Document Type : Original Research Paper

Authors

• Mohammad Taqi Rafiei ¹
• reihaneh nadjarzadeh ²

¹ Associate Professor, Department of Energy and International Trade Law, Faculty of Law, Farabi Campus University of Tehran, Qom, Iran

² PhD Candidate, Department of Private Law, Faculty of Law and Political Science, University of Tehran, Tehran, Iran.

Abstract

BACKGROUND AND OBJECTIVES: In the complex realm of legal relations, mutual obligations among individuals have always been a focus for legal scholars. One such obligation, which has undergone profound transformations over time, is policyholders’ duty to mitigate loss. This duty originates from principles like good faith and the necessity of cooperation between parties in an insurance contract. Initially, it had an optional and contractual nature and was only considered in certain insurance branches, such as marine transport insurance. However, economic and social developments, including increased insurance costs and the need to preserve and manage the financial resources of insurance companies, have transformed this duty from a contractual obligation into an implied and enforceable duty across all insurance branches. This change has not only affected the relationship between the insurer and the insured but also been accepted as a fundamental pillar in insurance contracts, significantly contributing to the efficiency of the insurance industry and global trade. The main goal of this study is to answer the fundamental question: what effects and enforcement guarantees does it have on the relationship between the insurer and the insured? A precise understanding of this duty is particularly important for decision-makers in Iran, as a lack of sufficient awareness can lead to indifference and, ultimately, to increased trade risk and reduced investment. Standardizing this duty and correctly including it in sample documents and draft contracts can play an effective role in the growth of the insurance industry and in developing commercial investments.
METHODS: This research employs an analytical-descriptive approach, examining the duties of the insurer and the insured in the legal system of Iran and some other countries. Data collection in this research was conducted using a library method, and judicial rulings and practical case studies have also been perused.
FINDINGS: This research's findings indicate that the insured's duty to mitigate loss has evolved from an optional right into a legal obligation. The right to reimbursement for loss mitigation expenses is the insured's primary right after performing the duty. This right is recognized in practice, whether implicitly or explicitly stated in insurance policies. In cases involving multiple insurance policies, each insurer is responsible for reimbursement proportionate to their shares in the benefits of loss mitigation. The first example of a pursuit and action clause in its approximate current form appeared in English insurance policies. Pursuit and action were initially a right, not an obligation, but gradually it took on the nature of an obligation, and its scope expanded to the point before the damage occurred. The first and main right of the insured after the obligation is the right to reimbursement. In the case of negligence in the performance of the obligation, the circumstances of the case determine the guarantee of its performance. In general, in insurance, when the insured seeks to recover their damage, they must first prove that they have already suffered damages. Second, the damage was caused by a risk covered by the insurance. Third, the insured was healthy when the insurance coverage began. So, the burden of proof is initially on them.
CONCLUSION: Finally, by wrapping up the content and analyzing the research findings, we conclude that the insured's duty to mitigate loss is currently accepted as a fundamental pillar in insurance contracts and is a necessary condition for the insured's entitlement to compensation. Non-compliance with this duty can lead to a reduction or even the extinguishment of the insurer's obligation for compensation. This duty not only helps preserve the insurer's interests but also contributes significantly to the efficiency of the insurance industry and the reduction of unnecessary and cascading losses by encouraging the insured to take reasonable measures to prevent and mitigate risks. Despite its implied nature, the explicit inclusion of this duty is common in prevalent commercial insurance policies, and it continues to receive attention in authoritative academic texts. In the context of domestic trade and Iranian insurance companies' policies with Iranian businesses, due to the disregard for this duty and the lack of attention to its capacities, we observe an incomplete legal basis without enforcement guarantees, a pervasive silence regarding the duty in directives and resolutions of decision-making authorities, and ultimately, negligence in the correct inclusion of the relevant clause in insurance policies. This systemic issue, on a macroeconomic scale, significantly increases commercial risks, from transportation to engineering projects, and inevitably leads to substantial economic losses and a demonstrable reduction in domestic and foreign investment. Therefore, a profound understanding and the diligent, accurate implementation of this duty are essential, indeed indispensable, steps towards the sustained development and long-term stability of the insurance industry and the comprehensive support of commercial activities throughout the country.

Keywords

• Commercial insurance
• Insurance
• Mitigation of loss
• Sue and labor clause

Main Subjects

• Insurance rights