The Insurance Contract
1
The Insurance Contract
1.1 Introduction
At its root, an insurance contract is a means by which the risk of loss is shifted from the person who otherwise might suffer on to an insurer and, through the insurer, on to other insureds. It is true that an important part of life insurance business is concerned with investment, but even there the element of risk-shifting will be present (eg see [114]). Of course, the skilful insurer is able to persuade people that they should not bear the risks to which they are subject, and is able also to calculate matters so as to take in more income in premiums than is paid out in claims (although in reality the picture is rather more complex than this since insurers earn income by investing premiums and they cover part of their potential liabilities by reinsurance). The insurance contract contemplates, therefore, the possibility, not just that the insurer will become liable to the insured, but also that the insurer will never become so liable. In other words, this is an unusual sort of contract in that it requires performance by one party — the insured — in the shape of the payment of a premium, while the other party — the insurer — is only required to promise to perform if a loss is sustained that comes within the terms of the policy.
1.2 Risk
[101] F Ewald (trans J-M Dautrey and CF Stifler), “Risk in Contemporary Society” (2000) 6 Connecticut Insurance Law Journal 365 [footnotes omitted]
‘THE SOCIAL PERCEPTION OF RISK’
This is the domain of insurance. Here, risk pertains to a future event, one that may also be possible, probable, contingent, fortunate or unfortunate. In any case, one that is feared for its possible consequences to property. In this realm, risk is always potential. However, insurance gives a current value to risk and ascribes it a cost — an insurance premium or fee. Thus, with regard to insurance, risk remains within the confines of monetary valuation. In fact, insurance risk is nothing but the assessment of a value. Insurance is what gives a price to risk in the economic sense, a monetary value, which is really what quantifies value.
How does one establish the cost of risk? Two theories apply. Under the first one, of a largely psychological nature, the cost of risk is measured by the aversion to risk of the individual who wishes to avoid it. In this case, quantification is not required. The cost of risk is the total premium agreed upon between the individual who wishes to transfer it and the one who agrees to assume it. The following anecdote illustrates this point. In an effort to promote his whisky, the president of the Cutty Sark distillery had offered a large monetary sum to the first person to see the Loch Ness Monster. It may be that one night he had a nightmare or suffered remorse, but he would have to keep his foolish promise none the less, which would undoubtedly endanger his company’s financial well-being. He therefore hastened to find an insurer, someone to whom he could transfer the risk he had taken so brashly. And he found one, Lloyd’s of London, with which he agreed on a premium. The coverage of this unsurpassable, potential, and exceptional risk involved a cost — a risk transfer. There was insurance without any need to quantify. The concept of insurance risk is not so much tied to the notion of danger as it is to that of expectation or fear. Risk is the measure of an expectation — a mathematical expectation that, according to Pascal, is the product of the probability of the event multiplied by its value. A moral expectation…which relates to what I am willing to and what I ought to pay, in terms of mathematical expectation in order to avoid risk. The “additional cost” would measure exactly what the value of the risk is for me.
In the words of Michel Albert who initially made the distinction, this purely contractual vision of insurance corresponds to a more “maritime” than “riparian” view of insurance. In continental Europe, France in particular, one views insurance as tied to the concept of mutuality, or as a function of statistics and probability. This view stems from the fact that, in France, insurance had to set itself apart from gambling and betting to be recognised. It follows that risk reflects the probability that an event will take place in a given population. Consider the population of French drivers, the road conditions, and the number of cars on the road. There are currently about 8,000 annual road deaths. In the words of the well-known sociologist Adolphe Quetelet, these deaths represent the “budget” that the French population commits to road travel each year. One can anticipate that, all things being equal, this figure will remain constant from year to year, within a few standard deviations. The average premium per inhabitant or per driver can then be established. At the same time, it is possible to assess the chance that any one individual has of being among the 8,000 victims. This chance is a function of a car’s power, a driver’s experience, the places where he drives and so forth, and these criteria are used to calculate an individual’s insurance premium. Indeed, not everyone represents the same risk to the group. Some individuals drive less carefully than others. This is another way of establishing the cost of risk; it corresponds to the greater or lesser probability of incurring an accident in relation to the average. This cost is called the equitable cost.
