Insurability Legal Terms - When a company insures an individual entity, there are basic legal requirements. Several commonly cited legal principles of insurance include:
- Indemnity – the insurance company indemnifies, or compensates the insured in the case of certain losses only up to the insured's interest
- Insurable interest – the insured typically must directly suffer from the loss. Insurable interest must exist whether property insurance or insurance on a person is involved. The concept requires that the insured have a "stake" in the loss or damage to the life or property insured. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons.
- Utmost good faith – the insured and the insurer are bound by a good faith bond of honesty and fairness
- Contribution – insurers which have similar obligations to the insured contribute in the indemnification, according to some method
- Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the insured; for example, the insurer may sue those liable for insured's loss
- Causa Proxima or Proximate Cause – the cause of loss (the "peril") must be covered under the insuring agreement of the policy, and dominant cause must not be excluded.