Under Maltese requirements in respect of agreements, the doctrine of pacta sunt servanda generally applies unless specific legislation is enacted to the contrary. This is an international law principle meaning ‘Promises must be kept’. [1]
At the onset one realises that there are key differences between Insurance and Wagers, a primary one being that of Insurable Interest. When the concept of Insurance came around, it was considered one and the same as a Wagering agreement, though as the subject evolved the concept of Insurance distinguished itself from that of Wagering. Nowadays, whilst they might seem alike, they are set distinctively apart. An attempt will be made to highlight the key differences between Insurance and Wagers. [2]
Insurance
Little do we know that as a populous, we continuously undergo some form of Risk Management. [3] Insurance is a typical example, whether life, accident, property or motor Insurance. Insurance is an agreement that transfers the burden of potential loss from one party to another in exchange for a consideration, known as the premium. Insurance contracts are those of indemnity, this being the shifting of the potential losses that a party might suffer measured in monetary terms to another party, the insurer. A main characteristic of Insurance is Insurable Interest, defined as a Legal Right to protect oneself from any event that may cause financial loss or create a legal liability. [4] In short it may be stated to be a legal, financial relationship between the insured and the subject matter of insurance.
In the case of Police v. Carmelo Spiteri, the Judge identified the importance of the insured having Insurable Interest, for the Insurance Contract to be valid. Otherwise, if an Insurance Policy has been contracted, and insurable interest is not present, the Policy is null. [5]
There is a lack of substantive insurance law in Maltese Legislation, hence the Courts of Malta veer towards English Law, specifically the Marine Insurance Act 1906. Under section 5 of this Act, there is a definition of Insurable Interest: “where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.” [6]
The Insurance Contract is a legally enforceable document that spells out the coverage, features, conditions and limitations of the contract.
Wagers
A Wagering Agreement is one where two parties or more with contrasting opinions regarding a future uncertain event that may or may not occur, jointly agree that upon the outcome of the event, a sum of money, or otherwise, would be given to the winner. [7] Gambling, another term for Wagering, requires various elements to be legal in Malta. This include being authorised by the Malta Gaming Authority, being one of the excepted subject matters of a Wager. Wagers of any form, unless authorised by the relevant authority are considered criminal offenses in Malta, both under the Lotteries and Other Games Act (LOGA) [8] and the Criminal Code. [9] The Civil Code also specifies that no civil action may be taken in light of any wagering agreement, save a few exceptions indicated in Article 1714. It further provides that any party that has encountered loses in wager has a remedy to recover the losses, except were the wager is one of the exceptions indicated prior. [10]
Differences between Insurance and Wagers
Key differences between Insurance and Wagers are observable prima face. Insurable interest, being a crucial principle of insurance, is a lacking element within a Wagering Agreement. A wager entails the gain or loss of a stake, where same stake is created by the agreement itself.
The scope of an Insurance Contract is that should an uncertain event occur, the insured would be seeking to mitigate or restore the state prior to the consequences of the event that has occurred. For Wagers the motivation behind such agreements is different. Herein the parties contracting would be expecting that they would advance their position should they have selected the correct outcome of the future uncertain event. Thus, the scope in Wagering is to improve their position and in Insurance it is safeguard it.
Alongside this, Insurance Contracts are by nature, ones of indemnity. This is the guaranteeing of stability against potential losses. The only exception is that of life insurance. On the other hand, in Wagering Agreements, there is no indemnity whatsoever involved. Therefore, upon the outcome of the agreed event, the amount payable is due. [11]
In insurance, you have a principle of Uberrima Fides, outmost good faith, applicable from both parties. This principle implies that all parties disclose all information that is material to the contract, otherwise such contract is null. In a Wagering Agreement, no such principle applies as the agreement is one of competitiveness.
Insurance contracts, whilst they might be in contravention of a particular law when not duly authorised, are enforceable within the Courts of Malta if they satisfy all the characteristics of Insurance. On the other hand, wagering agreements in Malta, save in a few circumstances, are considered null and void and the terms of the agreement are not enforceable in the Courts. Therefore, we may see that the principle of pacta sunt servanda whilst applicable to Insurance Contracts, does not apply to Wagering Agreements,
In Insurance, the insured will always pay up a premium, irrelevant of the happening of the event. The insurer though will need to fulfil their obligations towards the insured should any event contracted happen. If this does not happen, then the insurer would not have to indemnify the insured. In Wagering, there will always be at least one party that makes a gain, and another that makes a loss. Therefore, upon the happening of the event of the agreement, at least one party will have made a loss and another acquire.
Conclusion
Whilst some people look at these two concepts and attempt to use them interchangeably, they are distinct and each focus on specific circumstances. One of the key differences between Insurance and Wagers that has been identified is that in Insurance, one seeks to guarantee their position against a premium with an Insurer. This ascertains that should certain circumstances occur, they would suffer losses, though these would be indemnified by the Insurer. More often than not, this would not occur. Wagering on the other hand seeks to create instability within the agreement itself and once the contracted event occurs, the positions of all parties would be altered.
[1] <http://legal-dictionary.thefreedictionary.com/> accessed on 05th May 2016
[2] Laws of Business, Difference between Insurance Contract and Wagering Contract <http://www.lawsofbusiness.com > accessed 5th May 2016
[3] Fenech Dr. T., Insurance Law: An Introduction (Fenech Farrugia Fiott Legal, 2015)
[4] Pareto C., Introduction To Insurance <http://www.investopedia.com > accessed 06th May 2016
[5] Pol. V. Carmelo Spiteri (Criminal Appeal (Inferio)), Mr Justice Dr. W. Harding 25th October 1952
[6] Section 5 (2) of the Marine Insurance Act 1906 of the United Kingdom
[7] Ibid no. 2
[8] Article 67 of the Lotteries and Other Games Act, Chapter 438 of the Laws of Malta
[9] Article 338 (ii) of the Criminal Code, Chapter 9 of the Laws of Malta
[10] Article 1713 - 1717A of the Civil Code, Chapter 16 of the Laws of Malta
[11] Singh Sudhir, Difference between Contract of Insurance and Wagering Agreement <www.preservearticles.com> accessed on 06th May 2016
