Insurance Contract under the Egyptian Civil Code

An insurance contract is a legal agreement between two parties: the insurer (the insurance company) and the insured (the policyholder). Under this agreement, the insurer undertakes to assume certain risks in return for a premium paid by the insured and commits to financially compensate the insured in the event of the occurrence of the insured risk or the fulfillment of a condition specified in the contract.

The essence of the insurance contract lies in transferring the burden of risk from one party to another in order to secure financial compensation for the insured upon the occurrence of a loss or damage resulting from such risk.

Definition of the Insurance Contract

Insurance is a contract whereby the insurer undertakes to pay to the insured, or to the beneficiary designated in whose favor the insurance was effected, a sum of money, a periodic income, or any other financial compensation in the event of the occurrence of the accident or realization of the risk specified in the contract, in consideration of a premium or any other financial payment paid by the insured to the insurer.

Types of Insurance Contracts

• Personal Insurance (Insurance on Persons): Temporary (for a fixed period), whole-life (permanent), or mixed insurance combining life and death coverage.
• Property Insurance (Insurance on Things): Covers material losses to assets such as homes, vehicles, and money. Examples include fire insurance, theft insurance, natural disaster insurance, crop damage insurance, and motor insurance (covering material damage).
• Liability Insurance: Covers the insured’s obligation to compensate third parties for damages caused by the insured, such as employer’s liability, general liability, medical liability, professional liability, or product liability.

Types of Insurance Contracts in Terms of Execution and Duration

1. Term Insurance Contracts: Provide coverage for a specific period only, with benefits payable to beneficiaries upon death occurring within the policy term.
2. Insurance Contracts Based on the Number of Insured Persons: Group insurance contracts concluded by employers to cover a group of employees.
3. Insurance Contracts in Terms of Coverage Scope, Named-peril insurance: Covers only the risks expressly stated in the policy (such as fire or flood).
4. Comprehensive insurance: Covers all risks except those expressly excluded in the policy.

Essential Legal Elements of a Valid Insurance Contract

Mutual consent agreement of the wills of both parties (the insurer and the insured) to conclude the contract under its terms, free from defects of consent such as mistake, fraud, deceit, or duress.

Parties: The insurer (insurance company) and the insured (applicant for insurance).

Legal Capacity: Both the insurer and the insured must have legal capacity to enter into contracts (such as legal age, sound mind, and legal competence).

Types of Insured Risks

Natural Risks: Fires, lightning, earthquakes, floods, storms, hurricanes, and tsunamis.

Human Risks: Traffic accidents, thefts, riots, vandalism, medical errors, and personal injuries.

Commercial Risks: Business interruption, loss of profits, reputational risks, and cybersecurity risks.

Conditions Required for an Insurable Risk

To be insurable, the risk must be:

1. Specific: The loss can be precisely determined.
2. Sudden and Fortuitous: Occurring unexpectedly.
3. Unintentional: Not deliberately caused by the insured.
4. Measurable: The extent of loss can be assessed.
5. Significant (to the insurer): Represents a substantial financial threat.
6. Diversified (for the insured group): Does not affect all insured persons simultaneously.

Difference Between an Insurance Contract and a Sale Contract:

The difference lies in purpose, consideration, and exchange. A sale contract aims at transferring ownership of a specific good in exchange for an immediate or deferred price.

In contrast, an insurance contract aims to provide financial protection against a future uncertain risk, whereby the insured pays a premium (a recurring financial consideration) in exchange for the insurer’s undertaking to pay compensation upon the occurrence of the insured risk.

Insurance is a contract based on probability and utmost good faith, requiring full disclosure of all material facts.

Difference Between Insurance and Gambling or Betting:

Insurance mitigates pre-existing risks (such as the risk of fire or illness) by transferring them to an insurance company in exchange for a premium, thereby constituting a social system designed to protect individuals.

Conversely, gambling and betting create new risks (wagering money without an existing risk) with the objective of rapid gain through chance. They are heavily based on uncertainty and ignorance, where one party may gain while the other loses everything, making them controversial from an Islamic jurisprudence perspective.

Principal Obligations under the Insurance Contract

Obligations of the Insured:

1. Disclosure of Information: The insured must disclose to the insurer all material circumstances that enable proper assessment of the risk, whether at the time of concluding the contract or during its term.
2. Payment of Premiums: The principal obligation of the insured is to pay the agreed premium as consideration for insurance coverage.
3. Notification of Risk Changes: The insured must notify the insurer of any changes occurring during the contract that increase the insured risk.
4. Notification upon Occurrence of the Insured Event: Promptly notify the insurer of the incident within the agreed time limits, providing full details.
5. Preservation of the Insured Property: In certain types of insurance (such as motor insurance), the insured must remain the sole owner and may not lease or dispose of the insured property without prior consent.

Obligations of the Insurer:

1. Coverage and Guarantee: To guarantee the insured against the insured risk in accordance with the terms of the contract.
2. Payment of Compensation: To pay the agreed compensation (whether in money or periodic income) to the insured or the beneficiary upon realization of the insured risk.
3. Good Faith and Transparency: To deal in good faith and fully inform the insured of all contractual details.
4. Respecting the Rights of the Insured: To provide services within the agreed network, particularly in emergency cases, and to offer additional options where applicable.

Nullity of the Insurance Contract

Grounds for Nullity

In accordance with the general theory of contracts, an insurance contract shall be null and void if any of its essential elements (consent, subject matter, or cause) is missing, or if any condition for its validity is absent, such as lack of legal capacity or the existence of a defect in consent.

The contract may also be rescinded in the event that either party fails to perform its contractual obligations.

Consequences of Failure to Review the Insurance Contract

• Restoration of Parties to Their Prior Position: The contract is deemed never to have existed, and paid amounts are refunded.
• Retention of Premiums by the Insurer: In cases of relative nullity due to fraud by the insured, the insurer may retain the paid premiums as compensation and claim any outstanding premiums.
• Cancellation of Coverage: The policy is deemed void from its inception, and insurance claims are rejected.

What to Do If the Insurance Company Refuses to Pay Compensation?

Compensation may be refused if:

• The insurance policy was not valid at the time of the incident.
• The person or entity causing the damage is not covered by the policy terms.
• The insured is unable to prove that the injuries resulted from the insured incident.
• The injury resulted from a pre-existing medical condition or prior accident.
• There was an unreasonable delay between the incident and the medical treatment.
• The policy coverage limits have been exhausted, as the total insured amount is calculated based on specific technical criteria.

How the Amount of Compensation Is Calculated?

Book Value: The actual value at the time of purchase as recorded in invoices, commonly applied to newly acquired property.

Replacement Value: The current market value of similar machinery or equipment, which requires reassessment by a qualified expert accredited by the Financial Regulatory Authority.

Limitation Period for Insurance Disputes:

Limitation periods in insurance disputes vary depending on the nature of the claim and the applicable law. Generally, claims arising from insurance contracts lapse after three or five years from the date of occurrence or entitlement.

Special limitation periods apply to tort compensation claims (typically three years), in addition to procedural time limits requiring recourse to insurance dispute resolution committees prior to litigation.