Is Contract of Insurance a contract of indemnity?

KEY TAKEAWAYS

• A contract of insurance is a contract by which a person promises to indemnify other, for a consideration called premium, against losses that might happen as a result of the perils or events against which insurance is taken.
• Indemnity means when a person promises to the save the other from loss caused from the conduct of promisor himself or by the conduct of any other person.
• A contract of insurance is a contract of indemnity because both are contingent on happening of an event, both are special contracts but the general principal applies to both, a promise to compensate is common and consideration must be there in both.

INTRODUCTION

A contract of insurance may be defined as follows "a contract by which a person promises to indemnify other, for a consideration called premium, against losses that might happen as a result of the perils or events against which insurance is taken.”

Thus a contract by which the assurer promises to indemnify the insured in case of the happening of the event against which the insurance was taken. It is a normal contract. All the general provisions apply to it. Thus the requirement of section 10 of the Indian contract act also applies and is to be fulfilled.

Indemnity means “when a person promises to the save the other from loss caused from the conduct of promisor himself or by the conduct of any other person”. Though the definition is itself not complete in the Indian Contract Act. The courts have held that the definition in English law is to be followed. This was held in the case of GAJANAN MORESHWAR V. MORESHWAR MADAN.

The English law defines the indemnity as” a contract to save another harmless from loss caused as a result of transactions entered into at the instance of the promisor.”  Thus the law covers all type of indemnifications. 

Indemnity is a type of contingent contract. It also depends on happening of events.  The contract of insurance is also a contract that is contingent to the happening of an event. Insurance is a contingent contract but is not a wager. There is a huge difference between the contract of wager and a contingent contract. The major event of wager is not causing any loss to the promisee. A contingent contract on the other hand is contingent on the happening of any event that may result in loss of the promise.

The contract of insurance is indeed a contact of indemnity. As the following is noticed in both the contracts:

1) Both are contingent on happening of an event.

2) Both are special contracts, but the general principal applies to both.

3) A promise to compensate is common.

4) Consideration must be there.

CONCLUSION

In summary, it can very well be said that a contract of insurance would be a contract of indemnity. This is so because both the contracts a special contracts, there is a promise to compensate the other party involved in them, some consideration is involved and the most important thing is that both are contingent on the happening of an event.

Akash Kapoor

(CA Final, LLB3rd Year)