A contract of insurance in the widest sense of the term may be defined as a contract whereby one person, called the ‘Insurer’, undertakes, in return for the ‘Assured’, a sum of , money, or its equivalent, on the happening of a specified event.
The specified event must have some element of uncertainty about it, the uncertainty may be either (a) as in the case of life insurance, in the fact that, although the event is bound to happen in ordinary course of nature, the time
- An agreement binding in honour only is not enforceable: Home Insurance Co and St Paul Fire and Marine Insurance co v Administration Asigurarilor de Stat (1983) 2 Lloyd’s Rep 674 (reinsurance) where a clause in a reinsurance treaty stated : Arbitration…The award of the arbitrators or the umpire shall be final and binding upon all parties without appeal. This treaty shall be interpreted as an honourable engagement rather than as a legal obligation and the award shall be made with a view to effecting the general purpose of this treaty rather than in accordance with a literal interpretation of its language…, and it was held that, on the true construction of the agreement it was the parties intention that there should be an enforceable obligation to arbitrate and abide by the award. And All that was intended by the clause was to free the arbitrators to some extend from strict rules, and that was permissible. (See the judgment of Parker J, ibid, at 677.) As to reinsurance treaties, see Ivamy, Personal Accident , Life and Other Insurances (2nd Edn 1980) pp 326-329.
- Prudential Insurance Co v IRC(1904) 2 KB 658 at 663 (life insurance) per Channell J Where you insure a ship or a house, you cannot insure that the ship shall not be lost or the house burned, but what you do to insure is that a sum of money shall be paid on the happening of a certain event. That I think is the first requirement in a contract of insurance. It must be a contract whereby, for some consideration, usually, but not necessarily, for periodical payment called premiums, you secure to yourself some benefit, usually, but not necessarily the payment of a sum of money upon the happening of some event ; Department of trade and industry v St Christopher Motorists association Ltd (1974) I All ER 395,(1974) I WLR 99 where it was held that a contract to provide a motorist, who was disqualified or prevented by injury from driving, with a chauffeur was a contract of insurance. (See the judgment of Templeman J, ibid, at 400-401); Medical Defence Union Ltd v Department of Trade (1980) Ch 82, (1979) 2 All ER 421 where it was held that the right of a member of the Medical Defence Union, on a claim being made against him, to have his application for help with that claim considered by the Union did not suffice to constitute the contract between him and the Union a contract of insurance, for it was merely a right to a benefit other than money or money’s worth. In that case Megarry V-C said (ibid, at 429by ” I am quite unable to see any justification for replacing “money” or its equivalent by “benefit” as a constituent part of the definition of a contract of insurance. I can see nothing in the authorities which gives any real support for so wide and extensive a generalization, especially as the term “money or money’s worth” seems to be adequate for all normal circumstances. It may be that in view of Department of Trade and industry v St Chistopher Motorists Association Ltd (supra) some further addition should be made so as to cover explicitly the provision of services.
- Prudential Insurance Co v IRC (supra), per Channell J, at 663: Then the next thing that is necessary is that the event should be one which involves some amount of uncertainty. There must be either some uncertainty whether the event will ever happen or not, or if the event is one which must happen at some time or another, there must be uncertainty as to the time at which it will happen. Of its happening is uncertain; or (b) in the fact that the happening of the event depends upon accidental causes, and the event, therefore, may never happen at all. In the later case, the event is called an ‘accident’. The specified event must further be of a character more or less adverse to the interest of the assured, or in other words, the accident must be calculated, if it happens, to result in loss to the assured. Where the payment of the money or other benefit is discretionary and not obligatory, the contract is not one of insurance.
- Ibid, per Channell J, at 664:’A contract of insurance then must be a contract for the payment of a sum of money, or for some corresponding benefit such as the rebuilding of a house or the repairing of a ship, to become due on the happening of an event must have some amount of uncertainty about it, and must be of a character more or less adverse to the interest of the person effecting the insurance. ‘But this statement has been criticized in Gould v Curtis (1913) 3 KB 84 (life insurance) per Buckley LJ , at 95, where he pointed out that whilst it is true of fire and marine insurance, it is not necessarily so in the case of life insurance, particularly if the life policy also contains endowment provisions. Scottish Amicable Heritable Securities Association Ltd v Northern Assurance Co 1883 11 R (Ct of Sess) 287, per Lord Justice Clerk (Moncrieff), at :’It is a contract belonging to a very ordinary class by which the insurer undertakes, in consideration of the payment of an estimated equivalent beforehand, to make up to the assured any loss he may sustain by the occurrence of an uncertain contingency. It is a direct, not an accessory obligation like that of a surety, and is fulfilled and terminated by payment of the loss.’See also Law v London Indisputable Life Policy Co (1855) 1 K & J 223 (life insurance) per wood V-C, at 228; Daff v Midland Colliery Owner’s Mutual Indemnity Co (1913) 6 BWCC 799, HL (employer’s liability insurance) per Lord Moulton, at 820.
- Medical Defence Union Ltd v Department of Trade (1980) Ch 82, (1979) 2 All ER 421, where a member of the Union against whom a claim had been made could merely require the Union to consider whether to conduct the proceedings on his behalf or whether to provide him with an indemnity , and had no right to require the Union to assist him in this way, and it was held that the contract was not a contract of an insurance; C V G Siderurfcia del Orinoco SA v London SS Owners Mutual Insurance Association Ltd: The Vainqueur Jose (1979) 1 Lloyd’s Rep 557 (marine insurance), where a shipowner who was insured with a mutual insurance association merely had the possibility of an ex gratia payment in respect of forwarding expenses, but not a right to payment. (See the judgment of Mocatta J, ibid, at 580). As to mutual insurance associations, see Ivamy, Marine Insurance (4th Edn 1985), pp 475-479.