Law of Insurance

Geta Belete Shiferaw

Debre Markos University, Law School
 The Notion of Insurance
Insurance is an economic device that provides financial protection against
a possible unexpected loss. By an insurance arrangement the insurance
company promises or guarantees compensation/ benefit for any probable
future loss.
It is a social device providing financial compensation for the effect of
misfortune, the payment being made from cumulated contributions of all
parties participating in the insurance transaction.
Three school of thought in defining insurance:
Transfer Device School- Insurance may be defined as the transfer of pure
risk from the insured to the insurer.
Technical School- Insurance is a device for reducing risk by combining a
sufficient number of exposure units to make their individual losses
collectively predictable. The predictable loss is then shared
proportionately by all units in the combination.
Cont.
3. Combination School of Thought- Insurance is a device for reducing risk by
combining a sufficient number of exposure units to make their individual losses
collectively predictable. The predictable loss is then shared proportionately by
all units in the combination. Therefore, it implies both that uncertainty is
reduced & losses are shared.

From legal point of view, insurance may be defined as

“Insurance is a contract by which one party (the insurer) undertakes to indemnify
another party (the insured) against risk of loss, damage, or liability arising from
the occurrence of some specified contingency, and usually to defend the insured or
to pay for a defense regardless of whether the insured is ultimately found liable. An
insured party usually pays a premium to the insurer in exchange for the insurer's
assumption of the insured's risk.” (Black‟s Law dictionary, 9th edition, page
870)
•
 What is Insurance Law ?
Insurance law is a commercial law that governs a relationship between
the insured and the insurer.
Insurance law has a contractual and regulatory aspects. The regulatory
aspect of insurance deals with who operates the insurance and in what
circumstances. It is addressed under the Ethiopian Insurance Business
Proclamation No 746/2012, Insurance Business Amendment
Proclamation No 1163/ 2019and a dozen of directives, regulations, and
guidelines issued by the national bank.
The contractual aspect of insurance deals with the respective rights and
obligations of the insured and insurer. It is addressed under articles 654-
712 of the commercial code, Vehicle Insurance Against Third Party Risks,
Proclamation No. 799/2013.
Historical Development of Insurance in Ethiopia
Traditional protection of risks in Ethiopia can be found in the form of
Equb and Eddir where people get sum financial contribution to save
themselves or losses of property from unexpected troubles in the
future.
Insurance business in its modern sense in Ethiopia started when the
bank of Abyssinia ( started in 1905) got underwriting authority in the
form of agency for Fire and Marine insurance business.
Based on the political and economic systems adopted by the country,
the emergence of the modern form of insurance business in Ethiopia
and its further development can broadly be categorized into three
distinct phases.
1.The first phase- Emergence and early development of modern
insurance business
The insurance business in Ethiopia in its modern application is a recent
phenomenon. A branch of a foreign insurance company known as
“Baloise Fire Insurance Company” was opened in Ethiopia by an Austrian
citizen. For the first time in Ethiopia the company paid compensation to
the client in 1929 for damage to his store caused by fire.
Beginning from this time until the Italian invasion, some foreign
insurances were operating through their agents.
During the Italian occupation of Ethiopia ( 1936-1941), Italian insurance
companies operated and non Italian companies were closed down.
In 1951, Imperial Insurance Company ( the only domestic insurance
company) was formed by joint initiatives taken by some enlightened
Ethiopians.
Cont.
The 1960 Commercial Code of Ethiopia under Title III of the code in
Articles 654-712 classifying the kinds of risks and their coverage with
the minimum standards of involving in the insurance undertaking.
The 1960 Maritime Code of Ethiopian also contained provisions
pertaining to maritime insurance, a class of insurance that provides
cover against marine risks. It is provided under title VII of the code in
Articles 288-356 presenting various aspects of marine insurance.
In 1970 the government issued the first insurance proclamation,
Proclamation No 393/71 to regulate and control the insurance
industry in the country. In March 1971, the government issued Legal
Notice No. 393/75 which dealt with license, renewal, qualification,
auxiliaries and the like.
2. The Nationalization and Monopolization phase (1974-1991

In 1976, the Provisional Military Administration Council (PMAC)

issued a new monetary and banking proclamation, Proclamation No.
99/1976 replacing the previous ones. In this proclamation the
supervision and regulation of the insurance industry along with other
financial institutions was given to the National Bank of Ethiopia (NBE),
the country's central bank.
The period was characterized by the nationalization of all the then
existing 13 insurance companies and the monopoly of the insurance
sector by the government. The Ethiopian Insurance Corporation was
established by Proclamation No 68/1975 with a paid up capital of 11
million dollars. as the only Insurance Corporation in the country.
3.Liberalization phase( 1991 to Date)-

Characterized by the adoption of a market oriented economic system

that increased the role of private sector in the economy.
Licensing and Supervision of Insurance Business Proclamation
86/1994 was promulgated. This law ended the 19 years of insurance
business monopoly and allowed domestic private sector insurers to
engage in the country‟s insurance sector but prohibited foreign
insurers from doing so.
The proclamation allowed private companies whose capital is wholly
owned by Ethiopian nationals and registered under the law and having
head office in Ethiopia to engage in insurance business. The
proclamation further provides that the minimum share capital is birr 3
million for general insurance, birr 4 million for long term insurance,
birr 7 million for combined (long term and general insurance)
business.
The Current Regulatory Framework Of Insurance
Business In Ethiopia
A comprehensive insurance legal framework ensures the soundness and stability
of the country‟s insurance sector.
Currently, the Insurance Business Proclamation 746 of 2012, Insurance Business
(Amended) Proclamation 1163 of 2019, Vehicle Insurance Proclamation 799 of
2013, and NBE Establishment Proclamation 591 of 2008 are the principal
legislations that constitute the insurance regulatory framework of Ethiopia. These
proclamations are supplemented by a dozen of directives, regulations, and
guidelines (standards) issued by the National Bank of Ethiopia, the country‟s
financial sector regulator.
Insurance Regulatory Body
Proclamation 591 of 2008 designates the National Bank of Ethiopia as the
policymaker, regulator, and supervisor of the insurance sector in Ethiopia.
Article 5(7) of the proclamation
As per the proclamation, the core regulatory mandate of the national bank is to
ensure the reliability (soundness) and stability of the sector by effectively
applying the country‟s insurance law and international standards.
Regulation of Insurance Business

Insurance regulations simply connotes laws, rules or guidelines

through which government controls the practice of insurance
business.
Why Regulation?
 Enforce monetary policy objectives
Promote domestic and international competition
Enhance efficiency
Maintain financial stability and security
Protect consumers
Encourage information flow and prudential decision making
Achieve general economic and social policy objectives
Cont.
Insurance regulation involves; licensing and regulating insurance
companies and others involved in the insurance industry; monitoring and
preserving the financial solvency of insurance companies; regulating and
standardizing insurance policies and products;controlling market conduct
and preventing unfair trade practices; and regulating other aspects of the
insurance industry.
What are the preconditions to carry on the insurance business? Who can
engage in the insurance business? Individual? Foreigners? Partnerships,
Companies?
National bank of Ethiopia, the regulatory body has set different
requirements starting from entry to exit from the insurance market.
Cont.
Conditions/ Requirements to Carry on Insurance
1. Business License
As insurance is a kind of business activity, companies are not allowed to
engage in insurance business without having a valid business license.
Article 22(1) of the Commercial Registration and License Proclamation
No 980/2016
2. Insurance Business License
The Ethiopian insurance law prohibits conducting insurance or
reinsurance business in Ethiopia without obtaining a valid insurance
business license issued by the national bank. Art 3(1) of the Insurance
Business Proclamation No 746/2012
Cont.
What is the difference between the license obtained as per article 22(1)
of the commercial registration and license proclamation and the license
obtained as per article 3 of the Insurance Business Proclamation No
746/2012?
The insurance business proclamation forbids any person (an individual, a
firm, or a company) from acting as an insurance auxiliary ( insurance
agent, broker, surveyor, or loss assessor), reinsurance auxiliary, actuary,
or loss adjustor unless he/it first secures a license from the national bank
of Ethiopia. Article 42 and 43 of the Ethiopian insurance business
proclamation No 746/2012
Q. Who are insurance auxiliary ? See article 2(18) of the insurance
business proclamation No 746/2012
Cont.
What is the effect of a transaction without having a valid insurance
business license?
Return the premium collected to the insured- article 3(5) the
insurance business proclamation No 746/2012
Criminal liability as article 57 of the insurance business
proclamation No 746/2012
Can insurance companies issue insurance policies in credit? The
principle of no premium no cover - Article 48 of the insurance
business proclamation No 746/2012 which states that “ Insurance
policy issued on partial or full credit basis shall be null and void.”
Government organs are not subject to such prohibition.
 3. Commencement of operation
The National Bank has the authority to revoke the license granted to any
insurer wholly or for a specific class of insurance business if the insurer fails
to comply with the requirements of the insurance legislation. For instance, a
licensed insurer or reinsurer must launch its operation within 12 months of
receiving the license. If not, its license will be canceled.
Article 37 of the insurance business proclamation provides grounds for revocation and
suspension of insurance license.
4. Form of Establishment
By form we are referring to the type of business organization that the law requires for the
establishment of insurers in Ethiopia. Article 656 of the Commercial Code provides that
the law shall determine the conditions under which physical persons or business
organizations may carry on insurance business. An insurer or reinsurer in Ethiopia shall be
established as a share company having its headquarters in Ethiopia. See article 4 of the
Ethiopian Insurance Business proclamation No 746/2012 and article 2(8) of the Insurance
Business Amendment Proclamation No 1163/2019
5. NationalityTest

Only Ethiopian citizens, foreign nationals of Ethiopian origin, and

organizations owned fully by Ethiopian citizens, foreign nationals of
Ethiopian origin, or jointly by them can own an insurance or reinsurance
company in Ethiopia or acquire shares of an Ethiopian insurer or
reinsurer. Article 2(8) of the Insurance Business amendment
Proclamation No 1163/2019
Who are foreign nationals of Ethiopian origin?
See the proclamation for providing foreign nationals of Ethiopian origin
with certain rights to be exercised in their country of origin
proclamation no.270/2002
.
 6. Minimum Capital Requirements

The insurance law (Directive SIB/57/2022 and Directive SRB/1/2014)

specified the following four levels of minimum fully paid-up capital
requirements to obtain a license for an insurance or reinsurance business
in Ethiopia:
ETB 100 million in cash for the long-term (life) insurance business
license;
ETB 400 million in cash for the general (non-life) insurance business
license;
 ETB 500 million in cash for the composite (both general & long- term
insurance business) insurance business license;
 ETB 500 million in cash for the reinsurance business license
Other Conditions

The board of directors and chief executives should meet the criteria
prescribed by the national bank
Appointment of the board of directors, managers, and auditors by the
national bank
After acquiring a business license, the insurer can not be directly
involved in the activities of insurance provided under Article 6 of the
insurance business proclamation. Before commencing operation, the
insurer is required to put in place sound information management and
external control systems, risk management systems and procedures,
and staffing requirements. Article 7 of the insurance business
proclamation No 746/2012
Cont.
 Limitation on the acquisition of shares- only a government organ is
allowed to hold more than 5% of the total share of the insurer. Article
12 of the insurance business proclamation No 746/2012
Maintenance of legal reserve- article 22 of the insurance business
proclamation No 746/2012
Class and Transfer shares-
Solvency Requirements - requires an insurer to maintain its business in
a financially sound condition. It must be capable of meeting its
liabilities as they arise; and keep the solvency margin
Insolvency & winding up
The Nature of Insurance Contract

