Write explanatory notes on each of the following terms as used in insurance: (a) Subrogation; (b) Proximate cause; (c) Barratry;

Answer Details

Explanatory notes on the insurance terms

(a) Subrogation

Subrogation is the principle by which, after an insurer has fully compensated the insured for a loss, the insurer takes over the legal rights and remedies of the insured in respect of the damaged or lost property. This prevents the insured from making a further gain by also recovering from a third party who caused the loss. For example, if an insured car is damaged by another driver and the insurer pays for the repairs, the insurer may then step into the shoes of the insured and sue the negligent driver to recover the amount paid. It supports the principle of indemnity by ensuring the insured is not paid twice for the same loss.

(b) Proximate cause

Proximate cause is the principle that an insurer is liable only for a loss that is directly and effectively caused by the risk insured against, without the intervention of any new and independent cause. It looks for the nearest, most dominant and effective cause of the loss rather than a remote one. If the actual cause of the loss is an insured peril, the claim is payable; if the effective cause is an excluded peril, the claim fails. For example, if a house insured against fire is damaged by water used to put out an insured fire, the proximate cause is fire and the claim is valid.

(c) Barratry

Barratry is a term used in marine insurance to describe any wrongful or fraudulent act deliberately committed by the master (captain) or crew of a ship against the interest of the ship owner or the owner of the cargo. Examples include the deliberate scuttling or sinking of the ship, setting it on fire, deserting it, or illegally selling the cargo. A loss arising from barratry is normally covered under a marine insurance policy because it is an act done without the consent of the owner.