Under this second analysis (more sociological than psychological) the group outweighs the individual. Risk influences the group. It affects it with depressing regularity and affects every individual as members of the group. Risk has a defining and unifying effect on the group and gives it a personality and an identity. This is the paradox of freedom: each member can feel as free as he will; through his actions he will contribute in one way or another to reproducing the common statistics. Such a group, identified on the basis of its risk, is what is called a mutuality.
By assessing the cost of risk so that it can become the subject of a contract, insurance gives existence to non-existence, immediacy to the non-current, and form to potential. It inverts the course of time. The feared event exists whereas it has not taken place and may in fact never take place. Risk exists, materialised through a contract, in the form of an infinitesimal fraction of what it will become. That is, it exists in such a manner that its presence, while thoroughly real, remains almost imperceptible. This is what makes insurance doubly effective. The fragmentation of that risk renders feared events no longer feared. Insurance eradicates and decimates adversity. It makes these fears more bearable. Sometimes too much so.
But the merit of insurance extends beyond what would otherwise closely amount to a public-aid dynamic. It transforms the perception of events in such a way so that not to carry insurance becomes a fault. This point was well illustrated last century by Edmond About in his booklet insurance [L’Assurance (1865)]:
As you know, as the wheels of horse-drawn carriages wear out on cobbles, they shed more than 20 kilos of iron every day on the streets of Paris. These 20 kilos of precious metal are not completely destroyed but they are lost. If you will, their infinitesimal division makes them useless by dint of making them irretrievable. Suppose that a patient and ingenious worker manages, however, to pick up these atoms of iron, restore their cohesion, resistance and all useful qualities. Further suppose that he forges thern into a lever. Will he not have created capital for individuals to use? A centime is no more capital than a wisp of iron is a lever. It has barely any value. You will find very few individuals who are sensitive to the loss or gain of a centime because a single centime amounts to nothing. But he who would obtain by honest means this useless centime from his fellow citizens would create a capital of 10 million centimes; that is, a nice lever for moving mountains.
The merit of insurance ensues from pricing expectation and giving reality to potentiality so that any individual who does not account for the possibility of risk in his conduct becomes a factor of individual and collective loss. An individual loss with regard to what his situation will be if the risk becomes real; a collective one as he deprives society of the power to move mountains. Insurance owes its economic effectiveness to solidarity. As it turns potential events into reality, insurance becomes the mechanism by which a possible loss transforms itself into capital. It is simultaneously a combination of protection and an economic mechanism that inverts symbols and turns a loss into a principle of yield. Its value lies in its being much more than a simple mechanism of allocation of liability.
Insurance suggests a social experience of risk to both liberalism and democracy. To the former because liberalism is a political philosophy that advocates risk management as a principle of government. Individuals must face risk in order to become truly aware of their real identity; finding resources in themselves in the form of foresight and, in others, in the form of voluntary association. But insurance, at least in its practical form, is also the product of democracy to which it gives its image of solidarity. Thus, for two centuries, insurance has continuously prompted us to be aware of ourselves both individually and collectively. As the Baron de Beauverger said in 1868 during a parliamentary debate on industrial accidents: “As a system, our society is nothing but an all encompassing insurance, insurance against weaknesses, insurance against misfortune, insurance against ignorance. Look at institutions through that prism and you will see that they all seek the same goal, a noble and generous goal.”
This analysis of risk was seriously undermined when an attempt was made to make insurance resolve social problems linked to the development of an industrial society. With the rise of social insurance, insuring oneself becomes mandatory…It is a matter of seeing to it that individuals are protected against certain risks of a welfare nature. The concept is twofold: regardless of his income, every individual must be protected from these risks since such risks are not equally allocated throughout society…. If there are social risks, it is because society itself generates them as it develops without regard to a fair allocation. Compensating for inequalities in the face of risks, establishing equalities in the face of opportunities…. Social insurance makes coverage against social risks no longer an act, but an entitlement. It is first a salaried worker’s entitlement, and the institution of social security makes it a citizen’s entitlement. The actualisation of the potential, of which the economic translation is capitalisation, gives way to a sort of generalised assistance based on allocation.
