Conferences on the Virtues
By Fr. Bruno Cocuzzi, ocd
Number 62
Bilateral Gratuitous
Contracts continued…
We return now
to the subject of Commutative Justice.
A third brief
section under Gratuitous Contracts is entitled Mandatum et Negotiorum
Gestione. In order to know how to
translate the word “mandatum”, we have to consider how it is described:
If
it were to happen that someone, say person A, were gratuitously to offer to
another, say person B, the authority to conduct a business on behalf of person
A., and person B were gratuitously to accept that authority and commit himself
to conducting the business for A, then the Contract called Mandatum
would be complete.
Thus it seems
to me that this kind of gratuitous contract does not exist in the modern
business world. The closest thing that
would come to it would be when a member of a family, a son or daughter,
conducts a business for the parents.
It seems to me,
further, that the closest that comes to this would be the situation where
someone “agrees” to accept appointment as the Trustee who manages the affairs
of a friend. Except that in the case of
a Trust, the beneficiary is usually someone other than the Trustor.
Were the
agreement of B to conduct the business of A for A’s benefit to have been
entered upon in consideration of the compensation paid to B therefore, we would
speak of a Contract of Agency.
The Negotiorum
Gestio (which means: the conducting
of a business) mentioned in conjunction with the Mandatum, is another
situation altogether. As it is
described, it envisions someone freely deciding to carry on a business for the
absent and perhaps unknowing proprietor of the said business. Although it is freely assumed, the one
assuming does so with the expectation of being compensated. Were this to happen, the one freely
undertaking to continue the business would be obliged to do so with all
diligence and honesty, and the benefiting proprietor, once he returns and
becomes aware of what has been done, is obliged to honor commitments made by
his “surrogate,” and also to indemnify him for all reasonable expenses he may
have incurred.
Since such a
situation seems so unlikely to occur in this day and age, I believe it is
sufficient to have mentioned it.
Chapter
five – Contracts of Chance…
This kind of
contract gets its name from the fact that it is concerned with uncertain
events. Usually what is uncertain
is the profit to be made or the liability to be incurred. The parties to the contract pay a certain
price either to realize a profit or to avert a liability upon the occurrence of
some uncertain future outcome. In order
to be a fair and honest contract, the chances of “success” (coming out ahead)
must be about equal for both parties.
There are
different kinds of contracts of chance, depending upon whether both parties are
uncertain as to what is to be gained or lost, or whether only one of the
parties is taking a chance.
In case of the
former, there are Gambling Contracts and Contracts of Surety. In the latter category we find Insurance
Contracts.
They differ
also based upon the kind of uncertain event that might or might not
happen. Among these are:
Insurance
Contracts, where the damage or liability sought to be avoided is uncertain as
to both its occurrence and to the amount.
Lotteries,
where it is uncertain whether one will win and pay-off.
Outright
gambles, where the gain or the loss is
Determined,
as in a Surety Contract, where it is uncertain whether the primary debtor will
or will not default.
Undetermined, as in
speculations on the Stock Market.
We will consider more specifically, therefore,
the above mentioned.
1. Insurance
Contracts
2. Gambling,
Surety Contracts and Lotteries
3. Speculations
on the Stock Market
First
question – Insurance Contracts…
To insure (or
assure) means to take upon oneself another person’s risk.
Thus an
insurance contract, as you all know, is one in which one party, for a price, assumes
the risk that the other party, or something belonging to him, will perish as
the result of some fortuitous event.
If the latter
perishes, his estate is compensated. If
something belonging to him perishes or is damaged, the latter himself is compensated.
It is necessary
that the risk of loss be susceptible to estimation in monetary terms.
Thus it is
customary to insure ships and their cargo, buildings and furniture, crops in
the field, against fire, hurricane or tornado, earthquake, etc.
It is customary
also to insure valuable objects and works of art from theft, and valuable,
fragile objects from accidental breakage.
Also insurable
are persons against death (not necessarily fortuitous and accidental), and
against ill health or accidental injury.
They are
contracts because the party insured pays a determined price to the insurer to
compensate him for the assumption of the risk of liability.
Here, again,
both parties gamble because neither knows whether an event causing the
damage or liability will occur, and if it does, they cannot know beforehand the
extent thereof.
Though it is a
gamble whether the insurer will be obliged to indemnify the insured, with
modern insurance companies it is never a gamble as to whether they will realize
a profit from the business of insuring.
They always set the rates at a level that guarantees a profit.
In an aside,
the author of my textbook has this to say about Insurance Contracts:
This
type of contract was unknown to the ancients.
In modern times it is widely known and valued. They were first introduced in the 14th Century to
insure cargoes transported by ship. In
the 17th Century the first company to insure against fire was
established in London, England. Already
in the 19th Century there were innumerable companies in the business
of insuring things of every sort. Thus
it became a contract of great importance, since it is not lacking great
usefulness in society.
It
promotes the public and private good in that it foresees and forestalls damage
arising out of unforeseen accidental causes.
In particular, it protects people of modest means from financial ruin.
Without
insurance contracts, commerce would often be impeded; owners of industries and
the workmen could be reduced to extreme want.
With them, in a relatively inexpensive manner, security for all is
provided.
Insurance
contracts are good and binding in conscience provided the risk is real
(not fictitious or fraudulent) and the price reasonably proportionate to the
risk.
The
insurer must possess resources that will enable him to pay the entire indemnity
should that be necessary, and the Insured must fulfill the conditions set down
in the contract to minimize the risk or loss.
