Insurance Note

Friday, March 24, 2023 6:40 PM

Insurance

Thomas Shiferaw Bekele

BDU

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Chapter 1
Friday, March 24, 2023 6:40 PM

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Definition of insurance
Friday, March 24, 2023 6:44 PM

# Definition of insurance
- From two perspectives

• First, from the POV of the insured (the individual)

- A risk transfer mechanism, where the assured transfers a risk
of a possible financial loss resulting from unforeseeable
events affecting property, life or body to the insurer,
-transferring risk to the insurer

• From the POV of the insurer

- a mechanism through which a risk is distributed among the
group of persons who r exposed to the same type of risk
- Insurance is a cooperative economic device to spread the loss
caused by a particular risk over a number of persons who r
exposed to it & who agree to insure themselves against that
risk
- From the pool (the premium collected from the other insured
persons)
- But, this does not so fully apply to insurance of persons
particularly life insurance (Art 692)

- In general, insurance is a device by which an insured person

can protect himself from heavy loss likely to be caused by an
uncertain event by paying a comparatively much smaller sum
of money as premium

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Definition and Nature of Contracts of Insurance
Friday, March 24, 2023 7:09 PM

- A contract where one undertakes for consideration

(premium)
○ to pay the other party (money) when some certain
event happens (death or attainment of a certain age,
or injury) or
○ to indemnify the other party against a financial loss
arising from the loss or
○ damage to property or from incurring civil liability
- The document that contains the terms & conditions of kt of
insurance is called ''The Policy''
-u will be called "The policy holder'' if u got this

- Contract of insurance is a contingent or conditional contract

-meaning that, the performance of the obligation arising
there from by the parties or one of them is dependent upon
the condition or contingency agreed upon by them
-it is dependent upon materialization of the risk or risks
specified in the policy

- Art 654 of the com, code defines insurance contract

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 Side Note
Distinguishing Characteristics of Insurance - If there was a an insurance contract if a person
Friday, March 24, 2023 7:35 PM that owns a house for his house against damage &
that person sells this house to another person &
- They r subject to the general laws of contract, but have assigns the insurance contract with the house, the
some distinct characteristics of their own : insurer cannot be expected to be bound by this
assignment to the new owner of the house, if the
• Aleatory rather than commutative insurer doesn't explicitly gave his consent to be
- Have a chance element & uneven exchange bound by that assignment
- Insurance is a technique for handling an already existing -Arts 672, 673, 660 of the com. Code
pure risk, and doesn't create a new risk but gambling on - But, a life insurance policy can be freely assigned
the other hand is creating new risks to anyone without the insurer‘s consent because
the assignment does not usually alter the risk &
• They r unilateral contracts increase the probability of death
- only one party makes a legally enforceable promise -compare 696-698
-courts will enforce the contract in one direction only
- only the insurer makes a legally enforceable promise to pay
a claim or provide other services to the insured
-as long as the premiums r being paid (but the insured
could not be obligated to pay the premiums, based on Art
666 sub 4)

• It is a conditional contract
- The insurer‘s obligation to pay a claim depends on whether
or not the beneficiary has complied with all policy
conditions,
-he may not pay if those conditions r not complied with
- The Conditions impose certain duties on the insured

• It is a contract of adhesion
- One party has to agree to the terms & conditions prepared
by the other
- the insurer had the advantage of writing the terms of the
contract to suit its particular purposes
- the insured has no opportunity to bargain over conditions,
stipulations, and exclusions

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The Requirements to Carry on Insurance Business
Friday, March 24, 2023 8:06 PM

- Art 656, physical persons or business organizations may carry

on insurance business
- A share company
-Art 4(1) and Art 2(3) of the Licensing & Supervision of
Insurance Business Pro No 86/1994
-304 of the Com. Code
- The company must be wholly owned by Ethiopian nationals or
by business organizations that r fully owned by Ethiopians
themselves
-to protect infant domestic insurance companies which do not
have the desired financial strength, knowhow and human
resources to be able to compete with foreign banks which have
superior capacity in these areas
- it must have a minimum capital of 3 million Birr if it is applying
for license
-4 mil if for a license to undertake long term insurance business
-7 million where the application is to undertake both classes of
insurance