This rationale regarding insurance became extremely widespread. Today, welfare outlays in the nation of France exceed the budget of the state of France. And the gap continues to widen in accordance with a rationale under which the nature of covered risks (health and retirement) hardly suggests a shift. Yet, the limit beyond which welfare outlays seem destined to ruin their own sources of supply has been reached: social costs are exhausting the economy. The economic rationale couples with a moral rationale: instead of creating an incentive to take risks, health and welfare services engender phenomena of “demoralization” that are counterproductive. Insurance no longer operates as an incentive to take risks, indeed, it directs us to never have to take any.
We have considered some of the issues regarding the necessary limit to risk-taking and the danger of excessive risk-taking. We now find ourselves facing an inverse situation: what we may fear is not excessive risk-taking, but, on the contrary, the absence thereof. Once again, there arises an issue of balance.
THE LEGAL PERCEPTION OF RISK
…In an industrial society, it is believed that there can be no risk-free activity, or business…. Risk is inevitable and beyond debate; the only issue therefore is the allocation of its cost.
The issue is not to inflict a penalty, but to determine who, between the one who caused the risk and the one who suffered from it, must bear the cost. Penal considerations are irrelevant; only social considerations come into play. It is not property speaking an issue of liability but an issue of risks: who must bear the risks? Reason and legal fairness dictate that it must be borne by the individual who by virtue of his actions has assumed the consequences of his deed and activity. [R Saleilles, Les Accidents du Travail et La Responsabilité Civile (1897)]
It is inconceivable to require that, as a condition of acceptance, an activity or a business must be free from risk to others. There is none the less a condition. The burden must not be borne by those individuals who are subjected to the risks, those who impose such risks must bear their costs. Rules governing liability regulate such transfers on the basis of risk, hence the existence of objective liability and presumptions of liability whose rationale lies in placing the burden of risk on the individual who creates or profits from it. Thus, the response to risk is indemnification rather than prevention. In other words, insurance has developed considerably with the multiplication of required liability coverage (there are about a hundred of them in France). Until recently, nobody was concerned about this new social contract the contract of solidarity according to which, risk is acceptable so long as it is indemnified and its cost not borne by the victim.
Today, we are witnessing a remarkable shift in this pattern. The issue is no longer so much that of multiplying risk liabilities and structuring through insurance the solvency of those liable as it is to prevent certain risks from being taken. Not only is prevention outpacing indemnification, but efforts are also made to avert risks that have not yet been recognised. Precaution governs. Several factors account for these recent developments. First, damages no longer pertain to individual accidents as much as they pertain to catastrophes. The amounts currently involved exceed the limits of what can be insured as well as indemnified. Secondly, the cost of liability is also being reevaluated. The First World War provides a good scale by which to weigh this new method of measuring risk. During the war, a general could send 300,000 men every two weeks off to be killed, as was the case during the Chemin des Dames battle. Today, only “zero-risk” wars can be waged. A peculiar transmutation of values, indeed! Under the traditional cost-benefit analysis, it was enough that advantages outweighed risks to feel justified in taking risks and thus in accepting a portion of loss. Today, risk tends to be measured on the basis of the loss portion: what justifies the sacrifice? Do not those unfortunate enough to make up the loss portion count as much as others? Such is the method of valuation underlying the zero-risk problematic.
The rationale of precaution does not advocate, as it has been said, a change of focus from risk to fault. It results from a twofold reassessment of risk. First, it results from the technological powers that are now at work and over which we know we fail to exercise full control. We are witnessing an excess of might over power that we do not really know how to express from a legal standpoint. It can be characterised as a developmental risk, principle of precaution depending on whether we look at it from a legal or political standpoint. Secondly, the rationale of precaution results from a sort of backlash of victims who no longer accept the cynicism arising from the traditional formula for the acceptance of liability. What they challenge is not so much the amount of damages as the imbalance of power linked to technological risks. And, today, as a result of this backlash, liability tends to be assessed on the basis of what was hitherto considered negligible.
Here again is another case of how the experience of risk has its limits. Given the inordinate power now in existence (which can be measured by the fact that we cannot measure its effects), the relations of asymmetry and dependence (with the sense of a loss of autonomy that ensues), and the magnitude of the risks created, should it be appropriate, short of putting an end to the process, at least to take a pause that would allow us to regain control over the changes governing us? Time for precaution is time for moratoria.