1. Aleatory Contract- contains a chance of loss (the probability that an event will
occur. There is uneven exchange. The payment of premiums may not always result in a
benefit, as the outcome of the contract is uncertain.
2. Conditional- A conditional contract in insurance is a type of contract that is only
effective if certain conditions are met. For example, a life insurance policy may have a
provision that the policy will only pay out if the insured person dies within a certain
period of time. If the insured person dies outside of that period, the policy will not pay
out.
3. Adhesion- Involves an unequal bargaining position between the insured and the
insurer. Insurance policies are adhesion contracts as terms of the contract are drawn by
one party (Insurer) and the insured purchases the already prepared policy with no
reservation.
What if the terms of the policy are vague and or ambiguous? the insured gets the benefit
of the doubt and the policy is construed (interpreted) against the insurer ( in favor of the
insured) by the principle of reasonable expectations. This principle is entrenched in
article 1738(2) of the Ethiopian civil code.
Cont.
4. Unilateral- The insured pays the premium and the insurance carrier
promises to pay if a covered loss occurs. If nothing happens, nothing is required
of the insurance carrier - only one party (the insured) did anything (paid the
premium). Do you agree? What are the otherwise arguments? Don‟t you think
the insured has further obligations beyond payment of premium? See for
instance, article 669 of the commercial code.
5. Insurance contracts are not wagering or gambling agreements.
As per Article 713(2) of the Commercial Code games and gambling shall not
give rise to valid claims for payment unless they are related to activities
enumerated under Art 714, such as stock exchange speculations, sporting
activities, and lottery or betting authorized by the government
Note: issues in relation to games and gambling ( although not relevant to this
course) are addressed in the following laws.
National Lottery Administration Re-establishment Proclamation No.
535/2007,National Lottery Service Re-establishment Councils of Ministers
Regulation No. 160/2009, Ministry of Revenue directive, "Sports Betting
Lottery Directive No. 172/2021," regulating sports betting, Sports betting
licensing directive No. 172/2021.
 The major benefits of insurance
Indemnification for Losses ( cash, in kind, repair) – with an insurance
arrangement, the insured will be indemnified/compensated so that the
insured is reinstated in his/her former position. The financial
compensation(indemnification) provides peace of mind, which in turn
motivates to work more and more.
Reduction of Worry and Fear- Every human being has fear in his/her
mind. The fear is whether he will be able to meet the basic needs of life
(Food, Clothing, and Housing) not only for him/her self but also for
his/her dependents. If s/he can meet his basic needs then he acquires the
properties (vehicles, jewelry, house, etc). Then he/she gets additional
fear of saving the assets from destruction. Thus, with an insurance
arrangement, such fear and worry will be minimized.
Cont.
For instance, individuals subscribe for a life insurance in order to secure adequate
amount of money to cover the future needs of their families or dependents. Such
individuals are less likely to worry about the financial security of their dependents in the
event of their premature death.
 Source of Investment Funds - Premiums collected by the insurer in advance,
usually at the time of conclusion of the contract and other funds which are not needed
to pay for immediate losses and expresses, can be loaned to businesses or invested in
manufacturing, real estate... sectors.
 Means of Loss Control –insurance provides financial protection against a loss arising
out of happening of an un certain event.
 Enhancing Credit- it gives the creditor /lender greater assurance that the loan will be
repaid. It creates confidence or a better credit facility. For instance, it is advisable to
extend loan on a car that has insurance than the one without insurance.
 It smoothens the functioning of business transactions by securing them against
possible risks involved therein.
 It stimulates national saving
 Types of Insurance
According to the nature of the event
1. Marine Insurance- in which the sum insured becomes payable on the
happening of a marine peril. Under the Ethiopian legal regime, the matter
is coverable under the relevant provisions of the 1960 maritime code by
Article 655(2) of the commercial code.
2. Fire Insurance- in which the sum insured becomes payable on the
occurrence of a fire. This is related to a risk affecting property which may
be governed under articles 654(2) cumulative with 675 off of the
commercial code.
3. Life Insurance- in which the sum insured becomes payable on death or
life as may be covered 691 of the commercial code.
3. Accident Insurance- in which the sum insured becomes payable on the
happening of any other event as prescribed under the policy. article
654(2) and articles 655 seq. of the commercial code.
Cont.
According to the Nature of the Interest Affected
1.Personal Insurance- in this type of insurance specified event operates
on the person of the insured or on that of a third party. This class of
insurance comprises life insurance, personal accident insurance, and
sickness insurance as recognized under articles 654(3) and 691 seq. of
the commercial code.
2. Property Insurance- in this type of insurance, the specified event
operates on the property of the insured. It comprises marine insurance,
fire insurance, burglary insurance, solvency insurance, insurance against
loss of property by accidental, etc. as may be covered under article
654(2) cumulative with articles 675 seq. commercial code.
Cont.
3. Liability Insurance -a type of insurance that indemnifies against
personal injury or property damage claims for which the insured is
legally responsible.
Liability insurance may be of different types
1. Professional Liability- is designed to fulfill the liability of professionals
arising out of negligence in discharge of their professional duties. For
instance. federal court advocates are also mandatorily bound to buy
professional indemnity cover to run their businesses in the country. In
this regard, the Federal Courts Advocates' Licensing and Registration
Proclamation No. 199/2000, article 12 requires an implementing
regulation to be issued as a condition precedent to meet the obligation of
buying a professional indemnity cover despite no regulation is issued to
date
Cont.
2. Public liability insurance- is a type of insurance that covers legal liabilities
arising from both industrial and non-industrial risks to the public. The tortious
liability of an owner of a building may be covered by this type of liability
insurance.
3. Product liability insurance- is an insurance against liability of manufacturers,
processors, distributors and sellers to the general market by defective nature of
their products. It is built up on the theories of breach of warranty and strict
liability.
4.Carriers‟ liability insurance- is an insurance coverage for carrier's
liability arising under transportation contracts on land, air or sea.
5. Workmen‟s Compensation insurance - is designed to cover the legal
liability of an employer for medical expenses, bodily injury, or death
sustained by an employee while at work.
Cont.
6.Third party motor vehicle insurance- an insurance arrangement
designed to protects the insured against loss arising from legal liability
when his or her vehicle injures someone or damages another's property.
Note: Liability insurance for the purpose of this course is addressed
under articles 685-688 of the commercial code and Vehicle Insurance
against Third Party Risks Proclamation No. 799/2013
Classification of insurance under the commercial code

Article 654 of the commercial code recognized the following types of

insurance:
1.Indemnity Insurance(article 654(2)- a contract of insurance concluded
in relation to "damages" covering risks affecting property ( insurance of
objects) or arising out of the insured person's civil liability( Liability
insurance). The insurer should pay compensation, which is always equal
to damage. This is why the such types of insurance arrangements are
termed as indemnity insurance/ insurance for compensation.
2. Non-indemnity Insurance (article 654/3)- a contract of insurance
concluded in respect of a human person's life, body, or health in which
the insurer must pay the amount agreed upon (the sum insured). Under
non indemnity insurance two categories of insurance ( life insurance and
insurance against accident and illness) are addressed.
Classification of Insurance under Insurance Business Proclamation
No.746/2012
.Article 2(14) of the insurance business proclamation classified insurance
as long-term insurance (Life insurance) and general insurance.
1. General insurance incorporates all classes of insurance business other
than long-term or life insurance services and it includes insurance of
property, liability insurance, marine insurance, motor vehicle insurance,
fire insurance, etc.
2. Life insurance (long-term insurance) includes term life insurance,
whole life insurance, universal life insurance, variable universal life
insurance, and annuity life insurance
Non ConventionalTypes of Insurance

1. Takaful insurance-
The goal of the company selling this insurance policy in the conventional
insurance is the maximization of profit for its shareholders. While the
main purpose of takaful insurance is for solidarity and mutual help
among members. It is believed that the commercial insurance scheme is
contrary to Islamic finance. To address the needs of Muslim community,
the insurance business amendment proclamation No. 1163/2019 comes
up with a provision that allows the licensing of both full-fledged Islamic
insurance business undertaking and opening a takaful window under the
existing insurance company.
The national bank issued directive No. STB/1/2020 in order to provide
an additional condition that is unique to Takaful in licensing and
supervision.
 2. Micro Insurance
Rules:
Insurance business amendment proclamation No 1163/2019
Licensing, License Renewal and Product Approval For Micro insurance
Providers Directive No. SMIB/3/2020
Micro-insurances are designed for the poor, low-income earners and social vulnerability
groups, with low insurance premiums, small insurance sums, and simple and easy-to-
understand insurance products, and expected to provide these groups of people with
financial solutions when suffering risks or damage in their lives.
What is micro insurance ? “is any form of protection against risks that is
designed for and accessed by low income people, provided by different categories of
carriers but operating on business principles of insurance and funded by premium.”
Article 2(42) of the insurance business amendment proclamation No
1163/2019
What are the requirements to establish micro insurance in Ethiopia?.

1.General Requirements- All micro insurance providers are required not

to confuse the public and to distinguish the micro insurance products
from that of the main stream insurance products. To this effect, micro
insurance providers shall put the word “MICROINSURANCE” at the top
and all pages of the micro insurance policy they offer.
2. Who are allowed to engage in micro insurance business?-
microfinance institutions- a company licensed by the National Bank to
undertake microfinance business under Proclamation No. 626/2009 as
amended by Proclamation No.1164/2019.
Mainstream Insurance companies-in doing micro insurance, they are
not required to have a separate license to deal in micro insurance
products.
Cont.
The main stream insurance company which plans to engage in micro
insurance business is required to have renewed insurance business
license; achieve composite risk assessment rating of at least in the recent
on-site examination; seek micro insurance products approval from the
National Bank in accordance with the law; and establish a separate unit
that exclusively runs and manages the micro insurance operations.
3. Capital Requirement- “An applicant for micro insurance company license
that exclusively plans to deal in micro insurance products shall have paid up
capital of Birr 7million and Birr 3million for general micro insurance products
and life micro insurance products respectively and Birr 10million to run both
products” -. Article 5.2.2 of the directive
4. The board of directors shall meet the required criteria provided by the national bank
3.Health Insurance Schemes
Rules
Community based health insurance proclamation No
1273/2022
Social Health Insurance Proclamation No.690 /2010
Both case (community based health insurance and social health
insurance), are non profit health insurance arrangement
that encompasses all sections of the society in the
formal and informal sector as a member.
 Pillar Principles of Insurance
 Principle of Indemnity
 Principle of Insurable interest
 Principle of Utmost good faith
 Principle of Subrogation
 Principle of Proximate cause
 Principle of Loss Minimization
 Principle of Contribution
 The concept of reinsurance- Is reinsurance is one principle of insurance
contract or one form of insurance arrangement ?
1.The principle of Indemnity ( article 678, 665(2)

The insured can`t claim the amount of compensation more than he /she
suffered.
Compare article 678 and 665(2) of the code.
The insurer's liability shall not exceed the amount specified in the policy. Article
665(2)
A contract for the insurance of an object is a contract for compensation. The
compensation shall not exceed the value of the object insured on the day of the
occurrence. Article 678
The application of article 665 of the code is limited to determining the
time of making payment. The principle of indemnity does not apply to
life insurance. As the value of a human body or life cannot be valued, the
amount to be paid at the time of materialization of risk is left to the
agreement of the parties.
Cont.
In property insurance cases article 678 of the code always prevails over
the general insurance provisions stipulated under article 665 of the
commercial code. Article 678 is concerned about the maximum limit of
the compensation paid when a risk is materialized against the object
insured. This article also takes the value of the object as fully insured and
as lost or damaged.
It should be noted that there may be instances where the damage or the
loss which occurred could be lesser than the value of the object insured,
in case of partial loss.
There may also be instances where the value of the object has not been
fully insured owing to under insurance as envisaged under article 679 of
the commercial code.
Cont.
Thus, article 678 could be correct where the value of the property
(object) is correctly measured the said value is insured, and also the said
object which is of said value is damaged.
Is it possible to claim consequential loss as per article 678 of the code?
Consequential loss is an indirect loss incurred due to the consequences or
results of the act. For example, If a commercial vehicle insured against
collision is destroyed the owner in addition to the direct loss of his
property incurs an indirect loss of income as a consequence of the loss of
his vehicle.
The Federal Supreme Court Cassation Bench ruled that the insurer should
compensate the insured for consequential loss. The absence of any clear
provision in the insurance policy providing coverage for consequential loss
is not a valid ground to relieve the insurer from his liability. Vol 5, File
No. 27565
Cont.
Indemnity can take different forms.
Cash payment- It is the most convenient and satisfactory method for
both parties.
replacement of property – for instance, replacement of broken glasses
by insurers to their policyholders.
Reinstatement of property- rebuilding of the property
Repair- Extensively used in motor insurance
To apply the principle of indemnity, the loss must be capable of
calculation in terms of money.
Fundamental purpose of the principle of indemnity
To prevent the insured from profiting from a loss
To reduce moral hazard
 2. Principle Insurable Interest
The insured must have an insurable interest in the subject matter of
insurance. The subject matter can be property, life, potential liability.
Insurable Interest is incorporated under article 675 and 693 of the code.
Article 675
1.Any person interested in the preservation of an object may insure it.
2. Any direct and indirect interest in a risk may be insured.
The phrase “interested in the preservation of an object” shows the
requirement of insurable interest.
Justifications:
The requirement of insurable interest has a public policy justification
1. Against allowing wagering contracts;
2. Against fostering temptation to destroy the insured property or life in an
effort to profit from it;
Cont.
3.Eliminate the risk of moral hazard by conditioning the validity and
enforceability of the contract upon the existence of a valid interest in the
subject matter of the policy
4. It legitimates the desire of the insurer to provide insurance only for
the benefit of individuals who have an interest in the subject of the
contract, thus lessening the likelihood of adverse selection.
When the insurable interest should exist so that it obtains coverage under
insurance policy?
Property insurance: during the conclusion of the contract and at the
time of the loss. The insured must have a pecuniary interest in the
subject matter of the insurance at the time of conclusion of the contract
and during the occurrence of loses. Moral and sentimental attachment
to the property insured may not be considered.
Cont.
Life insurance- only at inception of the policy. An insured has insurable
interest for his/her life, health, body. Insurable interest in another
person’s life can be shown by close family ties, marriage, or a
pecuniary (financial) interest.
Insurable interest either be direct or indirect
 a direct economic interest may arise from property rights, such as
ownership, usufruct or use right
 indirect economic interest, arising out of contracts such as mortgage or
pledge may insure such property to protect his interests.
By analogizing article 675(2), any direct or indirect interest in a risk,
including death for the purpose of life insurance, can be insured. Thus, a
man or woman has an insurable interest in his or her own life; a husband
or wife also has an insurable interest in the life of his wife or her
husband, etc.
Cont.
Note: The potential insured is required to establish an interest over the
subject matter of the insurance (the existence of insurable interest) on
the basis of the law so that he/she can be insured against future
uncertain events. Federal Supreme Court Cassation Bench Decision,
Volume 13 , File No. 47004
 3. Principle of utmost good faith ( Article 667-669)
A highest degree of honest is imposed on both parties to the insurance contract than is
imposed on parties to other contract. The principle of utmost good faith imposes two
duties on the parties to the insurance contract.
1.A duty not to misrepresent any matter relating to the insurance ( duty to tell the truth).
For example, A proposer for life insurance gives his age as 40 when, in fact, he is age 65.
A proposer for theft insurance says that the premises are protected by a burglar alarm
when they are not. A proposer for motor insurance declares that the car has not been
modified in any way when it has.
2. A duty to disclose all material facts relating to the insurance contract(a duty not to
conceal anything that is relevant).
Facts required to be disclosed- For instance,
 In fire Insurance- the form of construction of the building and the nature of its use.
 In motor insurance: the fact that a vehicle will be driven regularly by someone other
than the insured.
 In life insurance- previous medical history;
Cont.
In all classes of Insurance: previous loss experience and all facts which
the proposer could be reasonably expected to know.
Do you think that the principle of utmost good faith imposes obligation
on both the insured and insurer under the Ethiopian commercial code?
Would you read article 667, 677 and 669 of the commercial code and
may it be helpful to determine your answer?
All three provisions (articles 667, 668, and 669 of the commercial
code) deal with the obligation of the insured to disclose material
facts, to tell the truth, and to notify the increase of risks.
Thus, can we argue that the principle of utmost good faith as provided
under the Ethiopian commercial code imposes obligation on insured/
insurance policyholder only?
Effect of Misrepresentation (false statements) and Non-disclosure (facts
concealed) Article 668 of the Commercial Code.

