Slide 5: Insurance Contract: Insured Risk

• The elements of an insurance contract are: consent, insured risk, and cause

Insured Risk

• The risk must be lawful and not contravene public policy or morals
• The risk must be lawful, meaning it cannot conflict with public policy or moral standards
• The insured risk is the subject matter of the insurance contract and the object must be lawful, otherwise the contract is void
• It is impermissible to insure against the risk of being ordered to pay a financial penalty imposed on an individual
• Insurance covering a criminal judgment involving confiscation is not allowed
• Insurance against risks arising from illicit activities, such as trafficking in narcotics or human organs, is forbidden
• It is impermissible to insure properties or businesses involved in immoral or illegal activities, such as prostitution, or illegal gaming establishments, against actions taken by public authorities
• The risk must be contingent (uncertain) in its occurrence
• The element of uncertainty is fundamental to aleatory contracts, including insurance contracts
• Uncertainty of the insured risk can manifest in one of two ways, uncertainty regarding the occurrence of the risk and uncertainty regarding the timing of the risk
• The occurrence of the risk itself is uncertain, meaning it may or may not happen, examples include insurance against fire, theft, liability, or accidents
• The risk is not uncertain in its occurrence and is certain, but its timing is unknown, example falls under life insurance in which the timing of death is unknown
• The insured risk must be contingent, meaning it is uncertain yet possible, and not impossible because the subject matter of the insurance contract must be feasible.
• If the insured risk is impossible, the contract is rendered void due to the impossibility of its subject matter, Article 201 CTL says "Should the object be impossible in itself shall be impossible in itself, at the time of the contract, the contract shall be void."
• The contingency of the insured risk requires that the risk must not have already occurred or cased to exist prior to the conclusion of the insurance contract.
• If a person insures a house against fire and the house has already burned down before the insurance is concluded, the risk faced by the insured has already materialized and is no longer uncertain.
• If goods have already been safely delivered, the risk of transit damage is impossible, and the contract is be void, regardless of whether the insurer was aware of the situation. Insurance Against Deliberate Acts
• A deliberate act leads to the nullity of the insurance contract and in cases where it results in the forfeiture of the insured's right to claim the insurance payout when the insured risk materializes
• An individual cannot seek insurance coverage for deliberate wrongful acts such acts such as those that constitute crimes under criminal law, those policies are void
• Deliberate Acts for violations of laws and regulations, an insurance contract will be valid unless these violations involve deliberate criminal acts
• If the insurance policy contains a clause that forfeits the insured's right to coverage merely for violating laws or regulations, the contract itself remains valid, but such a clause is nullified by operation of law.
• A deliberate act can lead to the forfeiture of the insured's right to claim insurance proceeds if an individual insures against a permissible risk but then intentionally causes the insured risk to materialize. An example include insuring a home against fire and then intentionally setting the house ablaze, also, insuring one's life or the life of another person, then committing suicide or murdering the insured individual
• In such cases, the insured loses the right to the insurance payout, and the insurer is discharged from their obligation and this does not nullify the insurance contract itself.
• The deliberate act is committed by the policyholder or the insured but the beneficiary is a third party (unrelated to the wrongful act), such act does not affect the beneficiary's right to claim the insurance proceeds and the insurer remains liable and must fulfill the obligation by paying the agreed amount to the third-party beneficiary.
• The insured may still claim the insurance proceeds despite committing an intentional act if the act was performed out of duty or for the public Interest, for example the insured risks their life (covered under the policy) to save another person from imminent danger such as drowning or a fire.

Cause

• The cause must be the direct intended purpose of the contract.
• The cause, as directed in Article 207, must be existing, valid, lawful, and not inconsistent with public policy or morals

Legal Effects

• As directed in Article 1032, the insured is bound to pay the agreed amounts on the term fixed in the contract.
• The insured has an obligation to reveal at the time of the contract, all information so the insurer can assess the risks covered
• The insured has an obligation to Inform the insurer of all matters occurring during the contract period which lead to the aggravation of risks

Obligation of the Insured

• Insured, in bad faith, conceals a matter or makes a false statement in such a manner as to lessen the importance of the risk insured against, or leads to a change in its object, or breaches a promise to fulfill an obligation, the insurer is entitled to demand rescission of the contract and be paid all premiums due
• Absence of fraud or ill faith, the insurer, upon demanding rescission, has to refund all premiums paid or the portion thereof for which he assumed no risk at all

Obligations of the Insurer

• As stated in Article 1034, the the insurer is bound to pay the insured amount or the sum due to the insured or the beneficiary as agreed, upon occurrence of the risk or maturity of the period fixed in the contract.