CONCLUSION
…The purpose [of this paper] was not to consider every experience of risk. The intent was solely to understand how risk could be at the core of contemporary society. Not simply because of the threats hovering over us, but more importantly, as a general principle of valuation. By seeking the value of values through risk, contemporary society found itself inexorably subjected to the dialectic of risk. The morality of risk, while encouraging sacrifice, sets it as its limit.
The perception of risk constitutes a defining experience for contemporary society: how far is too far? While valuing risk, adventure and entrepreneurship, contemporary society seeks to keep it within measure. Thus, while risk stands as a principle of valuation, motivation, and action, it also constitutes a principle of limitation, restriction, and prohibition. When overvalued or undervalued, risk quickly turns human experiences into inhuman ones. There is therefore no need to set a morality of risk against a morality of protection. Indeed, the morality of risk is inextricably a morality of protection. Risk and safety are not opposite concepts independent from each other, Risk both affirms and negates. It arises from the need to surpass oneself, from the necessity to transcend the accepted frontier and also from the pressing awareness of the danger of going beyond the limit. This is precisely why, by taking on risks, individuals in contemporary society have set the conditions for feeling perpetually restless, better still, have dedicated themselves to anxiety and responsibility.
1.3 General Definition of Insurance
Since those who conduct insurance business are subject to regulation (see chapter 2) and insurance contracts involve rights and obligations not generally present in other forms of contract (such as the duty of disclosure, see chapter 4), it might seem to be of fundamental importance to have a clear definition of ‘insurance’. Unfortunately, its meaning remains obscure, and, with some exceptions, judges and legislators have been reluctant to attempt a definition.
[102] Lucena v Craufurd (1802) 2 B & P (NR) 269
Lawrence J:
Insurance is a contract by which the one party in consideration of a price paid to him adequate to the risk, becomes security to the other that he shall not suffer loss, damage, or prejudice by the happening of the perils specified to certain things which may be exposed to them.’
[103] Prudential Insurance Co v Commissioners of Inland Revenue [1906] 2 KB 658
Channell J:
‘Where you insure a ship or a house you cannot insure that the ship shall not be lost or the house burnt, but what you do insure is that a sum of money shall be paid upon 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 payments 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. Then the next thing that is necessary is that the event should be one which involves some amount of uncertainty. There must be either uncertainty whether the event will ever happen or not, or if the event is one which must happen at some time there must be uncertainty as to the time at which it will happen. The remaining essential is that which was referred to by the Attorney-General when he said the insurance must be against something. A contract which would otherwise be a mere wager may become an insurance by reason of the assured having an interest in the subject-matter — that is to say, the uncertain event which is necessary to make the contract amount to an insurance must be an event which is prima facie adverse to the interest of the assured. The insurance is to provide for the payment of a sum of money to meet a loss or detriment which will or may be suffered upon the happening of the event. By statute it is necessary that at the time of the making of the contract there should be an insurable interest in the assured. It is true that in the case of life insurance it is not necessary that the interest should continue, and the interest is not the measure of the amount recoverable as in the case of a fire or marine policy. Still, the necessity of there being an insurable interest at the time of the making of the contract shows that it is essential to the idea of a contract of insurance that the event upon which the money is to be paid shall prima facie be an adverse event. Thus a contract depending upon the dropping of a life, such as a contract whereby two or more people purchase a property as joint tenants with the object of the longest liver getting the benefit of survivorship, would not be a contract of life insurance, although it would be a contract with reference to a contingency depending upon a life or lives; it would not be a contract of insurance at all. 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, which 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. Then does the particular contract with which we have here to deal come within that definition of a contract of insurance? The contract is to pay a sum of 95l. if the person insured attains the age of sixty-five, and 30l. if he dies under that age. It seems to me that for the purpose of determining whether that contract comes within the definition we must look at it as a whole, and not split it up into two separate parts. If it were to be so split up, and treated as two separate contracts, I should incline to the view that even the old age endowment portion of it—that is to say, the contract to pay the sum of 95l.