The idea and contract of insurance

Inaugural lecture--Faculty of Law, Rand Afrikaans University, 12 June 1970Legal concepts should never be completely divorced from their origin, even if such origin falls outside the scope of a socalled pure theory of law. For this reason the jurist can only fully grasp the concept of insurance if he understands the true nature of the complex phenomenon of insurance. The true nature or idea of insurance should constitute the basis of the contract of insurance. Insurance is one of the most important ways in which a person can provide, financially, against the undesirable consequences of uncertain events known as risks. Many theories have been advanced in an attempt at explaining the true nature of insurance. The most important of these theories are based, respectively, on the concepts of risk, a community of similarly exposed persons, damage and economic need. Although containing at least moments of truth, these theories do not achieve their purpose, in so far as they are either purely formal explanations of the technique of insurance or incapable of bridging the traditional gap between indemnity and non-indemnity insurance. A unitary definition of insurance is, however, possible if insurance is related to the true pupose for which it is employed, viz. the formation of the insured's estate. Formation of an estate entails not only an actual accumulation of assets, but also conservation of existing assets and avoidance of liabilities. Every true contract of insurance can be shown to pursue the object of formation of the insured's estate. The proposed basis of insurance obviates the traditional distinction between indemnity and non-indemnity insurance and provides a proper foundation for future development. In view of increasing application within society of insurance in order to counteract the heavy burden placed on the individual by the law of delict, this analysis may be of importance within the traditional confines of the principles of delictual liability