Chapter XII. Insurance

THERE are three different types of this contract—marine, fire, and life insurance. Marine and fire insurance are contracts of indemnity by which the insurer undertakes to make good any loss suffered by the insured through the happening of some accident, in consideration of the payment of a fixed sum at once or at periodical intervals. On the other hand, in a contract of life insurance the insurer undertakes to pay a given sum to another upon the happening of a particular event contingent upon the duration of human life in consideration of the immediate payment of a smaller sum or certain equivalent periodical payments. The particulars of the contract are set forth in a formal document called the policy, but the contract is made so as to bind the parties on the payment by the insured of the premium—i.e., the money charged or an instalment thereof.

Usually insurance business is conducted by companies which frequently effect reinsurance with other companies, so that losses are spread over greater numbers and are more easily borne. In marine insurance individuals called underwriters frequently contract to indemnify the insured by subscribing the policy and putting opposite to their name the amount to which they will be personally liable in case of loss.

A man may effect an insurance with many companies, but as marine and fire insurance are contracts of indemnity, the insurer cannot get more than is sufficient to cover the loss, and if one company has paid the whole of this, it will be able to recover proportionate sums from the other companies with which the party was insured. Any person may insure his own life to any amount he thinks fit by paying proportionate premiums, but no one can insure the life of another unless he have a pecuniary interest in that life, and only to the extent of that interest. A wife has such an interest in her husband’s life, and may effect an insurance on it for her own benefit.

Marine and life insurance policies may be assigned to others, but notice of assignment must be given to the party bound by the policy.

Contracts of insurance are uberrimae fidei, and therefore require that all circumstances that are material to the contract should be made known to the insurer in order to enable him to come to a sound judgement as to the risks and the merits of the case. Questions are proposed to one who desires to effect an insurance, to which truthful answers must be given. Warranties and conditions, express and implied, are also part of the agreement. If the questions in the proposal are answered falsely, or if the warranties or conditions are not fulfilled, or if any material circumstance is not disclosed when it should be to the insurer, the latter may void the contract. It is difficult to say when, according to law, the contract is null and void so as to confer no rights in the foregoing circumstances even before the insurer has used his right to avoid the contract. In conscience it would seem that we may adopt the distinction here between what theologians call substantial and accidental mistake. That will be substantial to the contract which would have prevented the insurance being effected at all if it had been known; if it would not have prevented the insurance being effected but only varied its terms, it will be accidental. A substantial defect in the contract will make it null and void so as to transfer no rights at all; accidental defects will leave the contract valid, but there may be an obligation to supply the defect, as, e.g., by paying a larger premium corresponding to the greater risk or more advanced age. A usual condition is that the policy of life insurance is avoided if the insured should die by his own hand. The purpose of this condition is to prevent a man gaining advantage by his own felonious act. So that if no advantage would accrue to the party, the policy may be saved in the absence of express condition to the contrary, as also if the insured committed suicide while of unsound mind.

If the premiums are not regularly paid at the proper time, the policy lapses, and the paid-up premiums are forfeited to the insurer. In such cases the policy may sometimes be revived on comparatively easy terms.