Interaction between Insurance and Law

Insurance developed and spread as a result of society’s needs and demands. For example, marine insurance was followed by life insurance and shortly afterwards in the seventeenth century by fire insurance. Since then, human progress has been marked by developments in the insurance field and a variety of branches in the following classes of insurance sprang up, each forming a subject of its own: property insurance, machinery, loss of profits, engineering, motor, liability, aviation, credit, electronic equipment, off-shore structures and, most recently, space equipment. Each of these branches of insurance represents a milestone in the history of mankind.

However, the fact that insurance was itself available has influenced developments in other facets of society, forming dialogue between insurance and, for example, law or finance. This can be seen very clearly in the development of the law of negligence. The following extract, concluding a chapter on negligence, from The Discipline of Law by the great jurist and writer of the twentieth century Lord Denning, illustrates this point:

During this discussion I have tried to show you how much the law of negligence has been extended; especially in regard to the negligence of professional men. This extension would have been intolerable for all concerned—had it not been for insurance. The only way in which professional men can safeguard themselves—against ruinous liability—is by insurance…. The policy behind it all is that, when severe loss is suffered by any one singly, it should be borne, not by him alone, but be spread throughout the community at large. Nevertheless, the moral element does come in. The sufferer will not recover any damages from anyone except when it is that person’s fault. It is only by retaining that moral element that society can be kept solvent.

It is doubtful if developments in the laws of contract and negligence would have occurred in this complicated and intensely commercial world of ours without the help of insurance, which has truly shaped some of the relationships in society.

In contrast, it is important to note that there is the view that insurance against tortious liability should be considered unacceptable because it permits the individual to escape from the financial responsibility of negligent acts.