—would satisfy the definition. In the first place, the event on which the money is to be paid is uncertain, for it is uncertain whether the assured will live to the age of sixty-five, and whether consequently the money will be payable at all. Secondly, it seems to me that the event, in addition to being uncertain, is prima facie adverse to the interests of the insured. A person whose life was insured at a premium of 6d a week would presumably be a poor person and one who would have to earn his own living, and his capacity of so earning his living would probably be materially diminished by the time he reached the age of sixty-five. The reaching of that age, with its attendant disadvantages, is to my mind an event which is sufficiently adverse to the interest of a poor person to make it a proper subject against which to insure. Therefore, even if this endowment portion of the policy stood alone, and if the contract purported to be nothing more than a provision against old age, I am strongly of opinion that it would be a policy of insurance, and if a policy of insurance, then also a policy of life insurance, for it seems clear that it would be an insurance upon a contingency relating to life — the contingency of the insured living to the age of sixty-five. But, as I have said, we must look at the contract as a whole. And when you take the whole contract together, there does not seem to be any real difficulty about the matter. A contract of life insurance is one by which persons entitle their executors to receive a sum of money for distribution among their family in the event of their death. The objection to insurance is that, if the insured lives beyond the average period of life upon which the premiums of insurance are based, he has made a bad bargain, and he would have done better if he had saved his money and invested it at compound interest. Consequently, in order to attract insurances, it is usual for the insurance companies to give benefits to persons who live beyond the average period of life. Most of them do this by way of bonuses after the policy has been in existence for a certain period, and the giving of such a bonus, of course, does not prevent the contract from being a contract of insurance. Sometimes it is provided that the sum insured shall be payable either upon the assured reaching a certain age or upon death, whichever first happens. It is clear that that also would be a contract of insurance. That is very like this case, the only difference being that here a larger sum is payable in the former event, and that is a difference which, in my opinion, is immaterial. I have come to the conclusion that this contract, taken as a whole, is clearly a contract of life insurance within the meaning of the Stamp Act, and that the appeal must, therefore, be allowed.’
[104] Department of Trade and Industry v St Christopher Motorists’ Association Ltd [1974] 1 All ER 395
[The issue before the court was whether the Association came within the terms of the relevant statutory regulation for those conducting insurance business and as such required authorisation. According to its own literature, ‘St. Christopher Motorists Association protects you against being unable to drive your car. For as little as £10 a year the St Christopher Motorists Association will help keep you on the road, when you cannot be behind the wheel. Whether disqualification or injury prevents you from driving, SCMA will provide you with a driver and, if necessary a car and driver, for up to 40 hours a week, for a maximum of 12 months.’ It was held that the Association required authorisation].
Templeman J:
‘In return for annual sums, if there happens an event which is uncertain at the date when the member joins, then on that happening the member is entitled to services and those services are to compensate him for the loss or disadvantage which has happened to him as a result of the happening of the uncertain event. Prima facie that would appear to me to be coming very near what, without any guidance, I would have thought was the essence of insurance…
[His lordship next quoted extensively from Channell J’s judgment, above] Applying that definition to the present case, we have a contract not for the payment of a sum of money but for some corresponding benefit, the provision of a chauffeur or the provision of a hired car and chauffeur to become due on the happening of an event. The event is a physical accident which debars the member from driving himself or the interposition of the law which positively forbids him to drive himself. Then the event must have some amount of uncertainty about it. Well, there is a great deal of uncertainty about it. The event must be of a character more or less adverse to the interest of the person effecting the insurance. Well, that is fulfilled here because it is adverse to the interests of the individual member that he should be immobilised either for physical reasons or because of the requirements of the law.
That definition, including the learned judge’s careful pronouncement that there must either be the payment of a sum or some corresponding benefit, seems to me to meet the present case and particularly so when, in substance, there seems to me to be no difference between the defendant company paying a chauffeur on the one hand and on the other hand agreeing to pay to the individual member a sum of money which would represent the cost to him of providing himself with a chauffeur in the event of his being disabled from driving himself. I cannot see any difference in logic between the two and therefore I see no reason why, in the present particular case, the arrangement made by the defendant company should not amount to insurance.
It does not follow that the definition given by Channell J in a case based on the facts with which he was concerned and applied by me to the case in which I am now concerned is an exhaustive definition of insurance. There may well be some contracts of guarantee, some contracts of maintenance which might at first sight appear to have some resemblance to the definition laid down by Channell J and which, on analysis, are not found to be true contracts of insurance at all. I wish to guard myself, particularly in view of the fact that, as I have said, counsel for the department has had no vocal opposition except mine, against deciding anything other than that the rules and trade of the defendant company in the present case amount to insurance. Counsel for the department himself suggested some further limitation in that the event which must happen must not be an event within the control of the insurer, but whether that, in fact, be so, I need not now decide. It is sufficient for my purposes that the narrow distinction which might have been argued to differentiate the case of the defendant from the normal type of insurance, that narrow distinction being the insistence that the defendant company pays for a service instead of paying the member the amount which it will cost him to provide a service, is not one which enables the defendant company to carry on business outside the provisions of the Insurance Companies Acts.’
