1. Utmost Good Faith: According to this principle, both insurer and insured should enter into contract in good faith. Insured should provide all the information that impacts the subject matter. Insurer should provide all the details regarding insurance contract.
2. Insurable Interest: The insured must have an insurable interest in the subject matter of insurance. Insurable interest means some pecuniary interest in the subject matter of the insurance contract.
3. Indemnity: Indemnity means security or compensation against loss or damages. In insurance, the insured would be compensated with the amount equivalent to the actual loss and not the amount exceeding the loss. This principle ensures that the insured does not make any profit out of the insurance. This principle of indemnity is applicable to property insurance alone.
4. Causa Proxima: The word ‘Causa proxima’ means ‘nearest cause’. According to this principle, when the loss is the result of two or more cause, the proximate cause, i.e. the direct. The direct, the most dominant and most effective cause of loss should be taken into consideration. The insurance company is not liable for the remote cause.
5. Contribution: The same subject matter may be insured with more than one insurer then it is known as ‘Double Insurance’. In such a case, the insurance claim to be paid to the insured must be shared on contributed by all insurers in proportion to the sum assured by each one of them.
6. Subrogation: Subrogation means ‘stepping the shoes on others’. According to this principle, once the claim of the insured has been settled, the ownership right of the subject matter of insurance passes on to the insurer.
7. Mitigation: In case of a mishap, the insured must take off all possible steps to reduce or mitigate the loss or damage to the subject matter of insurance.
