DIFFERENCES BETWEEN INSURANCE AND GAMBLING

Insurance and gambling defined

Insurance is a contract, where by one person called the insurer undertakes in return for the agreed consideration called the premium to pay to another person called the insured a sum of money or its equivalent on the happening of the specified event .

A propounding meaning of insurance was provided in the case of Scottish Amicable Heritage Securities Association Ltd v Northern Assurance Co , Where Lord Justice Clerk, defined insurance as a contract of insurance belonging to a very ordinary class by which the insurer undertakes in consideration,  may sustain by the occurrence of an uncertain contingency.

Gambling is generally defined as voluntary risking of sum of money called a stake, wager or bet in the outcome of a game or other event .

A classic definition is however available in the case of Carlill v Carbolic Smoke Ball Co , Where gambling was defined to mean “contract by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependant on the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake; neither of the parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other consideration for making of such contract by either of the parties. If either of the parties may win but cannot lose, or may lose but cannot win, it is not ”

Insurance and gambling compared

Insurance and gambling seem to be same in some extent. As both, one party promises to pay a given sum to the other upon the occurrence of a given future event, the promise being condition upon the payment of, or agreement to pay, a stipulated amount by the other party to the contract. 

In either case, one party may receive more, much more, than he paid or agreed to pay . Besides, a contract of insurance may similar with gambling agreement whereby the insurer bets with the insured that his house will not be burnt and giving him the odds of its value, it is a legal and enforceable contract with important economic and social purposes. It’s for this reason have made some people think that both Insurance and gambling are non-profit institution.

While it is true that both Insurance and gambling involve money changing hands on the basis of chance events, it is important to understand the difference between the two as follows:-

Insurance and gambling distinguished

It is often claimed that insurance is a form of gambling. “You bet that you will die and the insurance company bets that you won’t” or “I bet the insurance company $300 against $100,000 that my house will burn.” The fallacy of these statements should be obvious. In the case of gambling, there is no chance of loss, hence no risk, before the wager. In the case of insurance, the chance of loss exists whether or not there is an insurance contract in effect. In other words, the basic distinction between insurance and gambling is that gambling creates a risk, while insurance provides for the transfer of an existing risk . The other differences between Insurance and gambling are:-

Interms of Insurable Interest

In Insurance, Insurable Interest is a pre-requisite whereas in gambling the interest is limited to the amount to be won or lost. In Lucena v. Craufurd , The court defined insurable interest to mean a right in Property, which in either case may be cost upon some contingency affecting the possession or enjoyment of the party.

Insurable interest distinguishes contracts of insurance from gambling in order to define the legitimate area of insurance business. Insurable interest is required for all types of insurance and its absence renders the contract void and hence unenforceable .

Interms of duty to disclose information

Full disclosure (Utmost Good Faith) is required from both parties to an assurance contract whereas this is not necessary in a gambling contract. In the event of non disclosure of the information The insurer may avoid the contract after discovering that there was non disclosure of the contract and the insured can not claim back his premium paid previously. In the case Kausar v. Eagle Star,  Staughton J. observed that, avoidance of or non disclosure is drastic remedy. It enables the insurer to disclaim liability. For example a contract of Marine Insurance is a contract based on utmost good faith as per Section 17 , and therefore section 18 of the same Act  impose a duty to insured to disclose every material circumstances known to assured failure to do the insurer may avoid the contract. 

Interms of their enforceability

Insurance contract is enforceable at law whereas there is no legal recourse for any of the two parties in a gambling contract. Section 90 of the Marine Insurance Act , provides that every contract of marine insurance by way of wager or gaming is void; and that a contract of marine insurance is deemed to be a wagering contract where the assured has not an insurable interest as per Section 90 (2) .

Interms of minimization of uncertainty and increasing uncertainty

Insurance helps to minimize the uncertainty and risks in the society, hence it promotes industrialization and economic development. In contrast, gambling increases uncertainty, risks and conflict in the society. It does not promote industrialization. Rather than it increases people’s will to earn money by speculation or luck, not by honest activities of labor. Hence gambling increases bad people and social crime.

Interms of restoration

Insurance contract restore the insured financially in completely of partially if a loss occurs. In contrast, consistent gambling transactions generally never restore the losers to their former financial position .

Instances where both gambling and insurance can be construed to be business making and profit maximization institutions

Professor Vaughan, E., In his book Fundamentals of Risk and Insurance, highlighted major circumstances where an insurance and gambling business maximize profit and hence refute the notion that they are just caring or non-profit institutions, and this includes the followings:-

In Insurance by not returning the  premiums where the insured is guilty of fraud in connection with the contract of insurance and if the policy contains a forfeiture clause when it is void. Also the insured can not indemnify the amount which is bigger than the current market value of the destroyed property. Through this incidences an insurance company may maximize profit, equally in gambling where a certain event doesn’t occur the wagered money cannot be returned and hence maximize the profit .

REFERENCE

BOOKS

Vaughan, E., (2014). Fundamentals of Risk and Insurance (11th Ed). Kendallville Publishers: Newyork.

Hardy Ivamy E.R, (1986), The General Principles Of  Insurance Law (5th Ed): London

Birds, J, (1993), The Modern Insurance Law (3rd Edn). Sweet & Maxwell: London

STATUTE

 Marine Insurance Act of 2002