Article Fourth. On Insurance

627. Nature. Insurance is a contract by which one person, for a certain price, obligates himself to compensating damages which another has suffered from a fortuitous event.

a. He who undertakes the obligation of compensation upon himself is called the insurer; but he who can require compensation is called the insured.

b. Insurance is an aleatory contract because its obligation for the insurer depends on an uncertain event; but it differs from other aleatory contracts in this, that its object consists in uncertain danger.

c. The contract of insurance can be entered validly orally; writing or the instrument of insurance is required not for perfecting the contract, but only for proving its existence. Therefore the mutual obligations of the contracting parties already exist before the instrument has been signed, unless the contracting parties have agreed otherwise.

d. De Lugo reduces the contract of insurance to sale, because the undertaking of danger which threatens another's thing is sold for a price. The undertaking of danger is of so much greater value, the greater the value of the thing insured is and the greater the probability of detriment or destruction of the same insured thing is.

e. Because the danger of any thing, provided it is estimable by price, can be the matter of insurance, therefore according to the diversity of the thing insured there are diverse contracts of insurance. Commonly buildings are insured against the danger of fire, crops against the danger of hail or flood, merchandise against the danger of shipwreck or carriage, and life against the danger of death (Lebensversicherung).

628. Justice of the contract. In order that the contract of insurance be just, these conditions are especially required:

1. That the price of insurance be proportioned to the quantity of the danger which is undertaken.

The quantity of the danger must be determined not from the event, but from the probability of detriment which in the judgment of prudent men is had at that time at which the contract is made.

2. That the danger of the insured thing be declared integrally and not increased after the insurance.

a. From those things which have been established concerning sale, it follows that the contract of insurance is void if in declaring the danger of the insured thing a notable circumstance is passed over in silence, so that the insurer would not have made the contract if he had known the circumstance: for substantial error occurs concerning the matter of the contract. But if the circumstance passed over in silence is not notable, so that the insurer would nevertheless have made the contract, but would have demanded a greater price, the contract is valid unless it is made void by the sentence of the judge; but the price must be increased according to the measure of the danger.

b. The same must be said if, after the contract has been entered, the danger of the thing is increased; namely, if it is notably increased, the contract becomes void; if it is increased only lightly, the price must be increased according to the quantity of the danger.¹

3. That the insurer have the means from which he can compensate the damages which he promised that he would compensate: for he acquires the right to the price only insofar as he can in reality furnish the security promised.

a. Therefore he can undertake as many obligations as he can fulfill according to probable foresight; but if he has undertaken more than he himself can fulfill, he cannot retain the price of insurance as to those which exceed his powers, even if the insured have suffered no damage.

b. If the insurer is equal to compensating not the whole damage but only part of it, some judge that the contract is invalid and the whole accepted price must be restored, because the insured does not consent to partial security; but others, on the contrary, think that he can retain the part of the price which corresponds to the quantity of security which he actually furnished, because the insured intends to obligate him to furnishing the security which he can furnish. But all agree in obligating the insurer to compensating the whole damage if the insured thing has perished, because by unjust fraud he impeded the insured from seeking true and full security elsewhere.

¹ Genicot I, n. 657.

629. Obligations of the contracting parties. They are bound to observe the conditions of the contract, which have been established either by private agreement or by public law, provided they are just. Concerning conditions which are customarily attached to this contract, these things must be noted.

1. The insurer is not bound to compensate damages which have arisen from grave fault of the insured or of his relatives, who are named in the document of insurance.

a. If damage was caused from light theological fault or from merely juridical fault of the insured or of his relatives, he can require and accept compensation, unless by the sentence of the judge he is deprived of this right.

b. If damage occurs from the malice of other men, the insurer is bound to compensate the damage, unless otherwise established; but the damager is bound to restitution toward the insurer. He is not indeed the efficacious cause of the damage which the insurer suffers, but only the occasional cause; nevertheless from the statute of insurance the insurer succeeds into all the rights of the insured in relation to the damager.

2. The insurer is bound to compensate only the damage which the insured actually suffered; this damage is determined according to the value which the consumed thing had at that time at which it perished.

If arbitrators establish a greater compensation than the value of the consumed thing requires, the insured can accept it; but he himself cannot require a greater one without injustice.