[105] Medical Defence Union Ltd v Department of Trade [1980] Ch 82
[The issue was whether the Medical Defence Union Ltd was carrying on insurance business within the meaning of the relevant legislation. Its membership consisted of doctors and dentists, who paid subscriptions and whose contracts with the union were governed by the terms of the union’s memorandum and articles. Among the objects of the union was giving advice on various issues, including employment, defamation and professional matters. In addition, the articles gave the union absolute discretion to undertake the conduct of any matter concerning a member’s professional character or interests and to grant an indemnity regarding any claim concerning a member’s professional character or interests].
Megarry V-C:
‘… there are two categories of insurance which may respectively be called indemnity insurance and contingency insurance. Indemnity insurance provides an indemnity against loss, as in a fire policy or a marine policy on a vessel. Within the limits of the policy the measure of the loss is the measure of the payment. Contingency insurance provides no indemnity but instead a payment upon a contingent event, as in a life policy or a personal injury policy. The sum to be paid is not measured by the loss but is stated in the policy. The contractual sum is paid if the life ends or the limb is lost, irrespective of the value of the life or the limb.
With these two categories of insurance in mind, the three elements in a contract of insurance may be expressed as follows: and in this I draw largely on what Channell J said in the Prudential case [1904] 2 KB 658, 663. First, the contract must provide that the assured will become entitled to something on the occurrence of some event. This, of course, is the disputed element, and the dispute is about what the “something” is. For Mr Chadwick it is “some benefit,” whereas for Mr Alexander it is “money or money’s worth.” To this I shall have to return. Secondly, the event must be one which involves some element of uncertainty. Mr Chadwick would add “outside the control of the insurer.” This may be right, but I do not have to decide the point, and like Templeman J in Department of Trade and Industry v St. Christopher Motorists’ Association Ltd. [1974] 1 WLR 99, 106, I leave it undecided. Thirdly, the assured must have an insurable interest in the subject matter of the contract. On the three elements as a whole, I would also follow Templeman J in the St Christopher case at p 106, and say that I do not aspire to any exhaustive or comprehensive definition, good for all purposes and in all contexts. I only say that for the purposes of this case it seems to me that a contract which contains these three elements is likely to be a contract of insurance, and a contract that lacks any of them is likely not to be a contract of insurance. I may add that Templeman J instanced some contracts of guarantee or of maintenance which might satisfy such a test and yet be no true contracts of insurance.
On the facts of this case it seems clear that all three elements are present, subject to the disputed point on the first element. That point arises in this way. On the face of the memorandum and articles a member of the union has no right to require the union to conduct legal proceedings for him, and no right to require the union to indemnify him against claims for damages. All that he has is the right to have his request for the union’s help under these heads properly considered by the council or by one of its committees. In practice it is rare for such a request to be refused. Yet although the prospects of such a request succeeding are great, all that the member has by way of right is that his request should be properly considered, and, of course, if it is granted, that the union should conduct the proceedings or indemnify him, or both. On that footing, Mr Chadwick contends that although this right is not a right to money or money’s worth, it is of value, and so is a benefit; and for the first of the three elements of insurance, all that is required is that on the occurrence of some event the assured will become entitled to some benefit. Mr Alexander, on the other hand, says that this is far too wide. The first element is satisfied if on the occurrence of the event the assured becomes entitled to a benefit consisting of money or money’s worth, but not if the only benefit is something else. As I have indicated, that is the central issue in the case.
