4
Channell J's view that this uncertain event had to be one 'which is prima facie adverse to the interest of the assured might accurately describe most insurance contracts, but it is difficult to understand why it is required and, perhaps, it is not. He may have linked this factor to the requirement that the insured have 'an interest in the subject-matter. The insurable interest distinguishes an insurance contract from awager. Furthermore, an insurance contract is void under the Marine Insurance Act 1906, section 4(1) and (2) if the insurer agrees to provide cover irrespective of wherther the insured has an insurable interest (known as a policy proof of interest or ppi clause). Of course, in both wagering and insurance contracts the parties make judgments about the occurrence of uncertain events, whether it is a house that might burn down or a horse that might or might not win a race. The difference lies in the fact that the risk of loss to the house owner exists independently of the contract, whereas the risk on the horse race is created by the contract. Moreover, someone with no interest in the house will lose nothing if it burns down and the only risk that person runs is the loss of the consideration paid in exchanger for the promise of payment if the house does burn down. In other words, in a wagering contract the risk is created by the agreement for without it the contracting party would have suffered no loss, whereas in an insurance contract the risk exists whether or not there is such a contract. Blackburn J put the matter succinctly: 'I apprehend that the distinction between a policy and a wager is this: a policy is, properly speaking, a contract to indemnify the insured in respect of some interest which he has against the perils which he contemplates it will be liable to. Interestingly, the courts have tended to set themselves against contracts designed to 'insure' against losses from gaming, even though they would seem to fit the definition of an insurance contract in that the risk arises not from the 'insurance' contract but from the gaming contract.
More difficult is the distinction between a contract of insurance and a contract of guarantee. In terms of regulation, the distinction is less significant than previously, because under the Financial Services and Markets Act (Regulated Activities) Order 2001, contracts of insurance include 'fidelity bonds, performance bonds, bail bonds, customs bonds or similar contracts of guarantee' that are effected by someone not undertaking banking business, are not merely incidental to another business carried out by the person effecting them and are effected in return for the payment of a premium. Nevertheless, there are significant differences between the treatment of contracts of insurance and contracts of guarantee at common law