Question One: On Insurance

594. Insurance (assurance; verzekering) is the taking upon oneself of another's danger; whence the contract of insurance is that by which someone takes upon himself the danger of another's thing or person, obliging himself, for a determined price, to compensate it if by chance it should perish. Hence it can be defined: a real aleatory contract by which one, for a certain price paid, obliges himself to compensate damages which another can suffer on account of a fortuitous event or a superior force.¹

¹ Cf. Belgian law 11 June 1874 in the Commercial Code, l. 1, tit. X.

Hence: a) the object of this contract is the danger of damage, taken upon oneself and estimable by price; whence b) the matter about which it turns is whatever, whether a thing or a person, is subject to danger and at the same time is estimable by price. Thus ships and goods are customarily insured against the danger of the sea, buildings and movables against the danger of fire, crops against the danger of hail, fragile things against the danger of breakage, precious things against robbers, even persons against death, military service, infirmity, etc., either singly or collectively, either as they come under such a name, or insofar as they pertain to this or that social order. c) But the danger is estimated by a determined price: for although insurance can be made gratuitously, nevertheless someone is not accustomed to take upon himself the danger and compensation of a thing, and thus to furnish to another something estimable by price, except for an equivalent price. Hence the contract is of itself onerous, and is reduced to sale.

In antiquity almost unknown, in modern times this contract has widely prevailed among all nations. It is related that in the fourteenth century it was first introduced as regards goods to be carried over the sea; in the seventeenth century the first society of insurance against fires was founded at London; in the nineteenth century innumerable societies of this kind already appeared as regards things of every kind, whence it is a contract of great moment. It certainly is not lacking in social utility: for it pertains to the public and private good that damages arising from fortuitous event and the ruin of men of moderate fortune be foreseen and guarded against; otherwise a) industry and commerce would often be retarded; b) owners and workmen also would often be brought to the extreme of want and poverty; c) but now the providence and thrift of individuals is promoted for their greater security.

The contract is lawful, provided:

1. Each of the contracting parties is uncertain concerning the danger of the thing; otherwise there would be malice. Hence the contract would be null if someone wished to insure a ship which he certainly knows already to have perished or already to be in port;

2. The price is just according to the value of the things and the gravity of the danger: for there must be equality of price and danger;

3. The insurer is capable of paying what he promised, and the insured observes all the conditions and does nothing by which the danger is greater or the hope less than the insurer ought to have expected, considering the agreement, custom, or circumstances.

595. Moral principles which rule insurance and the obligations arising from it. The obligations pertaining to the contract of insurance are customarily determined by laws and by the special statutes of societies; these must be stood by, unless they are manifestly unjust. Now some obligations are common to each contracting party, namely, as regards the just price; but others are special to the insured or to the insurer.

I. Common obligations concerning the just price. The price of insurance ought to correspond to the service furnished, and therefore to be proportioned to the gravity and probability of the danger or hope, account being taken of expenses; this is to be determined not from the event, but from the danger at the time the contract was entered into, by the judgment of prudent men. In this, namely, is situated the equality of justice in this contract: that, all things having been carefully weighed, there be an equal proportion between the probability and extension of the danger and the price which is to be paid by the insured, so that, from those things which commonly happen, the insuring society, after all damages have been compensated, may receive some moderate gain for its labor and expenses and for the utility procured.

The proportion today is customarily determined according to statistical computations, which now are made sufficiently accurately; whence the contract is now less aleatory. But since there are many competing societies, even international ones, generally the current price is legitimate: for if it were immoderate, soon other societies would arise, or would be instituted by the insured themselves, which would furnish insurance of the same danger at a lower price; unless, however, almost all societies were to constitute a monopoly and agree not to diminish the price.

Nevertheless gain, from the fact that it is rather great, must not immediately be held as unjust: for it must first be examined whether it does not proceed from a great number of insured persons, or from the skill of administrators who prudently employed the money received for fruitful uses, and whether there is not danger of losing all gains if a common calamity occurs.

