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INSURANCE AND WAGERING AGREEMENT

Some people at times say that Insurance is a gamble, a wager or a bet where the Insured

pays a small amount (Premium) to the Insurer Company and the Insurer in turn offers to pay

a large sum (claim) in case a particular event happens otherwise he keeps the premium.

While on the surface it may appear that this is no different then a person placing a small beton a horse with the chance of getting 10-20 times his money back if that particular horse

wins. While it is true that both Insurance and gambling involve money changing hands on

the basis of chance events, it is important to understand the difference between the two.

Insurance is also, by definition, the taking of a risk of a contingent or unknown event. It is

not a Wager (gamble). Wagering (Gambling) on life has been illegal for many years because

the life insured by the gambler would be at risk of murder to collect the funds.

The expression wager has not been defined in the Indian Contract Act. A classic

definition is however available in the case of Carlill v Carbolic Smoke Ball Co.

A wagering contract is one by which two persons, professing to hold opposite views

touching the issue of a future uncertain event, mutually agree that, dependant on the

determination of that event, one shall win from the other, and that other shall pay or hand

over to him, a sum of money or other stake; neither of the parties having any other interest

in that contract than the sum or stake he will so win or lose, there being no other

consideration for making of such contract by either of the parties. If either of the parties

may win but cannot lose, or may lose but cannot win, it is not a wagering contract.

The above definition excludes event which have occurred. Hence Sir William Ansons

definition, a promise to give money or moneys worth upon the determination and

ascertainment of an uncertain event, is nearer and more accurate. This seems to reduce the

following essentials:

Essentials of Section 30:

Mutual chances of gain and loss

There must be two parties, or two sides, and mutual chances of gain and loss, i.e., one party

is to win and the other to lose upon the determination of the event. It is not a wager where

one party may win but cannot lose, or if may lose but cannot win, or if he can neither win

nor lose, if one of the parties has the event in his own hands, the transaction lacks an

essential ingredient of wager.It is of the essence of the wager that each side should stand

to win or lose according to the uncertain or unascertained event in reference to which the

chance or risk is taken.

Two parties

There must be two persons, either of whom is capable of winning or losing.

.you cannot have two parties or more than two sides to bet. You may have a multi partiteagreement to contribute to a sweepstake (which may be illegal as a lottery if the winner is

determined by skill), but you cannot have a multipartite agreement for a bet unless the

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numerous parties are divided in to two sides, of which one wins or the others loses,

according to whether an uncertain event does not happen.

Uncertain Event

Uncertainty in the minds of the parties about the determination of the event in one way or

other is necessary. A wager generally contemplates a future event; but it may even relate to

an event which has already happened in the past, but the parties are not aware of its result or

the time of its happening.

The first thing essential to wager is that the performance of the bargain must depend upon

the determination of an uncertain event. A wager generally contemplates future events; but

it may even relate to an event which has already happened in the past, but it may even relate

to an event which has already happened in the past, but the parties are not aware of its result

or the time of its happening.

No interest other than stake

Neither party should have any interest in the happening of the event other than the sum orstake he will win or lose. To constitute a wager, the parties must contemplate the

determination of the uncertain event as the sole condition of their contract. The stake must

be the only interest which the parties have in the contract.

Neither party to have control over the event

Lastly, neither party should have control over the happening of the event one way or the

other. If one of the parties has the event in his own hands, th e transaction lacks an essential

ingredient of a wager.

Differences between Insurance and wagering (gambling):

The very act of placing a bet puts a person at risk of losing money. If he had not placed the

bet there would be no risk and he would not care less which horse won or not. In Insurance,

whether he insures or not, the risk is there and he is exposed to the possibility of a fire

damaging his house. Wager (Gambling) creates the risk whereas Insurance transfers an

existing risk from one party to another.

The other differences between Insurance and gambling are:

(1)In Insurance, Insurable Interest is a pre-requisite whereas in gambling the interest is

limited to the amount to be won or lost.

(2)The Insured is immune from loss and his identity is known before the event whereas in

Gambling the loser cannot be identified before the event.

(3)Full disclosure (Utmost Good Faith) is required from both parties to an assurance

contract whereas this is not necessary in a gambling contract.

(4)Insurance contract is enforceable at law whereas there is no legal recourse for any of the

two parties in a gambling contract.

Section 6 of the Marine Insurance Act, 1963 provides that every contract of marine

insurance by way of wager is void; and that a contract of marine insurance is deemed to be a

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wagering contract where the assured has not an insurable interest. The (English) marine

insurance act 1906 also provides that a contract or Marine Insurance is deemed to be a

gaming or wagering contract if the insured has no interest in the adventure.

It is the essence of insurance that for insurance to exist the person insured must have an

insurable interest in the property or life insured. Life insurance insurable interest can bedefined as an interest based upon a reasonable expectation of pecuniary advantage through

the continued life, health, or bodily safety of another person and consequent loss by reason

of that person's death or disability or a substantial interest engendered by love and affection

in the case of individuals closely related by blood or law. An individual may have an

unlimited insurable interest in his or her own life, health, and bodily safety and may

lawfully take out a policy of insurance on his or her own life, health, or bodily safety and

have the policy made payable to whomsoever he or she pleases, regardless of whether the

beneficiary designated has an insurable interest. It is the life of the person taking out the

insurance who must have an insurable interest.

It is suggested to go through class notes also.