Principles Of Indemnity Insurance

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Introduction
The financial director of a holding company which has a number of specialized operational subsidiaries wants a single set of policies taken out by the holding company to cover all the risks of the subsidiaries. One such subsidiary is a marine operation operating from the Durban harbour and that has a boat valued at R20 million.

The theory surrounding the fundamental principles of insurance, namely indemnity insurance, materiality, duty to disclose and insurable interest will be discussed. Thereafter, the above for mentioned concepts will be applied to the report at hand. Additionally, the outcome of Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company South Africa 2013 case 54/08 [the Lorcom case] as well as Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd 1996 (3) SA 434 (D) [the Manderson case] will be used to support the argument. Finally, the financial director will be advised as to the appropriate set of policies for the holding company regarding the subsidiaries.

Indemnity Insurance
Indemnity is the most important principle in short-term insurance law. The principle of indemnity prescribes that where the actual loss of the insured is indemnified to the insured by the insurer. The purpose of indemnity as expressed in the English case of Castellain v Preston (1883) 11 QBD 380 (CA) 386, is to restore the insured to the position quo ante. Indemnity insurance is in respect of property or the liability of the insured towards a third party in respect of damages caused to that third party by way of loss or damage to property.

In the Manderson case, the plaintiff owned an electrical business which specialised in the wiring of buildings. He hired an independent contractor to repair the domes...

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...t to be known by it. Thus, in having a single set of policies governing various operational subsidiaries, the financial director may fail to have knowledge of every circumstance in each subsidiary and the failure of such non-disclosure could be to the holding company’s detriment when claiming a loss or damage.

Conclusion
The above mentioned cases and principles indicate how the courts have approached the concept of insurable interest to determine whether an insured is to be indemnified or not. Based on the facts of the case at hand and the request of the financial director, it can be suggested that a single set of policies governing the various operational subsidiaries of the holding company is not recommended as there is a danger that not all risks will be insured. It is advised that the financial director rather have individual policies for each subsidiary.

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