II. Special obligations of the insured. He is held from justice:

1. To declare sincerely the true value of the thing and the gravity of the danger;

2. Not to neglect the conservation of the insured thing;

3. To manifest defects of the thing or person, if he is questioned, and not to conceal them deceitfully.

Hence:

a) The contract is invalid if, in declaring the danger of the insured thing, a notable circumstance is kept silent, which, if known, the contract would not have been entered into: for the danger is the very object of the contract; whence a notable error in it is substantial. But if the circumstance is not notable, so that the contract would nevertheless have been entered into, but at another price, it is valid, but the insured is held to increase the price by reason of the danger; likewise, if, when insurance has already been entered into, the danger is increased, this certainly must be declared.

Thus Belgian law, in art. 9, invalidates the contract whenever something is kept silent or falsely declared, even without bad faith, which diminishes the estimation of the danger or changes its object, so that the insurer, if he had known these things, would not have contracted in the same circumstances.

But by civil law or by special stipulations of the pact itself, sometimes because of a rather non-notable circumstance kept silent the contract is declared void, or at least rescindable at the will of the insurer; or it is even further added that the insurer can retain the price already paid, although he is not held to compensate the damage. Yet these things which are added to natural law do not oblige except after the sentence of a judge. But if the insurer does not rescind the contract but demands a greater price, then equality will have to be restored and the greater price paid.

b) When the error turns upon the value of the thing, one must distinguish: if the value of the thing was exaggerated, the contract is indeed invalid as regards the excess of value, but remains valid for the true value of the thing, which therefore must be compensated: for then the error is not substantial and therefore does not void the whole contract. On the contrary, if the value of the thing was too much diminished, the insurer must compensate only according to the proportionate part of the price paid, for in this case the insured himself is held as insurer for the remaining part. But if the value of the thing was diminished at the time when the thing perished, the insurer is held only to compensate the damage truly suffered (a. 20, Belgian law).

Yet it could happen that each contracting party knowingly and willingly agreed concerning the excess of value: then, however, the contract assumes another nature, namely, that of wagering, concerning which it will be said below, n. 601.

c) Fraud is committed: 1. if the thing to be insured is not declared as it is; 2. if from grave negligence or direct purpose it is guarded badly so that it perishes; 3. if changes are made in it which increase the danger of damage. This per se obliges to restitution, and indeed under grave obligation if grave damage was caused.

Hence he commits open injustice: a) who burns his own thing or certainly exposes it to destruction, in order that he may receive compensation for the thing; b) who asks and receives compensation for damage which he did not undergo, or for greater damage than he underwent, or for that whose compensation is excluded in the contract; c) who demands compensation which surpasses the price of the thing or the insured value. But not if he asks greater compensation with this intention alone, that by settlement he may obtain repair of the true damage; or if, having used no fraud, he accepts an excessive compensation spontaneously offered or established by arbiters.

d) He must restore: 1. who voluntarily destroyed the insured thing, and moreover repair all damages unjustly inflicted; 2. who by frauds obtained compensation to which he has no right; 3. who, in the fortuitous event of a fire, deliberately does not try to restrain the conflagration or rescue the things, for by ordinary diligence he ought to protect his own things, and this also from positive law (a. 17); 4. a fortiori, who prohibits others from extinguishing the fire.

III. Special obligations of the insurer. He ought from justice:

1. To be capable of compensating all damages concerning which he is held, or for whose compensation he obligated himself. For this it is by no means necessary that he possess money equal to all the goods whose danger he has taken upon himself, but only that he have as much as is probably required for compensating the damages which are accustomed to happen from those things which commonly occur: for it is improbable that all goods whose danger he has undertaken will perish at the same time. But those societies act unjustly which take upon themselves more dangers than they can probably compensate, unless they reduce the danger to just limits by reinsurance, or a second insurance, by which, through a federation entered into among themselves or through a new society, they divide greater dangers among themselves.