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Significance of insurance (Benefits)
Friday, March 24, 2023 8:14 PM

• Indemnification for Losses,

- Helps them to be restored to their original financial position
after a loss has occurred
-to maintain their financial security

• Reduction of Worry and Fear

- Both, before & after loss

• Source of Investment Funds

- The insurance industry as a whole

• Means of Loss Control

- Loss control by the insurer

• Enhancing Credit
- enhances a person's credit

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Rights & Duties of the parties
Sunday, April 23, 2023 4:40 PM

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Discussion
Sunday, April 23, 2023 8:24 PM

- Principle of insurable interest

- The person must have an entitlement

- Life insurance is succedable

- Insurance is a mechanism to transfer risk

- What is risk ?
- Risk have two :
○ Must cause economical loss
○ Unforeseeable

- Significance of insurance
○ Avoid fear & worry
○ Source for investment
○ Enhances credibility (for lenders & borrowers)
○ Social duty
-tax will be paid
○ Source of employment opportunity
-if investment rises

- Requirements to establish insurance company?

- Financial requirement & personal capacity
- Won't be easily bankrupt (why share company ?)

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Chapter 2 The Basic principles of insurance
Friday, March 31, 2023 2:11 PM

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Principle of Utmost Good Faith #1
Friday, March 31, 2023 2:11 PM

- Both Parties to the contract of insurance have an inherent

duty to make full & fair disclosure of all material facts relating
to the subject matter of the proposed insurance,
- A material fact is a fact that affects the judgment of a prudent
insurer in considering whether he would enter into a contract
at all or enter into it at one premium rate or another
- This obligation doesn’t exist if the information in question is
not an important information (a material fact)
- There should not be any false statement or half-truths or any
silence on a material fact, from the side of the proposer,
-Higher standard of honesty is expected
- He is expected to know every circumstance,
-whether considered by him as material or not & whether
known to him or not
- Because of information asymmetry, the insured controls all
the information and the insurer relies on the information
furnished by the insured

- Also, the duty of utmost good faith applies also to the insurer
as well,
-but this duty rests highly on the insured because he knows
or is expected to know more about the subject matter

- The penalty for a lesser level of truthfulness is the insurer’s

right to void the contract,
-Art 667-669 of the old com.code
- Arts .667,668(1),669(1),680,685 of the old Com.Code

- The duty to make a full and true disclosure continues until

the proposal of the insured is accepted by the insurer,
-until the contract is concluded
- Any material fact coming to his knowledge after the
conclusion of the kt need not be disclosed
-However, the duty to disclose revives with every renewal of
the old policy or alterations in the existing policy

- The following types of facts r not required to be disclosed by

the proposer, (the non-disclosure of them shall not be fatal to
the contract) :
○ Any fact that is known or presumed to be known to the
insurer
○ Any fact which is of public knowledge or which relates
to the law of the country
○ Any fact as to which information is waived by the
insurer
○ Any fact that diminishes the risk

- If this principle is not observed by either party, the contract

becomes voidable at the option of the party not at fault,
-whether or not the non-disclosure was intentional or

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-whether or not the non-disclosure was intentional or
innocent
-but if the misrepresentation is innocent the premium is
refundable on the avoidance of the contract

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Principle of Utmost Good Faith #2
Friday, March 31, 2023 2:11 PM

# Elements of the principle under Ethiopian law (from the POV of

the insured)

A) The principle requires the insured,

To disclose all facts related to the object, liability or person to

be insured & of which he is aware & which he thinks will help
the insurer to fully understand the risks it undertakes to insure,
at the time of the conclusion of the contract, Art 667

- Required to disclose facts which may influence the decision of

the insurer to enter into the contract or if not it would affect it
would affect the amount of premium it would charge, Art
668(1)

B) The principle requires the insured,

To notify the insurer of changes that may occur after the

conclusion of the contract,

- Only such that r capable of increasing the probability of

occurrence of the insured risks
-the test of materiality
- The notification of increase of risks has to be made within 15
days from the date of occurrences of such change,
-where such change or occurrence is the result of the act of the
insured
- But, if the change is the result of an of third party,
-the insured is required to notify such change within 15 days
from the day when he became of aware such change

