons who were being carried
in or entering or getting on to or alighting from the vehicle or trailer
concerned when the event out of which
 Research Gap

1) The deeper the understanding of consumers needs and perception, the earlier
the product is introduced ahead of competitors, the expected contribution
margin will be greater .Hence the study is very important.
2) Consumer markets and consumer buying behavior can be understood before
sound product and marketing plans are developed
3) This study will help companies to customize the service and product,
according to the consumers need.
4) This study will also help the companies to understand the experience and
expectations of the existing customers.
5) Apart from creating, manufacturing and distribution capabilities for life
insurance products, an in depth study of the consumers, their preferences and
demand for their product is very necessary for setting up an efficient
marketing network.
STATEMENT OF THE PROBLEM
This Study will help us to understand the consumers perception about life
insurance companies. This study will help the companies to understand, how a
consumer selects, organizes and interprets the Quality of service and product
offered by life insurance companies.
18
 Objective of the Study

1. Ascertain the profile and characteristics of potential buyers.

2. To have an insight into the attitudes and behaviors of customers.

3. To find out the differences among perceived service and expected service

4. To produce an executive service report to upgrade service characteristics of life

insurance companies.

5. To access the degree of satisfaction of the consumers with their current brand of
Insurance products.
 HYPOTHESIS

HYPOTHESIS 1

H0:- There is no effect of advertisement for the life insurance policies

H1:- There is an effect of advertisement for the life insurance policies

HYPOTHESIS 2

H0:- There is no impact of the perceived services and expected services

H1:- There is an impact of the perceived services and expected services

HYPOTHESIS 3

H0:- There is no impact of the coordination of the investment advisor with the clients of the life
insurance

H1:- There is an impact of the coordination of the investment advisor with the clients of the life
insurance

HYPOTHESIS 4

H0:- There is no impact of the attitudes of the customers on the life insurance policies

H1:- There is an impact of the attitudes of the customers on the life insurance policies

HYPOTHESIS 5

H0:- There is no effect of the perception of the customers on the insurance policies

H1:- There is an effect of the perception of the customers on the insurance policies
 SCOPE OF THE STUDY
This study is limited to the consumers within the limit of Hyderabad city.
The study will be able to reveal the preferences, needs, perception of the customers
regarding the life insurance products, It also help the insurance companies to know
whether the existing products are really satisfying the customers needs .

The following are the limitation of this study

The study is conducted in short period, due to which the study may not be detailed all
aspect.
Lack of time on performing the project in detail study.
The scrip chosen for analysis is from Questionnaire
The data collected is completely restricted to the investors of Zen insurance

Period of the study

The duration of the project is 45 days
 RESEARCH AND METHODOLOGY:

A. Type of research is descriptive research by survey method.

B. Primary data is collected from the Investors and secondary data from company profile,
brochures.

C. Sample Size: 50 investors. Collection Method: personal.

D. Tool: a structural questionnaire was prepared to collect information pertaining to the

study. The questionnaire was administered to the company

DATA SOURCES:

a) Primary Data:
The data will be collected though holding discussions with the employees of the company
and discussing the questionnaires with existing customers of the company.
b) Secondary Data:
The present study is based on Secondary data. The various source of secondary data include
Internet
Information provided by the company
Magazines

RESEARCH DESIGN:
The research is primarily both explanatory as well as descriptive in nature. A well-structured
questionnaire was prepared and personal interviews were conducted to collect the customers
requirements, through this questionnaire.

SAMPLING METHODOLOGY:

a) Sampling Technique:
Random sample method.
b) Sampling size:
Sample size refers to number of elements to be included in the study.
Sample size is 50 investors of Zen Insurance
DATA ANALYSIS TECHNIQUE:
a. Percentages & b. Bar diagrams