Moral Theology / A Complete Course Based on St. Thomas Aquinas and the Best Modern Authorities

by John A. McHugh; Charles J. Callan

Insurance is reduced to the category of contracts of chance, although its purpose is different from gambling, for it is concerned not with an uncertain good, i.e., to make money quickly, but with an uncertain evil, i.e., to avoid loss. In many instances an individual who does not take out insurance gambles more than one who does.

Conditions Requisite for Validity. The special conditions requisite for the validity of an insurance contract are founded upon its aleatory nature. This involves especially that the matter of the contract is in some way outside the control of both insured and insurer and beyond their power, both legal and moral, to govern beforehand. From this follows the second essential condition, that there be some risk for both parties. Some moralists today maintain that many insurance contracts are unjust to the insured by reason of defect of proportionate risk on the part of the insurer. They argue that the insurer avoids all risks and makes increasing profits annually whenever insurance is on such a large scale that the use of statistical tables favors the insurer. The fact that insurance companies are listed among the most wealthy corporations lends credence to the argument and explains why some moralists favor the insured in cases of restitution not involving fraud on the part of the beneficiary. Other moralists insist that such injustice can not be proved, that high profits are owing to increased efficiency and better service, that premiums are adjusted when it becomes apparent that they are out of proportion to the risks involved by the insurers.

On the part of the insurer is required the ability to pay indemnities occurring at the normal rate, but not to cover all at once. His right to the premiums is correlative to the obligation to pay the stipulated indemnities, while his liabilities are based upon probable losses occurring successively. In regard to the insured, his basic obligation is to make an honest and complete disclosure of the risk involved. Moral cases, for the most part, are concerned with error, innocent misrepresentation, and fraud on the part of the insured. Both the natural and civil law indicate the effect of these elements on an insurance contract.

The natural law invalidates a contract in which consent of one or both parties arises from substantial error concerning the nature or the matter of the contract—in insurance, the risk involved. In general, then, whenever the error of the insured is such that he would not have contracted had he known the facts, the contract is invalid, even if the error was due to innocent non-disclosure or misrepresentation on the part of the insured. In such cases, the innocent insured has no right to the indemnity owing to the invalidity of the contract; he has, however, a natural right to all premiums paid out, since no contract is involved and the insurer has no claim to them. In case of fraud, at least after judicial decision, the insured would have no right to the premiums and must also recompense the insurer for expenses sustained.

Error is considered accidental and as not invalidating in natural law when the insurer, knowing the facts, would have issued a policy, but at a higher premium. In this case the beneficiary may accept the indemnity, but must return the difference in the amount owed in premiums.

A special case of substantial error involving a disease unknown to the insured and undiscovered or undiscoverable by the insurance company doctors is considered by moralists as not invalidating a contract in natural law. It is argued that the insurer must assume such risks and that the insured intends to cover such unknown conditions. Moreover, an invalidating clause concerning such a contingency may be considered penal in nature and obligatory only after the sentence of a judge.

Insurance contracts and the civil laws governing them are so complicated that expert legal knowledge is required to understand the legal status of many insurance cases. However, a few dispositions of the civil law which differ from the tenets of the natural law should be kept in mind by the priest or confessor in dealing with the matters. Two favor the insurance companies over the insured:

1) when fraud or misrepresentation lead to accidental error, the contract is declared void or voidable;

2) innocent non-disclosure or misrepresentation in good faith leading to accidental error also render the insurance contract voidable or perhaps even void. It is probable that the beneficiary in such cases might be permitted to claim the benefits due him according to the naturally valid contract, since these civil law dispositions are contrary to the conclusions of the natural law. He would be obliged, however, to restitution for damages caused by his fraud or misrepresentation committed with grave theological fault.

One prescription recognized by civil law and in some places made mandatory favors the insured, the convalidating or incontestability clause. The insurance company recognizes the validity of the policy after a specified period of time has elapsed, even in cases involving fraud on the part of the insured. If the contract prior to the time was voidable, the company loses its right to contest its validity; if the contract was void, it becomes convalidated. By terms of this clause, the natural-law obligation to restore by reason of fraud ceases and the beneficiary may lawfully keep the insurance money.