- Failure to comply with elements of the principle have

consequences that depend on the motive of the insured,
○ If the concealment of material facts or false statements
were intentional & were done with the motive to benefit
from a lower rate (amount) of premium,
-the contract will have no effect & the insurer shall retain
the premium
○ The policy shall remain in force, if it is not made
intentionally or fraudulently (not a result of a motive to
benefit from lower rates of premium)
- But, the insurer can terminate the contract with a 30
days' notice or maintain it
-can maintain it, by increasing the premium (where
insurer discovers the existence of such concealment or
false statement or failure to notify increase of the risk
before the materialization of the risk)
- But, if it is discovered after the risk has materialized, the
insurer shall not have the obligation to compensate the
insured (shall pay a reduced amount of money)

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 insured (shall pay a reduced amount of money)

C) The principle requires the victim,

To refrain from any fraudulent act aimed at making a net profit

or obtaining undeserved benefit out of a contract of insurance

- Over insurance is when the insured gets into an insurance

contract with d/t insurers over the same object & at the same
time (which allows him to profit if that object got into the
expected condition)
- Insurers can apply for termination of contract to court, if it is
intentional or fraudulent
-in addition to this, insurers might be entitled to payment of
compensation, for damages they might have suffered by the
violation of the duty to act in good faith

D) The principle requires the insured,

To refrain from purchasing an insurance policy, in respect of

goods or objects which r already lost or damaged or destroyed
or in respect of goods or objects which r no longer exposed to a
risk with the motive of receiving compensation for the loss or
damage sustained before the conclusion of the contract,
-Art 682

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Principle of indemnity
Sunday, April 2, 2023 1:57 PM

- All contract of insurance r contracts of indemnity,

-except those of life & personal accident insurances
- The purpose of indemnity is to place the insured, after a loss,
in the same position he occupied immediately before the
event
- The insured is not allowed to benefit more than the loss
suffered by him

- Fire or marine insurances, won't be contracts of indemnity,

when they provide a fixed sum of money in the event of total
loss or destruction by the peril insured against,
-in the case of valued policies
-but, if partial loss is there, it will only be an indemnity

- The insured shall only be indemnified to the extent of his

interest or share(on that property) only in the case of total
destruction of the property insured,
-in the case of property

- Objects/Property & liability insurances r contracts for

indemnity or compensation,
- equal to the actual value of the object or the amount of
economic loss or damage sustained by the insured

- The principle of indemnity implies that,

''The sum insured or the amount of guarantee provided in the
policy is not necessarily payable''
- This is in line with purpose of insurance, i.e., reinstating a Repeal
person who has suffered a financial loss to his original
financial position

- Instances, in which the principle of indemnity does not apply,

-where the insurer does not have the obligation to
compensate the insured person
- where the object or liability is under-insured,
-where the amount of guarantee /sum insured agreed upon
in the policy is lesser than the actual value of the object or
the amount of potential liability of the insured
- In such cases, the insurer‘s obligation is to pay the amount of
guarantee/ sum insured, rather than compensation of the
insured,
-Art 679

- If the insurance is an insurance of persons,

- The parties freely fix the amount of guarantee,
-and is payable regardless of the actual damage sustained
where the risk materialized
- This is because it is generally accepted that human life or limb
cannot be valued in terms of money
- Art 689

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Proximate cause
Saturday, April 8, 2023 10:08 AM

- ''The insurer is liable only for those losses which have been
proximately caused by the peril insured against''
- if it is (the cause) the peril insured against, the insured can
recover
- Insurers are not liable for remote causes & remote
consequences even if they belong to the category of insured
perils
- When a result has been brought about by two causes, you
must, in insurance law, look to the nearest cause (what was
the last cause of the result that has happened)
- The original cause will not be looked into
- Rather the proximate cause of damage (the last thing that has
happened in a chain of events) will be held as a the cause for
the damage

