THE RISK (Cl.

8)
BY
DR. Y. PAPA RAO
COURSE TEACHER
 INTRODUCTION
• The insurer undertakes to protect the insured from a specified loss it occurs.
• The insured is afraid of loss which is called the risk of loss and the insurer
undertakes to indemnify him from the apprehended loss if it occurs for a
consideration called the premium.
• The insurer fixes the premium as per the probability of the risk.
• In insurance terms, risk is the chance something harmful or unexpected
could happen. This might involve the loss, theft, or damage of valuable
property and belongings, or it may involve someone being injured.
• This helps the insurer determine the amount (premium) to charge
for insurance.
 ELEMENTS OF RISK
• Most insurance providers only cover pure risks, or those risks that embody
most or all of the main elements of insurable risk.
• 7 elements of an insurable risk are;
• Large numbers of exposure units.
• Define and measurable loss.
• Determinable probability distribution.
• Calculable chance of loss.
• Fortuitous loss.
• Non-catastrophic loss.
• Premium should be economically feasible.
 SCOPE OF RISK
• The insurer indemnifies the insured only against the loss caused
during the period insured, for which the direct and proximate cause is
the peril insured against.
• In simple words risk is danger, peril, hazard, chance of loss,
amount covered by insurance, person or object insured.
The risk is an event or happening which is not planned but
eventually happens with financial consequences resulting in
loss. There is saying higher the risk more the profit.
• Risk does not include: Willful misconduct, loss due to ordinary
wear and tear, inherent vice etc.,
 CAUSA PROXIMA
• It is sufficient if the peril insured against happens during the period of
insurance.
• It will not cover before or after commencement of policy.
• It must be caused by the peril insured against.
• The rule of proximate cause, the maxim injure non remota cause, sed
proxima, spectator is to be regarded’.
• The maxim means ‘ in law the immediate and not the remote cause is to be
considered in measuring the damages.’
• This rule applies in the law of insurance also.
• Case: Hamilton, Fraser and Co v. Pandorf and Co. (1887).
 APPLICATION OF RULE IN LIFE
INSURANCE
• The insurance is against death due to natural causes.
• If the cause of death is other than natural,
• for instance if the assured voluntarily puts an end to his life the
insurer is not liable.
• This is on the ground of public policy and also
• By application of the maxim causa proxima.
 FIRE INSURANCE
• The maxim causa proxima is applied liberally in fire insurance.
• In Stanley v. Western Insurance Co(1868). It was observed that any
loss resulting from the fire whether by spoiling of goods by water or
throwing the articles out of window or pulling down a house for the
purpose of preventing the spreading of the fire and flames is within
the policy of fire insurance.
• In Marsden v. City and Country Fire Assurance Co. (1861).
• In this case it was held that during the course of fire accident, looting
the goods does not come under the proximate cause. Hence company
not liable.
 THE RISK AND THE DUTY OF THE
ASSURED
• Duty of the assured to minimize the loss.
• If the insured accelerates happening of the risks or if when it occurs
refrains from doing what ought to be done to minimize the damage
consequent thereon, hazards the chance of recovering nothing on the
account.
• No person is entitled to look on and let his property be lost just
because it is insured.
• He is bound to take all reasonable steps to prevent damage.
• In Beresford v. Royal Assurance Co,: Intentional act of Insured.
 RISK IN LIFE, FIRE AND MARINE
• Risk in Life: Habits, Occupation, Environment, heredity etc.
• Risk in Fire: The nature of the property
• Area, situation
• Exposure to outside danger
• The title of the property.
• Risk in Marine Insurance depends upon:
• Voyage, deviation
• Winds and Storms
• Pirates, mutiny of the crew etc.,
 ALTERATION OF THE RISK
• The liability of the insurer under a contract of insurance is confined
only to the particular risk insured against in the policy.
• He would not be liable for any change.
• In Baxendale v. Harvey(1859): Pollock CJ observed:
• This is a mere increase in danger. It is like the case of a person who
has an oven on his premises and instead of using it for baking bread
he uses it for some other purposes. If a person who insures his life
goes up in a balloon, that does not vitiate his policy.