ABSTRACT
An insurance policy is a contract and is therefore governed by normal contractual legal principles, such as the requirement that there be offer and acceptance, consideration and capacity. Given that it is a commercial contract, an intention to create legal relations can be presumed. However, the nature of an insurance contract requires special legal treatment in order that the contract operates as intended. First, insurance policies are aleatory contracts. Although the premium (or the means of calculating the premium) is certain, the insurer’s obligations depend upon whether the insured event occurs and if so, its magnitude. Clear rules are required to determine the extent of such obligation. It is also important that the common pool operates as intended, which in turn requires the calculation of an equitable premium. As will be seen, legal intervention has been deemed necessary to ensure that the insurance concept works. Indeed, although there is significant scope for argument concerning the precise nature of such legal rules, their absence renders the insurance contract unworkable. It is therefore impossible to distinguish a rule of law from a principle of insurance, as the fundamental principles of insurance are essential to the proper operation of the insurance system and as such have to be supported by law if the contract is to be properly enforceable.