In the case in which the insurer is unequal to repairing the whole damage:

1. The insured can rescind the contract and demand back the price paid, because he had not consented to the contract except for obtaining perfect security;

2. If the insured does not demand back the price, the insurer must restore the price at least partially, retaining the part corresponding to the value for which he truly furnished security;

3. If after the price has been paid the insured thing perishes, the insured has the right of pursuing by all legitimate means the complete repair of the damage: for the insurer is held partly from the contract, partly from fraud.

2. He is held to repair the whole damage truly inflicted on the insured thing, and indeed: a) according to the conditions explicitly or implicitly stipulated in the contract itself; b) as soon as morally possible after the thing has perished by fortuitous event or has become worse, and this is sufficiently established; otherwise he is held concerning damages; c) according to the value of the consumed thing at the time at which it perished (a. 20, Belgian law).

For repairing the damage, both civil law and the very tenor of the contract must be observed (a. 2). According to our civil law, the insurer is not held to compensate damage caused by grave fault of the insured, or of his relatives (a. 16); and, unless an express contrary agreement is made, he is not held to compensate damages arising from war or popular tumult (a. 19), indeed from an intrinsic defect of the thing (a. 18); yet for fire it must be clear that the defect was known at the moment the contract was entered into (a. 35).

If grave moral fault was present, the insured can in conscience demand back or accept nothing; on the contrary, if there was only juridical fault, not except after the sentence of a judge.

596. Insurance of workers merits special attention.² This tends to this: that workers be insured both against accidents which cause bodily injury, and against any cases whatever in which their powers for working are rendered invalid, as in sickness or old age; so that then the workers, or the wife or surviving children, may receive a certain subsidy or periodical revenues.

² Cf. Lehmkuhl, Th. M. I, n. 1365-66; Noldin-Schmitt, Th. M. II, n. 631.

As regards accidents caused on the occasion of labor and damages arising therefrom, insurance is to be furnished by employers; this will be done more conveniently if, united in associations, with an annual contribution made by each, they have money sufficient for the cases which occur. This also could be prescribed by civil law, and sometimes is prescribed. As regards other cases, various associations have been instituted, whose money is collected partly from a tax imposed on workers, partly from a tax to be paid by employers, or even from a contribution of the public treasury; once their tax has been paid, the workers acquire a right to the insured sum. Concerning these things it is to be noted:

1. An annual pension is paid only to those to whom an accident happens in the exercise of work; yet this seems able to be understood broadly, so that what happens in an action which in some way is connected with the exercise of work is judged to have happened thus, as in access to the place of labor, or during a meal which is taken in the place of labor, or during leisure which is taken there, unless, however, the law or statute positively excludes this.

2. Workers ought not to receive compensation if the accident happens by their fault; this fault is to be understood as grave, so that the accident was caused deliberately or from great negligence. Indeed, in certain regions, as in Belgium and in France, only an accident deliberately and deceitfully caused is excluded by law.

3. He who unjustly received compensation or an annual subsidy, for example, by falsely narrating the cause of the accident or by bringing in false witnesses, is held to restore the sum received, nor can he receive further payment. But if he cannot restore to the society or revoke the matter without graver danger, let him restore to the poor.

597. Life insurance can present special difficulties.³ Invented in the seventeenth century by the Italian banker Tonti, it properly tends to this: that the insurer, for certain annual payments or premiums, obliges himself, upon the death of someone occurring, to pay a determined sum of money to heirs or to a third person. But now it is also entered into in the contrary way, so that the insurer must pay the sum to the insured himself or to a third person, if he reaches a certain age, for example, 20 years or 65; indeed each way can be mixed, in which case there is mixed insurance.

³ Cf. Huppert, Der Lebensversicherungsvertrag; Lehmkuhl, Th. M. I, n. 1360 sq.; Genicot-Salsmans, Th. M. I, 658, VIII; Noldin, Th. M. II, n. 630-631.

