Insurance as a Contingent Contract
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As per Sec 36 of ICA 1872, Agreements contingent on impossible event void.—Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. —Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.
Though it is a matter of void ab initio, but it has to be stated under a definite law, mere general understanding of principles does not bound the people to follow it. Its compliance with the law is an integral part for people to be bound through it, hence Sec 36 is stated specifically under the Contingent Agreement.Sec. 31 of the Indian Contract Act defines contingent contracts as contracts to do or not to do something, if some event, collateral to such contract, does or does not happen. For instance, when A agrees to pay B ₹10,000 if A dies before C, this would be considered a contingent contract. A contingent contract can be dependant upon the following events:
– When the enforcement depends upon the happening of an event. Sec. 32
– When performance depends upon the non-happening of an event. Sec. 33
– When the event on which the contract is contingent is to be deemed impossible if it is the future conduct of a living person. Sec. 34
– When contracts are contingent on happening of a specified event within a specified time, they become void. Sec. 35(1)
– When contracts are contingent on the non-happening of a specified event within a specified time, they become void. Sec. 35(2)
– When contracts are contingent on impossible events. Sec. 36Contracts of Insurance, indemnity, and guarantee are contingent contracts. Insurance is a contract to do or not to do something if an uncertain future event happens, and the liability will be taken by the offeror i.e the insurance company. The performance of such contracts is solely dependent upon the happening or non-happening of the collateral event. For instance, when A agrees to pay B a sum of money on the loss of a ship, the performance of the contract can be demanded only on loss of the ship. Therefore all insurances like Fire insurance, Marine insurance, and Life insurance are contingent contracts where the insured pays a certain sum of only, i.e premium, to the insurer who promises to take risk against the happening or non-happening of a future uncertain event.
Do insurance contracts fall under the category of contingent contracts?
To answer this question, we need to look into the various Sections of the Indian Contract Act, 1872. These are:
(i) Section 31: “Contingent contract defined. – A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.”
(ii) Section 32: “Enforcement of contracts contingent on an event happening—Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened.
If the event becomes impossible, such contracts become void.”
(iii) Section 33: “Enforcement of contracts contingent on an event not happening—Contingent contracts to do or not to do anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before.”
Also, insurance contracts can be defined as an agreement between two parties to protect the other party from the loss caused due to the uncertain events in such a way that the person comes to the same position as he was before the loss. The party which is taking the insurance is called the insured and the party which insures is called the insurer. The insured has to pay a minimal sum of money at certain intervals which are called a premium and according to the payment of the premium and the amount of loss, the insured is paid the money back by the insurer.
So, according to the definitions and the description from above, we can say that the insurance contracts are contingent contracts because as the contingent contracts, they are dependent upon happening or non-happening of any event in the near future within a specified time. Also, the insurance contracts are time-barred contracts and if the uncertain event does not happen within the time period, the contract stands void.
– PREYANSI ANAND DESAIContingent contracts are those contracts that become enforceable upon the happening or not happening of an event.
Contingent contracts are defined under section 31 of the Indian contract act, 1872 and are defined as “A contingent contract is a contract to do or not to do something, if some event collateral to such contract does or does not happen”. Examples of contingent contracts are contracts of guarantee and contracts of indemnity.
Even a contract of insurance is considered to be a contingent contract. An insurance contract is considered a type of contingent contract because an insurance contract gets enforceable when an event as per the terms of the contract has taken place. Examples of insurance contracts are fire insurance, marine insurance, and life insurance.
Insurance contract becomes enforceable when an event occurs as per the terms of the contract and when that event occurs, there has damage been done to one party of the contract.For example, under a fire insurance contract, if goods have been damaged due to a fire incident and those goods have been insured, then the contract becomes enforceable under the fire insurance contract as they have been damaged due to a fire incident itself.
One more example is that of life insurance under which the insurer pays a certain amount of money to the insurance company for a certain amount of time and if the insured dies within that time then the beneficiary gets the amount as per the terms of the contract. Thus life insurance is also applicable when someone loses their life only.
So it can be concluded that a contract of insurance is a commercial application of a contingent contract and it is enforced only when events concerning the terms of the contract have occurred. According to section 31 of the Indian Contract Act, 1872, the contracts that depend on the happening or non-happening of events collateral to the contracts are contingent contracts. Insurance on the other hand means protection from a future loss. The similarities between the two can be discussed—
• There are two parties to the contract.
• The object of the contract is protecting the party against some future loss.
• One of the parties has a right to recover costs incurred in a defending suit.
• The other party generally does not have any liability until some loss takes place.
Therefore, insurance contracts fall under the purview of Contingent Contracts under section 31. The insurance agreement includes minute details like the conditions, limitations and exclusions. Along with that, it requires all the essential elements of a valid contract to become enforceable. Subsequently, if the event contingent upon which the contract was made takes place, the insurance amount can be claimed.
Insurance agreements generally include payment of premiums, which are often absent in other forms of contingent contracts.
In United India Insurance Co. vs. M/s. Aman Singh Munshilal, on the way to the destination the insured goods were to be stored in a godown before being carried to the destination. While the goods were in the godown, they were destroyed by fire. The court held that the goods were destroyed during transport, and the insurer was liable as per the fire insurance contract.
Life insurance, however, is not a contract of indemnity because the interest money is repaid either to the insured (if the insurance is for a limited period of time and the time elapses) or to his heirs or nominees (upon his death). Thus, the question of the amount of loss suffered by the assured does not arise. Moreover, the life of a person cannot be valued in terms of money.A contingent contract as defined in section 31 of Indian Contract Act, 1872 is that contract which depend on happening or non-happening of an event. As insurance depends on happening of a mishap for which the entity is insured from, it is a contingent contract. It can be enforced when that particular thing has happened and in case it doesn’t happen then the contract becomes invalid as per section 32 of ICA, 1872.For Example, X insured his car and the insurer promised to pay him in case the car was stolen. Since, the payment depend upon the loss of car by theft, it is a contingent contact. And, the insurer will be liable only when the car gets stolen.
A contingent contract is an agreement that states which actions under certain conditions will result in specific outcomes. Contracts of insurance are contingent contracts because, in a life insurance contract, the insurer pays a certain amount if the insured dies under certain conditions. The insurer is not called into action until the event of the death of the insured happens. This is a contingent contract.
Under Section 31 of the Indian Contract Act, 1872, contingent contracts are defined as follows: “If two or more parties enter into a contract to do or not do something, if an event which is collateral to the contract does or does not happen, then it is a contingent contract.”
If we see the definition of Insurance, it is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. They can only become enforceable on the happening of certain events for which the insurance policy is taken. Though, both are different concepts but still, insurance contracts are called as contingent contracts because both depends on the certainty of an event, if it occurs then the contract come into force otherwise not.
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