What are the effects of such material misrepresentation and concealment?

A. Intentional non-disclosure and misrepresentation of material facts;
• The policy shall have no effect (void abinition) .
• The insurer shall retain all premiums paid.
B. Non-deliberate and not in bad faith
Before the materialization of the risk the insurer may terminate the
policy by giving one month‟s notice (voidable) or may maintain the
policy; article 668 (2a)
After the risk has materialized; the sum to be paid by the insurer shall be
reduced having regard to the difference between the premium actually
paid and the premium which ought to have been paid. Article 668 (2b)
4. Principle of proximate cause

If an insured seeks to claim from his/her insurer for a loss s/he has
sustained s/he must show that the loss was caused as a result of a peril
covered by the policy and that the cause of the loss is proximately caused
by a peril insured against. The commercial code says nothing about how
the causation between the risks materialized and the cause is determined.
A burden of proof- is the obligation of the litigant to provide the evidence necessary to
establish a disputed fact or a degree of belief in the mind of the court. The burden is on
the insured to prove that the insured peril was the proximate cause of the loss. Once the
insured has established prima facie (one the face of it) loss by the insured peril, the
burden shifts to the insurers.
Note: In relation to the principle of proximate cause, you are advised to
read the a research titled “Causation under Ethiopian Motor Vehicle
Insurance, the Law and Practice” conducted by Mehari Gebremedhin .
5. Principle of Subrogation ( article 683)

Substitution of the insurer in the place of the insured to claim

reimbursement for the claim paid from a third party who caused damage
to the insured property. Or it is the right of the insurer who indemnified
an insured in respect of a particular loss to recover all or part of the
claim payment by taking over any alternative right to indemnity that the
insured possesses.
For example, a negligent motorist fails to stop at a red-light and
smashes in to Bezawits car, causing damage an amount of two million
birr. If Bezawit has a property insurance on her car from Nile Insurance
Company, the insurer ( Nile Insurance Company) will pay Bezawit two
million birr and then can collect the amount from a negligent motorist.
See the Federal Supreme Court Cassation Bench Decision, Volume 10,
File No 39902
Cont.
Alternatively, Bezawit can collect her damages ( compensation) directly
from the negligent motorist for the damage to her car. In this case, the
insurer ( Nile Insurance Company) be relieved from liability towards
Bezawit as it is stipulated under article 683 (2) of the commercial code.
Why subrogation? to prevent the insured from recovering twice for the
same loss and so preserve the principle of indemnity. It also helps to hold
the negligent person responsible for the loss.
Article 683 (1) of the Commercial Code allows the insurer to subrogate
the insured after payment of agreed compensation to the extent of
amount paid by it.
Where the insured makes subrogation of the insurer impossible, the
insurer may be relieved in whole or in part from liability. ( article 683
(2) of the code
Cont.
How the insured makes the subrogation impossible? If for instance, the
insured institutes a legal action against third parties who caused
damages than the insurer.
Against whom the principle of subrogation operates? Seethe exclusionary
rules provided under sub (3) of article 683 which states that “that
notwithstanding any provision to the contrary, the insurer may not claim against
the ascendants, descendants, agents or employees of the insured person not
against persons living with him, unless such persons acted maliciously.”
What if the third parties who caused damage on the insured have a liability
insurance from the same insurer ? Is subrogation allowed?

Note: in relation to the principle of subrogation, you are advised to read a

research work titled “The Doctrine of Subrogation In Ethiopian Insurance
Regime: Its Significance and Applicability to Liability Insurance” conducted by
Mawcha Geremedhn
6. Principle of Contribution ( article 681)

Contribution arises from double insurance made in good faith( Article

681(2) of the commercial Code). It is the right of an insurer to call up on
others similarly, but not necessarily equal liable to the same insured, to
share the cost of and indemnity payment. For example, Mrs Selamawit
has three (3) fire insurers for her commercial building and later on her
insured property ( the commercial building) is destroyed by a fire
accident. In this case, every insurer is required to make contribution in
proportion to their policy.
What if the double insurance is made in bad faith?
The insurer may require the termination of the policy and in addition
may claim damages. Article 681 (1)
Cont.
Contribution will arise only when the following conditions are satisfied:
Two or more policies of indemnity exist.
Each ensures the same subject matter of the loss
Each ensures the same peril which brings about the loss
Each ensures the same interest in the subject matter (For example,
Mortgagor and mortgagee)
Each policy is liable to the loss
Q. Is the principle of contribution applicable to life insurance & liability
insurance?
7. Principle of Mitigation of Loss ( article 1802 of the civil code

This doctrine deals with the obligation of the insured to take steps for
the mitigation of loss when a risk occurs. Put otherwise, the insured
must endeavor to minimize the risk. See Federal Supreme Court
Cassation Bench Decision, Volume 12, File No 47076
8. The Concept of Reinsurance
Shifting of part or all of the insurance originally written by one insurer
to another insurer (reinsurer). An insurer assuming larger risk from the
direct insurance business may arrange with another insurer (reinsurance
company) to offload the excess of the undertaken risk over retention
capacity.
Article 2.13 of the Reinsurance business Establishment directive No
1/2014 defines reinsurance as “an arrangement where the original insurer
transfers part of the risk to the reinsurer.”
 cont.
Reinsurance is also defined as an agreement whereby a reinsurance
company provides insurance for a risk or risks underwritten by an
insurance company. Article 2.16 of the Amendment to Manner and
Criteria of Transacting Reinsurance Directive No. SIB/53/2020
Q. Do you think the reinsurance arrangement affects the original
insurer‟s contractual obligation to the insured under the original contract
of insurance?
Note: Before the first reinsurance company (the Ethiopian Reinsurance
Share Company (Ethiopian Re) was established in 2016, Ethiopian
insurance companies buy reinsurance covers from African Reinsurance
Corporation (African Re), Munich Reinsurance Company (Munich Re),
and Swiss Reinsurance Company Ltd (Swiss Re), which are based in
Nigeria, Germany and Switzerland respectively.
Points to be known in reinsurance contract

An insurance company purchasing reinsurance is called the ceding company or the
cedent or cedant or reinsured or ceding insurer because it cedes or transfers part of
its assumed risk.
The liability or risk ceded is called a cession and a company to which the risk
transferred or the company selling reinsurance is called a reinsurer.
The only parties involved in the reinsurance arrangement are the cedent and the
reinsurer; all the rights and obligations run only between them. Thus, there is no
privity of contract between the reinsurer and the original policyholder.
The original policyholder has no direct claim against the reinsurer if the direct
insurance company refuses to pay his claim. Likewise, the reinsurance contract does
not change the direct or original insurer‟s responsibility to its policy holder, the
original insured. The direct insurer is required to fulfill the terms of its policy
whether or not it has reinsurance or whether or not the reinsurer is rightly or
wrongly refusing to perform.
Insurance Contract under the Ethiopia Commercial Code

What is insurance contract ? What is insurance policy? Do you think

insurance contract and insurance policy are one and the same ?
An insurance policy is a contract whereby a person, called the insurer,
undertakes against payment of one or more premiums to a person, called the
beneficiary, a sum of money when a specified risk materialize. article
654(1) of the commercial code
The contract of insurance shall be supported by a document called an insurance
policy. Article 657(1)
The Ethiopian insurance business proclamation differentiates insurance
contract and insurance policy. Accordingly, the following definitions are
given.
Cont.
Insurance (insurance contract) means an undertaking by an insurer to indemnify
another person, in exchange for consideration called premium, against damage,
destruction, loss or liability in respect of a certain risk or peril to which the object
of the insurance may be exposed or to pay a sum of money or other thing of value
depending upon the happening of a certain event; Article 2(16) of the
insurance Business, Proclamation No. 746/2012
„Insurance policy” means a document evidencing a contract of insurance whereby
an insurer undertakes, against payment of premiums, to pay indemnity or the
benefit specified in the policy to the insured where condition specified in the policy
fulfilled or risk materialized, and includes a certificate, interim receipt, renewal
receipt, or any other document evidencing a contract of insurance. article 2 (20)
of Insurance Business proclamation
Cont.
From the reading of provisions of the commercial code and the insurance
Business Proclamation, one may hold that Insurance policy is a
supporting document to insurance contract. Thus, the purpose of
insurance policy is to prove the existence insurance contract as per
article 657(1) of the commercial code.
Contracting parties have the right to vary the insurance policy. However,
such variation/ modification of the insurance policy has to be made in
writing by a document called endorsement. Article 657(2)
Note: The Ethiopian commercial code provisions on insurance do not
make specific statements as to how an insurance policy can be renewed
or the legal effect of such renewal. Can we apply by analogy other
provisions of the commercial code to renewal ?
Parties to the insurance contract
Insurer/ under writer– a legal person to insurance arrangement which
undertakes to pay indemnity / benefit for loses.
Insured/beneficiary/subscriber/policyholder- The policy owner,
sometimes also called policy holder- is the person who has the right to
exercise control over the policy. He is usually, but not always, the
person paying the premiums. For example, when one insures one's own
life for one's own benefit and pays the premiums oneself, such person is
said to be the policy owner as well as the insured and beneficiary. If a
man insures the life of his wife for the benefit of their children and pays
the premiums himself, then he is the subscriber whilst his wife and
children are the insured person and beneficiaries respectively.
What are other parties in the insurance contract?
Insurance policy made on the behalf of third party
Insurance contract may sometimes be conclude between the insurer and
agent(s) of the insured. Article 661 (1) of the commercial code
recognizes insurance contract made between the accredit agent of the
insured and the insurer. Who is accredit agent?
Contracts made by an agent in the name of another within the scope of his power
shall be deemed to have been made directly by the principal. Article 2189(1) of
the civil code
From the cumulative reading of article 2189 (1) of the civil code and 661 (1) of
the commercial code, one can hold that insurance contract made by accredit agent
and the insurer shall be deemed to have been made directly by the insured and
insurer.
Cont.
Sub article 2 of article 661 of the commercial code regulates insurance
contract concluded between the person who conclude insurance contract
and the person in whose name the insurance contract is made in the
absence agency relationship between them.
However, to get insurance coverage, the beneficiary should accept the
insurance contract made for his/her benefit. Immediate acceptance is not
required ( the beneficiary may accept it after the occurrence of risk).
Note: The obligation to pay premium and discharge of other related
duties are to be discharged by the person concluding the insurance
contract until the beneficiary accepted the insurance contract.
Why such arrangement is permitted in insurance contract?
Particulars (contents) required to be included in the insurance policy
1. The place and date of the contract- it helps to determine material
jurisdiction of courts
2. The name and addresses of parties (residence, house No. Phone No.,
business place etc)- helps to give summon in case of court litigation
3. The item liability or person insured-
4. The nature of the risk insured (fire insurance, life insurance for the event of death,
liability insurance etc)- the duty of the insurer can surely be known only if its
obligation (the object of the contract) is clearly indicated referring the particular peril
that may give rise to the claim of enforcement of the policy.
5. Sum insured and Amount of premium
6. Period of Insurance- after the lapse of such period ( specified in the
policy), the insurer is not liable for any risk of loss
Requirements for validity of insurance contract

