Insurance

Explain The Limitations On The Scope Of Insurance

With the rapid advancement of insurance over the world based on multi various types of increasing needs and demands from the insuring community, hardly there is a field where insurance has not penetrated for providing protection. However, there are certain fields, circumstances or situations where insurance has not made and cannot make entry which we are discussing at below section. These limitations on the Scope Of Insurance are:

1. Limitation Of Pecuniary Value: Insurance covers those subject-matters which can be valued monetarily or can be expressed in terms of money. it must have a commercial value to be eligible for insurance. This means that sentimental value cannot be taken into consideration and, therefore, insurance cannot be taken on the sentimental or prize value. For example, a ring may cost only USD.20 ( which is the market value ), but if it is a presentation given by a very near and dear one then, even though the market value of the ring is only USD.20 but to the recipient it might mean something more than USD.20 only. This additional sentimental aspect, whatever value is adduced as such, cannot be insured. The insurers would only go for the market value at which it can be replaced (i.e., USD.20).

2. Limitation By Law: A man cannot certainly insure against losses or damages arising out of his own deliberate misdeeds or fraudulent acts. The scope of insurance is limited here by law. A lawyer cannot for example insure against being disqualified from profession for his misdeeds, and medical practitioner or an accountant cannot insure against being disqualified. What they can simply insure is their liability to others arising out of unintentional mistake or oversight. A murderer cannot get policy money against a life policy by killing the assured.

3. Limitation By Insurable Interest: There must be an insurable interest (discussed in chapter – VI) to validate an insurance policy. If no insurable interest exists then the contract becomes one of gaming or wagering and as such void. Therefore, a man having no insurable interest on the subject-matter of insurance cannot insure that subject-matter, Life Assurance Act, 1774, Gaming Act, 1845 and Marine insurance Act, 1906 make abundantly clear that there cannot be any policy of insurance effected in the absence of insurable interest.

4. Limitation By Insufficiency Of Knowledge: There are certain risks which even though fulfill all the necessary requirements of insurance law and practice, but nevertheless, shall not be insured by the insurers. The most common example is loss of profit caused by fluctuation in the market. This is not the loss of profit arising out of business interruption caused by material loss, which is insurable, and discussed earlier.

Similarly there are examples like loss of market caused by delayed arrival of the vessel (in marine) or loss or damage caused by the inherent nature of the subject-matter.

These are indeed —trade-risks”, equally capable of being calculated in monetary terms (like risk of trade) and fulfilling the existence of insurable interest, but are not being insured simply because the insurers do not have enough statistical experience and knowledge necessarily required for predicting the future for the purpose of rating the risk properly and accurately. Therefore, limitation of knowledge necessarily acts as a determinant in the scope of insurance business.

5. Limitation By Public Policy: Insurers will not do anything that is likely to go against the public policy. For example, it would be against the public policy to insure fines and penalties imposed for an offence. Another example is the possible insurance of smuggling ventures. This would be considered against the public policy and therefore, shall not be insured.. Yet another example may be that although it is not illegal to make a breach of a foreign country’s law, but nevertheless, the insurers would be most unwilling to cover any such situation, tantamounting breach of foreign law, considering the same to be against public policy.

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