Insurance Principles, Concepts, and Contract Law
The core principles
Insurance transfers pure risk (loss or no loss), not speculative risk. A pool works because of the law of large numbers; its enemies are adverse selection and moral hazard. Five principles anchor this domain: insurable interest (the insured must lose financially - property interest must exist at the time of loss, life interest at application), indemnity (restore, do not enrich - ACV, deductibles, and other insurance all serve indemnity), subrogation (after paying, the insurer inherits the insured's right of recovery, preventing double recovery and shifting loss to the negligent party), utmost good faith (representations must be truthful; concealment and warranties matter), and the rule that policies are contracts of adhesion, construed against the drafter when genuinely ambiguous.
Contract characteristics
An insurance policy requires offer, acceptance, consideration, competent parties, and legal purpose. It is aleatory (unequal exchange), unilateral (only the insurer promises to pay), conditional (duties after loss must be met), and personal (it insures people, even though it follows the property in many transfers).
Traps
Questions love timing of insurable interest, the difference between a representation and a warranty, and whether waiver and estoppel create coverage where none existed (generally they do not, but conduct can bar an insurer from denying a defense). Ambiguity is construed against the insurer only when the language is truly ambiguous, not merely because the insured dislikes the result.
Rule of thumb: if the insured would be financially better off after the loss than before, indemnity has been violated.