1.Consent- to form a valid contract, parties must express their consent

freely through what is called offer and acceptance. The acceptance of the
insurance contract is expressed in terms of filling the proposal which is
prepared by the insurers and an offer is made when the insurer
/insurance company issuing the insurance policy.
What would be the effect if the proposal is filled by the insured and
submitted to insurer and the insurer failed to respond?- the commercial
code is silent. Is silent amount to acceptance?
2. Capacity- the parties are capable of contracting and giving their
consent sustainable at law according to Article 1678 (1) of the civil code.
All physical persons who do not suffer the general disabilities
incorporated in Article 193 of the Civil Code shall be competent to
conclude a binding life insurance contract.
Cont.
3. Object- the object of the insurance contract shall be sufficiently
defined and is plausible and lawful. Article 1678 (b) of the civil code
It is true that an obligation is possible only if the subject matter of the
undertaking exists. In line with, article 682 (1) of the commercial code
states that the insurance policy (insurance contract) shall be no effect at
the time when it is made ( when the contract is concluded) the object is
already lost or no longer exposed to a risk.
Cont.
4. Written form -Article 1725(b) and Article 1678 (c) of the Civil
Code state that insurance contracts shall be in writing.
Three things are required to say that written formality is observed.
1. There must be special documents (called the insurance policy, in
insurance case)- article 1727 (1) of the civil code and Article 657 (1) of
the commercial code
2. Signature by both parties –article 1727 (1) of the civil code,
Concerning signature of parties, see Federal Supreme Court Cassation
Bench Decision, Volume 7, File No.24703
3. It must be attested by two witnesses- article 1727 (2) of the civil code
 Cont.
What is the effect of non fulfillment of the requirement? The non-
observance of any one of the requirements makes an insurance contract a
mere draft and to be invalidated as per article 1808 of the civil code. Do
you think is true for non fulfillment of Witten formality requirement for
insurance contract?
What is the purpose of written formality requirement in insurance
contract? Is it evidentiary or validity in their purpose?
In this regard, you are advised to read Fekadu Petros, Effect of Formalities on
the Enforcement of Insurance Contracts in Ethiopia, published on Ethiopian
Journal of Legal Education Vol. 1, No, 1 (July 2008)
Q. The Ethiopian commercial code while defining insurance asserts that an
insurance will pay a sum of money where a specified risk materializes. Does
this mean that other modes of compensation are not applicable under the
Ethiopian insurance law?
When does an insurance policy come into force?
The insurance policy shall be effective on the day the insurance policy is
signed. (Article 659 (1). However, parties are allowed to agree that the
policy shall only come into force after the first premium has been paid.
Article 659(2) of code.
What is provided under article 659 (2) is a contract of “condition precedent.” Condition
precedent is a types of contract by which the contract shall be effective as from the day
when the condition is fulfilled. Look article 1871 of the civil code which states that
“Unless otherwise agreed, the contract shall be effective as from the day when the
condition is fulfilled.”
Scope of application of insurance contract
Ethiopian insurance contract covers any insurance risk arising on land, air or sea (the
commercial code prefer to use river than sea). Why the drafter of the commercial code
opt to use river than sea?
Marine insurance and state insurance are excluded from the coverage. What is state
insurance ? It is to mean a social security insurance schemes established by the
government.
Rights and Duties of the Parties
Rights of the Insured
1. The right to Guarantee- the insured has the right to obtain a guarantee
from the insurer for a specified risk by way of payment of a fixed
maximum amount of money or in any other form. Article 663 (1) of the
commercial code.
In the absence of parties' agreement, risks caused by accident or
negligence of the beneficiary are subject to insurance coverage. However,
there are certain cases where insurers do not insure due to the very
nature of the risk. These are risks that are excluded by statutory
provisions such as:
1. Risks arising out of the intentional default of the beneficiary- Articles
663(3)
Cont.
What constitutes intentional default of the beneficiary ? This is to mean that the
fraudulent behavior which is intentional conduct of the insured can be a ground
for the insurer to reject a claim. Fraudulent claims (dishonest conduct)usually
pertain to the conduct of the insured such as pretext of loss or supporting a false
evidence or make excessive claim with the object of misleading the insurer.
2. losses due to international or civil war Article 676(1)
3. Suicide - Article 699
4. Intentional killing of the insured- Article 700
Are insurers obligated to guarantee the beneficiary for losses or damages due to
the fault of persons for whom the beneficiary is responsible? Yes, article 664.
Who are those persons to whom the beneficiary is responsible?? Are those
mentioned under article 683(3) of the commercial code. The provision deals with
vicarious liability, liability for ascendants, descendants, agents or employees. The nature
and gravity of the fault could not a defense for the insurer. Article 664 (2)
Cont.
The other point worth discussing is the assessment of the value of (time
value of loss) the object insured (time value of loss). Is there a third-party
assessment (assessment made by surveyors? What happens if the loss is
assessed by the insurer? Can we refer the insurance business
proclamation? Article 2(26) of the insurance business proclamation
defines loss assessor as a person who in the case of a claim under a policy of
general insurance business, undertakes to investigate and assess the cause and
extent of loss on the behalf of the insurer or the insured.
Q. Many insurance companies are applying excess and deductions as a
principle though not regulated under the commercial code. How will
these principles enforced in courts?
2.The right to assignment of the insurance policy
​Assignment of the insurance policy is the transfer of the rights incorporated in
the contract from the insured to a third party so that the latter collects the
benefits therein. It may be in the following ways:
1. The death of the beneficiary- the insurance policy shall continue with the
legal heir. Article 672 (1) of the commercial code.
2. The object insured may be assigned- the policy shall continue with the
assignee. Article 673 (1)
3. Bankruptcy of the beneficiary- policy shall continue with the trustee. Article
671 (1)
In all three cases, those who gain benefit from the assignment of the insurance
policy can terminate the policy within three months from the date the benefit is
transferred
Note: The rule that applies to the transfer of the policy to the heirs in case of
death of the insured is not operative is an insurance policy that covers the risk
of death of the insured under Article 692(2) of the commercial code.
.
3. The right to coverage timely

The insured has the right to claim payment of the sum agreed in a case
where the risk under the policy is materialized. This right includes the
right to be paid timely.
The insurer shall pay the agreed sum within the time specified in the policy when
the risk insured against occurs or at the time specified in the policy. Article 665
(1)
Q. What is conveyed from the stipulation “…pay the agreed sum within
the time specified” or “…at the time specified”?
The insurer is bound to pay the agreed sum within the time specified in
the policy (for endowment life insurance policy) or to pay the agreed
sum upon the occurrence of the risk (which might be insurance to an
object, or liability for damages, bodily injury or death of the insured
person).
4.The right to vary or terminate the policy
The insurance policy can be modified by the agreement between the
insured and insurer as per Article 1675 of the civil code which states that
“contracts is an agreement whereby two or more persons as between themselves create,
vary ( modify) or extinguish obligations of a proprietary nature.”
However, modification of insurance policy is possible when it is made in
writing by a document called endorsement. Article 657 (2) of the
commercial code , Federal Supreme Court Cassation Bench Decision,
Volume 15, file No 78180
As insurance is a contract, it may be terminated by a subsequent
agreement or enforcement of a provision in the policy by virtue of Article
1807/b/ of the civil code.
 Duties of the Insured
1. Duty to pay a premium ( 654(1)+ 666 Commercial code
“premium is the amount of money an insurer charges to provide the coverage
described in an insurance policy.” Article 2(45) of Insurance
Business(Amendment)Proclamation No. 1163/2019
It may be total to be made in one payment or installments (for instance,
annually, semi-annually, quarterly, or monthly) consistent with the
insurance policy.
Do you think that premium is automatic to get insurance coverage?
Do you think article 666(2) of the code deals with premium paid in
installment, payment for renewal ? See Federal Supreme Court Cassation
Bench Decision, Volume 10, File No. 52910
Cont.
What are the factors to be considered in determining the amount of
premium?
Probability of the risk occurred
The value of property to be insured
The time for payment of premium may be determined by the agreement
of parties as per article 666 (1) of the commercial code. However, article
666(1) of the commercial code is impliedly repealed by the Insurance
Business Proclamation No 746/2012. Article 48 (1) of the proclamation
states that insurance policy issued on partial or full credit shall be null
and void.
 Cont.
What if the insured failed to pay the agreed premium as per article
666(1) of the commercial code? Article 666 ( 1-5) has response.
1. The insurer will give one month's notice of payment to the insurer
the lapse of which entitles the insurer to suspend the relationship.
2. Once such a period has expired, the insurer has two options, i.e.
either require the payment of the premium or demand the
termination of the insurance policy.
3. The suspended policy re-enters into force with the payment of
the premium . Put differently, the payment of the premium results
in the operation of the force of the insurance policy again.
Note: Article 666 does not apply to life insurance as the governing rule
in relation premiums paid for life insurance article 709 of the
commercial code
 3.The Duty to notify increase of risk
What constitutes an increase in risk?- Are those changes that could have
the effect of making the risk assumed more hazardous than that which
existed at the time when the contract of insurance was made. Article 669
(1) of the commercial code
Consequences of failure to notify increase of risks
When an increase in risk is known to the insurer, it has two options.
1.By investigating the situation and burden the increase brings to the
insurance business, the insurer can terminate the policy as per article 669
(2) of the commercial code.
2. The insurer may maintain the insurance policy by increasing the
premium.
Where failure to notify increase of risk is intentional, the insurance policy
will not have legal effect. Article 669 (3) &Article 668 (1) of the
commercial code
 4. Duty to state correct and full Information

Article 667
On making proposal for a policy, the beneficiary should state exactly all the circumstances
within his knowledge and which are likely to assist the insurer to appreciate fully the risks
he undertakes to insure.
From this legal provision one can understand that:
The duty to state correct and full information is required on the making of the
contract (during the conclusion of the contract). The caption provided in the
Amharic version states “ውሉ በተደረገ ጊዜ ስለሚሰጥ መግለጫ”
The insured is not required to reveal all information, but information which
helps the insurer to fully appreciate the risk and decide accordingly.
The duty of disclosure is based on the actual knowledge of the insured. What is
actual knowledge? What about presumed knowledge?
5.Duty to notify occurrence of the risk assumed
The insured is duty-bound to inform the insurer that the risk assumed
occurs and resulting in a loss. This enables the insurer to take the necessary
steps to immediately investigate the situation, evaluate the loss and
determine the amount of coverage by the policy.
Article 670
1. Unless he is prevented by force majeure, the beneficiary shall inform the insurer of
any occurrence likely to render the insurer liable as soon as he knows of such
occurrence or within not more than five days.
2.This period may not be shortened in the policy
Time to notify the insurer- when does the insured required to notify
occurrence of risk?
Cont.
As soon as the insured knows the occurrence of risk or with in five days.
How soon? The Amharic version is clear in this regard. It says “ከአቅም በላይ
በሆነ ኃይል ምክንያት ያልቻለ መሆኑን ካላስረዳ በስተቀር ኢንሹራንስ የገባው ሰው ኢንሹራንስ
ሰጪው መድን የሆነበት አደጋ መድረሱን እንዳወቀ ወዲያኑ ወይም እጅግ ቢዘገይ በአምስት ቀን
ውስጥ ለኢንሹራንስ ሰጪው ማስታወቅ አለበት”
However, if the insured shows the existence force major ( as per article
1792-1794 of the civil code), he/she is not required to report in a time
that stipulated under article 670 (1) of the commercial code.
What is the effect of failure to report in due time? The commercial code
is silent. Can we say there is non performance and deny the right to get
compensation?
Cont.
Means of notifying the insurer- the commercial code says nothing
about the means the insured communicated about the occurrence of
risks. We have said that insurance contracts are adhesive contract and any
ambiguities shall be interpreted in favor of the insured. Accordingly, in
the absence of clear stipulation, the insured may use every convenient
method to give due notice to the insurer such as by telephone, letter,
email, telegram, imo or any other means that would satisfy the notice.
Or it may be determined in the insurance policy.
Burden of prove of the loss sustained – the insured has the duty to
sufficiently show the fact that the material loss is occurred against the
interest insured due to the materialization of the risk covered in the
insurance policy.
Cont.
The insured is also obligated to:
• refrain from any fraudulent act aimed at making a net profit or
obtaining un deserved benefit out of a contract of insurance. Article
680/1/
• refrain from purchasing an insurance policy in respect of goods or
objects which are already lost or damaged or destroyed or in respect of
goods or objects which are no longer exposed to a risk with the motive
of receiving compensation for the loss or damage sustained before the
conclusion of the contract.(Article 682(1) & (2).
Q. What the law wants to convey by the phrase “…goods or objects
which are no longer exposed to a risk”?
 Termination of Insurance Contract

Grounds of termination
 Agreement of parties-
Performance/time lapses- an insurance contract becomes extinct as
soon as it is performed in accordance with the contract, or where the
contract itself provides that it will lapse after a given date. Article 1807
of the civil
 When the object insured is lost for the reason not provided in the
policy (Article 677 of the commercial code)
What if there is partial loss? The commercial code is silent. But, logically,
the policy is effective regarding the remaining property.
The insurance policy shall terminate within one month after the
insurer has been declared bankrupt. Article 671 (3) of the commercial
code
Period of limitation in insurance contract ( article 674)

