It’s a contract where one party (Insurer) undertakes in return of an agreed consideration (premium) to pay the other party (Insured) a sum of money or its equivalent in the happening of a specified event which event invariably happens in the future.

The insurance contract is a contract like any other, but with particular peculiar principles. The insurable interest should be beyond the control of either party and there must be an element of negligence or that there is uncertainty. Contracts dealing with uncertain future events are either alieatory, contingent or speculative. In insurance, risk exists in priori, whether or not we insure. However, in a wager/stake/ gamble there is no insurable interest.

It has been observed that the contract of insurance is basically governed by rules which form part of the general law of contract. But equally, there is no doubt that over the years, it has attracted many principles of its own to such an extent that it is perfectly proper to speak of the Law of Insurance. It is a contract based on a promise sometimes it is said to be speculative but it is based on an element of uncertainty as to whether the event insured against will or will not take place.

In Prudential Assurance ltd –vs- Inland Revenue Commissioner (1902) 2 KB 286, it was observed that the event insured against should be one which involves some amount of uncertainty. Firstly, there must either be some uncertainty as to whether the event will ever happen or that if the event ever happens the time at which it happens must be unknown to all the parties. Secondly, the event insured against must be of an advanced character to the insured so that the insured should not on his own volition create that loss or risk and the loss or risk being expressed in pecuniary terms. Thirdly, the event insured against must be of accidental nature.n gambling the risk is created by the contract.

The court in Robertson –v- Hamilton (1911) AC observed that although there are some activities which may prima facie look like insurance transactions they lack in one specific quality in the sense that the risk is of essence to insurance contract and that the insured is moved to effect the contract because of risk of loss and does not, like in these other transactions create the risk of loss by the contract itself. In gambling the contributions are not based on risks involved while in insurance the premiums are based on risks involved. Gamblers are optimists and insurers are pessimists.

NATURE OF INSURANCE CONTRACT

With regard to the parties to the contract, insurance is a bi-party contract and unlike other transactions where we would require the capacity of parties to contract, there is no special requirement as to capacity of the insured before entering into a contract. It has been held that insanity does not incapacitate an insured person. The only requirement needed for the insured before the contract is entered into is that he must have an insurable interest in the subject matter of the insurance before he is.

Held: P’s claim should fail because his aunt had not fully disclosed material facts and the company had considered that even if she had answered to the affirmative they would not have rejected her proposal on account of insanity. The Court held that the contract would have been enforceable had she fully disclosed material facts.

In Darrel –v- International Insurance Company (1880)5 QBD P was drunk when he went to take out a policy. The agent of the insurance company agreed to negotiate terms of policy. He signed it and paid the premiums. 2 years later he fell and got injured on a road. When he claimed under the policy the insurance company declined to pay arguing that by reason of drunkenness he lacked capacity to contract on the date the contract was made.

Held: P’s claim succeeds as drunkenness could not incapacitate him to contract. It is only if by reason of drunkenness P had failed to disclose material facts, would the contract be invalidated, not by reason of drunkenness but non-disclosure. On the part of the offeree (insurer) the legal requirements are that it must be a body corporate. See the control mechanisms above on what insurer must be like to be applicable.