- If loss is caused by the operation of more than one peril

simultaneously and if one of the perils is excluded (uninsured)
peril, the insurer shall be liable to the extent of the effects of
insured peril if it can be separately ascertained
- The insurer shall not be liable at all, if the effects of the
insured peril and excepted (uninsured) peril cannot be
separated

- Art 663,
- ''the insurer shall compensate or pay the sum insured only
where the loss or damage to the property or death or injury
to the person is caused by a risk or risks specifically agreed
upon in the policy''

- Risks which r considered by the law as,

○ covered risks and
○ those which are excluded
- Losses or Damages due to unforeseen events, including acts
of third parties, & those resulting from the negligence of the
insured r considered as covered risks,
-unless the parties exclude them clearly
-Art 663(2)
- Excluded risks include,
-Losses or Damages resulting from the intentional action or
inaction of the insured, such as the intentional destruction of
the property by the insured himself or a third party who is
acting upon the instruction of the insured
-this r excluded even if the parties might have agreed that
such losses or damages r covered
- Art 676 also excludes in all property insurances, risks arising
out of international or civil wars

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Insurable interest
Saturday, April 8, 2023 3:12 PM

- The insured must possess an insurable interest in the subject

matter of the insurance at the time of the contract
-The pecuniary interest
- Art 675
- rules governing liability insurance and insurance of persons
fail to incorporate rules on the principle of insurable interest

# Purposes

- The principle of insurable interest have two purposes, which

r rooted in public policy :

- The 1st is, The Elimination of insurance as a vehicle for

gambling,
- The 2nd is, The removal of the temptation provided by a
prospect of a net profit through insurance proceeds to
deliberately bring about the event insured against,

- The object of insurance is to protect the pecuniary interest of

the insured in the subject matter of the insurance
-& not the material property
- U r considered as having an insurable interest in the subject
matter, if u derive pecuniary benefit from its existence or will
suffer pecuniary loss from its destruction
- sentimental interest or a non-monetary benefit will not
cause an insurable interest

- The insured must possess an insurable interest in the subject

matter of the insurance at the time of contract
-otherwise, it will be will be a wagering agreement, which is
void

- To take the case of fire or marine insurance, it is not only the

owner who has an insurable interest but also all those other
persons who run a risk

- In the case of life insurance, insurable interest must be

present only at the time of contract (i.e., when the insurance
is effected),
-need not exist at the time of death or when the claim is
made
-because it is a contract of indemnity
-freely assignable

- In the case of Fire Insurance, insurable interest must be

present both at the time when the insurance is concluded
and at the time of loss
-because it is a contract of indemnity
--can only be assigned to

- In the case of Marine Insurance, insurable interest must be

present at the time of the loss of subject matter and it is not
essential for the assured to have an insurable interest at the
time of conclusion of the contract of insurance

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Doctrine of subrogation
Saturday, April 8, 2023 4:18 PM

- Corollary to the principle of indemnity,

- therefore, applies only to property insurances,

- If the loss has arisen out of tort or fault of a third party, the
insured becomes entitled to proceed against both the insurer
as well as the wrongdoer,
- But the principle of indemnity doesn't allow him to recover
from both & thereby make a profit from his insurance claim
- He can choose b/n the two of them (who to proceed against)
- If he chooses the insurer to be indemnified, then :
- The insurer shall be subrogated to all the rights &
remedies of the insured against third parties in respect
of the property destroyed or damaged.
- The insurer, after indemnifying the insured for his loss in full,
steps into the shoes of the insured & is subrogated to all the
alternative rights & remedies that the insured has against the
third persons, until the insurer recoups the amount he has
paid under the policy,
- If there is excess recovered under subrogation, the insured is
entitled to that,

- Art 683 (1), The insurer who has paid the agreed
compensation shall substitute himself to the extent of the
amount paid by him for the beneficiary for the purpose of
claiming against third parties who caused the damage
- The extent of right of subrogation of the insurer is limited to
the amount of money it has paid to the insured