Moral
Principles Governing Insurance Contracts and Obligations Arising There from…
No one doubts
that it pertains to the Civil authorities to legislate the legal principles
governing Contracts of Insurance because of their pervasive influence upon the
Common Good, and these, if just, are also obliging in conscience as moral principles
as well. The principles pertaining to a
fair cost are binding upon both parties in common; others are binding upon one
or the other individually.
1. The
cost to the Insured ought to correspond to the value of the service provided by
the Insurer, so that there must be figured into the rate structure both the
risk of accidental damage and the gravity of the damage, as well as the
cost of providing the service.
Obviously,
the cost is to be determined at the time the contract of Insurance is entered into
and should remain the same until the expiration of the contract. The contract expires either after the
designated time has elapsed, or upon the happening of the fortuitous event
which obliges the Insurer to pay the indemnity.
No
doubt this is why Insurers seldom grant a contract for more than a year, at
which time the rate structure is revised upward. It also explains why, with regard to auto insurance, individual
rates are revised upward for folks who have proved to be “a bad risk.”
The
cost of providing the service includes not only operating costs alone, but also
a reasonable margin of profit for the Insurer.
My
author makes the comment that nowadays the rates are computed upon
comprehensive statistics, which makes the Insurance Contract less of a gamble
for the Insurer, at least with regard to the margin of profit to be
gained. He also makes the comment, that
if the margin of profit proves to be much greater than the statistical
computation indicated, the rates should then be revised downward. Unless, of course, the greater margin can be
attributed to a larger number of insured than anticipated, or to the skill of
the administrators of the Insurance Company.
In those instances, the greater margin of profit must be considered as
having been justly earned.
2. Obligations
binding the Insured.
Justice
requires that the Insured:
(a) Declare
both the true value of the thing or person insured and the degree of risk of
damage or theft.
(b) Use
ordinary care to preserve the health of the person insured, and the
insured object safe and in good condition.
(c) Reveal
any medical problems afflicting the insured person, and any physical defects in
the object.
Dishonesty
or fraud in any of the above that is of a serious nature would suffice to
invalidate the Insurance Contract. Were
these to be slight or at least not serious, the contract would remain
valid. In both cases, the guilty party
would be committing a proportionately serious or slight sin against
justice. Also, in both cases, the
guilty party would be bound to make restitution.
With
regard to insurance against loss by fire, the insured are also obliged to try
to put out the fire, if at all possible, as so minimize the damage.
3. Obligations
binding the Insurer
Justice
requires that the Insurer:
(a) Maintain
enough cash reserves on hand to pay indemnities as they occur. Statistically it can be determined just how
much is enough, based upon the history of claims made and paid.
In
the event a particular Insurer assumes more risks than he is realistically able
to cover, he would be obliged to either share the risks with other insurance
companies, or to insure itself against the risk of defaulting on claims.
(b) Indemnify
the Insured (i) to the full extent of the loss suffered, (ii) as soon as
morally (reasonably) possible following the loss, and (iii) estimated according
to the values current at the time of the loss.
My
textbook recognizes Workmen’s Compensation as a very special type of Insurance
Contract in as much as it is mandated and regulated by Civil legislation. It is binding not only upon all employers
(with few, but reasonable exceptions), but also upon all the major Insurance
Companies within the Civil jurisdiction.
This is, of course, to keep the families of workmen accidentally injured
in the course of their employment from suffering want and/or financial ruin.
Because
of the cost of maintaining this Insurance program as a secure and reliable
means of protecting workmen and their families, it would be a grave sin of
injustice for a workman to receive benefits based upon fraudulent claims, as
well as for the Insurer to deny claims that they suspect, but cannot prove, to
be fraudulent.
My
author then goes on to speak about Life Insurance Contracts.
He
states that a Life Insurance Contract was invented by an Italian
silversmith named Tonti. At that time,
it consisted of the Insured paying annual premiums for a stated number of
years, and then at the death of the Insured, the Insurer was obliged to pay a
sum certain to the heirs of the deceased or to a designated beneficiary.
Later,
life insurance contracts were devised that would pay the sum certain not at the
death of the insured, but after a stated number of years during the insured’s
lifetime, or when the insured reached a certain age, say, 65.
I
am sure there are still other kinds of life insurance contracts that differ
from each of the above or incorporate elements of one or both. Since I am not familiar with any of them, it
is best for me to say no more, other than that I’ve heard of double indemnity
covenants in insurance contracts. I
also remember hearing that these provide fertile ground where temptations to
make fraudulent claims grow vigorously and in abundance.
We
have already stated that the persons seeking to conclude a life insurance contract
are obliged in conscience to reveal the truth concerning the Insured’s state of
health to the Insurer. This obligation
also extends to Doctors and medical personnel whom the Insurer sometimes relies
on to render their own professional opinion regarding the health of the
Insured.
In
view of that, my author gives us a case of conscience, by means of which
a future confessor would be able to test his grasp of the principles of
commutative justice governing the case.
I cite it here both for your general interest and to fill up space
before going on the 2nd question in this Chapter:
Robert,
whose life has been insured, was asked by the Insurer’s physician to state what
illnesses his grandparents had died of.
To all other things he had stated the exact truth, but in regard to his
paternal grandfather, he stated, in all good faith (i.e., he did not formally
lie) that the grandfather came down with a sudden, very high fever and had died
of it. In reality, that grandfather had
died of consumption.
Seven
years later, Robert himself died, and I turned out that his heirs discovered
the good faith error that Robert had made and become worried: Could they in good conscience accept the
Insurance payment tendered by the Insurer?
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