I therefore return to the main point on the footing that the right of a member in relation both to proceedings and to indemnities is merely a right to have his request fairly considered by the council or one of its committees. Only if the request is granted is the member entitled to have the proceedings conducted by the union and to have an indemnity, subject to the provisions of the articles and not least Article 44 (3). For the purposes of this case I do not think that it matters whether the right is a right to have the request heard and determined “fairly” or “in good faith.” It is common ground that it must not be dealt with by whim or caprice, and it is not contended that such a right is valueless. As I have indicated, the short point is whether, in the first of the three elements of insurance, it suffices that on the occurrence of the event the assured becomes entitled to “some benefit,” or whether this does not suffice unless it amounts to “money or money’s worth.” The right to have a request relating to proceedings or an indemnity properly considered by the union is plainly a benefit, but equally plainly it is not money or money’s worth.
Templeman J’s conclusion at p 106 was that the “careful pronouncement” of Channell J that “there must either be the payment of a sum or some corresponding benefit” met the case before him. He could see no logical difference between the club paying the driver, and the club paying the member a sum representing the cost to him of providing a driver. Such contracts were thus contracts of insurance, and so fell within the Insurance Companies Act 1974. This decision has been differently treated by different editors. In Chitty on Contracts, 24th edn. (1977), vol II, p 686, the words “to pay money” were amplified into “to pay money or provide services,” citing the St Christopher case. A warning footnote suggests that the decision may be open to question in that the extension of the definition could embrace a number of contracts not previously regarded as being contracts of insurance. A formulation in terms of the “provision of services” does not seem to me to represent the true ratio of the St Christopher case; and it appears to be at once both too wide and too narrow. The decision was based on the absence of any logical distinction between the club paying the driver and the club paying the member the cost to him of providing a driver: in each case the club met the member’s claim by paying money that it otherwise would not have paid. If instead the service provided had consisted of the club staff giving the member advice or assistance, I do not think that this would fall within the ratio of the case, and I doubt whether it would have satisfied the requirements of insurance. Yet although in this respect the phrase “provision of services” may be too wide, in another respect it seems to be too narrow. It would include the right to the services of engineers to repair a television set when it became faulty, but not, it seems, a right to have the set replaced if it became unserviceable. It is difficult to see any sound basis for such a distinction. I do not think that this formulation should be relied on as it stands.
Halsbury’s Laws of England, 4th ed, vol 25 (1978), p 9 adopts a different approach. It leaves standing the proposition stated in the previous edition, vol 22 (1958), p 180, and adds the St Christopher case…to the Prudential case…as a supporting authority. The proposition is that “a sum of money will be paid by the insurers on the happening of a specified event.” This says nothing about the person to whom the money is paid: there is no, “to or for the benefit of the assured.” Attention is thus focused on the liability of the insurers to make a payment rather than on the right of the assured to require something to be paid to him or for his benefit. This formulation certainly seems to be better supported by the St Christopher case, but I feel considerable doubt about confining it to the payment of a sum of money, thus narrowing what Channell J said in the Prudential case. If one takes again a television set, and a contract by a company that in return for an annual premium the company will replace the set when it becomes unserviceable, the requirement would be satisfied if the company had to purchase a replacement set every time an insured set became unserviceable, but it would not be satisfied if the company had replacement sets in stock: for “will be paid…on the happening of a specified event” cannot apply to what has already been paid. The exclusion of the equivalent of money may lead to curious results. Again, I would hesitate to rely on this formulation as it stands.
I do not know whether a satisfactory definition of “a contract of insurance” will ever be evolved. Plainly it is a matter of considerable difficulty. It may be that it is a concept which it is better to describe than to attempt to define; and, as I have said, I do not seek to lay down an exhaustive or comprehensive definition. It is enough if I can find a principle which suffices for the decision of the case before me. Plainly a provision for the payment of money is one of the usual elements in a contract of insurance. The main difficulty lies in formulating what extension of this concept there should be; for plainly there must be some.
If the extension is framed in terms of the equivalent of money, then this will be both limited in extent and consonant with the central concept. If on the other hand the extension is framed in terms of “some benefit,” then that seems to me to be far more than a mere extension: it is a reformulation of the concept in wider terms. In other words, “money’s worth” is merely an extension of “money,” whereas “benefit” is no mere extension of “money” but a wider concept which engulfs money. “Money” would then be subsumed under “benefit,” with many other things. Obviously much is a “benefit” which is not money or money’s worth, ranging from matters such as peace and quiet to the pleasure of listening to the arguments of counsel in this case, and much else besides.
