Fundamental Principles In Every Insurance Cover
- Utmost Good Faith – The Contract of Insurance requires not only from the Insurer but also from the Insured the observance of Utmost Good Faith or Uberrimae Fidae. Both parties must disclose conditions affecting the risk and other material facts, as such shall be the basis of the agreements of the contracting parties. Failure of either party to declare in utmost good faith may avoid the contract.
- Insurable Interest – It is the relationship of the Insured to the thing that is subject of insurance, where the former would suffer loss, pecuniary or otherwise, in case of loss.
- Indemnity – The obligation of the Insurer to make good any loss or damage which the Insured has incurred, provided the cause of loss or damage and the thing are covered in the contract of insurance, within a given period of coverage.
- Subrogation – It is the substitution of the Insurer to the rights of the Insured after the former has paid or settled, in whole or in part, the supposed obligation of the latter to a third person.
- Premium – It is the consideration being required by the Insurer for undertaking to indemnify the Insured against loss, damage or liability arising from unforeseen, unknown or contingent event.
- Proximate Cause – It is the Responsible Cause of an event or happening. That cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result event or result would not have occurred.
Suretyship exist when one party guarantees on behalf of another party the performance of an obligation in favor of the third party.
The object of both a policy and a bond is to provide indemnity – the former to the insured and the later to the obligee. It is only in this respect that suretyship can be identified with insurance.
Classification of Bonds
1. Surety Bonds
In surety bonds, the surety promises to answer financially to the obligee for the debt, default or misconduct of the principal.
Types Surety Bonds
A. Contract/Contractors Bonds
Contract or contractor’s bonds are bonds required of contractors in connection with contracts for construction or for the supply of labor or such other service.
B. Bidders Bond
A contract to supply material and equipment for construction work is placed on public bidding. The participants to such bidding are required to post a bidder’s bond which guarantees that if the principal is successful in his bid, he will enter into a contract with the obligee.
C. Performance Bond
When a contract is awarded to a contractor to undertake construction work for the obligee, the contractor is required to post a bond which will guarantee that the principal (the contractor) will perform the job according to the terms and condition of the contract and within the period specified.
2. Judicial Bonds
A judicial bond is any bond filed in a court of law in accordance with a statutory requirement. Examples of judicial bonds are court bonds and fiduciary bonds.
Types of Judicial Bonds
A. Court Bonds
Court bonds are bonds filed by parties who are either plaintiffs or defendants in a litigation case which guarantees that he will honor or pursue the legal remedies of the courts.
B. Attachment Bonds
When a complainant (the plaintiff) in a legal case has attached the property of the defendant, the complainant is required to post an attachment bond. This bond guarantees that if the plaintiff loses the case, the surety will pay the defendant all his financial losses resulting from the attachment of his property.
C. Replevin Bond
Replevin is an action to regain possession of personal property. Before the supposed rightful owner- complainant can regain possession of the property, he must first post a replevin bond that answers for the return of the property or for the payment of damages to the defendant should it turn out that the complainant was not the real owner.
3. License and Permit Bonds
License and permit bonds are bonds required by the government to guarantee faithful compliance with the terms and conditions of the permits or licenses issued to the holders thereof.
4. Customs Bond
Customs bonds are bonds issued on behalf of customs brokers, importers and exporters to guarantee no loss of revenue for the government and to guarantee compliance with customs regulations.
5. Fidelity Bonds
A fidelity bond promises to reimburse the employer (the obligee) for any loss of money or property that the employer might sustain due to the dishonest acts of the employee (the principal) named in the bond.