Insurance
contracts are an exchange of risk. In return for the premium payment,
the insurance company promises to compensate the insured for a loss to
person or property. By pooling small payments from many customers, the
insurer can extend large amounts of coverage. To make sure both parties
are treated fairly and can trust the transaction, the industry has seven
basic tenets of general insurance.1. Principle of Uberrimae fidei (Utmost Good Faith): Both sides, the insured and the insurer, must act with good faith. Each party must give honest information and make thorough disclosures.
2. Principle of Insurable Interest: The person seeking to benefit from the insurance must have sufficient ownership in the object, property, or interest being insured. For example, you can't take out insurance on your neighbor's house unless you own it.
3. Principle of Indemnity: The insurer agrees, within the limits of the scope of coverage, to cover the loss. In short, the insurance company promises to "make good the loss" and restore the insured to where they were before the claim.
4. Principle of Contribution: The insured can only recover for actual losses, even if the loss is less than the limit of coverage. If there are multiple policies, the insured can't double or triple dip. You can't make a claim for the same loss to two different insurers.
5. Principle of Subrogation: When the insured is paid for a loss resulting from the fault of another, the insurance company has the right to seek legal recourse from that person. In short, if your car is totaled by a drunk driver and the insurance company pays your $10,000, then the insurer has the right to sue the negligent driver to recover the costs of the claim.
6. Principle of Loss Minimization: The insured has a duty to reduce the chance of loss and to mitigate the loss. If your house catches on fire, you have a duty to call the fire department. After a loss, you have a duty, if possible, to secure the property and prevent further damage.
7. Principle of Causa Proxima (Nearest Cause): If there is loss because of more than one reason, the insurer must look at the damage caused by the closest factor when paying the claim. For example, your street is flooded during a storm. Your house suffers only minor water damage, but catches fire because of downed power lines. You are insured for fire, but not for flood. The insured must pay the claim because you are insured for the closest or proximate cause of the damage.
The seven general tenets of insurance, at its base, is a code of ethics for both parties to the insurance contract. Any questions? Call ABM Insurance & Benefit Services, Inc. at 800-362-2809 today to review and discuss Houston business insurance or other types of insurance.
