Special features of insurance contracts
The elements previously discussed must be contained in every contract for it to be enforceable by law. In addition to these, insurance contracts have distinguishing characteristics that set them apart from many other legally binding agreements. Some of these characteristics are unique to insurance contracts. The following are these distinctions.
Insurance contracts are aleatory in that, one, there is an element of chance for both of the contracting parties; and two, the dollar values exchanged may not be equal. An aleatory contract is conditioned upon the occurrence of an event. Consequently, the benefits provided by an insurance policy may or may not exceed the premiums paid. For example, an individual who has a disability insurance policy will collect benefits if she becomes disabled; if no disability strikes, no benefits are paid.
The opposite of an aleatory contract is a communicative contract, in which there is no element of chance and the parties exchange goods of equal value. A real estate transaction is a communicative contract — the seller agrees to sell property for a certain sum and the buyer agrees to buy the property for the same sum.
Insurance contracts are contracts of adhesion. This means that the contract has been prepared by one party, the insurer — it isn’t the result of negotiation by parties. In effect, the applicant “adheres” to the terms of the contract when she accepts it. In contract law, and notably with respect to contracts of adhesion, the contract is to be viewed or interpreted most favorably for the party that did not draft it. The purpose is to overcome or balance any advantage that may result for the party that prepared the contract. Consequently, if there are any ambiguities in the contract, they will be construed in favor of the party that did not create the contract. For insurance contracts, this means that any ambiguous provisions will be given the interpretation most favorable to the insured or beneficiary — not the insurer.