Any claim in relation to insurance shall be brought to the attention of the court
within two years of their occurrence or two years of their disclosure to the
parties involved in the transaction. See article 674 (1), Federal Supreme Court
Cassation Bench Decision (Volume 10, File No. 46778)
When the case is related to concealment or false statements, the time runs since
the insurer knew the contrary conduct of the beneficiary. Article 674 (2),
Federal Supreme Court Cassation Bench Decision (9, File No. 42309)
The period of limitation provided above can neither be prolonged nor
shortened by the agreement of the insurer and insured. Article 674 (3)
The period of limitation provided under article 674(2) is applicable for both
parties. See, for example, article 680(1)
Q. Do you think that the period of limitation will be two years when there is
interruption of payment?
 Property Insurance
What is property insurance ?– the commercial code refers property
insurance as insurance of objects. What are objects? See article 1126 of
the civil code, which is about goods ( objects).
Any person who has a direct and indirect interest in the preservation of
an object may insure it. (article 675 of the code). Thus, the potential
insured is required to show that he/she has an insurable interest over the
subject matter of the insurance ( insurable interest over the object in this
case).
For instance, if the object is already lost or no longer exposed to a risk at
the time when insurance is made, the policy shall be no effect as it is
impossible to show insurable interest. Article 682 of the code.
Cont.
Risk not covered under property insurance ( article 676)
As far as the scope of risks is concerned, there are three types of risks (
insured risks, excepted risks, and uninsured risks). It is only insured risks
that will be under the scope of risks in property insurance. Article 676 is
about uninsured risks. Accordingly, risks of loss due to war (either
international or domestic war) is not recoverable- Parties may agree
otherwise. Article 676 (1)
Burden of prove shoulders on the insurer- article 676 (2)- the insurer has
the duty to prove that the risks of loss results from international or
national war. If it (the insurer) fails to establish /prove, the insured will
be entitled compensation.
Cont.
Cumulative Insurance (Article 681)
There is cumulative insurance where multiple insurers insure the same object
against the same object. Regarding the legal effect of cumulative insurance, it
has been already dealt while we discussed the principle of contribution.
Under Insurance ( article 679)
The actual loss is greater than the amount specified in the policy. The payment
must be to the amount specified in the policy.
Why under insure?
1. An insured might be tempted to under-insure when they realize that the
chances of a full loss are very slim and that most of their losses will be
partial losses. The person who under-insures an asset will pay a smaller
premium, because of the fact that the amount insured for is smaller than
the true value of their interest.
Cont.

2. It might be due to inflation– the value of the property is continually

changing
3. A person may insure the property for an amount less than its actual
value for a reason that the insured can not afforded adequate premium
for the full value of the property.
In what ever case, the insured himself/ herself shall be considered to be
his/her insurer for the difference and is required to share
proportionately in the damage. Article 679 of the commercial code.
Over Insurance (article 680)

The amount specified in the policy is greater than the actual loss suffered.
What is the fate of the over insurance contract? Determined taking in to
account the state of mind of the parties to the insurance contract.
1. If over insurance is made by the innocent insured, the insurance is
effective to the extent of actual value of the object. See article 680
(2) of the commercial code
2. If the over insurance is made with bad faith, termination may be
required by the other party. Article 680 (1) of the commercial code
3. The insured has the right to request the insurance to be reduced
based on the over estimation of the value with the view to shift the
premium to the actual value of the thing insured. See sub article 3 of
the same provision.
Cont.
Q. It is true that the insured might involve in fraudulent exposure so as to
ultimately obtain greater compensation than the actual value of the
object at the time of loss. Why do you think the insurer is involved in
fraud of over-insuring the objects?
Extent of Compensation in Property Insurance
The compensation shall not exceed the value of the object insured on the day of
the occurrence of risk. See the second limp of article 678 of the code
The calculation of indemnity as regards to property is agreed not by its
cost but by its value at the date and place of loss. If the value during the
policy period has increased then the policyholder is entitled to an
indemnity on the basis of the increased value subject to the sum insured
and vice-versa.
Cont.
Note: Property insurance is an indemnity insurance that states a person
may not collect a benefit more than the actual loss s/he underwent. The
insurance payment, however, shouldn't necessarily be commensurate to
the loss as partial coverage agreement is possible.
Determining factors that limit the scope of compensations
Sum insured- the maximum amount recoverable under the insurance
policy.
Average Principle- in case of under insurance, compensation will be
paid as : sum insured X damage/loss divided by market value of the
object
Deductions and Excess are considered.
 Liability Insurance
What is liability ? It is simply to mean amenability or responsibility to law.
Liability may be divided into criminal and civil responsibility dichotomies.
While criminal liability involves in violation of a criminal law by way of
omission or commission whereas civil liability may arise either from
contractual relationships or non-contractual consequences.
Currently, there is no open room for criminal liability insurance.
Some of the governing rules for liability insurance are:
The commercial code articles 685-688 + articles 654-674
Vehicle Insurance against Third Party Risks Proclamation No 799/2013
Insurance fund administration agency establishment regulation
300/2013
 Y<J:
Cont.
The commercial code has various lacunas, to mention some,
 Under the commercial code, what liability insurance is not defined
and the risks covered under the liability insurance is left unmentioned.
The issue whether liability insurers are legally granted with
subrogation right to entitlements of an insured isn't properly addressed.
Simply stated, the code is silent as to the applicability or non-
applicability of the doctrine to liability insurance.
Cont.
The commercial code addressing liability insurance prefers to use a
caption “insurance of liability for damages.” What is meant by insurance
liability for damages?- it is an insurance arrangement against loss
resulting from liability for injury or damage to the persons or property
of others.
From the phrase “ liability for damages” one can hold that damage of the
third party may be actual or future as articulated under Article 2091 and
2092 of the civil code. The damage might be also moral damage or
material damage.
Note: In liability insurance, the insured must potentially have a legal
liability to another person to which such liability is covered by the
insurance contract in order for an insurable interest to exist.
Nature of Liability Insurance

In liability insurance, the insured suffers a loss when its liability to a third party
for the latter‟s loss has been proved.
The liability insurer is liable to the insured only once the latter‟s liability to the
third-party plaintiff has been established or proved.
How the insured defendant‟s liability to third-party plaintiffs is proven?
The insured‟s liability to the third party may be proved by way of agreement,
judgment, or arbitration as per article 685 of the commercial code which states
that “The insurer who insured a liability for damages shall not pay compensation until a
claim is made against the insured person with a view to amicable or judicial settlements.”
Note: Although the insured‟s liability towards the third party may have been
established by judicial settlement, the insurer may still escape liability under the
terms of the policy if the insured‟s liability that has been established to the third
party falls outside the scope of cover of the insurance policy.
Cont.
It is a precondition that the third party injured should approach the
insured and require compensation for the damage by agreement or
bringing the matter before the attention of a court of law. Article 685 of
the commercial code precludes a direct action against the insurer by the
injured party.
What if the insured paid the required inevitable compensation to the
third party voluntarily without the latter claiming it circulating the
damage?
Article 686 (1)- parties may agree a term that “insured can`t admit
liability or compromise with out the consent of the insurer.” However,
the mere fact that the insured admits facts does not mean admission of
liability. Article 686(2)
Cont.
Direction of Cases under Ethiopian Insurance Law
In Ethiopian, the concept of direction of cases is recognized under article
687 (1) of the commercial code which states that “provisions may be made
to the effect that the insurer shall have direction of any civil case originating from
a claim brought by the injured party.”
Points:
1. As it can be understood from the provision, direction of cases will be
in effect if the insured and the insurer agreed to do so.
2. Once it is disclosed in the policy, then it becomes obligation of the
insurer.
3. Criminal acts are not set to be directed by the insurer as it says
“..insurer shall have direction of any civil cases…”
Cont.
Criminal cases are totally excluded from subject of insurance coverage as
it is depicted under article 687 ( 2) of the commercial code. Simply, no
insurance policy for criminal cases. See Article 687 (2)
What about the right of the insured to joint the insurer, for example, as a
defendant as recognized under Article 43 of the 1965 Civil Procedure
Code?
The principle of “ first pay the injured and claim from the insurer”
In liability insurance, the principle is that the insured first pay the injured
and claim from the insurer. This principle is addressed under article 668
of the commercial code which states that “No insured person shall receive
compensation until the third party injured has been paid to the extent of the
amount insured.” Otherwise agreement is not allowed.
Cont.
Why the principle “the insured first pay the injured and claim from the
insurer” is adopted?
Difficult to know the loss sustained unless he/she has not paid
The victim may left out of remedy/ to protect the right of the injured
It is true that the purpose of insurance of liability for damages is to cover
the insurance of liability for damage is to cover the insured from the loss
which he/she might have suffered from paying compensation to a third
party injured.
What if the insured has no means (has no financial capacity) to make the
damage of the third party good?
Compulsory Motor Insurance in Ethiopia
"The modern man may be thought of as a new type of centaur, half human and half
car, apparently prepared without serious resistance to pay the ever increasing
financial price that car ownership entails and more strangely still, willing to suffer
the pain and sorrow that accidents bring, the pollution by fumes and noise ....
"(Kenneth Cannar) What do you understand from this quote?
Cont.
The proclamation governing compulsory motor insurance (proclamation
799/2013) named such type of insurance as Vehicle Insurance against
Third Party Risks. It is sometimes called “ third party insurance”
Vehicle insurance against third party means a contract whereby an insurer
undertakes to pay compensation and cost of emergency medical treatment to any
third party for death, bodily injury or damages to property caused by the vehicle of
an insured person.
Do you think that the four fundamental elements of contract (consent,
capacity, object and form) are observed in compulsory motor insurance?
It is clear that out of the four fundamental elements of contract, consent
must be there to say that a contract is lawfully concluded. Obviously,
consent means the willingness to enter into a certain juridical act with
the view to be bound by it.
Cont.
Thus, there must be voluntary intention to be bound by a certain con
tract. When we say accident contract has become obligatory, it means
that the consent element of this contract has been denied by the law
maker leaving intact those other elements.
Thus, when we say accident contract has become obligatory, it means
that the consent element of this contract has been denied by the law
maker leaving intact those other elements.
Who are third parties ? -for the purpose of compulsory motor insurance,
third parties shall mean any person to which an insurance policy applies
at the time when vehicle accident occurred giving rise to liability under
such insurance policy.
Cont.
The insured, families of the insured, driver or employee of the insured are
statutorily excluded from the definition of “ third parties” as per article 2
(10) of the proclamation. Why such exclusion? What is the policy behind it?
Note: Vehicle insurance against third party is a compulsory insurance law
which guaranteed limited compensation to innocent victims of vehicle
accident.
Why vehicle insurance against third party is made compulsory?
Under normal circumstances, insurance has been one of the voluntary
activities or engagements of citizens. As voluntary, it is via the free and full
consent of the owners of vehicles and insurers that the contract of insurance
is to be concluded and entered into force.
Cont.
However, if the interest at stake pertains to public, as the experience of
other countries show, the law maker may intervene in the private affairs
of citizens and impose duties the non-observance of which entails certain
sanctions. One area endangering the public in general is the motor
industry, particularly motor vehicles. It is with the idea of safeguarding
the interest of the Ethiopian public and others that the legislature has
issued vehicle insurance against third party risks.
Therefore, vehicle insurance against third party is made compulsory
among other due to the following justification:
1.To make motorists financially capable of meeting accident liabilities
2.To guarantee minimum compensation to the accident victim
Cont.
3.Provision of Emergency Medical Treatment- provision of an emergency
medical treatment to accident victims is one of the objectives to be
achieved by the legislature.
4. The demand to require vehicle owners to have third party assurance
coverage.
The preambles of the proclamation clearly provided the justifications that
necessitated the enactment of Vehicle insurance against third party.
Accordingly, the ever-increasing traffic accidents and the need to provide
emergency medical services to victims have led Ethiopia to adopt a law
on compulsory third party motor insurance cover.
Requirements of the Law

