Basic requirement for a valid insurance

The basic requirement to a valid insurance is provided in the case of Prudential Insurance.In the case, the court has ruled out three basic requirements which must be fulfilled in order to have a valid insurance. First and for most, the policy must provide some benefit or legal entitlement for the insured on the occurrence of some event. In other words, if the insured items were damage, the insured are bound to benefit from the policy in either getting the goods replaced or monetary compensation.

Secondly, the occurrence must involve some element of uncertainty and the occurrence must be one of which outside the control of the insured. However, there are exceptions to the rule. Firstly, certain events are not able to be insured for example the deterioration of perishable goods or wear and tear. Secondly, Insurance recovered must not be his own wrong unless it is a negligent act. For example, if the insured has recklessly kicked a ball and injured his leg, he will still entitle to an insurance claim although he had deliberately kicked the ball. However, the recklessness can served as a form of negligent and thus allows him to claim for compensation. (not happy think of a better example)

Finally, the occurrence must be one which is prima facie adverse to the interest of the insured. It must be something which the insured wish to protect and also, the insured must have sufficient interest to the subject matter. For example, in the case of Macaura v Northern Assurance. In the case, the insured owned a company, Irish Canadian Sawmills ltd. However, he had insured the timbers in his own name with the respondent company. Unfortunately, a fire broke out and destroyed all the timbers. Macaura then claim for compensation but the court reject the claim and ruled out his interest in the timber. Apparently he had created an insurance in his own name but the timbers belong to the company. Therefore, he has no legal or equitable interest to the timber at all and thus, there is no sufficient interest in allowing a valid claim.

These are the requirements which used to identify a valid insurance. Failure to comply with one of them might make the insurance void.