In this contract the danger for the insurers is that they must pay back a sum which exceeds the premiums received; to guard against this, they are accustomed to take precautions by questions or examinations. There are, however, societies which, with the price increased, demand no declaration or medical examination; but ordinarily many questions are customarily proposed by insurers to clients, in order to discern with probability how much duration of life the insured can hope for. If these are answered incorrectly from error, fraud, or malice, or by a too favorable declaration of the physician, doubt sometimes arises concerning the value of the contract.

1. The contract is invalid, even before the sentence of a judge, if a circumstance is denied or kept silent by which the probability of life to be prolonged by the person to be insured is so notably diminished that, if it were known, the insurer would by no means wish to contract, such as an indication of premature death or vomiting of blood; for then there is substantial error concerning the object of the contract.

Hence: a) if the insured acted in good faith, he keeps the right to recover the premiums paid, but those in whose favor the insurance was made acquire no right to the insured sum;

b) But if the client acted in bad faith, he must besides repair the damages which the society suffered because of expenses;

c) Yet there are societies which in their statutes declare a void contract, after a certain time, for example, five years, to be held as valid;⁴ this is valid even if it was entered into in bad faith;

⁴ Thus for the most part in Germany and in certain other regions, but not French societies.

d) Likewise after time it can appear that the circumstance kept silent is not notable, for example, when the health of the insured recovers beyond hope, in which case the contract becomes valid because of the persisting will of the insurer;

e) The contract can also be judged valid if a notable defect of health lay so hidden that morally it could not become known either to the person to be insured or to the physician.

2. The contract is valid but to be reduced to equality if a circumstance is denied or kept silent, which, if known, the insurer would nevertheless have entered into the contract, but would have demanded a greater premium, as a disease by which the hope of life being prolonged is diminished not altogether slightly, or a more advanced age.

Hence: 1) In the case, the price must be increased, so that the insured sum may be lawfully received;⁵

⁵ Some societies permit the insured to make a new declaration and increase the price; but according to the statutes of others, he loses all rights as soon as fraud has been recognized.

2. If this has not been done, a smaller compensation is to be accepted, proportionately to the premium defrauded; and in the case in which the whole insured sum has been paid, a proportionate part of it will have to be restored;

3. Moreover, if the client acted in bad faith, expenses which perhaps the insurer made will have to be compensated by him.

3. The contract is valid and simply to be observed by each party if a circumstance of entirely slight moment is denied or kept silent, which, if known, the insurer would have contracted under the same conditions, as an excised carbuncle or a homeopathic remedy used.

Hence: a) if the statutes of the society declare that the contract is voided by any error in the responses, this can be considered as a penal disposition, and the contract can be held as valid before the sentence of a judge: for the insured cannot be deprived of every right on account of a slight error which in no way harms the society;

b) After the sentence of the judge, one must stand by this, unless the contract would be invalid on the part of the insurer.

A physician who by a false or too favorable declaration cooperated in an unjust contract and thus inflicted damage is held to restitution in solidum after the principal damager.

598. Case. Robert, about to insure his life, was questioned by the physician concerning the disease from which his grandparents had died. He indeed said the other things truly, but in good faith declared that his paternal grandfather had been seized by a sudden fever, while in reality he had perished from phthisis. After Robert died seven years later, the heirs, who detected the truth of the matter, remain anxious whether they can with a safe conscience accept the money established by the insurance society.

Resp.⁶ 1. First of all the very tenor of the contract must be considered.

⁶ Solution proposed in Revue Eccl. de Liege, March 1910.

Now some societies clearly distinguish between errors which render the contract null, and others on account of which, if they are notable, the society can seek only indemnity for the damage which it has undergone. Others establish the nullity of the contract on account of false declarations knowingly made; if these were made in good faith, they induce not nullity but only the reduction of the stipulated sum. Others establish that the contract can be impugned on account only of errors committed from grave negligence or fraud. Others, that on account of any notable errors whatever, culpably or inculpably committed, the society is held to nothing.