As it is indicated one of the objectives of

proclamation 799/2013 is to require owners of
vehicles to have third party insurance coverage
against third party risks.
This objective is reflected in article 3(1) of the
proclamation. It reads as follows: “No person may
drive, use or cause or permit any other person to drive
or use a vehicle on a road unless he has a valid vehicle
insurance coverage against third party risks in relation
to such vehicle.”
What is the effect of driving a vehicle with out
certificate ? It will be regarded as the vehicle is
not insured and it follows administrative
penalties ( detention of car by a police), criminal
liabilities as provided under article 30 of the
proclamation
Cont.
What are the elements?
1. The prohibition is applicable for both artificial and physical person.
How artificial person?
2. The prohibition is not limited to the owner of the vehicle, rather that
non-owners are also prohibited from driving.
3. The phrase "unless a valid vehicle insurance converge..." coupled with
the word "shall“ indicates that having insurance coverage is a mandatory
requirement.
Note: Vehicle insurance against third party risk policy covers only your (
as an insured) legal liability for the damage caused to a third party like
bodily injury, death and damage to third party property while using your
vehicle. Third party insurance does not cover damages to your own
vehicle.
Cont.
4. The third element is related with the word vehicle which is defined as
any wheeled motor vehicle, semi trailer or trailer for use on the road
with the exception of wheelchair and bicycle. Why bicycles are excluded
despite the fact that bicycles have come the sources of vehicle accident in
Ethiopia? It could be very absurd to require bicycle owners to have
compulsory third party insurance in Ethiopia because this will obviously
discourage their use as their expense may be higher than their value.
Another point worth discussing is the one provided under article 3 (2) of
the proclamation which states that “Notwithstanding the provision of sub
article (1) of this Article, the ministry may determine vehicles to be derived or to be
used on a road without requiring vehicle insurance coverage against third party
risks; the ministry shall issue directive implementing compensation to victims”
Cont.
1. The ministry (ministry of transport) may exempt vehicles from buying
this form of mandatory insurance. Which vehicles could be exempted
from this requirement? If the country is in a war, for emergency reasons,
vehicles under the ownership of the ministry of defense may be relieved
from the requirement.
2. “…the ministry shall issue directive implementing compensation to victims”-
Cont.
Scope of Application ( article 7, 15 )
Which activities or transactions of a motor vehicle owner giving rise to
liability are subject of the Proclamation?
One of the provision showing the scope of application is the type of risks
covered is the one indicated under article 15 of the proclamation which
deals with the duty to secure insurance coverage for liabilities arising
from:
Collision, fire or explosion caused by the insured vehicle;
The fall of objects carried by the vehicle, its accessories or tools being used in
connection with the vehicle;
 any damage resulting from the movement of the vehicle
Third party insurance does not cover all subject matter of insurance. There are excluded
subject matters. Such exclusions are indicated under article 7 of the proclamation
Exclusions from insurance coverage ( Article 7)

1. death or bodily injury or damage to property of the insured person

or member of the insured person's family;
2. collision or death or bodily injury or damage to property caused to a
person hired by the insured person and occurred in the course of
such employment;
3. damage to the insured vehicle;
4. liability in respect of damage to goods carried on the insured vehicle
on the basis of rent or payment;
5. liability in respect of damage to the personal property of insured
person covered by insurance policy or damage to property under the
control or responsibility or custody of the insured person;
6. liability in respect of vehicle accident occurred outside the territory
of Ethiopia.
Cont.
Are the lists under article 7 illustrative? Are passengers excluded from the
scope of application of the law?
Restrictions of Insurance Policy (articles 5 and 6)
Can the insurer object payment on various grounds? –once a certificate of
insurance is given for the insured, an insurer can not object payment of
compensation on the ground of age, physical or mental conditions of the person
driving the vehicle; condition and value of a car, number of person travelling
and time the vehicle is used. Thus, it is an indication that the provision laid
unlimited liability.
Article five (5) is further strengthened on article 6 which states that “ any
agreement which limit liability of the insurer shall be no effect.” However,
parties may insert a provision requiring the person insured to repay to the
insurer any sum which the latter may have compensated under the policy and
which have been applied to the satisfaction of the claims of third parties. Article
6 (2) of the proclamation.
Cont.
The reading of Articles 5 and 6 easily indicate that the interest of third
parties is given higher priority. Why should the insurer pay compensation
just because the insured deliberately violates traffic rules such as not
observing the carrying capacity of the vehicle? Is the insurer expected to
compensate the victim if the latter does not mitigate the damage?
Interestingly, sub article 2 of article 6 tries to take into consideration the
economic condition of insurers which states that “Nothing in sub-article (I)
of this Article shall be deemed to render void any provision in insurance policy
requiring the person insured to repay to the insurer any sum which the latter may
have compensated under the policy and which have been applied to the satisfaction
of the claims of third parties.”
 Obligations of the insurer

1.Duty to issues motor insurance policy- Any insurance company transacting

general insurance business shall be obliged to issue the vehicle insurance
policy against third party risks. Article 4(3) of the proclamation
2.. Issue certificate of insurance- the insurer has the duty to issues certificate
of insurance to the insured at the time when it issues insurance policy as per
article 9(1) of the proclamation. The insurer has further obligation to ensure
that the insurance policy complies with the requirements of the
proclamation. Article 9(3)
3. Duty to provide the insured the insurance sticker- The insurer is duty bound to
provide to the insured an insurance sticker together with corresponding
certificate of insurance. In case where the sticker is lost or mutilated, the
insurer shall , upon the request of the insured person, issue a replacement
certificate of insurance. Article 12 and 14 of the proclamation
Cont.
Note that the insurance certificate and insurance stockers are prepared
by the Ethiopian insurance fund agency and distributed to the insurance
companies. See article 5 (6) of the Ethiopian insurance fund agency
establishment proclamation No 300/2013
What if the motor vehicle is resisted abroad, for instance vehicles
derived by diplomats ?- Yellow card system as per article 26 of the
proclamation which states that “The driver of any foreign registered
vehicle permitted to be driven on the roads of Ethiopia shall possess a valid
certificate of insurance and insurance sticker or, where the insurance policy
is not issued by a local insurance company, he shall produce a yellow card or
an equivalent proof of insurance coverage.”
What is yellow card system?- It is a certificate issued for payment of
compensation as per COMESA protocol.
Cont.
4. Duty to execute court judgment- article 18
Where a judgment is rendered against an insured person in respect of any
liability covered by insurance policy, the insurer is obligated pay to the
judgment creditors any sum payable under the judgment.
Two points
• The payment includes cost and interest
• The insure may relieved from liability by showing that he/she is entitled
to avoid or cancel or may have avoided or cancelled the policy
How the insurer is obligated to pay compensation for the victim if it
cancelled the policy with the insured?
5. Duty to furnish information- the insurer shall furnish the necessary
information to the insurance fund agency as per article 11 (2) of the
proclamation.
Cont.
6. The duty to compensate the victim- the insurer is obligated pay
compensation to risks covered in the insurance policy.
The amount of compensation to be covered by vehicle insurance policy
against third party risks must:
1. Not be less than 5,000 birr and a maximum of 40,000 birr in respect
of the death of one person
2. An amount not exceeding 40,000 birr in respect of bodily injury of
one person which also includes medical expenses incurred for the
injured person and costs related to other compensations
3. An amount not exceeding 100,000 birr in respect of damage to
property
Cont.
The person who is entitled to compensation above the limit stated above
also have the right to claim same from the insured person or from other
having legal liability in accordance with the relevant law (extra
contractual liability law) . Article 16 (3) of the proclamation
Note: In relation to extent of compensation, this provision (article 16) is
applicable for foreign registered vehicles. See article 27 (2) of the
proclamation
Given the ever increasing cost of living and other factors, do you think
the extent of compensation provided under article 16 of the
proclamation is adequate enough? Should sub article 3 of the same article
be a solution? How about the right of the victim to get speedy justice?
Cont.
In fact, the council of ministers is empowered to amend the extent of
liability limit provided under sub-article (1) of this Article though no
amendment is made till.
Q. How the amount of compensation to be paid as per article 16 of the
proclamation is effected? In the form of arrears or lump sum? Does the
extent of liability take into consideration the age, educational status,
physical characteristics and other factors of third parties? Surprisingly,
the answer is No
The base of calculating the extent of liability, as was revealed in the
discussion is not dependent on the macro and micro economy of the
country.
Obligations of the insured

1.Duty to give information - Article 11 of the proclamation

The insured person shall, where requested by or on behalf of a person
entitled to compensation, provide information on:
a) whether the vehicle is insured or not; and
b) the conditions specified in the certificate of insurance pursuant to
Article 9 of this Proclamation.
The insured is also obligated to give information to the medical
institution, to any law enforcement bodies including polices and to the
Ethiopian insurance fund agency when requested.
The request to be given information may come from either the
beneficiary of the insurance contract or from another person on behalf of
the beneficiary.
Cont.
Why the law has entitled the another person the behalf of the beneficiary
to request information?
The beneficiary may be seriously injured and hence cannot physically
approach the insured person.
The death may be involved in the accident which gives right for the
beneficiary to claim it. See article 705 of the commercial code
2. The duty to display windscreen or hold insurance sticker. Article 12
(2&3) of the proclamation
The absence of sticker is a prema facie evidence for that the vehicle has
not been insured and this entails punishment ( for instance, the police
shall have the power to detain the vehicle until the required insurance
sticker is presented). Article 13 (2) and article 30 of the proclamation
Cont.
3. Duty to pay premium-Insurance premium should be ascertained to
be fair, sufficient to cover claim cost and all other cost and commensurate
profit margin of insurance companies. It should not be over burden to
the general public. Premium determination underlining principles are
not expected to generate high profit to insurers, since it is a social
insurance. Thus, Premiums are to be determined based on the type and
purpose of vehicle, it is not determined by the agreement of parties as a
per Article 4(4) of the proclamation. Currently the national bank issued a
directive (Directive No 60/2023)to determine motor insurance
minimum rate applicable for all categories of vehicles. Accordingly,
charging premium below the minimum rates provided in the directive is
not allowed.
Cont.
An insurance company that charges premium below the minimum
premium rates stipulated in the directive shall be penalized birr 25, 000 (
Twenty five thousand birr) for each breach. Article 5 of the directive No
60/2023
4. Duty to secure insurance coverage- article 15 of the proclamation
The insured is duty bound to secure insurance coverage for liabilities
arising from
 Collision, fire or explosion caused by the insured vehicle;
the fall of objects carried by the vehicle, its accessories or tools being
used in connection with the vehicle;
 any damage resulting from the movement of the vehicle.
Cont.
5. Duty to notify occurrence of risk (article 17 of the proclamation)
The insured person shall, unless prevented by the existence of force majeure, notify
the insurer an accident caused by the insured vehicle immediately or at the latest
within 10 days from the date of the occurrence of such accident. Article 17 (1) of
the proclamation
What is the effect of failure to notify occurrence of risk? Shall we refer
the commercial code? Article 28 of the proclamation states that “the
provisions of the Commercial Code and other laws pertaining to insurance shall, in
so far as they are not inconsistent with this Proclamation, be applicable with
respect to vehicle insurance against third party risks”
Any third party entitled to compensation may submit his/her claim,
together with supporting evidences, directly to the insurer. Article 17 (2)
Cont.
What constitute supporting evidences?
6. Duty to handover insurance certificate and sticker- Upon termination or the
expiry of the insurance policy, the insured person shall immediately hand over
to the insurer the certificate of insurance and the insurance sticker. Article 9 (4)
of the proclamation
What purpose will be achieved by obliging the insured to handover insurance
sticker?- There may be a possibility that stickers would be displayed on the
screen of the vehicle or possessed by the driver even in the absence of an
insurance policy. This gap would cast its own shadow on the effective
implementation of the law.
7. Duty to be guided by a good faith principle- Article 8 obliges the insured to
be guided by a good faith principle. It states that “No person may, for the purpose of
obtaining a vehicle insurance policy, make any false statements resulting in the non-
applicability of such policy or commit any act which disentitles him to claim under such
policy.”
The Establishment of an insurance fund

An Insurance Fund has been established as a

permanent source of finance to be deposited in a
special bank account to be opened at the National
Bank of Ethiopia to cover accident caused by
uninsured or untraced vehicle that will cover the
cost of emergency medical treatment to a person
who has sustained bodily injury; compensation to a
person who has sustained bodily injury and
compensation to family members of a deceased
person. Articles 19 and 20 (1) of the proclamation
Cont.
The amount of compensation to be paid by insurance fund is equivalent
to the extent of liability to be covered by vehicle insurance policy against
third party risks. Article 20 (2) of the proclamation
The insurance fund which compensates the victim has a subrogation right
against those who are responsible for damage/loss. In this regard, article
20 (3) of the proclamation states that the agency ( to mean the fund) is
entitled to claim its costs incurred related to the above from the person
responsible for the accident.
The Liabilities of Medical Institutions and the Right of theVictims

Any person who has sustained injury caused by a

vehicle accident shall be entitled to emergency medical
treatment costing up to Birr 2,000 whether he is a
third party or not as defined under this Proclamation.
Article 27 (1) of the proclamation
points:
1. From whom the victim gets emergency
medical treatment? What if the medical
institutions resist to give emergency
medical institution?
2. The maximum amount allotted for
emergency medical treatment does not
take into consideration the increasing cost
of medicines and medical treatment.
Cont.
Medical institutions (including private medical institutions) have the duty
to provide emergency medical treatment to any victim of a vehicle
accident. What is meant by emergency medical treatment? Article 2(16)
of the proclamation
When/when emergency medical treatment is given?
At the site of the accident, during transportation to the medical
institution, at the medical center.
What is the fate of the medical institution which give emergency medical
treatment in relation to cost and expenses? – they may claim from the
insurance fund agency which in turn gets its funds from the government
and contributions made by policyholders and insurers. Article 27 of the
proclamation
How to Enforce MandatoryVehicle Insurance in Ethiopia

