CONTRACT OF

INSURANCE
Transportation Law, Contracts and Insurance
Lasalle College
 OVERVIEW
• Definition
• Types
• Characteristics of Insurance Contracts
• Fundamental Principles of Insurance Contracts
• Marine Insurance
 DEFINITION
2389. A contract of insurance is a contract whereby the insurer
undertakes, for a premium or assessment, to make a payment to the
client or a third person if a risk covered by the insurance occurs.

Insurance is divided into marine insurance and non-marine

insurance.
 FORMATION

2398. A contract of insurance is formed upon acceptance by the

insurer of the application of the client.
 CONTRACT OF
INSURANCE CCQ

Individual
insurance

Marine Persons
Group
Non-marine
Property
Damage
Liability
 CHARACTERISTICS OF
INSURANCE CONTRACTS
• Contracts of Adhesion
• drafted by an insurer and an insured must accept or reject all the
terms and conditions
• In case of ambiguous term in an insurance policy, the
insured gets the benefit of the doubt (“contra proferentem
rule”).

• Aleatory Contracts
• the extent of the obligations or of the advantages is uncertain” (art.
1382(2)
• The insurer's obligation to pay a loss depends on uncertain events.
 FUNDAMENTAL LEGAL
PRINCIPLES OF INSURANCE
CONTRACTS

1. Principle of indemnity
2. Principle of insurable interest
3. Principle of utmost good faith
4. Principle of subrogation
A owns a car worth of 8 000 $, and insures it for 10 000 $. The
car is destroyed in a traffic accident.
How much can A recover from the insurer?
8 000 $,
because his insurable value is limited to the financial value of
the loss suffered.
 PRINCIPLE OF INDEMNITY
• The insurer agrees to pay no more than the actual amount of the
loss suffered by the insured.

• The purpose of the insurance contract is to restore the insured to the

same economic position as before the loss.

• The insured should not profit from a loss.

• It reduces the moral hazard by eliminating the profit incentive.

 PRINCIPLE OF INSURABLE
INTEREST
• The insured must be in a position to financially
suffer if a loss occurs.

• To prevent gambling
• Insurance on a property and wait for a loss occur.
• In order not to indemnify more than an insured’s
financial interest
• It supports the principle of indemnity.
 PRINCIPLE OF INSURABLE
INTEREST
• Property-Casualty insurance
• At the time of a loss, an insured must have insurable interest.

• No insurable interest no financial loss

no indemnity supports P. Indemnity
 PRINCIPLE OF INSURABLE
INTEREST
• Life Insurance

• Insurable interest must exist at the time of a policy inception, but not
at the time of a loss (death)
2418. In individual insurance, a contract is null if at the time the
contract is made the client has no insurable interest in the life or
health of the insured, unless the insured consents in writing.

Subject to the same reservation, the assignment of such a contract is

null if the assignee does not have the required interest at the time of
the assignment.
2419. A person has an insurable interest in his own life and health
and in the life and health of his spouse, of his descendants and the
descendants of his spouse, or of persons who contribute to his
support or education.

He also has an interest in the life and health of his employees and
staff or of persons in whose life and health he has a pecuniary or
moral interest.
2481. A person has an insurable interest in property where the loss
or deterioration of the property may cause him direct and immediate
injury.

It is necessary that the insurable interest exist at the time of the loss
but not necessary that the same interest have existed throughout the
duration of the contract.
 PRINCIPLE OF UTMOST GOOD FAITH

• A higher degree of honesty is imposed on an insurance contract

than is imposed on other contracts
• Honesty is mainly imposed on the insurance applicants.
Desjardins refused insurance on A’s house for theft because it
was robbed three times. Then A applied for insurance from the
RBC, which asked if the house had ever been refused insurance.
A answered ‘no’.
RBC may resiliate the contract if it has accepted A's application
for insurance, and may refuse to pay any compensation on the
occurrence of a theft because A broke his duty of utmost good
faith.
2408. The client, and the insured if the insurer requires it, is bound
to represent all the facts known to him which are likely to materially
influence an insurer in the setting of the premium, the appraisal of
the risk or the decision to cover it, but he is not bound to represent
facts that the insurer knows or is presumed to know because of their
notoriety, except in answer to inquiries.
 PRINCIPLE OF SUBROGATION
• Substitution of the insurer in place of the insured for the purpose of
claiming indemnity from a third party wrongdoer for a loss paid by
the insurer.
• Why?
• To prevent collecting twice
• To hold the negligent party responsible
• To hold down insurance rates
 PRINCIPLE OF SUBROGATION
• The insurer is entitled only to the amount it has paid under the
policy.

• The insured cannot impair the insurer’s subrogation rights.

• Subrogation does not apply to life insurance and to individual

health insurance contracts.
MARINE INSURANCE
 JURISDICTION
• Marine insurance in Canada is now anchored in federal jurisdiction
since the adoption of Marine Insurance Act in 1993 by the
Parliament.

• The Federal Court and the Federal Court of Appeal have statutory
jurisdiction to hear disputes relating to marine insurance.
• Our legislation reflects the principles developed at common law
since the text of the Marine Insurance Act draws heavily on the
British Act of 1906.

• The Canadian Marine Insurance Act is thus largely based on

British law. Our text modernized and consolidated certain sections
of the 1906 Act so that the case law developed in England and in
most Commonwealth countries may be subject to our courts.
 CONTRACT OF MARINE INSURANCE

6. (1) A contract of marine insurance is a contract whereby the

insurer undertakes to indemnify the insured, in the manner and to
the extent agreed in the contract, against

(a) losses that are incidental to a marine adventure or an adventure

analogous to a marine adventure, including losses arising from a
land or air peril incidental to such an adventure if they are provided
for in the contract or by usage of the trade; or

(b) losses that are incidental to the building, repair or launch of a

ship.
 “marine adventure” means any situation where insurable property is
exposed to maritime perils, and includes any situation where
• (a) the earning or acquisition of any freight, commission, profit or
other pecuniary benefit, or the security for any advance, loan or
disbursement, is endangered by the exposure of insurable
property to maritime perils, and
• (b) any liability to a third party may be incurred by the owner of,
or other person interested in or responsible for, insurable property,
by reason of maritime perils;
“maritime perils” means the perils consequent on or incidental
to navigation, including perils of the seas, fire, war perils, acts of
pirates or thieves, captures, seizures, restraints, detainments of
princes and peoples, jettisons, barratry and all other perils of a like
kind and, in respect of a marine policy, any peril designated by the
policy;