From these things, namely, from an inspection of the clauses of the contract, perhaps already there is a solution favorable to the heirs, for example, if the nullity of the contract is established only for the case of culpable error: for then the insurance society itself bears the danger of inculpable error, and the heirs are held to nothing.

Besides, not a few societies declare that a contract invalid or rescindable on account of false declarations, after it has lasted for five years, is to be held as healed and valid. But if the society with which Robert contracted no longer impugns contracts after five years, his heirs, after seven years have elapsed, can accept the stipulated sum entire.

2. But what if on account of error the contract is declared null by the statutes of the society?

Then it remains to be further inquired whether the contract must be held as fully null in conscience, or only then when its nullity is invoked by the society. Or whether it is null by full right, or only rescindable.

Many societies establish that, in the case of an erroneous declaration, they are not obligated. This, taken exactly, signifies that the insurer is not held to pay; this can be had, although the insured is not held to refuse the payment offered.

Other societies, as also sometimes civil law, decree that the contract is null. But this, from the usage admitted in law, signifies that contracts, unless they are already invalid by natural law, are fully null only when their nullity is requested by the deceived contracting party and declared by the judge (n. 454). And in this sense the contract would seem to be understood all the more if, as a penalty of the deceiver, it established the loss of all premiums paid yearly; or even nullity in the case of inculpable error.

Finally, there could be other societies which declare the contract null by the fact itself; in which case it would also be null in conscience before the sentence of a judge.

From these things it follows: a) If the society impugns the contract after Robert's death, the heirs are held from justice to stand by the sentence of the judge; indeed, to avoid expenses, if the nullity is certain and open, they are held from charity to acquiesce in the request of the society, even before the sentence of the judge.

b) If the matter has not come to the knowledge of the society, the heirs can accept the offered money, unless the statutes of the society decree the contract null by the fact itself, or unless there is substantial error.

3. Is there not substantial error, so that the contract is null by natural law?

Thus it has seemed to some, who therefore hold the contract invalid; but this can be denied, at least taken universally.

The contract of life insurance substantially concerns the danger of death and is restricted, by the intention of the contracting parties, to the common danger; but the origin of this danger is something accessory and rather indifferent. Now we are taught by the most recent statistics that phthisis contracted from parents no longer induces a plainly extraordinary danger for children, since it is scientifically clear that the germ of that disease is not transmitted to children by a hereditary path, but only some disposition or weakness of the organism. Further, once the nature of the disease is recognized, by suitable precautions the disease can generally be guarded against.

Since these things are so, setting aside the case of a person to be insured who is already infected with the disease, concerning which it is easy for the physician of the society to establish, a doubt can deservedly be raised whether the phthisis of parents induces so great a danger as substantially to change the object of the contract. But since a certain obligation is not to be imposed on account of an uncertain reason, the heirs are not to be barred from accepting the money offered.

Yet must the damage which the insurance society underwent from a danger somewhat greater than it consented to be repaired? For, if the phthisis of the parent had been known, it would have demanded a greater premium. Let a distinction be made: if it is clear concerning damage effectively inflicted, it must be repaired, for example, if after seven years Robert truly is seized by phthisis, according to a prudent estimation the sum of the annual premiums which Robert paid below the just amount must be increased; and the heirs can do this by occult restitution. But if the deceased died from another disease or by chance, from the circumstances kept silent no effective damage came to the society, and therefore there does not fall upon the heirs any burden of restoring anything from the title of unjust damaging.

599. Observation. A species of insurance is nautical interest (pret a la grosse aventure; bodemerij), concerning which see art. 156-167 of the Belgian law of 21 Aug. 1879. It is an agreement by which someone hands over money or other fungible things to another in mutuum, upon things which are exposed to maritime dangers, with this pact: that if the things perish, no restitution is owed to the lender, except from what perhaps has survived; but otherwise the things lent are restored with a certain gain, on account of the dangers which the lender had taken upon himself.