For the implementation of the proclamation, the Ethiopian insurance fund

administration agency is established by council of ministers regulation No
300/2013. For the proper implementation, the agency shall have an insurance
fund board, general director, deputy director and other necessary staffs.
Criminal liability- Article 30 of the proclamation
Any person who violates the provision of this Proclamation or regulations
issued pursuant to this Proclamation shall be punished with a fine from Birr
3,000 up to Birr 5,000 or with imprisonment from one year up to two year.
Regulatory Aspects of Compulsory Motor Insurance- Compulsory motor
insurance law has two dimensions, namely, social and economic. Its social aspect
would be managed by those stakeholders in the transport sector such as the
Ministry of Transport, Transport Authority and the police. The economic aspect
of the proclamation may be to maintain the financial adequacy of insurers. This
is the major business of the regulator, and hence the National Bank of Ethiopia
may issue certain directives that would guarantee financial responsibility of
insurers.
 Life Insurance
Article 2 (23) of the insurance business proclamation No 746/2012
defines life insurance as “a contract whereby the insurer undertakes
against the payment of premium, to pay to the insured or to any
beneficiary a specified sum on a certain conditions dependent upon the
life or death of the insured.”
 Mode of payment of premium – is it periodical or one time payment ?
 To any beneficiary/ the insured-
 A specified sum- a sum to be paid to the insured/beneficiary has to be
determined in the policy.
 Conditions- dependent on the life or death of the insured/subscriber
Cont.
A contract of insurance arises where a person in the consideration of the
payment of money agrees to pay a certain sum of money to another
person upon the happening of an uncertain event or upon the happening
of an uncertain event as to time.
What dot you understand from the underlined phrase?
Article 691 defines life insurance as "a contract whereby the insurer
undertakes against the payment of one or more premiums to pay to the
subscriber or to the beneficiary a specified sum on certain conditions
dependent upon the life or death of the subscriber or third party insured”
Types of Life Insurance recognized under the commercial code

1.Pure endowment policy- a types of life insurance contract whereby the

primary obligation of the insurer is to pay a specified sum at the end of a
fixed time period to the insured himself where he survives the beneficiary.
Article 692(1) of the commercial code
Note: The very purpose of this type of life insurance is to help the
subscriber economically during retirement and this encourages investment.
2. Whole life insurance- a kinds of life insurance whereby the sum assured
is payable on death only (not on expiry of any fixed period). The obligation
of the insurance company in the case of whole life insurance is to pay a
sum specified in the policy upon the happening of death. Article 692 (2) of
the commercial code refers this kind of life insurance as “insurance for the
event of death” የመድን ገቢውን ሞት ተከትሎ የፖሊሲው ገንዘብ ለተጠቃሚዎች
ይከፈላል፡፡
Cont.
3.Combined policy- A types of life insurance whereby the insurer
undertakes to pay the insured person a specified sum at the end of a fixed
period of time (for instance, if the insured reaches at the age of 80), or to
the specified beneficiaries where the insured person dies. Article 692(3)
of the commercial code
“በአንድ የተወሰነ ቀን ወይም ጊዜ ውስጥ በሕይወት ከኖርሁ የፖሊሲው ገንዘብ ለራሴ
ይከፈለኝ፡፡ ነገር ግን የተባለው ቀን ከመድረሱ በፊት ከዚህ ዓለም በሞት ከተለየሁ
የፖሊሲው ገንዘብ በውሉ ለተጠቀው ተጠቃሚ ይሰጥልኝ” የሚል ይዘት ያለው
የህይወት መድን ዓይነት ነው፡፡
Example, Alemayehu has the right to make life insurance contract in the
following terms: “ Should I live in 2050 EC the amount of payment shall
be paid to him ( Alemayehu) or should I die before 2050 EC, the amount
of payment shall be made to my beneficiary.”
Nature of Life Insurance

Life insurance undertakes to protect the insured‟s family or other

beneficiaries against financial loss emanating from the death of the
insured and to minimize the risk one may face due to old age or
retirement. As a social and economic device, therefore, life insurance is
a method by which a group of people may cooperate to ameliorate the
loss resulting from either old age or the premature death of members
of the group.
Life insurance is not a contract for indemnity. Look at article 689 of
the code which states a contract for insurance of persons (life
insurance, and insurance against accident and illness) shall not be
presumed to be a contract for compensation. Accordingly, principles
such as double insurance, over insurance, subrogation, etc that are
applicable to insurance of indemnity do not at all applicable to life
insurance.
Cont.
Life insurance contracts are said to be valued policies as the insurer
agrees to pay a stated sum of money irrespective of the actual economic
loss.
Life insurance for the event of death can be used as collateral (such as a
pledge) to secure a loan from a bank as per article 697 of the
commercial code. As it can be easily understood from articles 696 and
697 of the commercial code, life insurance policy to order can be
negotiated or pledged by endorsement. In the wording of article 696 an
endorsement must show the name of the beneficiary and must be dated
failing unless it shall be of no effect. Can we that pledging life insurance
by endorsement is also believed to require the mentioning of the
pledgee and the date of endorsement?
Cont.
Life insurance contracts brings a combination of protection and
investment while most property insurances are only limited to
protection. Accordingly, life insurance Life Insurance is insurance as
well as an investment.
Since life insurance contracts deals with the life of a person as its
subject matter, the period or duration of the insurance is usually more
longer than in property insurance contracts.
Life insurance policy is regarded as property. As it is the property of
the insured person, it can be assigned to other persons. According to
article 698, the written agreement of the insured person is required for
the valid assignment of a life insurance policy.
Cont.
Insurable Interest in Life Insurance
Insurable interest is a doctrine which requires that there has to be some
significant relationship between the insured person and the subject
matter of insurance. The specified justification articulated for such
doctrine of insurability is-to avoid one or more potential evils which
might result from allowing insurance contract that afford opportunities
for net gain as a result of occurrence of an insured event.
In the case of life insurance, the subject matter of insurance is the life of a
person. Therefore, a person must have insurable interest in the life sought
to be insured. Every capable individual has an insurable interest in his
own life and may insure his life.
Life insurance for the event of death of third party
The commercial code allows the conclusion of life insurance contract for
the event of death made by a third party while the insured person is
another person. Article 693 of the commercial code
Two conditions:
1. Written agreement of the insured and his/her spouse ( if there is
marriage)
2. Specification of the amount insured.
What is the effect of non fulfillment of the conditions specified?
The contract shall be no effect if the amount is not indicated and the
contract is not made in writing. What will be the effect if the third
condition ( failure to secure of the consent of spouse)? The commercial
code is silent. Shall we refer family law?
Cont.
Do you think the consent of spouse is required to maintain insurable
interest?
Exception to the article 693
Buying insurance policy for the event of death of incapable person is
prohibited under article 694 of the commercial code. This provision is an
exception to the general rule provided under article 693 of the
commercial code.
What is the justification for this prohibition?
Who are incapable person? The one who is under a general disability
which depends on their age or mental condition or on sentences passed
upon him as per article 193 of the civil code
Cont.
What if life insurance for the death of incapable person is made contrary to
article 694? Any interested party may apply for the cancellation of the
contract. Article 694 of the commercial code and article 1808 (2) of the
civil code. Article 1808 (2) of the civil code states that “A contract whose
object is unlawful or immoral or a contract not made in the prescribed form may be
invalidated at the request of any contracting party or interested third party.”
Who are interested party? Does it mean family? Or any person who cares
about the interest of incapable person?
 Particulars to be included in life insurance policy (695)
In addition to the particulars required under the general provision of
insurance ( article 658 of the commercial code), the followings shall be
showed in the insurance policy paper:
the name, surname and the date of birth of the insured person,
the name and surname of the beneficiary if specifically referred,
the occurrence on which the payment of the agreed amount depends,
the manner of calculating any reduction in the value of the policy or
the redemption value, as particularly required
Payment of premium & effect of non payment of Premiums (Article
709)
Grace Period- Time granted to insured to pay an overdue premium to
keep the policy in force
The rule is as follows:
If less than three annual premiums are paid:
(a) The insurer demands payment,
(b) The policy is terminated if payment is not made within one month from
date of demand.
2. If more than three annual premiums are paid :
(a) The insurer demands payment;
(b) Ifpayment not made within one month from date of demand, the
insurer may (i) issue a paid-up policy, or (ii) reduce the capital or
life interest of the policy in accordance with Article 656.
Cont.
Article 709 (3) states that “If a premium has not been paid at the due
date on a policy on which at least three annual premiums have been paid
and payment is not made within one month from the date of a demand
for payment, the policy shall not lapse. The insurer may issue a paid-up
policy, or otherwise reduce the capital or life interest of the policy
according to regulations and under Article 656.”
Issue of paid-up policy - A reduced sum assured payable on the maturity
of the policy or in case of previous death to the beneficiary. The payment
of a paid-up value takes place after at least three annual premiums have
been paid and when the insured, for certain reasons, does not want to or
cannot pay my further premium. In this case, the insured will be paid in
the event of the maturity of the policy or, in the event of his previous
death, the beneficiaries will be paid.
Cont.
Paid-up value =No. of years paid X the sum assured Dividend by
duration of policy
The insured`s Right to redeem the policy – Article 710 of the code
An insured who has paid three annual premiums has the right to demand
to redeem an insurance policy made for the event of his death. The
manner of calculating the price shall be specified in the policy. What if
parties fail to stipulate in the policy?
The right of the insured to demand to redeem the policy is not
applicable to provisional insurance policy made for the event of death.
What is provisional insurance policy made for the event of death?
 Assignment of Life Insurance

In Ethiopia, a life insurance policy can be assigned or transferred by

way of sale or as collateral for securing a debt. Assignment of life
insurance is of two types.
1. Complete Transfer of Rights- Rights in the policy are completely
transferred to another person by way of sale or gift. When there is
compete assignment of life insurance policy, the insured person is will
have redemption right, enables the insured to reclaim his right over the
life insurance policy.
2. Collateral Assignment- a temporary transfer of an interest on a life
insurance policy to another person. A person may enter into a contract of
pledge and undertake to deliver his life insurance policy to his creditor as
security for the performance of an obligation. Article 697+ articles 950-
958 of the commercial code
Cont.
Two points on the assignment of life insurance in Ethiopia:
1.Transfer of life insurance can`t be made in blank paper. In this regard,
article 896 of the commercial code states that “where the policy is to order, the
endorsement policy shall be no effect unless it is dated and shows the name of the
beneficiary.”
2. Assignment of life insurance is possible only where the insured agreed in writing.
Article 698 provides that “the assignment, endorsement or pledge of the policy or the changing of
the beneficiary named in the policy shall be of no effect unless the insured person agreed in writing.”
Note: when the insured and the subscriber are the same person, as in the case of
pure endowment life insurance policy, assignment of the policy is definitely
possible because no-one's consent is required. The legal requirement provided
under article 698 limits the right of the subscriber to freely assign the life
insurance as the insured may not be available at all times and willing to give his
consent.
Cont.
Can we say that it is only pure endowment policy stated in article 692(1)
of the commercial code that is negotiable( transferable) under the
Ethiopian legal system with out difficulty?
Assignment of life insurance may be assignment of the proceeds of
a life insurance policy or assignment of the policy itself. Article 698
reveals that it expressly envisages assignment of the policy as the
subscriber (policy owner) is a different person from the insured person.
Assignment of the proceeds of a life insurance policy is regulated under
article 708(1) of the commercial code. According to this provision,
creditors of the beneficiary might have the right to sums to be paid to the
beneficiary. A beneficiary can therefore assign the proceeds of a life
insurance policy to the extent of the debt owed to his creditors after the
death of the insured.
Designation of beneficiaries in life insurance for the event of death
The insured has the right to specify beneficiary, which includes the right to
specify beneficiary in generic term ( to may spouse, to my children).
Article 701 (1) of the code.
Issues worth considering
1. Whether the spouse and children of the insured should be beneficiaries
despite there is no specification as such in the policy ?
2. What is the need of sub article 1 of article 701? how the provision
operates consistent with Article 827 of the civil code?
A person is at liberty to choose the beneficiary of the proceeds due from
the life insurance policy up on his death.
What will be the fate of the money due from the life insurance policy
where no beneficiary is designated by the policy holder?
Cont.
Art. 827 of the Civil Code -Things making up inheritance- Life Insurance
(1) Monies due in performance of a contract of life insurance to which the
deceased was a party, shall form part of the inheritance where the deceased
has not determined the beneficiary or the insurance is made to the benefit of
the heirs of the deceased without any other indication.
(2) In other cases, they shall not form part of the inheritance.
As this article, two importance criteria must be fulfilled to consider life
insurance as parts of succession/ inheritance. First if the subscriber
didn‟t identify any person as a beneficiary of life insurance or second, if
the life insurance is made to the benefit of heirs of the subscriber without
any other indication. But the Ethiopian Commercial code of the 1960
treats the same issues differently, in the following manner.
Cont.
Article 701- Beneficiary of insurance policy
1. An insurance policy for the event of death may be made to the benefit of
specified beneficiaries.
2. The following persons shall be deemed to be specified beneficiaries
notwithstanding that they are not mentioned by name:
A) The subscriber‟s spouse, even where the marriage took place after the policy was
entered into.
B) The subscriber‟s children, whether or not born at the time when the policy is
entered
Cont.
Pursuant to article 827 of the civil code, the money to be collected from
the insurer upon death of the subscriber forms part of the inheritance,
only if the subscriber didn‟t designate his/ her beneficiary of the life
insurance. But if beneficiary is specified, it can‟t be part of inheritance of
the subscriber/ the deceased. Yet, commercial code makes the spouse
and children beneficiary of life insurance even though they didn‟t
mention by name.
Should spouse and descendants be entitled to the money due from the
life insurance policy, despite not being mentioned as beneficiaries?
Much ink has been spelt on the application of rules of article 702 (2) of
the commercial code.
Cont.
Yohannes Heroui, in his work “A few points on the interpretation of Article
701 of the Commercial code”, Ethiopian Bar Review, Volume 1, No 1( 2006)
argues that Article 701(2) of the commercial code should not be
understood as creating beneficiaries by law. He added that when Article
701(2) uses the phrase “…specified beneficiaries…” meaning those
beneficiaries “specified” by the subscriber himself in the exercise of his
right under sub-article 1 of the same article. Furthermore, sub article 2
is simply referring to beneficiaries „specified‟ by the subscriber himself as
„my spouse‟ or „my children‟, and nothing more”
Cont.
Melese Wendemagegnehu in his case comment entitled “Determining the
Beneficiary of a Life Insurance Policy: A Case Comment on Genet Belay v Fenet
Teklu”, Mekelle University Law Journal Volume 4 (2016) argues that
article 701(2) is relevant where there is no specified beneficiary by name
as envisaged under Article 701(1) of the commercial code and where the
subscriber designates the beneficiary through generic terms, like
“spouse”, “children” and other similar terms. The application of
Article705 of the Commercial Code and article 827(1) of the civil code
is pertinent where the subscriber has failed either to designate the
beneficiary by name or using generic terms.
Cont.
Girma Woldesellasie in his work entitled “argues that that for the spouse
or children to be beneficiary of the proceeds due from the policy, they
should be designated by the subscriber using generic terms like “my
wife”, “my husband”, or “my children”. Otherwise, Article 705 of the
commercial code and Article 827(1) of the civil code become
operational.
Ato Mekibeb Tsegaw in his work entitled “the determination of
beneficiaries of life insurance policy”, holds that spouse and children are
entitled as beneficiary by the operation of the law
Cont.
The federal supreme court cassation division held that where a
beneficiary is not designated in a life insurance policy, the cassation
division interpreted Art. 827(1) of the civil code, Arts.701 (2)(a) and
705 of the Commercial Code as stipulating that the proceeds to be paid
out of the life insurance policy shall be partitioned among the heirs and
the wife of the deceased.
Genet Belay v Fenet Teklu, Federal Supreme Court Cassation Division,
Volume 10, Fiile No. 44561 ( Hamle 28, 2002 E.C)
Cont.
We have said that the subscriber has the right to determine his/her
beneficiary. The right of the insured to nominate beneficiary includes the
right to nominate a substitute beneficiary if the first beneficiary refused
the nomination. Article 701 (3)
In the absence of clear agreement, the benefit shall be deemed to be
payable only on condition that the beneficiary be alive on the day when the
capital or life interest is to be paid. Article 702
What is the fate of the capital to be paid where the beneficiary is not alive on the day
when the capital or life interest is to be paid ? See article 705 of the code- it becomes
part of estate.
Right of the insured to revoke beneficiary- Depending on the right to the
insured, beneficiaries categorized as revocable and non-revocable.
Cont.

