INSURANCE AND WAGERING AGREEMENT

Some people at times say that Insurance is a gamble, a wager or a bet where the Insured
pays a small amount (Premium) to the Insurer Company and the Insurer in turn offers to pay
a large sum (claim) in case a particular event happens otherwise he keeps the premium.
While on the surface it may appear that this is no different then a person placing a small bet
on a horse with the chance of getting 10-20 times his money back if that particular horse
wins. 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.
Insurance is also, by definition, the taking of a risk of a contingent or unknown event. It is
not a Wager (gamble). Wagering (Gambling) on life has been illegal for many years because
the life insured by the gambler would be at risk of murder to collect the funds.
The expression wager has not been defined in the Indian Contract Act. A classic
definition is however available in the case of Carlill v Carbolic Smoke Ball Co.
A wagering contract is one 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 a wagering contract.
The above definition excludes event which have occurred. Hence Sir William Ansons
definition, a promise to give money or moneys worth upon the determination and
ascertainment of an uncertain event, is nearer and more accurate. This seems to reduce the
following essentials:
Essentials of Section 30:
Mutual chances of gain and loss
There must be two parties, or two sides, and mutual chances of gain and loss, i.e., one party
is to win and the other to lose upon the determination of the event. It is not a wager where
one party may win but cannot lose, or if may lose but cannot win, or if he can neither win
nor lose, if one of the parties has the event in his own hands, the transaction lacks an
essential ingredient of wager. It is of the essence of the wager that each side should stand
to win or lose according to the uncertain or unascertained event in reference to which the
chance or risk is taken.
Two parties
There must be two persons, either of whom is capable of winning or losing.
.you cannot have two parties or more than two sides to bet. You may have a multi partite
agreement to contribute to a sweepstake (which may be illegal as a lottery if the winner is
determined by skill), but you cannot have a multipartite agreement for a bet unless the

numerous parties are divided in to two sides, of which one wins or the others loses,
according to whether an uncertain event does not happen.
Uncertain Event
Uncertainty in the minds of the parties about the determination of the event in one way or
other is necessary. A wager generally contemplates a future event; but it may even relate to
an event which has already happened in the past, but the parties are not aware of its result or
the time of its happening.
The first thing essential to wager is that the performance of the bargain must depend upon
the determination of an uncertain event. A wager generally contemplates future events; but
it may even relate to an event which has already happened in the past, but it may even relate
to an event which has already happened in the past, but the parties are not aware of its result
or the time of its happening.
No interest other than stake
Neither party should have any interest in the happening of the event other than the sum or
stake he will win or lose. To constitute a wager, the parties must contemplate the
determination of the uncertain event as the sole condition of their contract. The stake must
be the only interest which the parties have in the contract.
Neither party to have control over the event
Lastly, neither party should have control over the happening of the event one way or the
other. If one of the parties has the event in his own hands, the transaction lacks an essential
ingredient of a wager.
Differences between Insurance and wagering (gambling):
The very act of placing a bet puts a person at risk of losing money. If he had not placed the
bet there would be no risk and he would not care less which horse won or not. In Insurance,
whether he insures or not, the risk is there and he is exposed to the possibility of a fire
damaging his house. Wager (Gambling) creates the risk whereas Insurance transfers an
existing risk from one party to another.
The other differences between Insurance and gambling are:
(1) In Insurance, Insurable Interest is a pre-requisite whereas in gambling the interest is
limited to the amount to be won or lost.
(2) The Insured is immune from loss and his identity is known before the event whereas in
Gambling the loser cannot be identified before the event.
(3) Full disclosure (Utmost Good Faith) is required from both parties to an assurance
contract whereas this is not necessary in a gambling contract.
(4) Insurance contract is enforceable at law whereas there is no legal recourse for any of the
two parties in a gambling contract.
Section 6 of the Marine Insurance Act, 1963 provides that every contract of marine
insurance by way of wager is void; and that a contract of marine insurance is deemed to be a

wagering contract where the assured has not an insurable interest. The (English) marine
insurance act 1906 also provides that a contract or Marine Insurance is deemed to be a
gaming or wagering contract if the insured has no interest in the adventure.
It is the essence of insurance that for insurance to exist the person insured must have an
insurable interest in the property or life insured. Life insurance insurable interest can be
defined as an interest based upon a reasonable expectation of pecuniary advantage through
the continued life, health, or bodily safety of another person and consequent loss by reason
of that person's death or disability or a substantial interest engendered by love and affection
in the case of individuals closely related by blood or law. An individual may have an
unlimited insurable interest in his or her own life, health, and bodily safety and may
lawfully take out a policy of insurance on his or her own life, health, or bodily safety and
have the policy made payable to whomsoever he or she pleases, regardless of whether the
beneficiary designated has an insurable interest. It is the life of the person taking out the
insurance who must have an insurable interest.

It is suggested to go through class notes also.