INSUBANCE. 683 INSURANCE. losses ran below the average, there would be an almost irresistible tendency to reduce the price of int-uranee to the level made possible by the prevailing favorable experience. If years of unusually high losses followed, as they natural- ly would follow, the company would find itself hard ])ressed to meet its obligations. Thus there is always the danger that competition would re- duce the cost of iiLsurance below the margin of safety. Is competition the force that is actually regu- lating the rates of insurance? There is keen competition among the agents of dilTerent com- panies, but it dues not~nianifest itself in a fall in rates. The agents have no authority to make reduc- tions. There are occasional periods of actual corai)etition between companies, but for the most part they retain schedules of rates founded on a. basis reached by common agreement. The statute books of our dillerent States contain many laws which were enacted for the purpose of preventing such agreements and securing com- petition, but they have accomplished little. The opportunities for secret agreements are too nu- merous. For the most part the companies do not seek to extend their business by lowering rates; they rely on the persistence of their agents and the attractive features of their policies. It cannot be questioned that as a result the cost of insurance is higher than it ought to be. As between competition with its exceptional costli- ness, and combination with its excessive pre- mium rates, the choice is not easy. The only es- cape is through governmental action, and at some future time the choice is likely to arise be- tween governmental management of the business of insurance and governmental regulation of the rates of private companies. The Instiranic Contritrt. — The agreement be- tween the insurer and insured constitutes the in- surance contract. This contract is of a kind which in some respects resembles a wager, and a few writers have been misled into identifying the two forms. In both cases one party to the agree- ment binds himself to pay a certain sum on the occurrence of an uncertain event. The event may be the same in the two cases. Thus a house may be insured by its owner and at the same time may be the subject of a wager between two disinterested persons, so that if the house burns each of the two men receives the amount stated in the agreements. The illustration brings out the fundamental distinction between insur- ance and gambling. The one is the transfer of an existing risk from the person exposed to it to another party: the other is the voluntary crea- tion of supposedly eqiial risks by two persons, neither of whom was before exposed to the risk. It is this principle that underlies the legal doc- trine of insurable interest, in accordance with which the courts distinguirh between insurance contracts and wagers. In the case of life in- surance, as we have seen, this doctrine is very imperfectly followed. The real subject matter of the insurance con- tract is security. The insured buys security by the pavment of the premiums. The insvirer performs his part of the contract just as much in the case of those of the insured who escape loss, and to whom consequently no indemnity is paid, as in the case of those who suffer loss and receive indemnity from the instirer. The insiiranee contract is one of good faith. The insured is bound to reveal to the insurer Vol. . — H. all circumstances within liis knowledge which have any bearing on the possibility of loss. The willful misrepresentation of any material fact, that is, of any fact alfecting the probability of loss, usually works the forfeiture of the insur- ance. The insurance contract is a personal one; it is between the company and the person taking out the insurance. A transfer of the insured property does not transfer the insurance, but renders it void, since the insured no longer has the insurable interest. In practice, however, insurance companies frequently allow the trans- fer of insurance to be eti'ected by indorsement. This personal character of the contract makes it possible to control to some extent the moral risk. If the insurance went with the property insured, the company would have no protection against the passing of the insurance into the hands of a person whose reputation showed him to be an undesirable risk. The Polivy. — The writing in which the insur- ance contract is set forth is called the policy. This consists of two parts, the application of the person desiring insurance, and the agreement of the company to give it. The application is expressly stated to be a part of the contract. In it the applicant sots forth all the material facts about the risks which he desires insured. Some of the statements are representations, others are warranties. In many policies there is an ex- press provision that every statement of the in- sured in his application shall be regarded as a warranty. A misstatement in a warranty, whether it is material or not, works forfeiture of the policy. A misstatement in a representa- tion does so only when it concerns a material fact. A misstatement is material whenever it in- duces a company to enter into a contract which it would not have accepted if the tnith had been known. Common forms of representations or express warranties are the statement that there is no other insurance upon the property, statements as to the location of the property, or as to the character of the business carried on in or vipon the property, and. in the case of life insurance, statements as to business or condition of health of the insured. In contracts of insur- ance other than marine insurance, warranties must appear directly or by reference upon the face of the policy; but in marine policies there are three important warranties implied by law, irrespective of the terms of the policy. See article on JI.^rixe In.SI'R.^nce. IWiirer or Entoppel. — Growing out of the doc- trine of representation and warranties is the important doctrine of waiver, or estoppel as it is somewhat incorrectly called. As the cfTect' of misrepresentation or breach of warranty is to give the insurer the right to avoid the policy, the right itself may be waived either expressly or by the contract of the insurer. Thus the receipt and acceptance of a premium by the insurer with knowletlge by him of a breach of warranty waives the breach, and renders the contract valid. Upon similar grounds, if the insured gives im- perfect or ambiguous answers to the questions asked by the insurer at the time of effecting the policy, the insurer is declared to have waived ifuller or more specified answers and cannot avail himself of a defective answer as a ground for avoiding the contract. The question of waiver, or estoppel, has frequently arisen in cases where