Revocable beneficiary-the insured has the right to change beneficiaries

after the initial choice.
Irrevocable beneficiary- if the beneficiary(once named and accepted the
policy) can not be changed by the owner, the beneficiary is called an
irrevocable beneficiary. An irrevocable beneficiary is recognized under the
Ethiopian commercial code. A person whose name is specified as a
beneficiary shall be a full fledged beneficiary having the right to claim the
payment and the insured can not revoke unless the specified benefices
agreed. Article 703 of the commercial code.

Note: the insured may not even add another beneficiary because by doing
so, he dimishes the amount which the beneficiary may recover and this can
not be done with out the consent of beneficiary.
Cont.
Eligibility of beneficiary of a life insurance policy
Do you agree with the statement “the insured is unrestricted in his
selection of the beneficiary of his insurance and the law will not review
the propriety or desirability of his selection.”? For instance, can the
insured designate his neighbor as a beneficiary of life insurance for the
event of death?
For a given beneficiary to be named in the policy, he/she must have the
required insurable interest in the life of the insured; otherwise it would
be contrary to public policy, as envisaged by article 713(1), for him/her
to be a beneficiary.
Cont.
Extent of payment to the beneficiary
As life insurance is not a contract for compensation, parties are at
liberty to flexibly determine the value to be paid upon the occurrence of
the specified risk covered in the insurance policy regardless of the
damage which the insured person suffers. Article 689 of the commercial
code.
Exclusive rights of beneficiary
Beneficiaries specified by their first names and surname in the policy are
entitled to receive the insurance money upon the death of the insured.
Article 692 (2) and 695 (b) of the commercial code.
Cont.
The rights includes:
 The right to claim directly against the insurer. Article 706(1)
The sum paid shall not be refunded to the inheritance. Article 707
The sum paid to the subscribers spouse is considered as personal
property of the spouse. Why ?
When a policy is taken out up on the husbands life and the wife is named
as a beneficiary therein, does a subsequent divorce destroy her right
under the policy?
Cont.
Third party claims over the insurance due
Third parties have no any right to enforce their rights against the
beneficiary of a life insurance policy by way of requiring the attachment
of the capitals of the policy. For instance, creditors of the insured is not
allowed to claim the sums to be paid for beneficiary as per article 708
(1) of the code. Sub article 2 of the same article states that “the provision
of Article 1029(a) of the commercial code shall not apply where the
insured person is declared bankrupted.”
What is the justification?- it is presumed that designation of beneficiary
in insurance for the event of death has the goal of allowing the
beneficiary to use the sums in the policy for utility of day to day survival
of the beneficiary satisfying the basic human needs as recognized.
Cont.
Do you think the principle of subrogation is applicable in life insurance?
Article 690 of the commercial code articulates that the principle of
subrogation is not applicable for life insurance. The article states that “Not
withstanding any provision to the contrary, the insurer who has paid the agreed
amount may not substitute himself for the subscriber or beneficiary for the purpose
of claiming against third parties who caused the damage.”
What is the justification?
The applicability or otherwise of insurable interest in life insurance
When one investigates the commercial code of Ethiopia, it is understood
that there is no direct provision which deal and govern the issue of
insurable interest in case of life insurance. However, the principle of
insurable interest is the base for any type of insurance contract. It is
argumentative whether the absence of specific provision dealing about
the principle is hindering it from being necessary requirement or not.
Defenses for the insurer – suicide & murderer of beneficiary

Suicide as a defense- Article 699 of the commercial code

Intentional suicide results in nullification of the insurance policy
irrespective parties agreement. Article 699 (1) of the commercial code.
It states that “ Notwithstanding any provision to the contrary, an insurance policy
for the event of death shall be no effect where the insured person knowingly
commits suicide”
To make the policy effective, the beneficiary has a duty to establish ( show) that
suicide was not committed intentionally. Article 699 (2) of the code
Note: The statement “ insurance policy for the event of death shall be of
no effect where the insured person knowingly commits suicide” shall
mean the insurer shall not pay the proceeds of the life insurance policy to
the beneficiary.
Cont.
What is the fate of innocent beneficiary? What if the insured committing
suicide is insane? What is the practice in the ground?
Murder of beneficiary as a defense- Article 700 of the commercial code
“An insurance policy for the event of death shall be no effect where the beneficiary
intentionally kills the insured person and is convicted there of by a criminal
court.”
Two requirements are required to raise murder of beneficiary as a
defense.
1. Criminal conviction- a mere allegation is not suffice.
2. Intention of the murderer -
Insurance against Accident and Illness
Why an insurance policy against accidents is treated separately from life
insurance than treating supplementary. For instance, in Ethiopian
Insurance Corporation, if a person effects insurance upon his life, a
supplementary accident insurance contract will be attached to the main
policy, so that injury sustained due to unexpected, extraneous accidents
will be covered.
Policy of insurance against accidents is not a contract of indemnity. A
certain fixed sum of money will be paid for loss of time on account of
disability at the expiry of each four weeks during the continuance of the
period for which the insurer is liable, or payment of the sum agreed for
loss of life of the insured person.
Cont.

An insurance policy against accident is a contract where by the insurer

undertakes to pay a specified sum to the insured person where he is the
victim of an accident during the period specified in the policy, or to the
beneficiary named in the policy, where the insured person dies. Article 711
(1) of the commercial code
Elements:
A specified sum- in an insurance against accident and illness, the sum to
paid by the insurance company has to be specified ( determined) in the
insurance contract.
To the insured person- the sum specified in the insurance contract will be
paid to the insured him/herself when the insured is victim of the
accident (the insured is not died) during the period specified in the
insurance contract.
Cont.
To the beneficiary named in the policy- the sum specified in the policy
will be paid to the named beneficiary ( the name of the beneficiary has
to be clearly stated in the policy).
What types of accidents are considered ?
Bodily injury arising out of unexpected extraneous occurrence. Article 711 (3)
Thus, accident policy provides for specific benefits of insured person
suffering injury, resulting in death or disablement arising solely and
directly from an accident caused by unexpected and extraneous means.
What if the death or injury is caused by violent ( force ability)?
Cont.
Gaps of the law governing insurance against accident and illness?
1. The commercial code has no any provision that enables us to
determine the enforcement of a promise which is made to the
beneficiary. Even worth, the code states that the life insurance provisions
shall not apply to insurance against accidents.
In an insurance against accidents policy for the event of death, the
insured may name the beneficiary to whom the insurance benefits will
ultimately be paid when he dies as it is provided under article 711 (1) of
the code. However, how the rights of such beneficiaries is enforced in
the absence of a provision which enables the named beneficiaries to claim
their rights? The commercial code restricts us from using any analogy by
the stating that the life insurance provisions shall not be applicable to
insurance against accidents. Article 712 of the code.
Cont.
2. The statement “… insurance policy for the event of death may be made
to the benefit of named beneficiary” under article 711 implies that the
insured is not allowed to write generic terms such as my “spouse” and my
“children”. The insured is required to write the name of the beneficiary.
Compelling a subscriber to mention a beneficiary by name all the time may
defeat this intent for which he purchases the life insurance policy. For
instance, a person who wants to protect his family from injury at the time
of his death purchased a life insurance and made his wife specified
beneficiary by naming her in the policy. After sometimes the two are
divorced and the insured gets married to another person. When the insured
dies the proceeds would go to the former wife whose name is mentioned
in the policy, there by defeating the whole purpose behind the policy.
Cont.
In the same manner compelling a subscriber who wants all his children
including those born after he took out the policy, to benefit from the
policy, to mention them by name would be contrary to the intention of
the subscriber. If mentioned by name, the only beneficiary might be
those that were born at time of subscription.
3. The code has no provision relating to a beneficiary who predeceased
the Insured. For example, Abebe, the insured named Alemu designated in
insurance against accident policy in the event of death. The designated
beneficiary (Alemu) does not survive the subscriber ( Alemu).
Does the insurance money constitute such beneficiary‟s estate or not? at
the same time, would not his/her heirs continue to be beneficiaries or
would they?.
Cont.
4. The commercial code says nothing as to whether the beneficiary who
has agreed to the nomination can be revoked or not. The code does not
tell us what if a person whose name is specified as a beneficiary does not
agree to take the insurance payment. Can the insured nominate a
substitute beneficiary or not?
 Deposit Insurance in Ethiopia
The banking sector is a key-component of the financial sector. However,
in the process of its intermediating function, there may happen a bank
run. Bank runs are situations where a large number of depositors, fearing
that their bank will be unable to repay their deposits in full and on time,
simultaneously try to withdraw their funds immediately.
Consequently, the insolvency of one bank may trigger a contagion run on
other banks when public concern about one bank regarding the safety of
deposits leads to concerns about other banks. This situation can even
culminate in a financial system failure.
One special feature of this financial safety net is the deposit insurance
schemes, which is sometimes also referred to as deposit protection or
deposit Guarantee.
Cont.
The Ethiopian insurance fund is established with the objective of
ensuring the safety, soundness, and stability of the Ethiopian financial
system. It also aims to protect depositors by introducing a deposit
insurance fund. See “Council of Ministers Regulation No. 482/2021, the
Ethiopian Deposit Insurance Fund” and the “ The Ethiopian insurance
fund, initial and annual premium contribution of member of financial
institutions Directive No 01/2023”
 Construction Insurance
Construction insurance is a contracts of indemnity within the activities
of the construction industry where insurance is chosen as the medium
through which liabilities are shifted. Construction insurance means all
contracts of indemnity within the activities of the construction industry
where insurance is chosen as the medium through which liabilities are
shifted.
Governing rules
 The commercial code of Ethiopia, article 654-712
The Ethiopian building proclamation No 624/2009, article 26 and 27
 Council of Ministers Building Regulation No. 243/2011, article 19&
article 20
Note: In relation to construction insurance, you are advised to read “Overview
of Some Gaps Regarding the Regulation of Construction Insurance in Ethiopia:
A Note” by Mamenie Endale Messelu
Thank you!