- The insured has an obligation to cooperate with the insurer to

enable the latter to exercise its right of subrogation
- And also to refrain from any act, which may damage such right
or prevent the insurer from proceeding against the third party
responsible
- However, the insurer can't use its right of subrogation or can't
proceed against ascendants, descendants, & employees,
agents of the insured and against persons living with him

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Risk Must Attach and Mitigation of Loss
Saturday, April 8, 2023 8:49 PM

# Risk Must Attach

- If the subject-matter of insurance ceases to exist, at the

time the policy is effected, the risk does not attach & as a
consequence the premium paid can be recovered from the
insurers
-because the risk is never run by the insurers
- ''if the insurers have never been on the risk, they cannot be
said to have earned the premium''

- where a policy is declared to be void ab-initio on account of

some defect, the risk also does not attach & therefore the
premium is returnable,
-like the assured being a minor
- But if the policy is void because there is no ''insurable
interest'' premium paid cannot be recovered
-except in the case of marine insurance
- Also, premium cannot be recovered where the insurer on
grounds of fraud avoids the policy by the insured

# Mitigation of Loss

- When the event insured against occurs, it is the duty of the

policyholder to take steps to mitigate or minimize the loss as
if he were uninsured & must do his best for safeguarding the
remaining property
- Otherwise, the insurer can avoid the payment for loss
attributable to the negligence of the policyholder

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Doctrine of Contribution
Saturday, April 8, 2023 9:17 PM

- Applies only to contracts of indemnity

-to property insurances
- Double insurance is when, The same risk & the same
subject matter is being insured with two or more different
insurers

- Doctrine of contribution,
-''in case of double insurance all insurers must share the
burden of payment in proportion to the amount assured by
each''
- If he pays more than his proportion of the loss, he has a
right to recover the excess from his co-insurers, who have
paid less than their retable proportion

- Doctrine of double insurance arises only when there is

over-insurance or only partial loss,
- If the amount of different policies is equal to the value of
the subject matter destroyed, the insurers r liable to
contribute towards the loss up to the full amount of their
respective policies,
-this means the question of contribution does not arise b/n
them

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Discussion
Sunday, April 23, 2023 8:46 PM

Proc
- Principle of good faith -
- No material fact should be concealed
- Art 667
- By the proposal
-he discloses with this
- Within his knowledge
-material facts
- What if there is a concealment ?
-art 668
-the contract was voidable because the kt contains false
statements (?because not known)
-the effect will be termination
- Where a new material fact comes into play,
-he shall within 15 days give notice

- What is the effect of increase of risk ?

- 669

- Insurable interest
- What can that person do to that object ?
- Can he sell it transfer it
- First, It should be,
○ Entitlement, art 675 (2)
○ Lawful, (general contract)
○ Material existence, 682

- Insurance of liability for damages

- Insurance for liability gives priority over

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Chapter 3 Insurance of persons
Friday, April 21, 2023 3:58 PM

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Meaning, Nature and Scope of Insurance of Persons
Friday, April 21, 2023 3:58 PM

- The policy depends on,

-the life or death of the person or
-a kind of injury against the body due to risk stated in the
policy
- The subject matter is the person himself & his personal
welfare,
-dependent on the life, death, illness or bodily injury of the
insured
- Personal welfare is not calculable in terms of monetary value
-but, legally they can fix an amount that is payable upon the
occurrence of the particular risk envisaged in the policy

- It is not a contract of indemnity

-but, a contract to pay a sum of money in the event of the
specified risk such as death against the person
- ''A contract for the insurance of persons shall not be deemed
to be a contract for compensation''
-Art 689 of com code
- The amount insured may be freely fixed & shall be due
regardless of the damage suffered by the insured person

- A life insurance policy regards the death of the person or a

peril during his life time,
-& the occurrence of this two entitles a specified beneficiary in
the policy a sum of money freely fixed irrespective of the
extent of damage suffered by the insured person
-Art 691

- Art 711, covers insurance of accidents & illness

- It is against an accident
- A contract whereby the insurer undertakes to pay a specified
sum to the insured person, where the injured person 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,
-includes insurance against illness too
- The risk to be covered in the insurance policy is a particular
peril that may result in a hazardous effect upon the insured
which may bring a particular injury to the insured himself or a
specified third party
- It is not a compensation but coverage of a certain damage
fixing agreed amount money which is to be determined freely
-not an indemnity

- D/c's b/n insurance of persons & other insurances

• Property insurance is an indemnity of a property damage
- It compensates the damage of property,
-which usually is equal to the material loss but sometimes it
may be less than that as determined in the policy.