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 generalisation, especially as the term “money or money’s worth” seems to be adequate for all normal circumstances. It may be that in view of the St Christopher case…some further addition should be made so as to cover explicitly the provision of services, but I shall defer the consideration of this until I turn to the services provided by the union in this case.
In rejecting the term “benefit” I may say that I think that one is in a different world from the world of insurance when the only contractual right is a right to have a claim fairly considered. No doubt one must not attach too much importance to the basic meaning of words; but terms such as “insure” and “assure,” like “ensure,” seem to me to convey the sense of making something certain, and not merely of giving a hope or expectation, no matter how well founded. When a person insures, I think that he is contracting for the certainty of payment in specified events, and not merely for the certainty of proper consideration being given to his claim that a discretion to make a payment in those events should be exercised in his favour. The certainty must be direct, and not at one remove.
There are other features in this case which are at least unusual in the case of normal contracts of indemnity insurance. Once a member has joined the union his obligation is simply to pay the annual subscription at the rate for the time being applicable to all who are in the same class of membership. However many claims have been made against him, he may remain a member at the rate of subscription common to all in his class of membership. By virtue of Articles 11, 57 and 58, so long as his name remains on the Register of Medical or Dental Practitioners and his registration has not been suspended in consequence of disciplinary proceedings, he has only to pay his subscription, and with one exception the union cannot determine his membership. That exception is where his conduct has been detrimental to the honour and interests of the union or of the medical profession: somewhat oddly, the dental profession is not mentioned. An anonymous instance of 1976 illustrates the operation of the scheme in this respect. A member had had many claims made against him. He received a warning, and then, when there was another claim, he was refused assistance. This may be contrasted with the increased annual premiums and ultimately a refusal to renew the policy which might be expected under any normal insurance policy, and also the insurer’s obligation to meet the final claim if the policy was still in force when that claim was made.
Mr Alexander also pointed to the very wide ambit that would be given to the term “contract of insurance” if Mr Chadwick’s submission on “benefit” is right. An important part of the union’s work is giving advice and assistance to members on matters other than proceedings and indemnity. Indeed, as I have mentioned, numerically, though not financially, this constitutes the great bulk of the union’s help to its members. Advice is called for on a wide range of professional work, on matters connected with contracts of employment, and on defamation. Such advice and assistance is obviously of benefit to those who receive it, and equally obviously is not money; nor, I think, could it fairly be said to be money’s worth, at all events in the sense of being the equivalent of money. The need for such advice will normally arise from some event involving an element of uncertainty, and the member plainly has an insurable interest in the successful pursuit of his career. If “benefit” is the right expression, it is difficult to see why a contract to provide such advice and assistance should not be a contract of insurance. Many professional and other bodies which give their members the right to advice and assistance may thus be brought within the Act, or at least be in danger of being treated as such. Like Monsieur Jourdain, who was astonished to find that for 40 years he had been speaking prose without knowing it, such bodies might equally be astonished to discover that for many years they have been insurance companies carrying on insurance business without knowing it, or at least that they were in peril of being so regarded. In view of the St Christopher case…it may be that the term “money or money’s worth” will not suffice by itself. A possible addition would be “or the provision of services to be paid for by the insurer.” The last seven words are intended to reflect the fact that in the St Christopher case the provision of the services for each member was an additional cost for the club, incurred when the member made his claim, and was not merely part of the general costs of running the club for the benefit of members generally. As at present advised I would hesitate to omit these last seven words. If members of a club or other body have the right to be given advice and assistance by the staff of that body, so that the provision of this advice or assistance to any individual member adds nothing to the expenses of the body, I doubt whether this could fairly be regarded as being insurance.
Looking at the case as a whole I have no hesitation in rejecting Mr Chadwick’s contention that the union is an insurance company carrying on insurance business within the meaning of the Act of 1974. I do not have to decide whether “money or money’s worth,” with or without an addition relating to providing services such as I have discussed, is the right phrase to appear in the first of the three elements of a contract of insurance. I only say that I think that something of that kind is probably on the right lines. What I do decide is that “benefit” is far too wide an expression, and I reject it. In particular, I reject the contention that the right to have an application properly considered suffices for a contract of insurance. I also consider that the general nature of the business carried on by the union is too far removed from the general nature of the businesses carried on by those who are generally accepted as being insurers for the union’s business to be fairly regarded as the effecting and carrying out of contracts of insurance.