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1.2. Legal

When a company insures an individual entity, there are basic legal requirements. Several commonly cited legal principles of insurance include:

  1. Indemnity – the insurance company indemnifies, or compensates the insured in the case of certain losses only up to the insured's interest

  2. Insurable interest – the insured typically must directly suffer from the loss

  3. Utmost good faith – the insured and the insurer are bound by a good faith bond of honesty and fairness

  4. Contribution – insurers which have similar obligations to the insured contribute in the indemnification, according to some method

  5. 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

  6. 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


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