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 may be less than that as determined in the policy.
• Also there is insurance of liability for damages, which is a
completely d/t thing than insurance of persons
• Both of the above r measurable in terms of money & have
equal value
• Subrogation is not possible in insurance of persons,
-Art 690
• The nature of the risks they cover r d/t than this

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Classification Insurance of Persons
Friday, April 21, 2023 6:04 PM

- Classified based on the nature of the risk covered

A) Life insurance

- Art 692 (1),

- Depends on the contingency that the insured is alive on a
specified date
- The insurer who enters in to life insurance undertakes to pay a
specified capital or life interest provided the insured person is
alive at the date fixed in the policy
- Not dependent on death, but rather being alive

- Art 692 (2),

- Depends on the death of the insured
- ''The insurer who enters in to an insurance for the event of death
undertakes to pay, on the death of insured person a specified
capital or life interest to those having rights from the insured
person or the beneficiary named in the policy''

- Art 692 (3), makes a combination of the above two possible

B) insurance against accidents and illness

- Payment of sum of money fixed flexibly dependent on accident
or illness that caused injury to the insured
- The risk could be accident, death, illness & the like

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Insurable Interests in Insurance of persons
Friday, April 21, 2023 6:34 PM

- There is a need in insurance of persons to show the existence

of insurable interest in the subject matter
- The interest u r safeguarding by that insurance policy, which
will suffer a negative effect if u got into one of those perils
covered by insurance of persons
- The insurable interest, which the insurer undertakes to cover
is the one that results in coverage in material terms,
-but not in the form of compensation
-although it doesn't prohibit addressing the problem in
money terms

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Conditions in life insurance policy
Friday, April 21, 2023 6:54 PM

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The Beneficiary of life Insurance Policy on the Death of the Insured
Friday, April 21, 2023 10:08 PM

- Art 701 (1&2)

- The fact that the spouse and children of an insured person have
been· expressly included in the com' code as beneficiaries of a life
insurance policy shows that they are equally entitled to the
proceeds together with the designated beneficiary

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Settlements of Claims in Life Insurance
Sunday, April 23, 2023 3:36 PM

# Third Party Claims over the Insurance

# Conditions Precedent to Make the Claim - Third parties have no any right to enforce their rights against
the beneficiary of a life insurance policy,
- The beneficiary to the policy has the duty to inform the insurer -Art 708
that the risk covered in the contract is materialized,
-with proof that it is consistent with the terms of the policy # Subrogation in Insurance of persons
-Art 670 - ''An insurer who has paid the agreed amount may not
substitute himself for the subscriber or beneficiary for the
- In insurance policy of life for the death of the insured, the peril purpose of claiming against third parties who caused the
sought to be covered is the inevitable occurrence of death damage''
beyond the control of the insured .i.e. its accidental occurrence -Art 690
- Suicide & homicide of the insured by the beneficiary is excluded, - Because it insurance of persons is not destined for
-Art 699 & 700 compensation

- The proof that the beneficiary should be alive at the time of

maturity of the policy is applied to a policy of life for the death
of the insured, in the absence of otherwise agreement

# Extent of payment to the Beneficiary

- Parties r at liberty to flexibly determine the value due to the

concerned beneficiary upon the occurrence of the specified risk
covered in the insurance policy regardless of the damage which
the insured person suffers,
-Art 689
- It Is impossible to determine the value of a human life
- The extent of coverage might be greater, lesser or equal to the
loss
- The insurer will not go to assess the extent of the loss

- The capital to be paid by the insurer shall be joined into the

estate of the insured to be administered under the law that
regulates succession if,
○ The beneficiary is unspecified by the insured, (Art 662)
○ The policy is revoked under Art 703 (2)
○ The beneficiary is not alive contrary to the requirement
under 702

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